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GUIDE TO ARTICLE 80

Comparison with Principles of European Contract Law (PECL)


Match-up of CISG Article 80 with PECL Articles 8:101(3), 1:301(1), 1:305; see also PECL Article 9:504

CISG Article 80

A party may not rely on a failure of the other party to perform, to the extent that such failure was caused by the first party's act or omission.

PECL Article 8:101(3)[Own Act Causing Other Party Non-Performance]
(complete and revised version 1998)

A party may not resort to any of the remedies set out in Chapter 9 to the extent that it's own act caused the other party's non-preformance.

PECL Article 1:301(1) [Meaning of Terms: Definition of Act]

"act" includes omission

PECL Article 1:305

If any person who with a party's assent was involved in making a contract, or who was entrusted with performance by a party or performed with its assent: (a) knew or foresaw a fact, or ought to have known or foreseen it; or (b) acted intentionally or with gross negligence, or not in accordance with good faith and fair dealing, this knowledge, foresight or behaviour is imputed to the part itself.

SEE ALSO:

PECL Article 9:504 [Loss Attributable to Aggrieved Party]

The non-performing party is not liable for loss suffered by the aggrieved party to the extent that the aggrieved party contributed to the non-performance or its effects.


Editorial remarks

Limitation of Remedies Due to Failure of Performance Caused by Other Party:
Comparison Between Provisions of the CISG and Counterpart Provisions of the
Principles of European Contract Law

Allison E. Butler [*]
August 2004

  1. General interpretation and application in CISG and PECL: Limitation of Remedies Available
  2. "Acts" Constituting Failure of Performance
  3. Failure of Performance Wholly or Partially Attributable to the Creditor or Aggrieved Party
  4. Imputed Knowledge and Intention, Negligence and Bad Faith
  5. Conclusion

1. General interpretation and application in the CISG and the PECL: Limitation of Remedies Available

The content and function of Article 8:101(3) PECL [1] is similar in substance and form to its counterpart provision contained in article 80 CISG.[2] Both provisions exemplify the prohibition to contradict one's own behavior - "venire contra factum proprium" - thereby incorporating an expression of general principles of good faith and fairness.[3] Both articles however prevent entitlement to remedies if the reason for the non-performance was the result of the act(s) or omission(s) of the party seeking relief. However, Article 8:101(3) PECL provides valuable insight as to term definitions and applications therein via cross-reference to other PECL articles [4] thereby providing a supplemental source for interpreting Article 80 CISG.

2. "Acts" Constituting Failure of Performance

Under Article 8:101(3) PECL, a cross-reference to Article 1:301 PECL provides that the definition of "act" includes omission. Such acts would include failure to provide information to the other party or giving wrong or incomplete information. This understanding of the term is commonly held true in all European legal systems; [5] however, in Germany, the statutory provision which has been drafted for acts is not automatically applicable to omissions.[6] In contrast, the CISG explicitly provides for acts and omissions. Hence, both provisions provide that a party seeking relief cannot seek relief if the failure to perform was due the first party's act or omission.[7]

3. Failure of Performance Wholly or Partially Attributable to the Creditor or Aggrieved Party

There are two applicable articles in the PECL that address the issue of non-performance - Articles 1:301 and 9:504 PECL. As to the former, a creditor who directly prevents performance or the so-called mora creditoris is prevented from seeking a remedy. An illustrative example would provide that if Party A failed to perform due to its failure to give instruction within a stipulated time to Party B which prevented Party B from performing, then Party B would have a remedy against Party A. However, Party A would have no remedy against Party B. If the facts revealed that A's non-performance was due to a force majeure or unforeseen event then A is not liable for damages for its failure to instruct and B has no remedies in damages against A. In other cases, where there is also a non-performance by the debtor, the creditor may exercise the remedies for non-performance to a limited extent. However, when the loss is caused by both parties, a limitation in the whole range of remedies is warranted as to the creditor.

