A Rationale for the Limitation Period in Sales Law

The duration of a buyer’s claim for remedies is a frequent source of negotiations in private contracts, and is a contested contract law issue. Disagreement concerns even the basic issue as to whether a rationale exists at all for cutting o¤ the buyer’s claim some time after purchase. The present article argues that a rationale can be given for cutting of the buyer’s claim, and sets forth the factors determining the optimal duration of the buyer’s claim (the optimal limitation period). The basic trade-o¤ is based on two factors: the physical deterioration of (physical) goods and the cost of investigating the nature of a dysfunction. Physical deterioration means that the number of dysfunctions that are due to defects falls from some point in time onwards. This implies that the e¤ect of allowing claims on the seller’s incentive to deliver high quality goods declines over time, while the cost of investigations (and other costs of claims) will not fall to the same degree. This trade-o¤ is argued to be the essential one for physical goods, rather than the trade-o¤s often argued to be decisive, such as those involving deteriorating evidence, risk considerations or the desirability of allowing sellers to ‘close their books ́.