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Part XI Remedies for Breach of Contract, 41 General Remarks about Remedies

From: Global Sales and Contract Law

Ingeborg Schwenzer, Pascal Hachem, Christopher Kee

From: Oxford Legal Research Library (http://olrl.ouplaw.com). (c) Oxford University Press, 2023. All Rights Reserved. Subscriber: null; date: 06 June 2023

Remedies for breach of contract — Performance of contract

41  General Remarks about Remedies

  1. A.  General 41.01

  2. B.  Cause-Oriented Approach 41.05

    1. I.  General 41.05

      1. 1.  Roman Law as a Starting Point 41.06

      2. 2.  Structure of Civil Codes 41.07

    2. II.  Different Causes 41.09

      1. 1.  Impossibility 41.09

      2. 2.  Delay 41.16

        1. (a)  Delay of the Obligor 41.17

        2. (b)  Delay of the Obligee 41.23

      3. 3.  Improper Performance 41.27

        1. (a)  Non-Conformity 41.28

        2. (b)  Breach of Other Duties 41.32

  3. C.  Breach-of-Contract Approach 41.34

    1. I.  General 41.34

      1. 1.  History of Assumpsit 41.36

      2. 2.  Caveat Emptor41.37

    2. II.  Equal Treatment of Breaches 41.38

    3. III.  Consequences of Breach 41.39

      1. 1.  Damages 41.39

      2. 2.  Specific Performance 41.40

      3. 3.  Avoidance 41.42

  4. D.  Modern Approach 41.45

    1. I.  General 41.45

    2. II.  Breach-of-Contract Approach as a Starting Point 41.47

    3. III.  Influences of the Cause-Oriented Approach 41.48

      1. 1.  Specific Performance 41.49

      2. 2.  Reduction of Price 41.50

      3. 3.  Nachfrist Principle 41.52

  5. E.  Contractual Modification of Remedies 41.54

    1. I.  General 41.54

    2. II.  Additional Remedies by Virtue of Contract 41.55

    3. III.  Limitation of Remedies 41.56

      1. 1.  Typical Clauses 41.57

        1. (a)  Exclusion of Certain Remedies 41.58

        2. (b)  Limitation of Liability 41.59

      2. 2.  Restrictions Imposed by Law 41.61

        1. (a)  Minimum Standard of Protection 41.62

        2. (b)  Consumer Sales 41.63

A.  General

41.01  Alongside the notion of breach of contract, remedies for breach of contract form the constituent part of every dispute arising from a sales contract. Naturally, the way in which remedies for breach of contract have been established and structured, their relationship to each other, and finally their operation are strongly influenced by the legal traditions and general principles of the individual legal system. Not surprisingly, there is a certain variety of approaches found in legal systems.

41.02  Indicative of the importance of remedies is the attention devoted to them by the parties themselves in their contracts. Clauses establishing, modifying, and excluding remedies are among the most common features in sales contracts.

41.03  The variety of solutions offered by legal systems can be broadly categorized by two general approaches, namely the ‘cause-oriented approach’ and the ‘breach-of-contract approach’. Under the first approach specific breaches trigger specific remedies. In other words, it must first be determined what type of disturbance in the performance occurs to determine the available remedies. Under the second approach the same set of remedies is triggered by all types of breach of contract. In other words, it does not matter in which way the performance of the contract was disturbed, the remedial response is always the same.

(p. 534) 41.04  For the purposes of the present work it is necessary to clarify two terminological issues. In this work the term ‘breach’ as well as the term ‘remedy’ are used in a broad sense as is done, for example, by the CISG. Breach covers all situations where performance of the contract is disturbed in one way or the other. It is thus broader than the term ‘breach’ that is used in common law legal systems and which is confined to cases where the obligor is liable for the consequences of such breach. Likewise this means that in this work the term ‘remedy’ encompasses all actions the aggrieved party may take following a breach of contract. This use of the term ‘remedy’ is again admittedly broader than it might be in many jurisdictions. This concerns in particular specific performance and avoidance of contract. In many jurisdictions, these are described as rights, while other jurisdictions refer to either or both as remedies for breach of contract. This work is not concerned with such dogmatic intricacies and thus addresses both specific performance and avoidance under the rubric of remedies. As for avoidance, it should also be noted that in this work that term encompasses all situations in which contracts come to an end where the performance of the contract is disturbed. Hence, situations where in some legal systems the contract is void due to impossibility are also covered.

B.  Cause-Oriented Approach

I.  General

41.05  The first approach addressed here is the cause-oriented approach. It is predominantly followed by traditionally structured civil law legal systems. However, at times also common law jurisdictions make use of this approach, namely with regard to avoidance of the contract.1 As indicated by the name, where a legal system follows the cause-oriented approach they structure their remedial systems in a way so that each cause for the disturbance in the performance determines the available remedy.

1.  Roman Law as a Starting Point

41.06  The cause-oriented approach originates in Roman law. Traditionally Roman law distinguished three scenarios and offered different remedies for each of them. The first scenario was impossibility of performance. The second was delayed performance. The third scenario was improper performance, which for the present purposes should be read as delivery of defective goods and the breach of additional duties.

2.  Structure of Civil Codes

41.07  The majority of civil law legal systems, in particular those belonging to the Roman tradition, have adopted a Roman-style structure to their civil codes. Today this concerns in particular the Ibero-American, Arabic, and Middle Eastern legal systems.2 In Central Europe, the number of civil law legal systems adhering to Roman tradition is still significant but has decreased to a considerable extent.3 The same holds true for Eastern European, Central Asian, and East Asian legal systems, where legislators by way of substantial reforms to the civil codes have moved away from Roman lineage.4

41.08  As is the case when addressing questions of transfer of title,5 it is necessary to look to numerous Articles in different parts of codes, and indeed potentially even different codes, in a legal system. In particular, where the cause is not unique to sales law, the respective provisions on the available remedies are typically contained in the general law of obligations or contract law. (p. 535) This primarily concerns impossibility and delay. Where, however, the cause is specific to sales contracts such as the delivery of defective goods or the legal defect of a good, this is dealt with in the specific parts on sales contracts.