In most of the European systems, the rules apply where the party who has prevented performance is the non-performing party against whom the remedies may be exercised.[8] This is set forth in Article 9:504 PECL, which embodies the principle that an aggrieved party should not recover damages to the extent that its loss is caused by its own unreasonable behavior. This concept embraces three distinct situations [9] due in part to the Common Law system's legal concept of "contributory negligence" and "failure to mitigate." Most continental European legal systems do not distinguish the concepts; however, a similar result is achieved by using concepts such as causation.

Under the CISG, causation is not explicitly set forth. However, commentators' opinion has been consistent with the reasoning set forth in both PECL articles although no distinction is readily apparent.[10] The majority of the case law provides that courts have applied this concept in the event one party fails to secure financial arrangements,[11] make payment,[12] or makes payment to a third party [13] thereby precluding the remedy of avoidance or damages. At least one opinion found no causation when a seller failed to perform due to buyer's failure to pay a previous debt, finding that the terms of agreement made it irrelevant "as far as the question of the cause of the buyer's failure to perform according to Article 80 CISG is concerned."[14] Similarly, case law exists that illustrates application of degrees of negligence thereby allocating a loss between both parties.[15]

4. Imputed Knowledge and Intention, Negligence and Bad Faith

In order to neutralize the risks, imputation of actual or constructive knowledge or a legally relevant state of mind is relevant in performance of the contract pursuant to PECL Article 1:305.[16] A party that should have known or foreseen a fact is usually treated as if it had the knowledge or foresight. As such, the law of agency becomes relevant. This is due in part to the fact that performance of a contract rarely is performed by the contracting party but by its agents, employees, subcontractors and other third person.

When a contract is being made, a party is normally only fixed with the knowledge imputed to his employees or agents involved in making the contract. For the purposes of Article 1:305 PECL, knowledge or intention even of any subcontractor or other person to whom it has entrusted performance may be imputed to the party with exception.[17] Under several rules, intentional or grossly negligent behavior or bad faith by a party creates or increases his liability.[18] Even if the contracting party has not entrusted performance to a third person, a third person may nevertheless under certain conditions be entitled to perform the contract.[19] The intentional or grossly negligent behavior of a party or of a person whose state of mind is imputed to a party only refers to the act or omission which constitutes the non-performance. It is not necessary that the intention or gross negligence also extend to the consequences that may follow from the non-performance.

These issues are not clearly established in the national law of the countries of Europe.[20] In some national laws, there is the imputation of intention, negligence and bad faith.[21] According to several provisions, a non-performing party is responsible for the culpable behavior of persons whom he has charged with performing his obligations. This also appears to have been the intent of the drafters of Article 80 CISG.[22]

The CISG fails to address culpability of agents;[23] however, Article 8 of the CISG addresses the intent of the parties.[24] Undoubtedly, PECL rules may be referred to as supplementary reference to aid in the interpretation of the CISG. This is essentially true due to the necessity for interpretation of contracts made in an international and, often, multilingual settings of a contract.[25]

5. Conclusion

A comparison of the two documents illustrates that both the CISG and the PECL adopt the prohibition to obtain remedies if the damages were the result of one's own contradictual behavior. However, it is apparent that the collective application of several articles in the PECL and illustrative examples are broader in scope and therefore provide a supplemental resource for interpreting Article 80 CISG.

[See also commentary by the author on this subject in: John Felemegas ed., An International Approach to the Interpretation of the United Nations Convention on Contracts for the International Sale of Goods (1980) as Uniform Sales Law, Cambridge University Press (2006) 505-509.]


FOOTNOTES

* The author received her J.D. from Loyola University School of Law, New Orleans, Louisiana, USA (Common Law Program) and her B.A. in International Relations, with honors, from the University of South Florida, Tampa, Florida, USA. She is a published author and a private practitioner in Martin County, Florida, USA.

1. PECL Article 8:101(3) states: "A party may not resort to any of the remedies set out in Chapter 9 to the extent that its own act caused the other party's non-performance."

