OPTIONS CREATED BY DEFAULT RULES

Every default rule creates an option for both parties that negotiate a contract. They can either stick to the default rule or choose an alternative one. Which rights and duties they have depends in this respect exclusively upon them. This opportunity to choose constitutes an option which the parties can exercise. Without the default, the situation would be different. There would be either a mandatory rule that applies in any case or a gap which still has to be filled. The parties’ choice would in any event not matter. In contrast, with a default rule they have at least two opportunities from which they can choose according to their interests.

With the help of default rules the parties do not need to negotiate their agreement in detail. Instead, they can formulate an agreement, even about a huge construction project, on one DIN A4 page without risking it being invalid due to indeterminacy. This was, at least in Germany, for many years a widespread practice and is occasionally even practised nowadays. Without default rules in the background, this would be impossible and the parties would have to make detailed agreements to avoid indeterminacy and the risk of major contingencies not being provided for. The opportunity to conclude a contract without a thorough negotiation of the details hence rests on default rules. Such rules give the parties an option to either make their own determination or to rely on the default. This option is even important when the parties opt out of the default and choose their own rules. For the proposal to opt out might reveal valuable information to the other or a third party.

Accordingly, by making a certain rule mandatory the legislator abolishes an option. The parties can no longer choose between various states of affairs but have to stick to the predetermined rule. Nevertheless, mandatory rules can also create an option by giving one of the parties the right to choose between different predetermined states of affairs. Various EU Directives, for instance, foresee a mandatory right of withdrawal for the consumer within two weeks of the conclusion of a contract. The consumer thus gets an option to withdraw, no matter what the parties agreed to.