Larry_A_DiMatteo_-_International_Sales_Law_A_Global_Challenge-Cambridge_University_Press_2014

not profit from the avoided contract at the expense of the seller. However, Article 82(2) reduces the scope of this principle considerably. The provision saves the buyer’s right of avoidance if any deterioration or destruction of the goods were not due to the buyer’s act or conduct, examination of the goods, or normal use (including resale) provided that the buyer had not yet discovered or ought to have discovered the defect.65 Additionally, the right of avoidance is not lost in cases where the buyer continued to use the bought good, for instance a machine, even after discovery of its defect, thereby, reducing the value of the good if such use avoided further damage, such as loss of profit.66

The CISG’s solution, in principle to exclude the right of avoidance where the return of the unchanged goods is impossible, has been criticized as outmoded. Indeed, both the UNIDROIT Principles and the Principles of European Contract Law contain a more modern solution in cases where the goods cannot be returned in unchanged condition. The buyer does not lose the right of avoidance but has to compensate the seller for the loss in value.67 However, both sets of principles provide for exceptions from this rule, thereby making their rules closer to the CISG solution and its many exceptions. Thus far, the results achieved under the CISG solution do not warrant a revision of CISG rules.

10. Combination with Other Remedies

The creditor can combine avoidance with a damages claim where the breach caused a loss.68 A combination of avoidance and price reduction or of avoidance and a performance claim is, however, excluded. The purposes of these other remedies are inconsistent with the purpose of termination of the contract. The principle that inconsistent remedies cannot be requested at the same time is self-explanatory but also laid down in Articles 46(1) and 62.

C.Problems

1.Final Nonperformance or Refusal to Perform

Where a party finally does not perform all or most of its duties (for whatever reason) or where this party finally – and unjustifiably – refuses to perform its duties, this will generally rise to the level of a fundamental breach.69 This is true both for nondelivery of

65See Michael Bridge in UN Convention, Article 82, para. 18.

66BG, May 18, 2009, IHR 2010, 27 et seq.; in the same sense already Appellationsgericht of the Kanton Basel-Stadt, September 26, 2008, IHR 2009, 164 et seq.

67See Article 7.3.6 UNIDROIT Principles, Article 9:309, Principles of European Contract Law. Both sets of principles allow a buyer to avoid a contract for fundamental breach although the buyer fully uses – and depreciates – the goods after discovery of their defects. In certain cases such conduct may violate the principle of good faith because the buyer shows that the goods are fully useable; for this reason avoidance should be excluded; see Bridge in UN Convention, Article 82, para. 24 et seq.

68See CISG Articles 45(2) and 61(2).

69Pretura circondariale di Parma, November 24, 1989, CLOUT case No. 90 (partial and very delayed delivery); OLG Celle, May 24, 1995, CLOUT case No. 136; China International Economic and Trade Arbitration Commission (CIETAC), June 4, 1999, CLOUT case No. 808 (buyer does not open valid letter of credit before delivery date); Juzgado de Primera Instancia, no. 3 de Badalona, May 25, 2006, CLOUT case No. 796; BG, July 17, 2007, CLOUT case No. 936 (refusal of delivery alleging buyer’s lacking

the goods and nonpayment of the price. An exception may only apply where the missing part of performance is minor or relatively unimportant and only insubstantially impairs the other party’s interest in the contract.

2. Delayed Performance

Merely delayed but executed performance in most cases is not considered a fundamental breach because the other party receives what it expected under the contract. Only where the parties have so agreed, or where it is clear from the circumstances, that time is of the essence – as for example in sales of seasonal goods – can delay amount to a fundamental breach. This is often the case in the commodity trade. Here, the quick row of transactions requires a clear and speedy ability to flip a contract to a series of buyers and sellers. According to agreement or usage, in these cases the creditor will therefore have the right to avoid the contract if the debtor does not perform in an extremely timely manner.

