Zentaro Kitagawa Damages Inc

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Zentaro Kitagawa, Damages in Contracts for the Sale of
Goods, 3 Law Japan 43 (1969)
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1969]
DAMAGES IN CONTRACTS FOR THE SALE

OF GOODS
Zentaro Kitagawa
Translated by: D. F. Henderson & L. Hurvitz (Text)
Kazuaki Sono (Footnotes)
Translators'note
Professor Kitagawa's survey of the Japanese Law of Damages in Sales Con-

tracts will be useful to lawyers handling sales claims for importers or exporters.
The rising volume of trade between the United States and Japan in recent
years has inevitably increased the number of claims, though still only a small
portion reach the courts and only part of the litigated claims are ultimately
found to be subject to Japanese law. Nonetheless the subject is important
and timely, and English speaking lawyers may be surprised to find that the
Japanese Civil Code has but one brief provision (Article 416) on the scope of
damages. Concrete solutions to the variety of problems concerning the scope
of damages commonly found in sales cases are therefore not usually found in
the Code itself but since enactment of the European-styled code useful inter-
pretative rules have been accruing as a result of scholarly analysis and court
decisions, which are both discussed with expert understanding and a sophis-
ticated time prospective in this article. Of equal importance is Professor Kita-
gawa's description of the gaps in the cases where future court holdings are
difficult to predict except by reliance on leading Theories (tsasetsu); in addi-
tion, the article indicates several points where past precedents, though existent,
may not represent the law as it is developing in post-war Japan. Thus, in
addition to his exposition of the substantive law, Professor Kitagawa provides
many insights into the current reliability of various sources of law in the field
of damages.
I. FOREWORD: REFLECTIONS ON THE SOURCES OF LAW
Note. Mr. Kitagawa is Associate Professor of Law, Kyoto University, and Visiting Associate
Professor of Law, School of Law, University of Washington (1969-70). B. Jur. 1956, D. Jur.
1961, Kyoto University, Alexander-von-Humboldt Foundation Fellowship for study in Univer-
sity of Munich (1963-66). Mr. Henderson is a Professor of Law, University of Washington;
Mr. Hurvitz is a Professor of Asian Language, University of Washington; Mr. Sono is a Pro-
fessor, International Div., Sophia University, Tokyo.
This article was originally written in May, 1966, and was revised in December, 1969. The
article is intended to present a panoramic explanation of the theme, and at the same time to show
the specific features of the Japanese law which are significant to comparative law. The author
carefully read the English version and made modifications and additions so as to clearly reflect
his views. German words are added to make the provisional translation of Japanese terms into
English more understandable.
44 LAW IN JAPAN: AN ANNUAL [Vol. 3 : 43
II.
THE RIGHT TO PETITION FOR SPECIFIC RELIEF AND THE RIGHT TO PETI-
TION FOR DAMAGES
III. THE LEGAL CHARACTER OF OBLIGEE'S RIGHT To DAMAGES
IV. ADEQUATE CAUSATION
V. ORDINARY DAMAGE AND SPECIAL DAMAGE
VI. THE STANDARD TIME FOR THE CALCULATION OF THE AMOUNT OF DAM-
AGE
VII. CLASSIFICATIONS OF DAMAGE; RULES FOR ADJUSTING THE SCOPE OF
DAMAGES; THEORY OF DAMAGE
VIII. FURTHER CONSIDERATIONS
1. FOREWORD: REFLECTIONS ON THE SOURCES OF LAW

1. Japanese law makes basic provisions for reparation of damages in Civil
Code 415 and the articles which follow it. These are applied alike to trans-
actions in movables or in immovables as well as to contracts for sales, or any
other contracts. Furthermore, the provisions of the Civil Code apply to com-
mercial sales as well', since the Commercial Code has no special provisions
concerning the scope of damages. The following provisions in the Commer-
cial Code, however, may be cited as special provisions relating to reparation of
damages arising out of commercial sales: Seller's Right of Sale as Self-redress
(urinushi no jifo baikyaku-ken),2 the short period of extinctive prescription of
five years for commercial sales (Commercial Code-hereinafter Com. C.-
art. 522) as compared to ten years for civil sales (Civil Code, hereinafter to be
abbreviated as C. C., art. 167 (I)), and the six percent prescribed interest rate
for obligations arising from commercial transactions (Com. C. art. 514) as com-
pared to the five percent rate prescribed under the Civil Code (art. 404). Ex-
cept for the above, Japanese judicial precedents and scholarly theories ordinarily
do not treat commercial sales separately from civil sales. Consequently, while
the present article deals with damages in the sale of movables, in view of the
I Under the Japanese Commercial Code, Commercial Sale (shaoji baibai) means a sale be-
tween Merchants (shanin) (Mutually Commercial Transaction; s5h5-teki shakai); thus the
special provisions provided in the Commercial Code are not to be applied to a sale between a
non-merchant and a merchant. Cf. Commercial Code arts. 524-528.
2 Japanese Commercial Code art 524, in 2 EHS No. 2200.
(1) If, in the case of a sale between traders, the buyer refuses or is unable to take delivery
of the subject-matter of such sale, the seller may deposit it with the competent authority or
may sell it by official auction after he has given peremptory notice to accept within a rea-
sonable period fixed by him. In such case he shall dispatch notice of the fact to the buyer
without delay.
(2) Perishable goods may be sold by official auction without the peremptory notice men-
tioned in the preceding paragraph.
(3) In cases where the seller has sold the subject-matter of the sale by official auction in
accordance with the provisions of the preceding two paragraphs, he shall deposit the pro-
ceeds thereof with the competent authority; however, this shall not affect his right to
appropriate the whole or a part of such proceeds to the purchase price.
1969] SALES DAMAGES 45
special features of Japanese law in this regard, the principles to be stated below
are not confined to the sale of movables. In particular, such questions as the
legal standard to be appplied when calculating damages and the time when
such calculation begins, are determined in accordance with the general princi-
ples of liability for damages. The fact that, among the precedents to be cited
below, some deal with sales of movables, some with immovables and others
with non-sales contracts as well, should be understood in the light of this back-
ground.2a
2 a There are some special provisions on the measurement of damages:

** COMMERCIAL CODE art. 580:
(carrier's liability)
(1) In cases of the total loss of the goods, the amount of damages shall be determined by the
value prevailing at the destination on the day on which they should have been delivered.
(2) In cases of a partial loss of or injury to the goods, the amount of damages shall be
determined by the value prevailing at the destination on the day on which they were
delivered; however, in cases of delay in arrival, the provisions of the preceding paragraph
shall apply mutatis mutandis..
(3) Any freight and other expenses, the payment of which has been obviated by any loss
of or injury to the goods, shall be deducted from the amount of the damages mentioned
in the preceding two paragraphs.
(carrier's liability)
Where the goods have been lost, injured or delayed in arrival by reason of the wrongful
intent or gross negligence of the carrier, he shall be liable for all damages.
(carrier's liability in damages of valuables)
As regards money, valuable instruments and other valuables, a carrier shall not be liable in
damages unless the consignor has expressly stated their description and value when entrusting
him with the carriage.
** CbMMERCIAL CODE art. 766:
(shipowner's liability) [mutatis mutandis application of arts. 578, 580, 581]
** COMMERCIAL CODE art. 590 (2):
(liability of carrier of passengers)
In determining the amount of damages, the Court shall take into account the circumstances
of the injured party and of his family.
** Kokusai kaij5 buppin uns5 h5 (Law concerning carriage of goods by sea) art. 13 (Law
No. 172, 1957), in 2 EHS No. 2265:
(1) The carrier's liability with respect to the goods carried shall be limited to 100,000 Yen
per package or unit.
(2) The provisions of the preceding paragraph shall not apply when notice of the kind and
value of the goods is given by the shipper at the time they are consigned for carriage
and the bill of lading having the entry thereof is issued.
(3) In the case provided for in the preceding paragraph, the carrier shall not be liable to
make compensation for damages to the goods carried when the shipper has notified inten-
tionally a value which is markedly higher than their true value.
(4) When in the case provided for in paragraph 2, the shipper has notified intentionally
a value markedly below their true value, that value shall be taken to be the value of the
goods carried for the purpose of the provision concerning the damages to the goods carried.
(5) The preceding two paragraphs shall not apply when the carrier is in bad faith.
** Shaken torihikih5 (Securities and exchange law) art. 20 (Law No. 25, 1948), in 6EHS No.
6600: (Compensation amount)
2.The Japanese C. C. art. 416 deals with the scope of damages as follows:
(1) A demand of compensation for damages shall be for the com-
pensation by the obligor of such damages as would ordinarily arise from
the non-performance of an obligation.
(2) The obligee may recover the damages which have arisen through
special circumstances too, if the parties had foreseen or could have
foreseen such circumstances.
Though the scope of damages is the central question in the law of damages,
Japanese law in this regard is confined to the above-cited article. In the Japan-
ese legal framework, in which written law is of principal importance, such a
simple provision as the above, is insufficient, providing, as it does, no adequate
(1) The amount to be compensated in accordance with the provisions of Article 18, para-
graph 1 [liability of a notifier of false notification] shall be the amount representing the
difference between the amount paid by the claimant for the acquisition of the securities
concerned (not exceeding the amount computed by multiplying the public subscription
price or sale price by the numbers acquired) and the amount enumerated in any of the
following items:
(i) The current price of the securities concerned as of the time when the oral proceedings
in the trial of facts are concluded (if there is no current price, the price at which such
securities shall have been disposed of at that time);
(ii) If such securities have been disposed of before the time as prescribed by the preceding
item, such disposition price.
(2) In case a notifier of securities proves that the whole or a part of the amount of damages
incurred by a claimant was due to circumstances other than the depreciation of price of
such securities concerned as may be caused by false statment of the securities notification
or, by the omission of statement of important matters or of statement of important facts
necessary to avoid misleading, he shall not be liable, as far as the whole or a part of such
securities is concerned, to compensate.
** Tokkyo h6 (Patent law) art. 102 (Law No. 121, 1959), in 6 EHS No. 6850 A:
(Presumption, etc. of amount of damages)
(1) In case if a patentee or an exclusive lincensee demands any person who has intentionally
or by negligence infringed his patent right or exclusive license, the indemnification of
damages incurred by such infringement, and if such person is gaining profit by the act
of infringement, the amount of such profit shall be presumed to be the amount of
damages sustained by the patentee or exclusive licensee.
(2) A patentee or an exclusive licensee may demand any person who has intentionally or
by negligence, infringed his patent right or exclusive license the indemnification by making
pecuniary amount corresponding to the amount of money normally obtainable for the
working of such patented invention as the amount of damages sustained by him.
(3) The provisions of the preceding paragraph shall not preclude from demanding indemni-
fication of damages exceeding such amount as prescribed in said paragraph. In this
case if there is no intention or gross negligence on the part of the person who has infringed
a patent right or an exclusive license, the court may take it into account with respect to
the fixing the amount of indemnification of damages.
** Jitsuyd shin'han h (Utility model law) art. 29 (Law No. 123, 1959), has provisions similar
to Patent Law art. 102.
** Isho ho (Design law) art. 39 (Law No. 125, 1959), has provisions similar to Patent Law
art. 102.
* Shahy5 hd (Trade mark law) art. 38 (Law No. 127, 1959), has provisions similar to Patent
Law art. 102.
solution whatsoever for concrete cases requiring damages which arise from
complex transactions. Consequently, one must rely on the law of precedent.
However, although the examination of case law is important, in no sense is it
sufficient for a thorough understanding of Japanese law. This should become
clear upon consideration of the following points:
A glance at the precedents concerning damages following the enactment of
the Civil Code (1898), will reveal that very few cases deal with issues which
must have been raised and even if such issues are dealt with, they are treated
only very lightly; for example, such matters as the so-called hypothetical
Cause-Effect Relationship (katei-teki inga kankei; Hypothetische Kausalitdt)
or Third Party Damage (dai-sansha songai; Drittschaden) (see infra notes 118,
119). Furthermore, as will be pointed out immediately below [cf. 3], since the
influence of German legal theory has been strong in the law of damages, as in
other fields, and since the theory of reparation for damages under German
civil law, a law fundamentally different in structure, also made its way into
Japanese civil law, some confusion has been created in the case law. A good
example is the treatment of cases in which there is a change of market price.
Therefore, it is readily understandable that the Japanese law of damages may
not be properly comprehended solely on the basis of case law. In addition,
what makes the analysis of the law of damages particularly difficult is a peculiar
Japanese situation wherein only a very limited number of actual legal disputes
come into court; for the majority are settled out of court, often using some-
what different canons from what might be expected under the Code and judicial
precedents.3 We will not be able to discuss the last point any further in this
paper, but it should be understood from the points mentioned above, that
under Japanese law, the function of academic theory is of great significance.
3. At present, in Japan, the problem of case law is being much discussed
by scholars. On many points, such as the theory of the sources of law and the
principle of stare decisis, there is not necessarily a consensus. Nonetheless, a
mere glance at the quantity of case comments written by scholars will indicate
that present Japanese law, divorced from case law, is unthinkable. At the
same time, the importance of the role of academic theory in legal development,
is a peculiarity of Japanese law. For example, the extent of the influence of
German theory on the development of Japanese law can hardly be understood
-without recourse to scholarly theories in Japan, and further, the legal construc-
tions employed by some cases can not be accurately comprehended without
bearing this German influence in mind. Hence, in Japanese law, we may
observe that scholarly theories have contributed to the development of the law
with a relative degree of independence vis-a-vis precedents. When we con-
sider this function of theory in relation to precedent, we can suggest at least
the following three functions for scholarly theory:
A. The task of analyzing and defining objectively the case law now
3 Cf. T. Kawashima, Dispute Resolution in ContemporaryJapan, in LAW IN JAPAN 41-72