II.  Different Causes

1.  Impossibility

41.09  The concept of impossibility6 was of crucial importance to the traditional Roman remedy system and still is in those legal systems following the Roman approach. This primarily pertains to civil law legal systems. However, under the headings of ‘frustration’ in common law jurisdictions and ‘impracticability’ in the USA the concept of impossibility also plays an important role in common law jurisdictions.7

41.10  A first distinction must be made between initial and subsequent impossibility. Both categories to this very day are not only an issue of remedies, but also an issue of validity. In recent times, however, the impact of impossibility on the validity of sales contracts has substantially diminished in light of recent domestic codifications and the developments at the international level.8

41.11  So far as impossibility still impacts on the validity of the contract, initial impossibility in a number of legal systems leads to the invalidity of the contract from its beginning.9 Subsequent impossibility typically leads to the avoidance of the contract in both civil law10 and common law jurisdictions.11 In most legal systems providing for this result, this happens ipso facto, (p. 536) in other words no declaration by any of the parties is needed.12 Where impossibility—independent of its kind—leads to the retrospective inexistence of the contract, performances already carried out must be unwound, typically in accordance with the rules on unjustified enrichment. With regard to subsequent impossibility this traditional position is increasingly subject to criticism in a number of jurisdictions. In these systems it is argued that the situation following subsequent impossibility is not one of unjustified enrichment but a contractual relationship directed at unwinding the contract.13

41.12  With regard to its effects on remedies, it is clear that impossibility necessarily removes the claim for specific performance.14 The obligee cannot require the obligor to perform an act that is impossible. In case of subsequent impossibility, certain acts of performance may have already been carried out. Those not yet carried out do not have to be performed by the obligor.15

41.13  The traditional concept of impossibility under the cause-oriented approach to remedies has, however, no effect on the obligee’s claim for damages. Whether the obligor is only relieved from specific performance but still liable for damages is not answered by this concept. Rather, the crucial question is whether the obligor is responsible for the impossibility having occurred.

41.14  In fault-based systems,16 it is obvious that the obligor is only liable for damages, if it has acted negligently or intentionally in causing the impossibility.17 However, there may then be differences regarding the extent of damages recoverable. Initial impossibility, if considered to invalidate the contract retrospectively, in most of these systems leaves the obligee with a claim for reliance interest only. Expectation interest cannot be claimed. The dogmatic reason for this is that as there was never a contract, there was never any protection of the expectation interest. However, these legal systems sometimes do not establish this expressly. While most of them have an explicit provision entitling the obligee to the recovery of reliance interest,18 others operate with the concept of culpa in contrahendo,19 which—at least for the time being—only protects reliance interest.20

41.15  In common law jurisdictions operating with frustration or impracticability there is no ipso facto avoidance of the contract if the party in breach was at fault in causing the event that ultimately prevented performance.21 Hence, for example, the failure of an at-fault seller to deliver because of impossibility therefore remains an ordinary non-delivery. Consequently, the usual remedies for breach of contract apply22—except of course for specific performance to the extent it would have been available at all.

(p. 537) 2.  Delay

41.16  The second central concept of the traditional Roman liability system is that of delay. This means that there is non-performance although performance is possible. Naturally, at some point in time every delay turns into subsequent impossibility as the purpose of the contract can no longer be fulfilled. In the context of delay two scenarios are conceivable. First, the obligor is late in performing. Secondly, the obligee is late in performing. This latter case is better understood as a delay in accepting performance or cooperating with the obligor in performing the contract.

(a)  Delay of the Obligor

41.17  The basic structure of delay is quite simple. For the obligee to avail itself of remedies for late performance by the obligor, delay is necessary. Legal systems, however, differ as to the exact requirements for delay. Germanic systems except Austria,23 those influenced by German law,24 as well as Ibero-American25 and Middle Eastern and Arab systems26 generally require that the aggrieved party puts the breaching party on notice unless—as will usually be the case in practice—a time for performance was specified in the contract.27 In many other legal systems there appears to be no requirement for a specific notice to trigger delay.

41.18  Legal systems differ as to whether fault on the part of the obligor is necessary for delay. Whether Roman law had required fault or even dolus on the part of the obligor to constitute delay is disputed.28 The former majority view was that it did. Nowadays the majority view seems to be that it did not.29 Today domestic German law still requires fault.30 The vast majority of legal systems, however, do not establish fault as a requirement for delay but focus on the time for performance and possibly notice. A differentiated approach is taken in some legal systems where objective and subjective delay are distinguished.31 Objective delay simply means that the obligor does not perform at the right time.32 The aggrieved party may then either insist on specific performance or fix an additional period of time and avoid the contract upon its expiration.33 In case of subjective delay—that is where the delay is due to the fault of the breaching party—the aggrieved party can either insist on specific performance and claim losses caused by the delay or may avoid the contract and claim for damages for non-performance.34

41.19  Once delay is constituted, the obligee is generally entitled to damages caused by the delay. In fault-based systems this requires fault on the side of the obligor. Regarding its other interests (p. 538) the obligee may typically avail itself of three (alternative) options.35 It may claim specific performance and in addition damages for the losses caused by the delay. It may abandon specific performance and instead claim damages for the whole expectation loss. Finally, it may avoid the contract. For these three options to be available, however, the obligee is generally required to fix an additional period of time for the obligor to perform.36 This concept has become famous around the world as ‘Nachfrist’.37

41.20  The general assumption is that timely performance is not of the essence; an assumption that can also be found in common law jurisdictions.38 Where at the end of the Nachfrist the obligor has still not performed, the obligee has the right to elect between the above-mentioned options. Where the obligee chooses one of the two options entitling it to damages, it is necessary that the obligor be at fault. This is not necessary with regard to the avoidance of the contract. Furthermore, the option to avoid the contract will obviously be of particular interest to the obligee where the obligee has already performed its part.