2. CISG Article 80 states: "A party may not rely on a failure of the other party to perform, to the extent that such failure was caused by the first party's act or omission." Notably, this article was based on a proposal by the German Democratic Republic and was unanimously adopted and included in the Convention (O.R., 386 fol, 135, fol) "out of an abundance of caution." See Jacob S. Ziegel and Claude Samson, Report to the Uniform Law Conference of Canada on Convention on Contracts for the International Sale of Goods (July 1981), available at <http://cisgw3.law.pace.edu/cisg/wais/db/articles/english2.html>.

3. See, e.g., Germany 25 November 1998 Supreme Court, translation and link to original textavailable at <http://cisgw3.law.pace.edu/cases/981125g1.html> (acknowledging the principles of good faith apply to Article. 80 CISG), but see, Commentary by Fritz Enderlein & Dietrich Maskow, 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, Oceana Publications, 1992, also available at <http://cisgw3.law.pace.edu/cisg/biblio/enderlein-art80.html>, stating that "Article 42, paragraph 2; subpara. (b) provides for a concrete manifestation of the principle of Article 80. This special norm existed before Article 80 was drafted and continues in existence, although it is consumed by the latter."

4. See generally, PECL Article 1:301(1) Meaning of Terms; PECL 1:305 Imputed Knowledge and Intentions; PECL Article 9:504 Loss Attributable to Aggrieved Party.

5. See, e.g., Austria, ABGB 861 sent. 1; Greece, Simantiras No. 555.

6. See, e.g., BHG 241, but see RB 31 March 1909, RGZ 70, 234 (241).

7. Germany 1 July 2002 Appellate Court München , translation and link to original text available at <http://cisgw3.law.pace.edu/cases/020701gl.html>; Germany, 9 July 1992, District Court Düsseldorf, available at <http://cisg3.law.pace.edu/cases/920709g1.html>; Ukraine 21 June 2002 Tribunal of International Commercial Arbitration, Ukrainian Chamber of Commerce & Trade, translation available at <http://cisgw3.law.pace.edu/cases/020621u5.html>.

8. Note, however, that in Belgian, Dutch, German, Greek and Nordic law it is not generally considered to a tekortkoming, Vertragsverletzung, or Kontraktsbrott to prevent performance by the other party. It will depend upon whether the acceptance of the performance is a main obligation (Hauptpflicht) of the creditor.

9. It embraces three distinct situations. The first is where the aggrieved party's conduct was a partial cause of the non-performance; the second, where the aggrieved party, though not in any way responsible for the non-performance itself, exacerbated its loss-producing effects by its behavior. A third situation, where the loss resulting from the non-performance could have been reduced or extinguished by appropriate steps in mitigation, is covered by PECL Article 9:505.

10. See Ziegel, supra at Note 2.

11. See Austria 6 February 1996 Supreme Court [10 Ob 518/95], 6 Vindobona Journal of International Law and Arbitration 153-168 (2002), also available at <http://cisgw3.law.pace.edu/cases/960206a3.html>.

12. See Germany 1 July 2002 Appellate Court München, translation and link to original text available at <http://cisgw3.law.pace.edu/cases/020701gl.html>.

13. See Germany 9 July 1992 District Court Düsseldorf, available at <http://cisg3.law.pace.edu/cases/920709g1.html>.

14. Germany 21 March 1996 Hamburg Arbitration proceeding, translation and link to original text available at <http://cisgw3.law.pace.edu/cases/960321g1.html>; see also, Germany 23 June 1995 Lower Court München, translation and link to original text available at <http://cisgw3.law.pace.edu/cases/950623g1.html>.

15. Russian Federation arbitration proceeding 55/1998 of 10 June 1999, translation available at <http://cisgw3.law.pace.edu/cases/990610r1.html> (arbitrators acknowledge degree of negligence on the part of the seller); see also, Israel 22 August 1993 Supreme Court (Eximin v. Textile and Footwear), available at <http://cisgw3.law.pace.edu/cases/930822i5.html> (ruling under the Hague Sales Convention (ULIS) which refers to the CISG as well "by way of analogy").