3. Delivery of Nonconforming Goods

Cases of delivery of nonconforming goods often pose problems.70 The central question is whether the defects in the goods are a fundamental breach that deprives the buyer of what it reasonably expected under the contract. Where the goods are seriously defective and cannot be repaired, courts have generally found that this constitutes a fundamental breach. However, where goods are repairable (even by way of replacement), courts are rather reluctant to allow avoidance.71 The reason for this is mainly the seller’s right to cure found in Article 48. Under this provision, the seller may, even after the date for delivery, cure any failure to perform if possible without causing unreasonable delay and unreasonable inconvenience to the buyer. Although this right is subject to Article 49, it lasts only as long as the buyer has not avoided the contract. Courts have often denied a fundamental breach where the seller could easily repair the goods.72 The same is true where the buyer can easily resell the defective goods – though with a rebate. Yet a buyer normally not trading in low-quality goods need not resell them; it can avoid the contract.73

On the other hand, where goods related to human health, such as food products and medical devices, are seriously defective and pose a health threat, the courts regularly allow avoidance even if the seller offers rapid response to cure by replacement or repair.74 The reasons for the courts’ attitude are the protection of health and the understandable

creditworthiness without justified reason); see also Huber in Kommentar zum Burgerlichen¨ Gesetzbuch, Article 49, para. 32; Magnus, “Wiener UN-Kaufrecht,” Article 49, para. 13.

70See Huber in Kommentar zum Burgerlichen¨ Gesetzbuch, Article 49, para. 33.

71BG, October 28, 1998, CLOUT case No. 248 (delivery of frozen meat with higher fat and water content than agreed and therefore worth only three-quarters of the contracted quality = no fundamental breach because buyer could resell the meat at lower price and claim damages).

72Handelsgericht des Kantons Zurich,¨ April 26, 1995, CLOUT case No. 196; Tribunal cantonal du Jura, July 26, 2007, CLOUT case No. 937 (no fundamental breach where easy and cheap repair can remedy the defect); Cour d’appel, Grenoble, April 26, 1995, CLOUT case No. 152; OLG Koblenz, January 31, 1997, CLOUT case No. 282.

73BG, May 18, 2009, IHR 2010, 27.

74See Medical Marketing International, Inc. v. Internazionale Medico Scientifico Srl, May 17, 1999, US Dist. Ct. (E. Dist. La.) (mammogram machines); Hof ‘s-Gravenhage, April 23, 2003, Nederlands Jurisprudentie

loss of trust in the seller’s reliability. Because of the sensitivity of this area, the buyer shall not be required to give the seller a second chance to perform. Even the strong suspicion of a very serious defect, for instance a dioxin contamination, has supported the exercise of the right of avoidance.75

V. Price Reduction

Price reduction is a specific remedy for buyers. If the delivered goods do not conform to the contract, buyers are entitled to reduce the price (Article 50). The result of the breach is a readjustment of the contract to restore the balance of the contractual exchange at a lower level. The remedy is well known in civil law countries76 but unfamiliar to common law jurisdictions, which regard it as more or less superfluous as in their view the awarding of damages serves to compensate for the reduced value of the goods in an adequate way. Under the CISG, price reduction has in some situations specific advantages in comparison with damages and even avoidance.77 Moreover, it is practical insofar as the buyer can execute the right unilaterally by just withholding the reduced part of the price. Its separate existence is thus justified.

A. Requirements

1. Breach of Contract

Like the other CISG remedies, price reduction presupposes a breach of contract. However, neither certainty of the fundamentality of the breach nor fault of the breaching party is required. According to the text of Article 50, price reduction is only available if the seller has delivered nonconforming goods.78 The provision thus covers all cases falling under Article 35 – defects concerning quality, quantity, description (aliud), or packaging.79 Also, defects concerning documents are covered under Article 50.80 The provision does not apply to other breaches of contract, such as delayed performance or breaches of additional duties; nor does it apply to violations of the buyer’s duties.

2. Reduction of Value

It is a further requirement of Article 50 that the delivered goods have a lesser market value than they should have under the contract. For the determination of these values, it

2003 No. 713; Appellationsgericht of the Kanton Basel-Stadt, August 22, 2003, CLOUT case No. 887 (delivery of genetically modified soy in contrast to the explicit agreement = fundamental breach).

75BGH, March 2, 2005, IHR 2005, 158 (in that case, an export ban of the pork that was suspected to be contaminated was introduced, however, only after the risk had already passed to the buyer; nonetheless the buyer was not held to be obliged to pay the price).

76Price reduction has its origin in the Roman law’s actio quanti minoris.

77They are discussed later.

78See CISG Article 50: “If the goods do not conform with the contract.”

79For the latter see OLG Koblenz, December 14, 2006, CLOUT case No. 724 (seller’s insufficient packaging of the sold bottles led to their partial cracking and partial unsterility during transport; the buyer was entitled to reduce the price to zero).

