The master's thesis represents the economic analysis of the penalty clause institute. It is an economically efficient institute where contracting parties can agree in advance on the amount of compensation in case of improper fulfillment of the contract and, with such an agreement contracting party reduce various potential subsequent costs.
The master's thesis also presents the difference between penalty clause in common law systems and civil law systems with emphasis on the countries of the USA, Canada, England, Germany and Slovenia. The historical and comparative legal method serves as a basis for facilitating economic analysis of the penalty clause. The master's thesis also include economic analyzes of the case law. The paper concludes that common law systems do not allow penalty clause, but merely liquidated damages, where some substantiated criticisms are given from the economic analysis of the law.
After a detailed economic analysis of the penalty clause in different law systems and economic analysis of the possibility of a subsequent reduction of the penalty clause by the court, and thus the third party's intervention in the contractual freedom, the master's part finds that there is not such a big difference between civil systems and common law systems, as it seems at first glance. The overall economic effects are similar in the end. The master's thesis, on the basis of economic analysis of law, suggested reducing the possibility of interfering in the contractual freedom by the third party (court), and finding out the economic and legal arguments for the enforcement of penalty clause in common law systems as well.
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