Penalty Default Rules in Quebec Contract Law

Few would deny that contract law is filled with default rules, but there has been a great deal of scholarly debate about their purposes and functions. Some American scholars have argued that there are default rules that do not align with most parties’ expectations; indeed, they impose a burden on one or both parties if they are not departed from. Departing from these default rules typically requires one or both parties to share information that they might have otherwise kept to themselves. These have been called “penalty default rules.” While there is a significant amount of scholarship on penalty default rules in the United States, mostly by law and economics scholars, civilian scholars have not paid much attention to this concept. In this paper, I bring the concept of penalty default rules out of the United States, the common law tradition and the law and economics scholarship. I demonstrate that there are many penalty default rules in Quebec contract law. I continue by arguing that these penalty default rules serve two valuable functions. First, they enhance the parties’ freedom of contract by equipping them with information. I focus on how this enables them to reach a fair allocation of risks. Second, they complement the duty of good faith by supplementing the limited duty of disclosure and by altering what sort of conduct is reasonable and therefore not abusive