80CISG, Article 50, sent. 2 references Articles 37 and 48 (allow the seller the cure of defects in the documents); see also Article 34, sent. 2; Article 37; and Article 48; Magnus, “Wiener UN-Kaufrecht,” at Article 48, para. 8.

does not matter how much the buyer paid. He or she may have paid either more or less than the market value. If there is no reduction in value because of the nonconformity of the goods, price reduction is not available. On the other hand, it is not necessary that the buyer suffer damage. Although the loss in value will regularly constitute damages, an actual loss is not a requirement under Article 50.

3. Declaration of Price Reduction

Like avoidance, price reduction needs a respective declaration or notice.81 It does not enter automatically. However, no specific form is required (except where Articles 12 and 96 apply, requiring a written declaration). The refusal to pay has been regarded as implicit declaration of a price reduction to zero.82 In contrast to avoidance, the CISG does not require the buyer to declare price reduction within a specified period of time. Even if avoidance is already excluded for time reasons (Article 49(2)), price reduction remains available. If, in exceptional cases, the buyer is entitled to reduce the price to zero because the goods have no value at all, this has the same effect as avoidance.83

4. Duties of the Buyer

The buyer can claim price reduction only when giving notice of the defect in timely and correct form or having dispensed of the notice requirements pursuant to Articles 40, 43(2), or 44.

Furthermore, Article 50, sentence 2 requires the buyer to accept the seller’s cure or offer of cure if the seller meets the conditions for cure under Articles 37 and 48. This is in contrast to the remedy of avoidance where the buyer need not allow the seller a second chance if the latter’s breach is fundamental.84

The duty of mitigation (Article 77) will rarely play a role. On the one hand, Article 77 applies directly only to damages claims. On the other hand, Article 50, sentence 2 is itself a specific expression of the general duty of mitigation and observance of good faith.85 A creditor who claims a remedy for nonconformity but disallows the other party at the same time to remedy the nonconformity behaves in a contradictory manner and violates the dictates of the good faith principle, in particular the principle of venire contra factum proprium. Finally, even if Article 77 is applied by analogy to the remedy of price reduction, it is difficult to imagine cases where the buyer’s conduct affected the amount of price reduction, for instance by increasing the difference in value between the delivered and the owed goods.

81See, e.g., OLG Munchen,¨ March 2, 1994, CLOUT case No. 83.

82OLG Koblenz, December 14, 2006, CLOUT case No. 724.

83Ginza Pte. Ltd. v. Vista Corporation Pty. Ltd. (Supreme Court of Western Australia, January 17, 2003) cisg.pace; OLG Koblenz, December 14, 2006, CLOUT case No. 724; OGH, May 23, 2005, CLOUT case No. 747; BGH, March 2, 2005, CLOUT case No. 774; OLG Koln,¨ August 14, 2006, CLOUT case No. 825; Kantonsgericht of the Kanton Zug, August 30, 2007, CLOUT case No. 938. OLG Koblenz, December 14, 2006, CLOUT case No. 724.

84See Article 48(1), sent. 1, which entitles the seller to cure only: “Subject to article 49.”

85Honnold and Flechtner, Uniform Law, para. 313.

5. Calculation of Price Reduction

The extent of the price reduction has to be calculated in a specific way; it is not just the lower value of the delivered goods that is the amount of reduction, as in case of damages. The aim of Article 50 is to maintain the proportion between the agreed price and the value conforming goods would have had on the market. In other words, the adjustment to a lower level of performance shall not affect whether it was originally a good bargain or a bad bargain. Therefore, price reduction has to be calculated as a proportion: the contract price is to be reduced in the proportion that exists between the value of the nonconforming delivered goods and the value that conforming goods would have. If the delivered goods have half of the value of the owed goods, then the contract price must also be halved. Where the delivered goods have no value at all, the price can be reduced to zero.

The relevant time for determining the respective values is the date of actual delivery at the place of delivery.86 But where, for instance, the insufficient packaging of bottles made them completely useless (cracked or unsterile), their value was not the value at the time before transport87 but after the bottles had reached their destination.88

6. Consequences

Price reduction maintains the contract; the contract must be fully performed on the adjusted lower level. The buyer must pay the reduced price; if the price is already paid in full, the seller may request repayment of the amount of reduction. This is the inherent consequence of Article 50.89 It can be primarily based on the wording of Article 50, sentence 1 (“whether or not the price has already been paid”). Also, an analogy to Article 81(2) can be advanced.90 Redress to the applicable national law of unjust enrichment is unnecessary.91 In contrast to the remedy of avoidance, the buyer need not return the goods, even in a case where the price is reduced to zero.