41.21  While legal systems generally envisage time to not be of the essence, there are, of course, exceptions to the general rule that in case of delay the obligee must fix a Nachfrist. Especially in commercial contracts, the obligee may immediately lose interest in performance if not carried out in a timely manner. All legal systems operating with the Nachfrist concept acknowledge that this concept may not always fit the practical needs of the parties. Typical instances in which a Nachfrist is not required involve situations where the obligor definitely refuses performance or where time is of the essence under the particular contract.39

41.22  An important feature of the concept of delay on the part of the obligor is the increased standard of care applied to the obligor. For example, where the goods are destroyed during the delay period, the seller is also liable if that happened by mere coincidence. Fault is not required. Consequently, where the obligor is in delay, it cannot rely on force majeure in the event performance is rendered impossible by an impediment beyond its control.40

(b)  Delay of the Obligee

41.23  Those systems operating with the traditional concept of delay may also establish rules on the delay of the obligee.41 This at first seems out of place, as the obligee under a contract is at the same time the obligor of its own obligations under the contract. For example, the seller is the obligee of the buyer’s obligation to pay the purchase price, but is the obligor of the obligation to deliver the goods. Conversely, the buyer is the obligee of the seller’s obligation to deliver, but is the obligor of the obligation to pay the price. In that sense, whenever a party is late in performing one of its obligations under the contract, this means that it is the delay of the obligor.

41.24  Nevertheless, it must be observed that an obligor in many instances is dependent on the obligee to cooperate in performing its obligation.42 Where the obligee fails to carry out the necessary acts, (p. 539) this may not in and of itself amount to the delayed performance of a contractual duty. For example, in those legal systems which do not consider the taking of delivery as a main obligation on the part of the buyer,43 it could be argued that where the buyer fails to do so in time, this is not a situation of delay of the obligor, as the buyer could not be considered as the obligor of the duty to take delivery. In other situations, the seller is only able to install the goods on the buyer’s premises if it is granted access to it.

41.25  The requirements for delay of the obligee are fairly simple. First, it is required that the obligor tenders performance.44 Secondly, the obligee must decline acceptance of the performance without legal justification.45 This may be effected expressly or impliedly. For example, where the seller offers delivery and the buyer is not present to take delivery at the place required by the contract, this constitutes delay of the buyer.46

41.26  The delay of the obligee in the first place restricts the liability of the obligor in fault-based systems. While ordinarily the obligor is liable for any degree of negligence, it is only liable for intent and gross negligence if the obligee is in delay. Consequently, where performance is rendered impossible during delay of the obligee, the obligor is only liable for damages if it has acted at least grossly negligently. Further consequences include the passing of the risk, if this has not already happened before,47 and the duty of the obligee to reimburse the obligor for additional costs it had to incur due to the obligee’s delay.

3.  Improper Performance

41.27  Improper performance is the third cause under the traditional Roman law liability system and separate from impossibility and delay. It is important to identify this distinction as late performance could also be viewed as ‘improper performance’ if broadly understood. However, there are significant differences regarding the remedies available to the obligee. The two main limbs of improper performance are non-conformity of the goods and the breach of duties aside from the main obligations of the contract.

(a)  Non-Conformity

41.28  The notion of non-conformity is discussed in detail in Chapter 31 above. For present purposes a few remarks on this notion within the cause-oriented approach to remedies are sufficient. Under the cause-oriented approach non-conformity of the goods triggers remedies different from those available in case of impossibility or delay.

41.29  As has been outlined above48 this goes back to Roman law where originally the seller was only liable when it had given a special guarantee (stipulatio) or had acted fraudulently (dol ). It was only later that in cases of non-conformity of the goods the buyer was granted the possibility of either avoiding the contract or having the contract price reduced.

41.30  As noted in the chapter on non-conformity,49 the distinction of aliud and peius is of significant practical relevance with regard to the sale of generic goods, since in the sale of specific goods either the specific good is delivered or it is not. With regard to the sale of generic goods the buyer is generally entitled to average quality.50 Thus, where the goods are of lower quality, the claim for specific performance is still available to the buyer. The buyer may alternatively resort to damages and recover its expectation interest. It is, however, necessary that the seller was at (p. 540) fault.51 No fault on the side of the seller is required where the buyer requests/declares reduction of the purchase price or the avoidance of the contract.52 The requirements for the avoidance of the contract in case of delivery of non-conforming goods are, however, not always clear—that is, whether or not a fundamental breach is required.53

41.31  Under French law and those legal systems following its approach, the starting point—that is, the distinction of aliud and peius—is the same. However, once the goods delivered have been identified as peius, liability for improper performance works differently. Although the French system is also based on Roman Law—that is, the ordinary remedy is avoidance and price reduction—it is important to note that the French Supreme Court in a long line of cases has interpreted Article 1645 CC, which allows for damages if the seller was aware of the defects, in a way that damages are the usual remedy as merchants are always presumed to be aware of defects.54

(b)  Breach of Other Duties

41.32  Where the improper performance relates to other duties, namely not what are considered the main obligations of a sales contract,55 it may be doubtful which remedies are available to the obligee. In particular, whether the claim for specific performance is available will typically depend on the individual circumstances of the particular case. Clearly specific performance simply may not work for certain additional duties such as the protection of life and limb of the obligee or its staff. On the other hand, where the additional duties pertain to the performance itself, specific performance is conceivable, for example, when it comes to packaging, labelling, or the production of documents.