<von Mehren ed. 1963).
taking shape, be this as a critique of an individual decision or as a synop-
tic study of precedents.
B. The function of pointing out issues hitherto not adequately in-
vestigated where precedents are concerned, or legal standards of judg-
ments which may not be fully rationalized, or legal principles felt to be
questionable, with regard to legal norms in which precedents have
taken shape or are taking shape. The legal reasoning found in prece-
dents is often imprecise and the necessary prerequisites for arriving at
the results are not always adequately explained, partly due to the
peculiar background of Japanese law influenced by foreign law. For
example, as will be cited below, requisites for the purchaser's right of
cover or replacement, foreseeability and the like, are not adequately
classified.
C. The function of pointing out the direction for the future case
law to follow. This may bear on both the legal principles and the
legal constructions heretofore supported by precedents. In this regard,
the urgent need for the fruits of such sciences as legal history, compara-
tive law, sociology of law and the like, which are ancillary to the
interpretation of the law, cannot be over-emphasized.
The above three functions of scholarly theories are often interrelated, so
much so that a strict separation of them is not always possible. Nevertheless,
such a functional analysis is indispensable if one is to precisely analyze the
methodology of our various case studies nowadays.
4. Before embarking on our discussion proper, we shall survey briefly the
current studies of damages in Japan, as it will be helpful in understanding what
follows. Since the end of World War II, the law of damages has been one of
the fields which have attracted the attention of scholars as well as practitioners,
and in particular discussion has centered around C. C. art. 416, which defines.
the scope of damages.
In historical terms, it is commonly acknowledged that art. 416 of the Civil
Code is mainly derived from the English rule laid down in Hadley v. Baxendale,
9 Exch. 341 (1854). Most of the material spanning the period of the enact-
ment of the Civil Code (1898) has been destroyed by war; hence no certain
proof is possible, but recent studies support this view.4 In opposition to this
however, beginning several years after the enactment of the Civil Code to the
present day, most of the textbooks in explaining C. C. art. 416 pay no great
4 OKAMATSU, MUKASHITSU SONGAI BAISHO SEKININ-RON (Liability without negligence to

compensate damages) 53 (1st. ed. 1916; cited from Gakujutsusensho, 1953); SUZUKI, SONGAT
BAISHO HAN'I-RON (The scope of damages) 50, 51 (1957); Z. Kitagawa, Songai baish5-ron
josetsu (2) (Introductory comment to the law of damages), 73 HaGAKU RoNs6 (No. 3) 36 (1963)..
As to its detail, see Hirai, Saimufurika sekinin no han'i ni kansuru h5teki ksei (1) (Legal construc-
tion as to the scope of the liability for breach of obligation), 80 H6GAKU KY6KAI ZASSHI 777
(1964); Hirai, supra, 81 H6GAKU KY6KAI ZASSHI 228 (1965); Z. KITAGAWA, NIHON HOGAKU NO
REKISHI TO RIRON-MINPO 0 CHOSHIN TO SHITE (Theory and history of law in Japan-centeredt
around the civil law) 63-85 (1968).
attention to the rule laid down in Hadley v. Baxendale, but rather construe the
Japanese law of damages, in theory at least, in very German terms. A typical
example is the position that the scope of damages is determined by " Adequate
Causation " [soto ingakankei; addquate Kausalitdt), and that C. C. art. 416 is,
after all, a provision explaining this adequate causation.- Consequently, we
can perceive in Japanese law a dual structure of legal norms; namely, the
literal code provision, which basically was derived from Hadley v. Baxendale,
is overlaid by the inconsistent German theory of adequate causation.
This is one result of a phenomenon which I call " theory reception ".6 On
the one hand, thanks to the introduction of the German theory of civil law by
way of the theory reception, the formation of concepts and of constructs under
Japanese law was greatly advanced. On the other hand, the theory inevitably
leaves, because of the above mentioned dual structure, a certain vagueness in
legal thinking, both in judicial decisions and academic theories. In the field
of damages, the theory of adequate causation presently is criticized from a vari-
ety of angles. The principal examples are as follows: The problem is posed
by Yamada and Kurusu, who ask whether different principles are not at work
in the Japanese and German law of damages; they suggest that in German law,
full compensation is the rule [cf. BGB § 249], while in Japanese law, though
there is the same talk of" adequate causation ", compensation is limited. There
are articles by Kitagawa,8 which describe the growth and the legal structure
of the principle of full restitution [Vollrestitutionsprinzip],the concept of uni-
form damage, and the theory of adequate causation in German law; those
take up, in terms of comparative law, an analysis of the concept of damage, and
the " theory of the aim of the norm " [Theorie vom Normzweck] in place of
adequate causation (both problems are hotly argued in Germany today), and
also explain the above-mentioned dual structure in Japanese law-code rules
5 Oho, SAIKEN SORON (General principles of law of obligation), in 20 H6RITSUGAKU ZEN-