The buyer can combine price reduction with a damages claim.92 However, the damages claim may only cover losses not related to the reduced value of the goods.

86See Article 50, sent. 1 CISG; see also Canton of Ticino Pretore di Locarno Campagna, April 27, 1992, CLOUT case No. 56; OLG Graz, November 9, 1995, CLOUT case No. 175; Hof van Beroep Antwerpen, November 4, 1998, CLOUT case No. 1018.

87See Article 31(c) and 67(1), sent. 1; in principle the handing over of the goods to the first carrier is the place and date at which delivery is performed and risk passes.

88OLG Koblenz, December 14, 2006, CLOUT case No. 724.

89In re: Siskiyou Evergreen. Inc., Debtor (US Bankruptcy Ct. 2004) CLOUT case No. 29; see also International Commercial Tribunal at the Russian Federation Chamber of Commerce and Industry, Russia, March 1, 2005, available at cisg.pace; see also Commentary of the Secretariat to [then] Article 46, para. 5; further Achilles, “Kommentar zum UN-Kaufrechtsubereinkommen,”¨ Article 50, para. 8; Fritz Enderlein, Dietrich Maskow, and Heinz Strohbach,Internationales Kaufrecht (Berlin: Haufe 1991) Art 50 Bem 3; Matthias Hirner, Der Rechtsbehelf der Minderung nach dem Un-Kaufrecht (CISG) (Frankfurt: Lang, 2000) 411–12; Anton K. Schnyder and Ralf Michael Straub in Kommentar zum UN-Kaufrecht (ed. H. Honsell) (Heidelberg: Springer, 2010), Article 50, para. 50; Piltz, Internationales Kaufrecht, §5, para. 313; Marku Muller¨-Chen in Schlechtriem, and Schwenzer, Article 50, para. 16; contra, BG, July 7, 2004, IHR 2004, 252 [253].

90See Schlechtriem and Butler, UN Law, para. 204.

91See the two preceding notes; contra, BG, July 7, 2004, IHR 2004, 252 [253].

92See Articles 45(2) and 61(2).

A combination with performance (of the original contract) or avoidance is excluded because of the evident inconsistency of price reduction and these remedies.93

7. Exemption

Like avoidance and in contrast to damages, price reduction remains unaffected by an exemption of the seller under Article 79. Therefore, price reduction is still available where damages would be excluded due to Article 79(5). In a respective case, this is of considerable importance and advantage.94

B. Problems

1. Price Reduction and Title Defects

It is disputed whether Article 50 applies to cases of title defects under either Article 41 or 42. The practical importance of the question is limited but by no means excluded because there can be – admittedly rare – cases where neither avoidance nor damages are available95 and the request for performance (Article 46(1)) is not fulfilled. Then, price reduction remains the only remedy.

The wording of Article 50 speaks more against than in favor of an interpretation that the provision covers title defects. The text uses the phrase “conform with the contract” and “conforming goods,” which the CISG generally reserves for cases covered by Article 35. Title defects or “third party claims” are normally distinguished from quality defects.96 On the other hand, Article 50, sentence 2 refers to Article 48, which allows the seller the cure of “any failure to perform.” It is settled that Article 48 includes the cure of title defects as well.97 Moreover, Article 44 explicitly allows price reduction under certain conditions in cases of Article 43 (notice requirement for title defects). This can be best interpreted to allow price reduction for title defects. At the Vienna Conference of 1980, the question was however not decided, but left to the courts.98 With a view to the aim of Article 50 CISG it is evident that this provision intends to provide a practical and easy remedy where the goods have a reduced value as compared with what was agreed upon. For all practical purposes, there is no difference between defects concerning the conformity of the goods or concerning their legal status. Generally, the CISG treats the

93See also Articles 46(1) and 62 (where this principle is expressed with respect to performance).

94See also Ivo Bach in UN Convention, Article 50, para. 3.

95Avoidance may be time-barred due to Article 49(2) and damages may be excluded due to Article 79(5).

96See the heading of Section II of Ch. II of Part III of the Convention: “Conformity of the goods and third party claims.”