41.33  For some civil law systems the question whether the obligee has a claim for damages in case of improper performance remains less easy to answer than one would expect. In some systems the claim for damages arises from general clauses within a civil code which allow for the recovery of losses in case of breach of contract provided that the obligor is at fault.56 In these systems no particular problem arises. However, in other systems the situation is less clear. This pertains to those systems that have no express provisions dealing with breaches that cannot be treated under the headings of impossibility or delay. A notable example was German law before its modernization in 2002. Germany was forced to invent the so-called Positive Vertragsverletzung (breach of contract by positive action) to deal with these situations.57

C.  Breach-of-Contract Approach

I.  General

41.34  The alternative to the cause-oriented approach to remedies is one which concerns itself only with the fact of a breach. It is therefore appropriate to refer to this approach as the ‘breach-of-contract approach’. This approach is traditionally followed by common law jurisdictions. However, modern and recently modernized civil law legal systems especially in East Asia have (p. 541) also adopted this approach. Traces of it can be found also in French law. As discussed below the breach-of-contract approach was also the starting point of what is subsequently presented as the modern approach.58

41.35  It would, however, be premature to assume that whenever there is non-performance there is necessarily a breach. Both the common law as well as French law only refer to non-performance (or inexécution) as a breach where the contract has not already been ended as a result of an intervening event.59

1.  History of Assumpsit

41.36  It is sometimes said that modern English-based contract law developed from the action of assumpsit.60 The history and importance of assumpsit has been the subject of many and detailed studies61 and is generally beyond the scope of this work. Historically, a distinction was drawn between nonfeasance and misfeasance. Nonfeasance refers to not doing something, or neglecting to do something, whereas misfeasance involved doing something wrong. Originally, only claims for misfeasance were recognized. Actions relating to covenants (that is, contracts under seal), debts, or detinue could be brought before the courts because these were acknowledged legal obligations. The failure to perform in such a case was misfeasance. On the other hand, if the agreement was a ‘simple contract’ (that is, not under seal), the claim was only one of nonfeasance and thus not actionable. However by around 1530, assumpsit had developed into an action for nonfeasance (as opposed to misfeasance), which thus enabled it to emerge as the standard action for a breach of contract.

2.  Caveat Emptor

41.37  The principle of caveat emptor has been addressed in Chapter 31 in the context of non-conformity. It was noted there that traditionally the seller did not, in the simple act of selling, warrant any degree of quality and thus the buyer bought at its own risk.62 Consequently, buyers did not have remedies for defects as there was no breach of contract.

II.  Equal Treatment of Breaches

41.38  While as a general proposition it can be said that equal treatment is afforded to any and all breaches, this does not necessarily mean that the specific outcomes do not vary according to the relevant breach. Indeed sales legislation contain different provisions dealing with different types of breaches. Furthermore, the calculation of damages may depend on the way in which the contract was breached.63

III.  Consequences of Breach

1.  Damages

41.39  Although perhaps changing, it can still be said that there is a general preference in the common law for the remedy of damages. The general understanding is that damages are available to an injured party to compensate for that injury, and to place that party in the position it would have (p. 542) been in had the breach not occurred.64 Parties generally have both an expectation interest and a reliance interest which ought to be protected by damages.65

2.  Specific Performance

41.40  The common law is generally thought to have shied away from the remedy of specific performance.66 However, over time certain groups of cases have been developed in which specific performance is indeed available, with the seller’s remedy to sue for the price67 being an obvious example.68 Provisions specifically entitling a buyer to claim specific performance are also found in the sale of goods Acts.69

41.41  In contrast, based on the principle of pacta sunt servanda the standard availability of the claim for specific performance has been described as one of the distinguishing features of civil law. Naturally, there are exceptions to the general rule, in particular impossibility. Whether in situations of hardship the obligor is relieved from specific performance is disputed among legal systems with a clear tendency favouring the obligor.70

3.  Avoidance

41.42  The avoidance of the contract71 is the most drastic remedy to be taken as it destroys the contract and requires the unwinding of the contract which may often be a costly and time-consuming process. As further elaborated below, there is a strong tendency both at the domestic and international level to make avoidance a remedy of last resort.72

41.43  It is interesting to observe that the common law jurisdictions, as the traditional representatives of the breach-of-contract approach, deviate from this approach in the context of avoidance. As stated below,73 the concepts of frustration and impracticability provide separate grounds for avoidance and avoidance indeed occurs ipso facto.74

41.44  In other instances the decisive issue in the context of avoidance is the seriousness of the breach of contract. Under the English model a distinction must be made between conditions and warranties.75 Conditions are considered to be so important for the contract that any breach is serious enough to justify avoidance of the contract. The breach of a warranty on the other hand only gives rise to damages. In the USA it is required that the breach of contract is a fundamental one.76

(p. 543) D.  Modern Approach

I.  General

41.45  Building on the traditional approaches outlined previously, a modern approach to remedies has emerged at the domestic and international level. Its most notable proponent is the CISG, which in 1980 had already departed from the traditional approaches. This departure has since influenced domestic as well as international approaches to remedies. Indeed, it has been argued that the CISG has become a lingua franca for trade law.77 Its influence is visible first in other international instruments.78 This includes the OHADA AUDCG,79 the PICC, as well as the PECL and the DCFR.

