Research on the Commercial Contract Design from the Economic Analysis of Law Perspective: A Case Study of Material Adverse Change Clauses
Date Issued
2016
Date
2016
Author(s)
Tsou, Chen-Yang
Abstract
From the economic analysis of law perspective, this thesis researched on the main concept of commercial contract design. To make concrete discussion, material adverse change clauses (MAC clauses) in the contract of mergers and acquisitions are discussed as an example. First of all, this thesis reviews essential principles of contract law and economic analysis of law, to draw the distinction between commercial contracts and civil contracts due to bargaining power of parties. Accordingly, this thesis claimed that the basic logic of contract design was to reduce transaction cost and promote transaction efficiency pursued by the parties in question. In the next place, this thesis surveys the existing MAC clauses in mergers and acquisitions in the practice of the United States and Taiwan. It also adopts economic analysis of law perspective to discuss what purpose and consideration were expressed in the manipulation process of MAC clauses. This thesis proved that the core of commercial contracts design is actually based on the pursuit of economic efficiency. That is to say, the major factors of commercial contract design are controlling opportunistic behaviors, arranging risk distribution mechanisms, and striking the balance of ex ante cost and ex post cost in the transaction process. Moreover, after clarifying the nucleus of commercial contract design, this thesis revisits the legal system of Taiwan with the purpose of pointing out that legislators and judicial participants shall immediately solve the problems of the lack of adjusting flexibility in contract law and the possibility of inappropriate method of contract interpretation in Taiwan. To conclude, during the process of designing commercial contracts, one should keep in mind the flexibility and allocate the responsibility of risk control carefully and skillfully. Most important of all, the parties involved in the design of commercial contracts must comprehensively consider ex ante drafting cost and ex post disputes solving cost, in order to make maximum economic efficiency to the contractual parties by consuming minimum transaction cost. In terms of the contract law system in Taiwan, no doubt shall it satisfy the need of contractual parties to pursue transactional efficiency. On the one hand, legislators ought to find and amend current contract law to lessen transaction cost in the market. On the other hand, judicial participants must interpret commercial contract appropriately so as to establish stable foundation for the business market in Taiwan. Simply put, the design of a commercial contract ought to be based on the context of the transaction that the contract is meant to be controlled. No commercial contracts shall be designed without considering how to realize the economic efficiency which the contractual parties hope to achieve.
Subjects
Economic Analysis of Law
Commercial Contract
Contract Design
Mergers and Acquisitions
Material Adverse Change Clauses (MAC Clauses)
Opportunistic Behavior
Risk allocation
Type
thesis