16. Several provisions use the criteria of knowledge, awareness, foreseeability, contemplation (see PECL Articles 1:301(5), 2:104, 3:102(2) 3:204(2), 3:205(1) and (3), 3:208, 3:209(1), 3:301(1), 4:103(1), 4:109(1), 4:111(2), 4:113(1), 4:114, 4:117(1), 6:101(2) and (3), 6:110(3), 6:111(2), 7:101(2), 8:103 subparagraph (b), 8:108(3), 9:102(3), 9:303(2) and (3), 9:503).

17. The employee or other person must have been someone who was, or who appeared to be, involved in the negotiation or performance of the contract. If a person not so related to the contract knows a relevant fact he may not be able to appreciate its relevance to the contract and thus might not report it. The burden of proving that the person for whom the contracting party is held responsible was not and did not reasonably appear to the other party to be involved in the making or performance of the contract rests on the first party.

18. See PECL Articles 2:301(2), 4:107(2), 5:101(1) and (2), 6:102, 8:103 subparagraph (c), 9:503; cf. also PECL Article 1:201(1).

19. See PECL Article 7:106. If the third person acted with the contracting party's assent (PECL Article 7:106(1) (a)) that is equivalent to an entrustment and therefore falls under PECL Article 1:305.

20. Imputation of knowledge (Article 1:305 (a)) is dealt with in rules on agency in Belgium (De Page & Dekkers I no. 52), Germany (BGB 166), Italy (Cc art. 1391) and Portugal (CC art. 259(1)). In Germany, it is held that the rule of BGB 166 on agency express a general principle: a person who entrusts another with executing certain affairs on his own responsibility will have imputed to him knowledge which the other has acquired in that context. Although there is no explicit rule in the Austrian Code, the OGH reaches the same result by reference to ABGB 1017. Austrian ABGB 1313a; Belgium: Cass. 24 January 1974, Pas. I 553 and Cass. 21 June 1979, Pas. I 1226; Denmark: Danske Lov 1683 art. 3-19-2; Germany: BGB 278 sent. 1; Greece: CC arts. 330 and 334; Italy: Cc art. 1228; Netherlands: BW art. 6:76; Portugal: CC art. 800(1)). French law reaches the same result for exclusion clauses (Malaurie & Aynès, Obligations no. 861).

Under Spanish law, there is no corresponding general rule for contractual liability, but legal writers and case law acknowledge contractual liability for acts of persons for whom the non-performing party is responsible (Diez-Picaso I paras. 724-726; Jordano Frago 561 ff.; STS 22 June 1989 (Ar. 4776); STS 1 March 1990 (Ar. 1656)), although intention probably cannot be imputed. In ENGLISH law, the question does not arise because the fact that a breach is deliberate usually does not affect a party's liability.

21. Some of the aforementioned modern codes in Civil Law countries also deal with good and bad faith. Italy and Portugal start out from the general principle set out supra (sub 1). If, however, the principal is in bad faith, he cannot invoke the agent's ignorance or good faith (Italian CC art. 1391(2) and Portuguese CC art. 259(2)).

22. The following excerpt from the Summary Records of Committee Meetings of the Diplomatic Conference at which the CISG was promulgated indicates that the reference in CISG Article 80 to a party's act or omission is intended to include the act or omission of the party's employees.

Mr. ROGNLIEN (Norway) asked whether the expression 'by his own act or omission' covered the acts and omissions not only of the party concerned but also of persons whom the party might employee in the performance of the contract. After an exchange of views in which Mr. MASKOW (German Democratic Republic), Mr. MICHIDA (Japan), Rapporteur of the Committee, Mr. KHOO (Singapore), Chairman of the Drafting Committee, and Mr. SHAFIK (Egypt) took part, the CHAIRMAN [Mr. LOEWE (Austria)] proposed that the Committee should keep the current working of article 65 bis [became article 80 CISG] on the understanding that the expression 'by his own act or omission' was unanimously recognized as covering not only the acts or omissions of the party concerned but also those of persons who might be employed by him for the purposes of the performance of the contract. It was so decided. (Official Records, p. 430).