41.46  Secondly, recent domestic codifications display strong influences of the Convention albeit in a different manner. Some systems have structured their entire contract law and general remedial system in accordance with the CISG. This applies in particular to East Asian civil law legal systems80 but also to two of the three Baltic States.81 Others have adopted the structure of the Convention for their sales legislation specifically.82 Finally, some systems—especially those in the EU—have included the CISG structure only in their consumer protection legislation as the EC Consumer Sales Directive heavily drew on the CISG.83

II.  Breach-of-Contract Approach as a Starting Point

41.47  The modern approach has to a significant extent adopted the breach-of-contract approach, such that it can be described as its starting point. The effects of this approach have already been seen in the chapter on conformity.84 The practice of equal treatment of breaches has meant that distinctions drawn in those cause-oriented domestic systems are rendered unnecessary. Notable examples include the traditional distinctions of aliud and peius as well as vice apparent and vice caché.85

III.  Influences of the Cause-Oriented Approach

41.48  Despite principally adopting the breach-of-contract-approach, the modern approach nevertheless has been influenced by the cause-oriented approach. For example, the modern approach does not tend to disfavour specific performance in the manner which might be said of some traditional breach-of-contract approach jurisdictions.86 Furthermore, the modern approach actively promotes a reduction-of-price remedy—a hallmark of the cause-oriented approach.87 Finally, the Nachfrist principle has been incorporated into the system of avoidance in situations where total non-performance does not amount to a fundamental breach.88

(p. 544) 1.  Specific Performance

41.49  Under the CISG the remedy of specific performance is available both to the seller and to the buyer. The former may sue the latter for payment of the purchase price and taking delivery of the goods.89 The buyer may claim delivery of the goods and in case of non-conformity repair or, if the breach is fundamental, replacement.90 PICC and PECL which do not contain specific sales law more broadly refer to the performance of monetary and non-monetary obligations.91 However, the CISG as well as the uniform projects have attempted to accommodate concerns from common law by establishing certain exceptions to the availability of specific performance.92

2.  Reduction of Price

41.50  Another traditional remedy originating in Roman law, and thus a typical feature of cause-oriented jurisdictions, is the reduction of price. In strict traditional dogmatic understanding, this is not a ‘remedy’ but a ‘right’. For present purposes, and in a broader understanding of remedies for breach of contract, it will nevertheless be categorized as such.

41.51  Although seemingly unknown to the breach-of-contract approach,93 the concept of the reduction of price has survived all criticisms and doubts as to its utility and found its way into many recent codifications94 and into all international instruments except for the PICC.95

3.  Nachfrist Principle

41.52 Nachfrist’ is the German term for a period of time that is granted to the obligor in addition to the contractual time for (proper) performance. It is another example of a classic cause-oriented idea.96 In its original function the Nachfrist principle offered a second chance to the obligor to perform once it was in delay. During the additional period fixed, the obligee could not resort to any remedy for breach of contract. In that sense, the Nachfrist principle underlines the traditional priority of specific performance.97 Amongst more recent codifications this original function has been specifically maintained in the modernized German law of obligations.98

41.53  The Nachfrist principle has become famous around the world. However, although the term itself has been integrated into the legal terminology of many legal systems, its function has changed to some extent. This is particularly visible in modern codifications and at the international level. The international instruments have not adopted the priority of specific performance. As a general proposition the obligee is therefore not bound to fix a Nachfrist but rather simply is given the option to do so. However, it may be bound to do so where it intends to avoid the contract.99 As discussed elsewhere, avoidance of the contract has developed into a remedy of last resort.100 Hence, under the CISG avoidance of the contract is possible only in case of fundamental breach. Where non-delivery or non-payment do not amount to a fundamental (p. 545) breach, for example because time is not of the essence, the aggrieved party may only avoid the contract if it has fixed an additional period of time and the other party fails to perform within that period. This approach has also been adopted by other international instruments.101

E.  Contractual Modification of Remedies

I.  General

41.54  The general principle of freedom of contract suggests that the parties are free to contractually establish remedies in addition to those provided by law and modify or limit the default remedies for breach of contract. This power is not unfettered however and there are certain restrictions placed on this ability. It has at times even been suggested that the severity of the restrictions placed on the parties in that regard is surprising in light of the otherwise-granted liberties.102

II.  Additional Remedies by Virtue of Contract

41.55  Whereas some remedies are provided by default in some systems, in others these are only available where the parties have contractually agreed to them. A classic example is the claim for repair. This claim was not known to Roman law, first because under caveat emptor only damages were available in case of an express warranty or fraud and secondly because the aedilitian remedies only envisaged reduction of the purchase price and return of the goods against the price. Furthermore, from a factual perspective, repair was hardly possible as most cases involved specific goods such as slaves and cattle that could not be ‘repaired’ in cases of illness or the like. Hence, civil law legal systems based on Roman law do not envisage a claim for repair. In common law jurisdictions there is generally no claim for specific performance and a fortiori the buyer generally does not have a claim for repair.103 Consequently, to the present day many legal systems do not establish that remedy as a default remedy for delivery of non-conforming goods. Although in a number of legal systems, that remedy has been made available at least to consumers,104 in many legal systems it is still necessary to contractually stipulate a claim for repair.105 The usual clauses found in standard terms envisage repair and replacement as primary remedies to the exclusion of all other remedies.

III.  Limitation of Remedies

41.56  The mirror image to parties contractually establishing additional remedies is parties contractually excluding or limiting default remedies. In a typical scenario parties either attempt to exclude the application of a default remedy in its entirety or attempt to restrict the scope of the remedy in question. However, many jurisdictions place restrictions on the ability of parties to do so.