97See, e.g., Achilles, “Kommentar zum UN-Kaufrechtsubereinkommen,”¨ Article 48, para. 2; Brunner, UNKaufrecht – CISG, Article 48, para. 2; Enderlein et al., (fn. 89) Article 48, para. 2; Gutknecht, Das Nacherfullungsrecht¨ des Verkaufers¨ bei Kaufund Werklieferungsvertragen¨ (Frankfurt: Lang, 1996), 60 et seq.; Rolf Herber and Beate Czerwenka, Internationales Kaufrecht (Munich: Beck, 1991), Article 48, para. 2; Honnold and Flechtner, Uniform Law, para. 295; Magnus, “Wiener UN-Kaufrecht,” Article 48, para. 8; Pier-Eiling, Das Nacherfullungsrecht¨ des Verkaufers¨ aus Art. 48 CISG. (Berlin: Tenea, 2003), 67 (117–18: with respect to documents); Piltz, Internationales Kaufrecht, §4, Rn 63; Alexander Luderitz¨ & Dirk Schussler¨-Langeheine in Hans Th. Soergel, Burgerliches¨ Gesetzbuch mit Einfuhrungsgesetz¨ und Nebengesetzen vol 13 (Stuttgart: Kohlhammer 13th ed. 2000) Article 48, Rn 2.

98See Official Records, 360 et seq.

both kinds of defects widely similarly. Moreover, their equal treatment under Article 50 is desirable.99 The argument can be raised that the fixing of a realistic price reduction can be more difficult in the case of title defects than of conformity defects. If this assumption were true, the same difficulty would arise with respect to setting damages. In cases where the amount of the price reduction cannot be proved, then no reduction can be granted. In sum, it is the preferable view to also apply Article 50 to title defects under Articles 41 and 42.100

VI. Mitigation

A. The Concept

As in most legal systems, the CISG imposes on creditors a duty to reasonably mitigate any loss caused by the breach of the other party. Article 77 obliges creditors “to take such measures as are reasonable in the circumstances to mitigate the loss, including loss of profit, resulting from the breach.” This duty or Obliegenheit101 of minimizing a threatened or already existing loss is generally regarded as a more precise subrule of the general commandment of good faith, which the CISG alludes to in Article 7(1). Good faith requires that a creditor who, with reasonable effort, can avoid the consequences of the debtor’s breach should do so and cannot expect to be compensated for the avoidable part of the loss.

The CISG addresses the complex issue of contributory negligence also in Article 80. This provision is not limited in its application to damages claims but extends to all kinds of breaches of contract. It prohibits a party to claim damages for breaches of the other party if and to the extent the breach was caused by its own acts or omissions. This may

99See Schlechtriem and Butler, UN Law, para. 202.

100International legal writing is split over this question: see, in favor, Schweizer Bundesrat, Botschaft betreffend

¨

das Wiener Ubereinkommen uber¨ Vertrage¨ uber¨ den internationalen Warenkauf (Bundesgesetzblatt 1989 I 745 ss) 801 (for analogous application); Achilles, “Kommentar zum UN-Kaufrechtsubereinkommen,”¨ Article 50, para. 2; Brunner, UN-Kaufrecht – CISG, Article 50, para. 3; Alejandro M. Garro and Alberto Zuppi, Compraventa internacional de mercader´ıas (Buenos Aires: La Rocca 1990 171; Herber and Czerwenka, Internationales Kaufrecht, Article 50, para. 3; Roland Loewe, Internationales Kaufrecht (Wien: Manz 1989) 72; Magnus, “Wiener UN-Kaufrecht,” Article 50, para. 10; Friedrich Niggemann in Hans Hoyer & Willibald Posch (eds), Das Einheitliche Wiener Kaufrecht (Wien: Orac 1992) 106; Gert Reinhart, UN-Kaufrecht (Heidelberg: C.F. Muller,¨ 1991), Article 50, para. 2;Luderitz¨ & Schussler¨-Langeheine in Soergel (fn. 97) Article 50, para. 2; Rudolf Welser in Peter Doralt (ed.), Das UNCITRAL-Kaufrecht im Vergleich zum osterreichischen¨ Recht (Wien: Manz 1985) 122f.; Michael Will in Bianca & Bonell (fn. 28) Article 50, para. 3. 4; Enderlein et al. (fn. 89), Article 50, para. 1; against application on title defects Commentary of the Secretariat, Article 39, para. 8;Bernard Audit, La vente international (Paris: LGDJ 1990) 133f.; Ingo Saenger in Heinz Georg Bamberger & Herbert Roth (eds.), Kommentar zum Burgerlichen¨ Gesetzbuch, vol. 3 (Munich: Beck 6th ed. 2007) Article 50, para. 2; Matthias Hirner, Der Rechtsbehelf der Minderung nach dem Un-Kaufrecht (CISG) (Frankfurt: Lang, 2000), 214–15; Honnold and Flechtner, Uniform Law, para. 313.1; Anton K. Schnyder and Ralf Michael Straub in Honsell, Kommentar zum UN-Kaufrecht, Article 50, para. 11; Martin Karollus, UN-Kaufrecht (Vienna: Springer, 1991), 158; Ivo Bach in UN Convention, Article 74, para. 12; Huber in Kommentar zum Burgerlichen¨ Gesetzbuch, Article 50, para. 8; Benicke in Munchener¨ Kommentar, Article 50, para. 2; Piltz, Internationales Kaufrecht, §5, para. 304; Peter Schlechtriem in Wiener Kaufrecht, 132; Schlechtriem and Butler, UN Law, para. 202 (“desirable to allow a reduction in price for defects in regard to the legal status of the goods”); Markus Muller¨-Chen,in Schlechtriem & Schwenzer, Article 50, para. 2.