23. Germany 24 January 1994 Appellate Court Berlin, No. 2U7418/92, UNILEX, available at <http://www.unilex.info/case.cfm?pid=case&id=46&step=Sources> (finding that CISG does not address agency law referencing CISG Article 4 thereby applying Italian law); see also, Convention on Agency in the International Sale of Goods (Geneva 17 February 1983); Albert H. Kritzer, Guide to Practical Applications of the United Nations Convention on Contracts for the International Sale of Goods, p. 86 (1989).

24. See generally, Maja Stanivukovic, Editorial remarks on the manner in which the PECL may be used to interpret or supplement CISG Article 8, available at <http://cisgw3.law.pace.edu/cisg/text/peclcomp8.html#er>.

25. CISG Article 7(1).


Comment and notes on PECL 8:101(3), 1:301(1), 1:305, 9:504

Like the commentary to the UNIDROIT Principles and the U.S. Restatements, the comments to the PECL help explain the meaning of the text. The PECL notes offer an added boon to researchers. They identify civil and common law antecedents and related domestic provisions. With the permission of the Commission on European Contract Law, the comments and notes to these PECL provisions are presented below. The source of this material is Ole Lando & Hugh Beale eds., Principles of European Contract Law: Parts I and II, Kluwer Law International (2000) 360-361, 362, 122, 125, 134-136, 443-445.


COMMENT AND NOTES: PECL Article 8:101: Remedies Available

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(3) A party may not resort to any of the remedies set out in Chapter 9 to the extent that its own act caused the other party's non-performance.

Comment

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B. Remedies available

The remedies available for non-performance depend upon whether the non-performance . . . results from behaviour of the other party.

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(iii) Non-performance wholly or partially caused by the creditor

The fact that the non-performance is caused by the creditor's act - or omission, see Article 1:301 - has an effect on the remedies open to the obligee. This is expressed by the third paragraph of the text. It would be contrary to good faith and fairness for the creditor to have a remedy when it is responsible for the non-performance.

The most obvious situation is the so-called mora creditoris, where the creditor directly prevents performance (e.g. access refused to a building site). But there are other cases where the creditor's behaviour has an influence on the breach and its consequences. For example, when there is a duty to give information to the other party, and the information given is wrong or incomplete, the contract is imperfectly performed.

Illustration 3: A has contracted to design schools to be built by B in the Tripolis area, and is expecting instructions from B as to the exact location of the schools. Due to dissensions in its staff, B fails to give the instructions within the stipulated period of time, which prevents A from designing the schools. The non-performance on A's side does not give B the right to exercise any remedy, but A will have a remedy against B.

Illustration 4: The facts are the same as in Illustration 3 except that B's failure to give instructions is due to the fact that B's staff has been killed in an air crash on the way to Libya. Although B is not liable for its failure to instruct A, the non-performance on A's side does not give B any remedies either. [page 360]

In other cases where there is also a non-performance by the debtor, the creditor may exercise the remedies for non-performance to a limited extent.

When the loss is caused both by the debtor - which has not performed - and the creditor - which has partially caused the breach by its own behaviour - the creditor should not have the whole range of remedies.

The creditor's contribution to the non-performance has an effect on the remedy "to the extent that (the other party's) failure to perform (is) caused by its own act or omission". This effect may be total, that is to say that the creditor cannot exercise any remedy, or partial.

Illustration 5: A agrees to carry B's glassware from Copenhagen to Paris but subjects the packages to rough handling. This would have broken some of the glass which is fragile but not some heavy pieces of thick glass. B, however, has not packed any of the glass properly and all is ruined. B can refuse to pay the carriage charges and recover damages in respect of the fragile glass, but not in respect of the heavy glass.