1.  Typical Clauses

41.57  There are typically two approaches adopted by contracting parties when seeking to modify default remedies. In one approach the remedy itself is explicitly excluded, in the other the remedy remains; however, it is limited.106

(p. 546) (a)  Exclusion of Certain Remedies

41.58  In commercial practice it appears not uncommon to exclude particular remedies. Whether or not such exclusions are effective is determined by the applicable law.107 An obvious example of a remedy which a seller may attempt to exclude is avoidance. The seller may prefer to offer repair and replacement rather than suffer liquidity issues associated with returning the purchase price and losing any profit from the contract.108 On the side of the buyer, it has an interest in excluding a right to stoppage in transitu.109

(b)  Limitation of Liability

41.59  An alternative approach is to limit the scope of a remedy or modify its prerequisites instead of excluding it. This is the typical reaction by contract drafters to laws which prevent the exclusion of a remedy altogether. This approach is of particular relevance for the remedy of damages.110 For example, where a fault-based liability system applies111 it is common for obligors to make their liability for damages contingent on a certain degree of fault.112 Typical limitation-of-liability clauses exclude liability of the obligor unless it has acted with at least gross negligence.113

41.60  Independent of whether a system is a fault-based or strict-liability one, parties may seek to limit the extent of their liability for damages. This is typically done in two ways. First, parties may limit their liability to certain types of losses. For example, a seller may exclude its liability for consequential losses or loss of profit. Secondly, parties may limit their liability to a certain amount. This is achieved, for example, where the parties cap the amount recoverable at a certain sum. In other instances parties may not reference a particular sum but rather make a generic statement to the effect that liability shall be limited to the greatest extent permitted by law. This latter formulation is an attempt to ensure that the limitation clause survives any regulatory control regarding reasonableness or minimum standards of protection. Naturally, the effectiveness of such clauses will be judged by the applicable law.

2.  Restrictions Imposed by Law

41.61  The freedom of the parties to modify the default remedies regime naturally has limits. Broadly speaking, legal systems typically do not accept that a party is left without any protection. Furthermore, specific protection is increasingly provided to consumers. Looking at the relevant case law in all legal systems reveals that limitation-of-liability clauses have always been the focus of discussion as regards the judicial control of unfair terms, be it on the level of incorporation, interpretation, or overt substantive control.

(a)  Minimum Standard of Protection

41.62  A sales contract creates rights and obligations for both parties. Likewise, it brings about benefits and risks. One of the risks is that in case of breach a party is liable. Although it is rational for parties to attempt to only get the benefits out of a sales contract, legal systems strongly object to the notion that a party can relieve itself from absolutely all risks. Rather, the law generally operates in such a manner as to ensure each party is vested with a minimum protection against breaches from its co-contractant.114 This is epitomized in the USA UCC where the Official Comment 1 to § 2-719 states that: ‘It is of the very essence of a sales contract that at least minimum adequate remedies be available. If the parties intend to conclude a contract for sale within this Article they must accept the legal consequence that there be at least a fair quantum of remedy for breach of the obligations or duties outlined (p. 547) in the contract. Thus any clause purporting to modify or limit the remedial provisions of this article in an unconscionable manner is subject to deletion … ’115

(b)  Consumer Sales

41.63  Consumers lack the bargaining power necessary to prevent a seller from including a clause limiting its liability. In the standard scenario, consumer sales transactions are based on and conducted in accordance with the non-negotiated terms of the seller. Recent consumer protection legislation has focused on the validity of these non-negotiated terms. The ability of sellers to exclude or even limit their liability in consumer transactions has been severely restricted. In the European Community the Consumer Sales Directive expressly obliges Member States to enact legislation to the effect that the default remedies for breach of contract may not be derogated from to the detriment of the consumer.116


(p. 548) 1  See para 47.26.

2  For the historical development of these legal systems see Ch 2.

3  For the historical development of these legal systems see ibid.

4  For the historical development of these legal systems see ibid.

5  See para 39.06.

6  See for details Ch 45.

7  The respective scope of impossibility, frustration and impracticability, however, is not necessarily identical. See on these issues Chs 45 and 47.

8  See eg Schlechtriem/Schwenzer/Schwenzer/Hachem, Art 4, para 33; Art 3.1.3 PICC; Vogenauer/Kleinheisterkamp/Huber, Art 3.3, para 3; Art 4:102 PECL; Antoniolli/Veneziano/Iamiceli, p 189; Schelhaas/van Rossum, p 193; Art II.-7:102 DCFR; Deu § 311 CC; Nld Art 6:74 CC. See also Ch 15.

9  Aus (Vic) s 11 SGA (as to no-longer-existing goods—but for never-existing goods see McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 (HC)); Bel Art 1108 CC; Bgr Art 26 CO; Bra Art 166(2) CC; Can (BC) s 10 SGA (as to no-longer-existing goods); Che Art 20 CO; Eng s 6 SGA (as to no-longer-existing goods, but (arguably) for never-existing goods see Couturier v Hastie (1856) 5 HL Cas 673); Esp Arts 1272, 1261 (2) CC; Fra Art 1108 CC; Hkg s 8 SGO (as to no-longer-existing goods); Ind s 7 SGA (as to no-longer-existing goods or damaged so as to no longer answer description); Irl s 6 SGA; Ita Art 1346 CC; Ken s 8 SGA; Lux Art 1108 CC; Lva Art 1454 CC; Mwi s 6 SGA; Mys s 7 SGA (as to no-longer-existing goods or damaged so as to no longer answer description); Nga s 6 SGA; Nzl s 8 SGA (as to no-longer-existing goods); Pol Art 387 CC; Prt Art 401 (1) CC; Sco s 6 SGA (as to no-longer-existing goods); Sgp s 6 SGA (as to no-longer-existing goods); Twn Art 246 CC; Tza s 6 SGA; Uga s 7 SGA; Wal s 6 SGA (as to no-longer-existing goods); Zaf van Huyssteen, para 256; Zmb s 6 SGA; Zwe s 6 SGA.