101 See supra note 18 and accompanying text; see also Gotanda in UN Convention, Article 77, para. 5.

sound like the old culpa compensation, which excluded any damages in case of the creditor’s fault. Yet, Article 80 has to be read and interpreted in connection with Article 77 in the sense that, where possible,102 the damage must be proportionately allocated between the parties according to their respective part in the causation and nonavoidance of the loss.103 The wording of Article 80 (“caused . . . by act or omission”) could give the impression that only the contribution to causation is relevant. But, in fact, fault also has to be taken into account. The word “omission” in Article 80 implies that a duty must have been neglected in an imputable way. Article 77 makes it even clearer that the neglect of a duty (“fails to take such measures”) is required.

B. Mitigation Duties Only for Damages

The wording of Article 77, and its positioning in the CISG’s section on damages, as well as the intentions of its drafters,104 make clear that the mitigation duty directly extends only to damages claims.105 Avoidance and price reduction cannot be denied because the creditor neglected a duty to mitigate the consequences of the other party’s breach. The creditor has no duty to avoid these remedies in the interest of the other party.

Indirectly, the mitigation duty plays a role with respect to avoidance and price reduction when these remedies are combined with a damages claim. Here, it has been held that the creditor is not allowed to wait for the declaration of avoidance – even within the reasonable time limit of Article 49(2) or price reduction if the extent of the loss is consequently increased, such as in the case of rapidly changing prices.106

Even though Article 77 does not directly apply to the remedy of avoidance and price reduction, it must be borne in mind that Article 80 and, more generally, Article 7 apply to the interpretation and application of these remedies. In special situations, for instance where the creditor intentionally delays the declaration of avoidance for speculative purposes, these provisions may hinder the creditor’s ability to rely on its declaration of avoidance.

1. Measures of Mitigation

The measures to mitigate the ensued or threatened loss vary according to the circumstances of the case. Moreover, the creditor need apply only reasonable measures, which

102Apportionment in conjunction with avoidance is rare because termination generally ends the contract as a whole; apportionment remains possible for the remedies of damages and price reduction.

103See also Award No. Vb/97142 of the Arbitration Tribunal of the Hungarian Chamber of Industry and Commerce May 25, 1999, CLOUT Nr. 265 (division of damage).

104See Official Records, 396 et seq.; Honnold and Flechtner, Uniform Law, para. 419.3. The Vienna Conference rejected a proposal by the United States to expressly extend the mitigation duty to other remedies than damages.

105See Commentary of the Secretariat, Article 73, para. 3.