The exact consequence of the creditor's behaviour will be examined with each remedy, see chapter 9.

Notes

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3. Non-performance caused by the creditor

There is agreement among the legal systems that a non-performance which is due solely to the other party's wrongful prevention does not give the latter any remedy. In most of the systems the party who has prevented performance will himself be the non-performing party against whom the remedies may be exercised. However, in BELGIAN, DUTCH, GERMAN, GREEK and NORDIC law it is not generally considered to be a tekortkoming, Vertragsverletzung or Kontraktsbrott to prevent performance by the other party. It will depend upon whether the acceptance of the performance is a main obligation (Hauptpflicht) of the creditor.

See generally Mengoni, Contractual responsibility 1072; Zweigert & Kötz, Chapter 36; Treitel, Remedies passim. [page 362]

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COMMENT AND NOTES: PECL Article 1:301: Meaning of Terms

In these Principles, except where the context otherwise requires: (1) "act" includes omission

(. ..)

Comment

A. Act

As in most legal systems, this includes an omission. The definition is relevant, for example, for the purposes of Articles 1:201(1) and 8:101(3). [page 122]

()

Notes

1. Act

In all European legal systems, the term 'act' generally includes an omission) e.g. AUSTRIA, ABGB 861 sent. 1; GERMANY, BHG 241 sent. 2; GREECE, Simantiras No. 555). However, in Germany the statutory provisions which have been drafted for acts are not authomatically applicable to omissions (e.g. RB 31 March 1909, RGZ 70, 234 (241)). [page 125]

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COMMENT AND NOTES: PECL Article 1:305: Imputed Knowledge and Intentions

If any person who with a party's assent was involved in making a contract, or who was entrusted with performance by a party or performed with its assent:

(a) knew or foresaw a fact, or ought to have known or foreseen it; or

(b) acted intentionally or with gross negligence, or not in accordance with good faith and fair dealing,

this knowledge, foresight or behaviour is imputed to the party itself.

Comment

A. Purpose

It is the common purpose of both rules to neutralize the legal risks that inhere in the modern division of labour in trade and industry. This is achieved by imputing actual or constructive knowledge or a legally relevant state of mind, such as intention, negligence or bad faith, of a person assisting in the making or performance of the contract to the contracting party to whom that assistance is rendered.

B. Scope

Under modern conditions, most contracts are not made or performed by the contracting parties personally. Rather, the parties make contracts through the agency of employees or other persons and entrust performance of their contracts to employees, agents, subcontractors and other third persons. Article 8:107, Performance Entrusted to Another, provides that a party cannot escape its obligation of performance by delegating it to another; if the obligation is not performed, the party will remain responsible. The present Article is complementary to Article 8:107. It deals with two other aspects of this modern division of labour, namely the imputation of actual or constructive knowledge of persons assisting in the making or performance of a contract to the contracting party itself (subparagraph (a)); and with the imputation of intention or gross negligence with respect to non-performance (subparagraph (b)).

C. Imputed knowledge and foresight

Several provisions use the criteria of knowledge, awareness, foreseeability, contemplation (see Articles 1:301(5), 2:104, 3:102(2) 3:204(2), 3:205(1) and (3), 3:208, 3:209(1), 3:301(1), 4:103(1), 4:109(1), 4:111(2), 4:113(1), 4:114, 4:117(1), 6:101(2) and (3), 6:110(3), 6:111(2), 7:101(2), 8:103 subparagraph (b), 8:108(3), 9:102(3), 9:303(2) and (3), 9:503). A party which should have known or foreseen a fact is usually treated as if it had the knowledge or foresight.

When the contract is being made, a party is normally only fixed with the knowledge imputed to his employees or agents involved in making the contract. Under some Articles (e.g. Article 9:303), knowledge or foreseeability at the time of non-performance is relevant. In this case, for the purposes of Article 1:305 knowledge or intention even of any subcontractor or other person to whom it has entrusted performance may be imputed to the party.