SHU 128 ff. (1959); YUNOKI, HANREI SAIKENHO SORON j6,(General principles of law of obligation
through cases) 139 ff. (1962); S. WAGATSUMA, SAIKEN SORON (General principles of law of
obligation) 117 ff. (new ed. 1964).
6 I understand " Theory-Reception " (gakusetsu kezju), for the present purpose, to mean
the massive and overall influence of a foreign legal theory which takes place at some point even
in conflict with the legal structure of the legal norms in the recipient country. As to this prob-
lem, see Z. Kitagawa, Das Methodenproblem in der Dogmatik des japanischenbirgerlichenRechts,
166 ARCHIV FUR DIE CIVILISTISCHE PRAXIs 332-333 (1966). See details in Z. KITAGAWA, NIHON
3HOGAKU NO REKISHI TO RIRON 1-398 (1968), which is intended to clarify the structure and pecu-
liarities of Japanese private law, taking into account aspects of the theory reception. See also
Z. KITAGAWA, REZEPTION UND FORTBILDUNG DES EUROPAEISCHEN ZIVILRECHTS IN JAPAN. (Ar-
beiten zur Rechtsvergleichung Bd. 45) (in press) Kap. II, Kap. VI.
7 Yamada & Kurusu, Songai baisho no han'i oyobi haha ni kansuru nichidokuryha no hikaku-
henkyrt (A comparative study of Japanese and German laws concerning the scope and method of
compensation of damages), in SONGAI BAISHO NO KENKYJ J6 (The study of law of damages)
(WAGATSUMA KANREKI KINEN RONBUNSHO 171-234 (1957).
8 Z. Kitagawa, Songai baish-ronjosetsu,73 H6GAKU RONs5 (No. 1) 1-42 and (No. 3) 17-57
(1963); Z. Kitagawa, Songai baisha-ronno shiteki hensen (Historical change in the law of dam-
ages), 73 H6GAKU RONS6 (No. 4) 1-71 (1963).
50 LAW IN JAPAN: AN ANNUAL [Vol. 3 :43
from Hadley v. Baxendale on the one hand and adequate causation from Ger-
man theory on the other. And there is an article by Hirai,9 which analyzes
these points at issue in great detail, intending to expunge adequate causation
from C. C. art. 416 and replace it with a law of damages on the Anglo-American
model. What this article intends to do is to survey the Japanese law of dam-
ages clarifying these questions and at the same time, bearing in mind the direc-
tion of the new theories.
11. THE RIGHT TO PETITION FOR SPECIFIC RELIEF