106Achilles, “Kommentar zum UN-Kaufrechtsubereinkommen,”¨ Article 77, para. 2; Brunner, UN-Kaufrecht

– CISG, Article 77, para. 2; Jan, Die Erfullungsverweigerung¨ im deutschen und UN-Kaufrecht (Frankfurt/M: Lang, 1992), 164; Karollus, UN-Kaufrecht, 225; Mankowski, Munchener¨ Kommentar, Article 77, para. 4f.; Schlechtriem, UN-Kaufrecht, 92; Schwenzer in Schlechtriem and Schwenzer, Commentary, Article 77, para. 5; Welser, in Doralt (fn. 100) 128; Wolfgang Witz, Hanns-Christian Salger, and Manuel Lorenz, Internationales Einheitliches Kaufrecht (Heidelberg: Recht und Wirtschaft, 2000), Article 77, para. 3; but see Reinhart, UN-Kaufrecht, Article 77, para. 4.

have the real chance to reduce the loss. Thus, it is rather apparent that a buyer must stop the use of goods when their further use would damage other goods of the buyer. In the already mentioned vine wax case, the German Federal Court held that the buyer of the dangerous vine wax was not entitled to damages for the loss of those vine plants, which he treated with the wax after having discovered that the wax was defective and damaged the plants.107

Also, where a repair of the nonconforming goods would avoid further damage, in particular to other goods, the buyer has to initiate the repair even though the seller may be obliged to repair under Article 46(3). The buyer cannot stand by and then expect compensation for the growing damage. On the contrary, the buyer violates Article 77 if it creates or authorizes repair costs that are out of proportion to the value of the goods.108 It has been further held that a buyer of a unique machine must deconstruct it and resell its parts if they have sufficient value and the deconstruction can easily be performed.109

A special situation is a possible cover transaction to avoid further loss. It depends on the circumstances whether and when the creditor is obliged to undertake such a transaction.110 Where the contract has been terminated, a cover transaction will often be necessary to avoid further loss. Particularly in volatile markets, the creditor will be regularly obliged to make a timely and adequate cover transaction or has else to bear the loss itself that such cover would have avoided.111

2. Consequences

A violation of Article 77 generally leads to an apportionment of the damages between the parties in accordance with their respective part in the causation and failure to avoid the loss.112 Where the creditor’s contribution clearly dominates, his or her damages claim may be fully excluded. Article 77 provides not only a defense for the liable debtor; it is the prevailing view that the court must take it into account ex officio.113 Nonetheless, it is regularly the debtor who must prove the facts of a violation of the mitigation duty.

107BGH, March 24, 1999, NJW 1999, 2440.

108See BGH NJW 1997, 3311 (repair costs disproportionate to contract price unreasonable).

109Handelsgericht St. Gallen, December 3, 2002, IHR 2003, 181 (185).

110OLG Celle IHR 2001, 107 (buyer of nonconforming vacuum cleaners should have tried to make a cover purchase in the foreign country of purchase); Article 77 violated); OLG Braunschweig TranspR-IHR 2000, 4 (seller not obliged to resell deer meat before Christmas to third parties that the buyer had brought shortly before Christmas, but unjustifiably refused to take; deep-freezing of the meat and later resale at lower price sufficed); OLG Hamburg OLGR 1997, 149 (no violation of Article 77 where the seller resold chemicals with rapidly changing prices two weeks after the buyer had refused performance); OLG Dusseldorf¨ January 14,1994, CLOUT Nr 130 (resale of goods that the buyer unjustifiably refused two months after termination of the contract adequate); OLG Munchen¨ February 8, 1995, CLOUT Nr 133.

111See, e.g., OLG Hamburg OLGR 1997, 149; Handelsgericht St. Gallen December 3, 2002, IHR 2003, 181 (185); see also OLG Braunschweig TranspR-IHR 2000, 4.

112See also Award No. Vb/97142 of the Arbitration Tribunal of the Hungarian Chamber of Industry and Commerce May 25, 1999, CLOUT Nr. 265; see also Gotanda in UN Convention, Article 77, para. 27.

113BGH WM 1999, 1466; see also Achilles, “Kommentar zum UN-Kaufrechtsubereinkommen,”¨ Article 77, para. 6; Brunner, UN-Kaufrecht – CISG, Article 77, para. 16; Herber and Czerwenka, Inter-

¨

nationales Kaufrecht, Article 77, para. 8; Ulrich Huber, “Der UNCITAL-Entwurf eines Ubereinkommens uber¨ internationale Warenkaufvertrage,”¨ 43 RabelsZ 471 (1979); Mankowski, Munchener¨ Kommentar, Article 77, para. 8; Schwenzer in Schlechtriem and Schwenzer, Commentary, Article 77, para. 12; Luderitz¨ & Dettmeier in Soergel (fn, 97) Article 77, para. 11; Rolf Weber, “Vertragsverletzungsfolgen,” 165, 206; Wolfgang Witz et al., Internationales Einheitliches Kaufrecht, Article 77, para. 13; also in the same sense