However, there is one limitation. The employee or other person must have been someone who was, or who appeared to be, involved in the negotiation or performance of the contract. If a person not so related to the contract knows a relevant fact he may not be able to appreciate its relevance to the contract and thus might not report it. The burden of proving that the person for whom the contracting party is held responsible was not and did not reasonably appear to the other party to be involved in the making or performance of the contract rests on the first party.

D. Imputed intention, negligence and bad faith

According to subparagraph (b), certain states of mind or behaviour of the person acting are also imputed to the contracting party for whom a contract has been concluded or an act of performance is rendered.

Under several rules intentional or grossly negligent behaviour or bad faith by a party creates or increases his liability (see Articles 2:301(2), 4:107(2), 5:101(1) and (2), 6:102, 8:103 subparagraph (c), 9:503; cf. also Article 1:201(1)).

Even if the contracting party has not entrusted performance to a third person, a third person may nevertheless under certain conditions be entitled to perform the contract, see Article 7:106. If the third person acted with the contracting party's assent (Article 7:106(1)(a)) that is equivalent to an entrustment and therefore falls under Article 1:305.

In contrast, if the third person has acted by virtue of a legitimate interest in the performance under Article 7:106(1)(b), that falls outside the scope of Article 1:305.

It should be noted that under these Principles liability is not generally based on the notion of fault. Only intentional or grossly negligent non-performance are therefore mentioned as attracting greater liability.

The intentional or grossly negligent behaviour of a party or of a person whose state of mind is imputed to a party only refers to the act or omission which constitutes the non-performance. It is not necessary that the intention or gross negligence also extend to the consequences that may follow from the non-performance.

Notes [Match-ups with Continental and Common Law domestic rules, doctrine and jurisprudence]

The issues covered by Article 1:305 are not always clearly regulated in the existing national laws.

1. Imputation of knowledge

Imputation of knowledge (Article 1:305 lit. (a)) is dealt with in rules on agency in BELGIUM (De Page & Dekkers I no. 52), GERMANY (BGB 166), ITALY (CC art. 1391) and PORTUGAL (CC art. 259(1)). In Germany it is held that the rule of BGB 166 on agency expresses a general principle: a person who entrusts another with executing certain affairs on his own responsibility will have imputed to him knowledge which the other has acquired in that context (BGH 25 March 1982, BGHZ 83, 293 (296)); this principle corresponds to the idea underlying Article 1:305 lit. (a). Although there is no explicit rule in the AUSTRIAN Code, the OGH reaches the same result by reference to ABGB 1017 (OGH 13 February 1963, SZ 36/25; see Schwimann (-Apathy) ABGB 1017 No. 12). In ENGLISH and SCOTTISH law the question is also treated as one of agency (cf. Chitty 6-031 and 6-037; Treitel, Contract 319 with references). In the NORDIC countries the agent's knowledge is imputed to the principal, Kaisto s. 265.

In BELGIUM a similar rule is justified by analogy to the rule on performance entrusted to another (see Article 8:107 below). In FRANCE, a corresponding rule has apparently not yet been formulated; but it may be compatible with the solutions to be found in case law, especially in determining foreseeability of damage (cf. Viney, Effets no. 325).

In Germany (BGB 166(1), Greece (CC art. 214), Italy (CC art. 1391(1)) and Portugal (CC art. 259(1)), only the agent's state of mind is, as a rule, considered. If, however, the agent has acted according to instructions, also the principal's state of mind is considered in Germany (BGB 166(2)) and Greece (CC art. 215); by contrast, in Italy (cf. supra) and Portugal (CC art. 259(2)) only the principal is then considered. A very flexible rule has been enacted in THE NETHERLANDS: either the agent or the principal or both are taken into account, depending on the extent to which each of them took part in concluding the contract or in determining its contents (BW art. 3:66(2)).

