The Role of the State in Contract Law: The Common-Civil Law Divide

How do the laws of contract differ across jurisdictions? This question has attracted a tremendous amount of interest over time. However, the vast majority of existing works on comparative contract law are doctrinal in nature. They generally fail to explain how the observed distinctions relate to one another, as well as to other aspects of the economic and political systems. The result is that, even if we have learned a great deal about how contract law differs across jurisdictions, we still know comparatively little about why and so what.

My article undertakes to examine in a coordinated manner some of the central—and persisting—doctrinal distinctions in the laws of contract of common and civil law jurisdictions. This exercise reveals a clear, but thus far overlooked, pattern. The civil law generally places more limits on the scope of contractual obligations, by recognizing a stronger duty of good faith and imposing more mandatory terms. The common law, by contrast, more forcefully constrains the remedies available for breach of contract, by invalidating penalty clauses, qualifying specific performance as an exceptional remedy, and more generously granting a ‘fresh start’ in bankruptcy.

I then offer two interpretations for these differences. On the one hand, civil and common law systems reflect a different role of the state in contract law. In civil law systems, the state tends to play a stronger part in all respects: it goes further in providing and policing the substantive terms of the agreement but, once the contract passes muster, it is willing to sanction breaches with harsher consequences. Common law systems embrace the opposite approach: legislatures and courts are less willing both to meddle with the terms of the contract and to stand behind the aggrieved party if voluntary performance is not forthcoming. At face value, this pattern seems consistent with the findings of the burgeoning literature on the different role of the state across legal traditions, with common law systems boasting more liberal, and civil law systems more interventionist, regimes of contract law and enforcement.

On the other hand, the treatment of contract rights and remedies in each legal tradition can be viewed as complementary. Policing the terms of the contract and limiting the consequences of breach serve as alternative, though not equivalent, strategies to mitigate the effects of harsh bargains. The result is that ultimate outcomes in both systems may at times be closer than one would anticipate by focusing on individual rules and institutions in isolation. This, in turn, cautions against pressures for convergence in discrete facets of contract law and enforcement without due regard to complementary dimensions.

Mariana Pargendler is Professor of Law at FGV School of Law in São Paulo and Global Associate Professor of Law at New York University School of Law.