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Reproduced with the permission of Oceana Publications

excerpt from

INTERNATIONAL SALES LAW

United Nations Convention on Contracts for the International Sale of Goods

Convention on the Limitation Period in the International Sale of Goods

Commentary by
Prof. Dr. jur. Dr. sc. oec. Fritz Enderlein
Prof. Dr. jur. Dr. sc. oec. Dietrich Maskow

Oceana Publications, 1992

Article 77 [Mitigation of damages]

[TEXT OF THE UNIFORM LAW]

A party who relies on a breach of contract [1] must take such measures as are reasonable [2] in the circumstances to mitigate the loss, including loss of profit [3], resulting from the breach. If he fails to take such measures, the party in breach may claim a reduction in the damages [4] in the amount by which the loss should have been mitigated [5].

[WORDS AND PHRASES, CONCEPTS

1. a party who relies on a breach of contract
2. must take such measures as are reasonable
3. in the circumstances to mitigate the loss, including loss of profit
4. if he fails to take such measures, the party may claim a reduction in the damages
5. in the amount by which the loss should have been mitigated ]

[COMMENTARY]

[1] [a party who relies on a breach of contract ]

A party who relies on a breach of contract can chose among several remedies (compare in particular Articles 45 and 61). Reference is made here only to a party claiming damages. The rule of Article 77 does not apply to other remedies (c. also note 4).

[2] [ must take such measures as are reasonable ]

The party who is true to the contract cannot sit and wait for the other party to breach the contract, but must become active in order to minimize the loss or to prevent it at all (Knapp/88, 560).

No exceptional efforts are required from that party; he only has to take such measures as are reasonable under the circumstances. Such measures may frequently include a cover purchase or sale. It can also include the possibility that the buyer himself remedies defective goods delivered to the buyer (Knapp/BB, 560).

Costs which the party threatened by loss incurs for the measures he takes to mitigate his losses can also be claimed compensation for even when the, otherwise reasonable, measures were taken in vain (Knapp/BB, 561).

Although there is no obligation to avoid the contract even if the other party has committed or is expected to commit a fundamental breach of contract (Articles 49 and 64), avoidance of the contract may be one of the reasonable measures which help to mitigate the losses of the injured party.

If reasonable measures can be taken before an impending breach of contract, they have to be taken by the party threatened by loss (Knapp/BB, 566 fol). Such measures could include for instance suspension of performance under Article 71. We are faced here with an obligation to mitigate losses. But non-fulfilment of this obligation by one party does not entail a claim for damages but rather leads to a situation where the party who is true to the contract cannot claim full compensation for damages. The rules governing the mitigation of damages are consistent with normal commercial practices (Honnold, 420) and can be found in many legal systems.

[3] [ as are reasonable in the circumstances to mitigate the loss, including loss of profit ]

Compare Article 74, note 5.

[4] [if he fails to take such measures, the party may claim a reduction in the damages ]

Of particular importance at the diplomatic conference was the question of whether the obligation to mitigate losses indeed referred only to the reduction of damages. An American proposal to extend that principle to other remedies was rejected. The example given related to a seller who continues manufacture of a machine even though the buyer has informed him that he has no more use for the machine ordered and would refuse to take delivery of it. If the seller nonetheless continues manufacture of the machine and sues [page 308] for performance, i.e. taking delivery and payment, he will have no obligation to mitigate losses because he claims the price and no damages (O.R. 396).

Regarding this problem it was suggested to treat the obligation to mitigate losses under Article 77, paragraph 1, as a genuine obligation whose breach will entail the obligation to compensate for damage. In the case of the example given, the buyer would have to pay the full price, but he would also have the right to claim damages (Hellner, 99; agreeing Schlechtriem/Lausanne, 170; like before Schlechtriem, 93).

Other authors obviously do not see any solution to this problem but rather believe that the obligation to mitigate damages does not have priority over the right to performance (Knapp/BB, 564; like the 1985 CISG Commentary 1985, 150).

One could also imagine invoking Article 77 analogously on the basis of the principle of good faith. As can be seen from the genesis of the diplomatic conference, it was a lack of time at the end of the conference which prevented a proper solution (Honnold, 421). There was agreement in that Article 77 should be broadly interpreted (Knapp/BB, 566).

Stoll, too, (Freiburg, 269) holds that the basic idea of Article 77, i.e. that the obligee should have taken measures to mitigate losses, must not be lost because of the obligee's choosing of other remedies, i.e. that he claims payment of the price instead of damages.

[5] [ in the amount by which the loss should have been mitigated]

If the loss could have been prevented, there would have been the chance of reducing the damages down to zero. Here the CISG follows the rule of avoidable loss as applied by the Anglo-American legal family. In contrast to 254 BGB, the CISG does not know of any participatory fault, and thus offers no room for the judge's discretion (Stoll/Freiburg, 268; critical Schlechtriem, 92, who compares Article 77 to 254 BGB). Several examples of how to reduce the damages are given in the Secretariat's Commentary (O.R., 61; also Knapp/BB, 562 fol). [page 309]

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Pace Law School Institute of International Commercial Law - Last updated September 25, 2002
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