A Study On The Application Of Reducing Loss Rules In Contract Law

As an ancient rule in Anglo-American Contract Law, the rule of mitigation is used to limit the scope of damages. Today, the rule of mitigation has been recognized and adopted by many countries legislation and jurisprudence, and introduce by international treaties and other international law. In1986, article114of The General Principles of the Civil Law of PRC set up the rule of mitigation firstly. Moreover, article119of the Contract Law of PRC improved this rule in certain extent in1999. According to article119paragraph2, the defaulting party will bear the cost of reducing the loss.In China, the studies of academia are not in-depth and systematic, and we only quote this rule to solve cases. The rule of mitigation does not function well in China.This article tries to make more in-depth and systematic studies of the rule of mitigation throung starting from basic theories, focusing on the argumentation of the rationality and the types of measures to mitigate the losses, comparing the rule of mitigation with other related civil law rules, and to provide useful reference for the juridical practice.This article comprises four chapters. The first chapter divid into three parts:the author focuses on the definition, legal property, functions of the rule of mitigation in the first part; the second party elaborates the theory basis of the rule of mitigation, pointing out the theory of economic benefits, principle of good faith, immediate cause, punishment and reliance interest provide common theoretical support; the third party introduces the origin and developments of the rule of mitigation.The second chapter discusses the applicable bodies of the rule of mitigation, putting out that the defaulting party and the third man also need to undertake the duty of reducing the loss in addition to the non-defaulting party.The value orientation of contemporary contract law is moving towards the social standard by individual standard, requiring the parties to contract do like this inherently.In the third chapter, the author proposes and solves the core of the rule of mitigation, what is "the measures of reducing the losses". The chapter makes detailed analysis of the argumentation of the rationality, setting up two standards that are "rational people standard" and "good faith standdard". Furthermore, other objective factors, including suitability, expense, rule of market and property of contract, shall be taken into consideration on the above-mentioned standards. After that, the author specifies the main types of measures to mitigate the losses judicial combining cases and theories:stopped performance, actual performance, alternative trade and the new offer of defaulting party.The fourth chapter starts around the relationgship between the rule of mitigation and other related civil law rules, focusing on three issues as follow:the distinction between the rule of mitigation and contributory negligence; the benefits generate from reducing the losses wether to need to counteract the profit and loss; the conflict and coordination between the rule of mitigation and the rule of actual performance.