10  See Are Art 273(1) Federal CC; Arg Art 895 CC; Art 467 Com C; Arm Art 432 CC; Bel Arts 1147, 1148, 1722 CC; Ben Arts 1147, 1148, 1722 CC; Bfa Arts 1147, 1148, 1722 CC; Bhr Art 145 CC; Blr Art 386 CC; Bol Art 379 CC; Bra Art 248 CC; Caf Arts 1147, 1148, 1722 CC; Che Art 119 CO; Chl Art 1567(7) CC, Art 930 Com C; Civ Arts 1147, 1148, 1722 CC; Cmr Arts 1147, 1148, 1722 CC; Cog Arts 1147, 1148, 1722 CC; Dza Art 121 CC; Ecu Art 1610(8) CC; Egy Art 159 CC; Esp Arts 1182, 1105, 1184 CC; Fra Arts 1147, 1148, 1722 CC, Cass Com, 28 April 1982, Bull civ 1982.IV.145; Gab Arts 1147, 1148, 1722 CC; Gin Arts 1147, 1148, 1722 CC; Ita Arts 1256, 1463 CC; Irq Art 179 CC; Jpn Arts 410(2), 536(1) CC; Jor Art 247 CC; Kaz Art 374 CC; Kor Arts 385(1), 537 CC; Kwt Art 215 CC; Kgz Art 377 CC; Lbn Art 341 CO; Lby Art 161 CC; Lux Arts 1147, 1148, 1722 CC; Mar Art 335 CO; Mdg Arts 1147, 1148, 1722 CC; Mex Muñoz, p 450; Mli Arts 1147, 1148, 1722 CC; Ner Arts 1147, 1148, 1722 CC; Per Art 1316 sentence 1 CC; Phl Art 1266 CC; Pol Jankowski, p145; Prt Art 790 CC; Pry Art 628 CC; Qat Art 188(1) CC; Rus Art 416 CC; Slv Art 1438(6) CC; Syr Art 160 CC; Tcd Arts 1147, 1148, 1722 CC; Tgo Arts 1147, 1148, 1722 CC; Tha Art 219 CCC; Tjk Art 448 CC; Tun Art 345 CO; Twn Art 225 CC; Uzb Art 349 CC; Ven Art 1272 CC; Yem Art 223 CC.

11  See Aus (Vic) s 12 SGA; Can (BC) s 11 SGA; (ONT) s 8 SGA; Eng s 7 SGA; Hkg s 9 SGO; Ind s 8 SGA (or damaged so as to no longer answer description); Irl s 7 SGA; Mys s 8 SGA (or damaged so as to no longer answer description); Nzl s 9 SGA; Sco s 7 SGA; Sgp s 7 SGA; USA § 2-615(a) UCC; §261 Restatement (2d) of Contracts; Wal s 7 SGA.

12  See for this mechanism of avoidance para 47.181.

13  See for Che Schwenzer, para 64.16.

14  For details on the claim for specific performance see Ch 43.

15  See on the consequences of the contract coming to an end para 50.15.

16  For the concept of fault as a method of limiting damages see paras 44.63 et seq.

17  See paras 44.63 et seq. See also Che Schwenzer, para 64.19.

18  Arg Arts 513, 888, 889 CC; Art 467 Com C; Bra Art 248 CC; Chl Art 1547 (1), (2) CC; Col Art 1604 (1), (2) CC; Art 930 Com C; Ecu Art 1590 (1), (2) CC; Esp Art 1.104 CC; Mex Art 2111 CC; Per Arts 1317, 1321 CC; Prt Arts 546, part 1, 801 CC; Slv Art 1418 (1), (2) CC; Ury Art 220(2) Com C; Ven Art 1.271 CC.

19  eg this is now expressly established under domestic Deu § 311a (2) CC which actually grants expectation interest.

20  See Ch 25.

21  See for Aus (Vic) s 12 SGA; Can (BC) s 11 SGA; Eng s 7 SGA; Hkg s 9 SGO; Ind s 8 SGA; Irl s 7 SGA; Ken s 9 SGA; Mwi s 7 SGA; Mys s 8 SGA; Nga s 7 SGA; Nzl s 9 SGA; Sco s 7 SGA; Sgp s 7 SGA; Tza s 7 SGA; Uga s 8 SGA; Wal s 7 SGA; Zmb s 7 SGA; Zwe s 7 SGA.

22  See Ch 45.

23  See for Che Art 102(1) CO; for Deu § 286(1) CC; and with regard to avoidance MünchKommBGB/Ernst, § 323, para 46 who points out that although § 323(1) CC is unclear, a notice constituting delay is also necessary for delay giving a right to avoid the contract.

24  See for Grc Art 340 CC; Jpn Art 412(3) CC; Kor Art 387(2) CC; Twn Art 229(2) CC.

25  See for Bra Art 397 CC; Cri Art 418(b) Com C; Esp Arts 1100, 1109 CC; Art 63(2) Com C; Gtm Art 1826(3) CC; Mex Art 85(2) Com C; Prt Art 805 CC; Pry Art 725 CC. See generally, Muñoz, p 465.