AND THE RIGHT TO PETITION FOR DAMAGES
1. Claims for Damages: When can the obligee's right to damages based
on a breach of contract be exercised? Here, the object of analysis shall be
" main " contractual liabilities (non-performance of obligation), for in supple-
mental contractual liabilities, this -problem does not arise, since violation of
incidental or Ancillary Duties (fuzuigimu), e.g., obligations to secure the property
and person of the other party, becomes bound up with the obligee's right to
damagessa. In civil law, Japanese law included, as a relief against non-perform-
ance of contract, compulsory specific performance or relief either become a prem-
ise to the obligee's right to damages, or are cumulatively given with the right to
damages.o In other words, in dealing with non-performance of sales con-
tracts, the right to demand delivery of the goods and/or the right to demand
payment, are enforceable relief measures. Actually, suits petitioning for
9 Hirai, supra note 4, at 773-860, and 81 H6GAKU KY(KAI ZASSHI 9-72, 227-277 (1965).
9a The terms Main (kihonteki) and Supplemental Contractual Liability (hojateki kelyak
sekinin) as used here, mean the following: The main contactual liability indicates "A compre-
hensive liability system for nonperformance of obligations to Perform Obligations (kyafu gimu;
Leistungspflicht) which includes various systems such as Primary Impossibility (genshitekifun),
Improper Performance (fukanzen riko), Warranty Against Defects (kashi tampo), and Negli-
gence in the Formation of Contract (keiyaku teiketsu j6 no kashitsu), including a Violation of
Performance which has accrued either Primarily or Subsequently (genshiteki khatsuteki rik5
shingai); and the supplemental contractual liability indicates a structure in which the violation
of such secondary contractual obligations as " Incidental " Obligations (fuzui gimu; Nebenp-
flicht) and Obligations of " Diligence " (chiigimu; Diligenz-, Schutzpflicht) are viewed within
the range of contractual liability. The incidental obligations; e.g., obligation to prepare for
performance, to examine the situations in question and to give information are intended to
maintain the contractual interests pursued by the contracting parties and to enable them to
realize those interest, while obligations of diligence include obligations to take care of the other
party's person and property, and are regarded as forming the circumference of the contrac-
tual relationship and, also of the contractual liability. For details, see Z. KITAGAWA, KEIYAKU
SEKININ NO KENKY (Study on contractual liability) 5, 93, 289, 349 ff., 361 (1968).
10 CIVIL CODE art. 414 (1): " If an obligor does not voluntarily perform his obligation,
the obligee may apply to the Court for specific relief thereof; however, this shall not apply
to cases where the nature of an obligation does not so admit." On this point, cf. voN MEHREN,
THE CIVIL LAW SYSTEM 510 ff. (1957); 1 RABEL, DAS RECHT DES WARENKANFS 375 ff. (1957,
1st. ed. 1936). See as to the difference between specific performance and damages, Jackson,
Specific Performanceof Contract in Louisiana, 24 TUL. L. REV. 401, esp. 412-418 (1950).
specific performance relating to unascertained goods are not common in the
civil law. Rather, it is with regard to specific use value or sentimental value
(Affektionsinteresse) or commodities monopolized by the seller that suits for spe-
cific performance or relief derive their meaning. Where this latter is concerned,
even in Anglo-American law, specific performance in equity is usually granted.
Consequently, while one may say that the primacy of specific performance or
relief is a peculiarity of the civil law, its real function is not greatly different
than in Anglo-American law. 1 Yet one must not forget that this primacy of
specific relief does occasion differences between continental law and Anglo-
American law in the overall structure and concepts concerning contracts.
How, then, does the right to demand specific relief change its character in
Japanese law (see supra note 10) because of a breach of the contract? Even
where there is a breach of contract, the right to specific relief is not, in and of
itself, replaced by a claim for damages under Japanese law. Yet, this does
not mean that the obligee's right to damages does not take effect unless the
right to specific relief is extinguished through the cancellation of the contract.
The important question then, is: When can the purchaser demand Substitute
Damages (tempo baisha) in lieu of performance in the event that the seller delays
his performance?12
At present, the majority of judicial precedents and academic theories sup-
port the buyer's right to damages to take the place of specific relief, even while a
right to the latter still exists, in the following three instances:
1. Where performance becomes impossible because of the passage
of the time for performance, for example, in case of a contract where
time is of the essence (" Bargain at Fixed Time ") (teiki kai; Fixgeschdft)
or where, even when performance is not impossible, delayed perfor-
mance would be no longer of benefit to the obligee ;13
2. Where, even apart from the above, Formal Demand (saikoku)
for performance within a fixed reasonable period of time is made, but
performance is not carried out within the said period of time (C. C. art.
541);14
3. Where a demand is made for the delivery of certain commodities,
but due consideration being given to impossibility of execution (not im-
11 See 1, RABEL, supra note 10, at 376, 378. Cf. Z. KITAGAWA, Keiyaku rik5 katei ni
tsuite no hikakuh5. UCC no identification o chushin to shite (Comparative law concerning the
course of performance of contract-especially on the UCC identification [of goods to the cont-
tract]), AMERIKA H6 177-87 (1968), which approaches this point from a comparative study of
UCC-Sales.
12 Needless to say, the buyer can claim damages caused by delay together with a claim for
the performance of an original obligation. See S. WAGATSUMA, supra note 5, at 112; OHo, supra
note 5, at 91-92.
13 End6 v. Onodera, 21 Minroku 931 (Gr. Ct. Cass., June 12, 1915); Arakawa v. Yonezu,
3
24 Minroku 615 (Gr. Ct. Cass., April 2, 1918); Oho, supra note 5, at 92, 93n. ; S. WAGATSU-
MA, supra note 5, at 113 ff.
14 Fujima v. Fukuyoshi, 12 Minshra 1437 (Gr. Ct. Cass., June 13, 1933) (dictum); Oho,
supra note 5, at 92, 93n.4; S. WAGATSUMA, supra note 5, at 112 ff.
possibility of performance), a claim for damages simultaneously is joined
in the suit."
The above three instances are important and interesting for understanding
the relationship between the right to specific relief and the right to damages.
In those cases, though specific relief may still be enforced, a substitute dam-
ages claim is possible, if the conditions specified in one of the three cases above
are fulfilled. This may mean that a breach of contract, as far as Japanese
law is concerned, creates an obligee's right to damages, but that valuelessness
of performance, a failure to comply with a demand specifying a reasonable
period for performance, and impossibility of execution, are regarded, so to
speak, as Conditions-in-law (hoteij6ken) for the exercise of this right.
2. Upon breach of a sales contract, the exercise of the other party's right
to Cancel (kaijo) the contract has the effect of extinguishing simultaneously
the claim for delivery of the goods and the right to demand the price. C. C.
art. 545 (1) specifies this as the Restitution of Original Conditions (genja
kaifuku). In connection with the effects of this cancellation, the following two
points are at issue: first, there are differences of opinion surrounding the
question as to whether the cancellation extinguishes the contract relationship
retroactively (ex tune), or whether it extinguishes it prospectively only (ex nunc),
thus giving rise to a liquidation relationship (Abwicklungsverhaltnis). Second,
C. C. art. 545 provides that " the exercise of the right of cancellation shall not
preclude a claim for damages." The question is: what does " damages "
mean here? The general view in Japan, while taking the view that the can-
cellation has retroactive effect, is that " damages " here refers to substitute
damages; that is, to Expectation Interest (rikd rieki; Erfullingsinteresse),which
the obligee could have had if the contract had been performed, and not to
Reliance Interest (shinrairieki; Vertrauensinteresse),8 the loss due to reliance
of the obligee on the existence of contract (e.g., contract expenses; profits lost
from bargaining with another customer) (see infra VII. 1).
However, if a contract relationship is to be extinguished retroactively, the
recognition of expectation interest would be inconsistent. This retroactive
effect of cancellation is due to the fact that, thanks to the above-mentioned
theory reception, which often disregarded its possible incompatibility with the
literal wording of Japanese Civil Code provisions, the theory based on the
15 Kujime v. Suzuki Shoten, 19 Minshri 530 (Gr. Ct. Cass., March 13, 1940), where a joined
claim for payment of the estimated value at the time of the close of oral arguments in court where
delivery of certain stock became impossible, was upheld; Nihon Seisen Tasei Knmiai v. Tay5
Seisen K.K., 9 Minshe 22 (Sup. Ct., January 21, 1955), where a similar result was reached in
a buyer's suit for delivery of wire; S. WAGATSUMA, supra note 5, at 113 ff. Impossibility of
Execution (shikk6fund) is, in Japanese law, broader in scope than Impossibility of Performance
(rikafun5) ; e.g., impossibility of execution arises if a sheriff cannot execute on the subject matter
because it is not in the hands of the seller, even though performance would not be impossible;
thus, under such a circumstance, the right to claim the performance still continues to exist.
16 For details, see Yamanaka, Kaijo no kka (Effects of cancellation), in 10 MIM8P, SG6
HANREI KENKYU SOSHO (Comprehensive case study series, civil law) 139 ff. (1961); Ito, Kaijo
no k6ryoku (Effects of cancellation), in 1 KEIYAKUHO TAIKEI 335 (1962).
German Civil Code, which attaches great importance to theoretical strictness,
was introduced. The relevant German provisions state the all-or-nothing
approach requiring the purchaser either to cancel the contract with retroactive
effect, or to seek damages (arts. 325, 326 BGB). In historical terms, it makes
more sense to say that Japanese law (which in respect to granting both damages
and contract cancellation is closer to French law) failed for a long time to arrive
at a more rational legal construction. There shall be no detailed treatment
of the question here, but if contract cancellation has a function different from
reparation of damages as legal relief for breach of contract, it is more reasonable
to take the view that, in Japanese law, the effect of cancellation is non-retroac-
tive.'7
The reason for discussing these theoretical matters is to lead up to this:
as mentioned in I above, by a breach of contract, the obligee's right to damages
is created as such and the right to cancel is a legal remedy separate and distinct
from the right to damages. That is to say, the two are interrelated but they are
not connected in the sense that, when the contract is cancelled, damages are
unavailable' nor, that as a result of cancellation the right to demand damages
takes the place of the right to demand performance. Rather, the right to
damages comes into existence from the time of breach and is as a matter of
law co-existing with the right to specific relief until cancellation of contract
(in cases of delay in performance). But its exercise is conditional on the
further requirements mentioned in 1. Therefore, although even today pre-
cedents at times say that at the time of cancellation the seller's obligation to
deliver goods is replaced by an obligation to pay damages,' 9 this is a legal con-
struction inconsistent with the precedents concerning the relationship between
specific relief and damages, seen in II.
3. Some precedents have it that, when the purchaser has refused to pay
the price, unless the seller cancels the contract the seller may not recover
damages in place of the price.20 The reason for this is that, as long as the
seller is able to demand the price, he does not, on the grounds that the pur-
chaser does not pay the price, suffer damages corresponding to the difference
between the current price of the goods and the contract price. However, in
view of the fact that, as we have seen in 1, substitute damages are granted to the
purchaser on the grounds of delay in performance [though subject to certain
conditions], it would be fairer to give the seller as well, a choice between the
17 The Non-Retroactive-Effect Theory (hisakkyil khka setsu) is becoming prevalent in