2. Imputation of intention

In some national laws, the imputation of intention, negligence and bad faith (Article 1:305 lit. (b)) is very important in the framework of fault principle for liability. According to several provisions, a non-performing party is responsible for the culpable behaviour of persons whom he has charged with performing his obligations (AUSTRIAN ABGB 1313a; BELGIUM: Cass. 24 January 1974, Pas. I 553 and Cass. 21 June 1979, Pas. I 1226; DENMARK: Danske Lov 1683 art. 3-19-2; GERMANY: BGB 278 sent. 1; GREECE: CC arts. 330 and 334; ITALY: CC art. 1228; NETHERLANDS: BW art. 6:76; PORTUGAL: CC art. 800(1)). FRENCH law reaches the same result for exclusion clauses (Malaurie & Aynès, Obligations no. 861).

In SPANISH law, there is no corresponding general rule for contractual liability, but legal writers and case law acknowledge contractual liability for acts of persons for whom the non-performing party is responsible (Diez-Picaso I paras. 724-726; Jordano Frago 561 ff.; STS 22 June 1989 (Ar. 4776); STS 1 March 1990 (Ar. 1656)), although intention probably cannot be imputed. In ENGLISH law, the question does not arise because the fact that a breach is deliberate usually does not affect a party's liability.

Some of the aforementioned modern codes in Civil Law countries also deal with good and bad faith. Italy and Portugal start out from the general principle set out supra (sub 1). If, however, the principal is in bad faith, he cannot invoke the agent's ignorance or good faith (Italian CC art. 1391(2) and Portuguese CC art. 259(2)).

See generally Treitel, Remedies 15 and literature cited there. [page 136]

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COMMENT AND NOTES: PECL Article 9:504: Loss Attributable to Aggrieved Party

The non-performing party is not liable for loss suffered by the aggrieved party to the extent that the aggrieved party contributed to the non-performance or its effects. [page 443]

Comment

A. Loss caused by unreasonable action or inaction

This Article embodies the principle that an aggrieved party should not recover damages to the extent that its loss is caused by its own unreasonable behaviour. It embraces two distinct situations. The first is where the aggrieved party's conduct was a partial cause of the non-performance; the second, where the aggrieved party, though not in any way responsible for the non-performance itself, exacerbated its loss-producing effects by its behaviour. A third situation, where the loss resulting from the non-performance could have been reduced or extinguished by appropriate steps in mitigation, is covered by Article 9:505.

The reason for the division between this and the next Article is that some legal systems distinguish these situations, at least in some degree. Thus in English law the first two situations fall within the concept "contributory negligence" and the third involves a "failure to mitigate". Most continental European legal systems do not distinguish the two concepts, though they reach similar results by using concepts such as causation.

B. Conduct contributing to the non-performance

To the extent that the aggrieved party contributed to the non-performance by its own act or omission he cannot recover the resulting loss. This may be regarded as a particular application of the general rule set out in Article 8:101 (3).

Illustration 1: B orders a computer system from S which is to be specially designed to allow B to send to prospective property buyers details of houses coming on to the market which appear to meet their requirements. The computer system fails to operate properly, due partly to a design defect and partly to the fact that B's instructions to S were incomplete. B's loss is irrecoverable to the extent that it results from its own inadequate instructions.

C. Conduct contributing to the loss-producing effects of non-performance

Where the aggrieved party, though not in any way responsible for the non-performance, exacerbates its adverse effects he cannot recover damages for the additional loss which results.

Illustration 2: A leases a computer which under the terms of the contract is to be ready for use in England where the voltage is 240v. The computer supplied is capable of operating on various voltages and, in breach of contract, is actually set for 110v. A prominent sign pasted on the screen warns the user to check the voltage setting before use. A ignores this and switches on without checking. The computer is extensively damaged and repairs will cost A 1,500. The court may take the view that the loss was at least half A's fault and award only 750 damages. [page 444]

Notes

See Notes to Article 9:505 [Reduction of Loss (PECL Article 9:505 is compared with CISG Art. 77)]. [page 445]

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