26  See for Are Art 272(1) CC; Bhr Art 140(1) CC; Dza Art 119(1) CC; Egy Art 157(1) CC; Irq Art 177(1) CC; Jor Art 246(1) CC; Kwt Art 209(1) CC; Lbn Art 241 CO; Lby Art 159(1) CC; Mar Art 259 CO; Qat Art 183(1) CC; Syr Art 158(1) CC; Tun Art 273 CO; Yem Art 221 CC.

27  See for Che Art 108 no 3 CO; Deu § 286(2) CC; Jpn Art 412(2) CC; Kor Art 387(1) CC; Twn Art 229(2) CC.

29  Ibid.

30  See for Deu § 286(4) CC. Probably also Twn Art 230 CC.

31  See Aut Koziol et al/P Bydlinski, § 918, para 8; Che Arts 102, 103(2) CO.

32  See Aut § 918(1) CC; Che Art 102 CO.

33  See Aut § 918(1) CC. The wording appears to indicate that no fault is necessary to recover losses caused by the delay. It is, however, undisputed that such losses may only be recovered aside from specific performance where the delay was due to the fault of the obligor, see Koziol et al/P Bydlinski, § 918, para 8; Che Art 107(2) CO.

35  See for Che Art 107(2) CO; Mac Art 797 (3) CC; Twn Huang Maorong, Principles of Obligations, vol II, p 134.

36  See for Che Art 107 CO; Jpn Art 541 CC; Kor Art 544 CC; Mac Art 797(1)(b) CC; Tha Art 387 CCC; Twn Art 254 CC.

37  See further paras 47.49 et seq.

38  Common Law (UK) Chitty on Contracts, paras 21-012, 41-229; Benjamin’s Sale of Goods, para 9-051; Aus (Vic) s 15 SGA; Can (BC) s 14(1) SGA; Eng s 10(1) SGA; Gha s 23 SGA; Hkg s 12(1) SGO; Ind s 11 SGA; Irl s 10(1) SGA; Ken s 12(1) SGA; Mwi s 10(1) SGA; Mys s 11 SGA; Nga s 10(1) SGA; Nzl s 12(1) SGA; Sco s 10(1) SGA; Sgp s 10(1) SGA; Tza s 10(1) SGA; Uga s 11(1) SGA; Wal s 10(1) SGA; Zmb s 10(1) SGA; Zwe s 10(1) SGA.

39  See para 47.53.

40  See generally on exemption Ch 45.

41  See eg Che Arts 91 CO et seq; Deu §§ 293 CC et seq.

42  See further Ch 42.

43  See on this issue paras 35.17, 37.01.

44  See eg Che Art 91 CO.

45  See eg ibid.

46  See eg Che Schwenzer, para 69.09.

47  See eg Che ibid, para 70.04.

48  See paras 31.03 et seq.

49  See paras 31.15 et seq.

50  See paras 31.55 et seq.

51  See paras 44.77 et seq.

52  See on this concept generally paras 44.59 et seq.

53  See on the avoidance in case of non-conformity paras 44.77, 47.129.

54  See Civ 1, 19 January 1965, D 1965, 389.

55  See for additional duties paras 28.24 et seq, 35.20 et seq.

56  See eg Che Art 97 CO.

57  It is particularly interesting to note that this necessity appeared already in 1902, see Zimmermann, p 812. This means that merely two years after the entry into force of the German Civil Code its Roman law focus had already proved to be impractical. This is confirmed by the subsequent importance that this uncodified basis for claims enjoyed in legal practice. Positive Vertragsverletzung was also needed to grant damages in cases of non-conformity as consequential losses incurred due to the delivery of non-conforming goods were not recoverable under the traditional liability system, unless a guarantee or fraud could be established (§ 463 CC before 2002).

58  See paras 41.45 et seq.

61  See eg AWB Simpson, A History of the Common Law of Contract: The rise of the action of assumpsit (Oxford: Clarendon Press, 1975); Robert Palmer, English Law in the Age of the Black Death 1348–1381: A transformation of governance and law (Chapel Hill: University of North Carolina Press, 1993); Kevin M Teeven, A History of the Anglo-American Common Law of Contract (New York: Greenwood Press, 1990).

62  This naturally harsh rule was subsequently made subject to certain exceptions. See para 31.05.

63  See on the calculation of damages paras 44.216 et seq.

65  The relationship between these two interests is discussed in paras 46.124 et seq.

66  For specific performance generally see Ch 43.

67  Aus (Vic) s 55(1) SGA; Can (BC) s 52(1) SGA; Eng s 49(1) SGA; Hkg s 51(1) SGO; Ind s 55(1) SGA; Irl s 49(1) SGA; Mys s 55(1) SGA; Nzl s 50(1) SGA; Sco s 49(1) SGA; Sgp s 49(1) SGA; Wal s 49(1) SGA.

68  See for the exceptions to the general rule paras 43.30 et seq.

69  Aus (Vic) s 58 SGA; Can (BC) s 55(1) SGA; Eng s 52 SGA; Gha s 58 SGA; Hkg s 54 SGO; Ind s 58 SGA; Irl s 52 SGA; Ken s 52 SGA; Mwi s 52 SGA; Mys s 58 SGA; Nga s 52 SGA; Nzl s 53(1) SGA; Sco s 52(1) SGA; Sgp s 52(1) SGA; Tza s 52 SGA; Uga s 51 SGA; Wal s 52(1) SGA; Zmb s 52 SGA; Zwe s 52 SGA.

70  See on the concept of hardship and associated questions Ch 45.

71  See Ch 47.

72  See ibid.

73  See paras 47.32 et seq.

74  See for details see para 47.183.

75  See for this distinction in the context of avoidance, ibid.

76  See for details para