Germany. This is interesting because they also recognize the compensation of Additional
Damages (fukateki songai) and Consequential Damages (kekkateki songai) which have accrued
from the so-called " Positive Violation of Obligation " (sekkyokuteki saiken shingai) despite the
cancellation. Cf. LARENZ, LEHRBUCH DES SCHULDERCHTS, Bd. 1, 7 Aufl., 309 ff. (1964).
18 For a comparative study of laws, see 1 RABEL, supra note 10, at 429 ff.
19 See, e.g. Osumi v. Asahikawa Kybryoku Sen'i K~gy6, 7 Minshfi 1446 (Sup. Ct., Dec.
17, 1953).
20 Mori v. Ohashi, 15 Hy6ron-Minpa 541 (Tokyo Dist. Ct., June 25, 1912); Konishi v.
Tobe, 18 Minroku 1025 (Gr. Ct. Cass., Dec. 11, 1912); Nakayama v. Okubo, 884 SHINBUN 25
(Osaka App. Ch., Jan. 14, 1913).
price and damages, provided certain conditions are met. But since the cases
cited are old precedents and the precedents mentioned in 1 are more recent,
it is doubtful whether today courts would still support this position.
111. THE LEGAL CHARACTER OF OBLIGEE'S RIGHT TO

DAMAGES
1. As seen in II, the right to performance and the right to substitute

damages are forms of legal relief for the main contractual liability, each of which
preserves its separate identity after a breach of contract, but both forms of
relief are never granted simultaneously. In this sense, the right to substitute
damages may be regarded functionally as a substitute for the right to perform-
ance. Consequently, the right to substitute damages resulting from non-per-
formance of an obligation is a change in its content, while the right to Damages
for Delay (chien songai; Verzugsschaden) is an extension of the original right
to demand performance. 21 This aspect is reflected variously in the legal treat-
ment of these problems. For example, let us look at the following cases:
(a) The security interest available under the original right to demand per-
formance, extends to the right to damages as well (Jap. C. C. art. 346-pledge
rights; art. 447-surety; art. 374-mortgage, but note the restriction of sub-
section 2).
(b) The period of extinctive prescription is determined by the nature of
the original right to specific relief; it is particularly important whether the is-
sue is one of civil sales transactions or of commercial sales22 transactions.
(c) If the original right to specific relief is extinguished by extinctive
prescription, then there does not thereafter arise from such right a right
to damages based on breach of contract.2 3 Before the original right to demand
performance is extinguished by extinctive prescription, even if it changes into
a right to damages based on destruction of the goods involved, the extinctive
prescription period is not on that account extended.24
(d) A case has affirmatively answered the question of whether, in the event
the original right to demand performance is assigned, any accrued right to
damages for delay is also as a rule transferred.25
2. Furthermore, among breaches of contract, as in the case of supplementary
contractual liabilities over and above the expectation or performance interest,
there are instances where the property and/or person of the other party to the
contract are damaged; i.e. cases where, in picking up the goods, the other
party's factory facilities were damaged or where poisonous matter was mixed
into foodstuffs purchased-the so-called " positive violation of obligations"
21 As to the following statements, see S. WAGATSUMA, supra note 5, at 101-102.

22 Koide v. Kobayashi, 14 Minroku 13 (Gr. Ct. Cass., Jan. 12, 1908) held that the right to
claim damages from a commercial sale is subject to a five-year prescription period.
23 Kumada v. Nagao, 25 Minroku 1854 (Gr. Ct. Cass., Oct. 29, 1919).
24 -,S. WAGATSUMA, supra note 5, at 101.
25 Okubo v. K6meisha, 2767 Shinbun 16 (Gr. Ct. Cass., Oct. 22, 1927).
(positive Forderungsverletzungen). In such cases, there is no identity between

the right to specific relief and consequential damages. Therefore, it is
necessary to rethink the several points mentioned above. In fact, the pre-
cedents seem not yet to have touched on these points and in Japanese law, it
is a theme for the future. We shall attempt a provisional solution to these
problems below.
(a) First of all, does the security interest which accompanies the original
contract obligation extend as well to obligations to pay consequential damages?
Since Jap. C C. art. 346 says that pledge rights guarantee " damages resulting
from latent defects in pledged goods " as well, it should apply by analogy to
cases of such consequential damages. Also, since Jap. C. C. art. 374 speaks of
" damages resulting from nonperformance of obligations " while Jap. C. C.
art. 447 specifies only " reparation for damages ", the difference could pose a
problem. However, in view of the fact that liability for consequential damages,
though indirectly, is connected with the maintenance of contractual benefit,
from the teleological point of view, there should not be any harm in affirming
the extention of security rights.
(b) Where extinctive prescriptions are concerned, it should be proper to
hold that what has been said above with regard to the main contractual liability
holds true here as well. For one thing, there is no reason to single out for
special treatment this liability for consequential damages and, as long as one
is able to view these damages as arising from a contractual relationship, it is
proper to treat them, with respect to extinctive prescription, in the same way
as all contractual rights. A question here is whether, in those cases in which
consequential damages arise from defects in the goods (for example, damage
to his health suffered by the purchaser of spoiled foodstuffs), the one year
Strict Time Limit (joseki kikan, Ausschhssfrist) provided for liability for War-
ranties (kashi tampo) [Jap. C. C. art. 566, 570], can be applied by analogy to
liability for consequential damages as well. This question is linked to the
age-old dispute in Japanese precedents and theory as to whether liability for
implied warranty applies to the sale of non-specific, unascertained goods as
well. According to the view which denies this application, the right to damages
occasioned by Improper Performance (fukanzen rik); Schlechterfillung) (that
is, liability for non-performance of duty), has a ten-year limitation (in the case
of a civil sale) or a five-year limitation (in cases of commercial sale), thus being
quite out of balance with the one-year time limit governing liability or im-
plied warranty. For this reason and in order to put limitations upon this, as
it is argued, along with the view that advocates restrictions based on the good-
faith principle, that the one-year time limit is to be applied by analogy to the
right to damages arising from improper performance. 26 Leaving aside the pro-
26 As to the detail of scholars' opinions and cases, see S. WAGATSUMA, SAIKEN KAKURON
CHUI (Detailed discussions of law of obligation) 305 ff. (1961); Symposium, Shurui baibai to
kashi tampo (Sale by specie and warranty againsc defects), 19 SHIH6 1 ff., especially 18-20
(1958); see also Akamatsu & Bonneville, Disclaimersof Warranty, Limitation of Liability, and
Liquidation of Damages in Sales Transactions,42 WAsH. L. REV. 509 (1966).
priety of the distinction between improper performance and implied war-
ranties,27 in the cases and theory up to now there has been no distinction made
between consquenetial damages and damages for implied warranty (reduction
in value of commodities) with which we are concerned here this point should
require further analysis. In my view, while it may be proper to grant the one-
year time limit in cases where the goods' value has decreased because of defects,
it would be better to apply the standard prescriptions to the right to conse-
quential damages."
IV. ADEQUATE CAUSATION

1. The orthodox view in Japan is that the scope of liability for damages
is determined by a relationship of adequate causation (see above I, 4). In
opposition to this however, the language of Japanese Civil Code itself has, in
general, accepted the rule set forth in the common law case of Hadley v. Baxen-
dale, as can be seen in C. C. art. 416 in the distinction between " damages
which ordinarily would arise " and " damages arising from special circum-
stances ". At present, much criticism is being. voiced against the theory of
adequate causation, as a result of which certain future changes are expected
in the Japanese law of damages. Consequently, in order to consider damages
at this stage, it is necessary to make a specific comparison between the rule
laid down in Hadley v. Baxendale and the function performed hitherto by the
theory of adequate causation together with its underlying legal principle.
As has already been suggested, the theory of Adequate Causation (s&5d inga-
kankei) became a generally accepted view at a time when, after the enactment
of the Civil Code, Japanese scholars imported the German theory of civil
law virtually in its entirety.29 Since it is based on German law, we shall have
a look at the German theory of causation. Even in Germany, the " relation-
ship of adequate causation " is a legal concept which developed historically
and which has had a historical function. A particularly important fact is that,
in the Pandektenrechtof the 19th century, the concept of causation, in order to
fix the scope of damages, was placed at the very center of the law of damages,
and as a result it rejected views which distinguish the scope of damages on the
basis of whether the damages were foreseeable, whether the contract violation
was based on Intention (koi; Vorsatz) or Negligence (kashitsu; Fahrlassigkeit),
27 Under the recent view which regards the liability arising from warranty defects as a kind
of Non-Performance of Obligation (saimufuriko), the traditional controversies would become less
important. As to this problem and the writer's view, see Z. KITAGAWA, supra note 9a, at 336-
37, 365 ff.
28 In this respect, German scholars and courts apply a short period of prescription to the
liability arising from damages directly related to defects and the ordinary period of extinctive
prescription (30 years) to other additional or consequential damages. As to its detail, see Z.
KITAGAWA, Doitsu hanreiha ni okeru kashi tampo (2) (Warranty against defects under the Ger-
man, case law), 46 MINSH6H6 ZASSHI (No. 4) 87 ff. (1962).
29 Hirai, supra note 4, 81 HOGAKU KY6KAI ZASSHI 241 ff. (1965).
and whether damages were the direct or indirect result of breach of a contract. 30
The purpose of this was to assure full compensation for damages resulting from
breach of contract. Then, a structure which joined the determination of the
range of compensation on the basis of adequate causation with the principle
of full compensation (Vollrestitutionsprinzip) became the generally accepted
theory in Germany in the latter half of the 19th century and was introduced
into the German Civil Code (§ 249. BGB, 1900).
With respect to the combination of adequate causation and of the principle
of full compensation, the following question may be raised: whether, since
early in the present century when Traeger first put forward his theory of
" adequate " causation,31 the scope of compensation has been recognized
to have limitations in itself, rather than amounting to full compensation.
There is no denying that the theory of adequacy was supposed to restrict
the range of causation which otherwise might continue indefinitely. Never-
theless, the purpose of this was to refine the concept of causation in the legal
sense, and not to restrict the principle of full compensation. As Traeger says,
if all the circumstances which, at the time of breach, the " most perceptive
man " (der einsichtigste Mensch) was able to recognize with " knowledge born
of total experience " (das gesamte'Erfahrungswissen)are to be considered in the
judgment of adequacy, 32 then, with very few exceptions, all can be subsumed
under the relationship of adequate causation. As a matter of fact, in many
precedents demands for reparation were indeed granted in line with concepts
of adequate causation which are felt to have been frequently too broad.33
Therefore the theory of adequate causation, as a matter of function in Ger-
many, has served to support the principle of full restitution. As a result of
a second look at these excesses and as a result of changes in the precedents
since World War II, recent German theory is put in terms of restraints on the
principles of full restitution. Occasionally, thanks to the introduction of a
certain degree of Anglo-American legal thinking, the protective purpose of the
norm (Schutzzweck der Norm) is proposed as a standard in preference to the
relationship of adequate causation, while occasionally a resuscitation of the tra-
ditional notions of direct and indirect damages (urmittelbarerund mittelbarer
Schaden) is attempted.34
30 As to its detail, see Z. Kitagawa, supra note 8, 73 H6GAKU RONSO (No. 4), at 25 ff. 51-54
60-62.
31 TRAEGER, DER KAUSALBEGRIFF IM STRAF-UND ZIVILRECHT (1904).
32 Id. at 159.
33 Although it related to tort liability, Judgment of Oct. 13, 1922, 105 RGZ 264, is famous,
where adequate causation, was held to exist between a pistol injury negligently incurred and the
death caused by infliction of influenza at a hospital wherein the victim was hospitalized. As
to other cases, cf. VON CAEMERER, DAS PROBLEM DES KANSALZUCAMMENHANGS IM PRIVATRECHT
(1956).
34 For a detailed study on this point, see Z. Kitagawa, supra note 4, 73 H6GAKU RoNs6
(No. 3); Hirai, supra note 4. A recent publication on this problem in Germany is ROTHER,
HAFTUNGSBESCHRAENKUNG IM SCHADENSRECHT (1965).
2. As stated above, the German principle of full compensation, as a legal
construction, fixes the scope of compensation on the sole basis of causation,
rejecting the approaches which fix the scope of compensation on the basis of
the foreseeability of damages or intention and negligence, etc. It goes without
saying that these legal standards, so rejected, are the very things that support
the principle of limited compensation. In comparative legal history as well,
we note the following facts related to this question. The notion of limiting
the scope of compensation to damages foreseeable from contracts (contempla-
tion theory) was advocated as early as the 17th century by Molinaeus and others
in France, making its way thereafter, following Pothier, into the French Civil
Code (arts. 1150, 1151). Then the theories of Molinaeus and Pothier, as im-
portant as they were, were accepted by Hadley v. Baxendale (1854).15 After-
wards, the theory of Friedrich Mommsen, sustaining the principle of full com-
pensation, was put forth, leveling its attacks against Molinaeus's theory of lim-
ited compensation, which still had some supporters as late as the middle of the
19th century in Germany. 36
So, the problems now confronting the Japanese law of damages are con-
nected with the historical development of civil law and common law. How
then has the principle of limited compensation of C. C. art. 416 (in particu-
lar the foreseeability standard of subsection 2) been concretized into Japanese
law by the theory of adequate causation? To anticipate our conclusion, most
Japanese precedents do not accept as a prevailing view, the theory that the
scope of damages is determined by adequate causation; on the contrary, in
most decisions where the scope of damages is concerned, the important dis-
tinction is whether the damages were " ordinary " or " special " (cf. V. below
for concrete examples).
However this is not to say that the theory of adequate causation had no
effect on Japanese precedents. For example this theory became the grounds
for judgments in the following ways. In a judgment on whether ordinary
damage, under C. C. art. 416, may include damage accruing after cancellation
of a contract due to breach of contract (this is a case of a sharp rise in prices
after cancellation), it was adjudged that the party who breached a contract is
to pay damages to the extent that there can be recognized a causal relation-
ship as a matter of common business sense, between non-performance of the
obligation and the damage following contract cancellation. 7 Also, there is
the following example of where the theory of adequate causation had the
greatest effect on Japanese precedents. To be specific, this involved a con-
tract for a consignment sale of grain under which A deposited grains with B
35 See Washingon, Damages in Contract at Common Law (II), 48 LAW Q. REV. 103 (1932).
See also Z. Kitagawa, supra note 8, 73 H6GAKU RONSO (No. 4), at 23-25, 65-67.
36 See Z. Kitagawa, supra note 8, 73 HaGAKU RONSO (No. 4), at 37-38, 60-61, 65-66.
37 Suwa v. Aoki, 24 Minroku 2169 (Gr. Ct. Cass., Nov. 14, 1918); Iseda v. Emoto, 26
Minroku 1298 (Gr. Ct. Cass., Aug. 28, 1920); Kumagaya v. Yamaguchi, 2475 Shinbun 9 (Gr.
Ct. Cass., July 20, 1925).
who was to sell it according to A's directions and the proceeds from the sale
were to be set off against a debt owed by A to B. A cancelled this consign-
ment sale contract and thereafter paid his debt to B. However, by this time,
B had already illegally sold the grain to a third party so that B's obligation to
return the grain could not be fulfilled. Whereas the court of first instance
calculated the extent of A's damages as of the time performance became im-
possible, the Great Court of Cassation quashed and remanded this judgment,
on the following grounds: The scope of A's damages corresponded to all dam-
ages which were in a relationship of adequate causation to B's breach, which
meant that A was to recover an economic position exactly the same as if the
obligation had been performed by B. Therefore A should be free to choose
any advantageous price prevailing at any time after the said breach.3 8 This
precedent was one that set the highest intermediate price as the basis for cal-
culating damages, and scholarly theory was critical of it. At any rate in this
regard the theory of adequate causation is completely bound up with the prin-
ciple of full compensation as understood in German law. However, this prece-
dent, where price fluctuation was involved, was subject to subsequent change
(cf. V and VI.).
The following may be said about the Japanese law: The concept of (ade-
quate) causation itself in principle, has been accepted even by the courts, but
Japanese precedents have not yet advanced to the point where the scope of
damages is determined by relations of adequate causation as suggested by the
accepted scholarly view. Consequently, in concrete cases, the judgments of
adequacy are not categorized in the light of specific factual situations. For a
certain period of time, after the enactment of the Civil Code academic theory
played rather a leading role in the interpretation and formation of the law but,
with respect to the scope of damages, as will be seen concretely in V below, it
would be safe to say that the precedents showed a preference for deciding cases
by applying the Civil Code provision itself. In this sense the theory of ade-
quate causation, which is a commonly accepted theory in scholarly circles, is
of questionable value, at least where the scope of damages is concerned.39
There is at present a need to reexamine this question from the perspective of
a proper relationship between theory and precedent.
38 Osugi v. Mabuchi, 1 Minshra 283 (Gr. Ct. Cass., June 5, 1922). See also Leopord
Warford, Ltd. v. Tochigi, 1807 Shinbun 13 (Nagasaki App. Ch., Oct. 30, 1920) where the
principle of full compensation was indicated in the court's reasoning.
39 As indicated in the text, Japanese courts have not supported the view that the scope of
the compensation is determined by Adequate Causation (s&6 inga kankei). However, the
concept of a Cause-and Effect Relation (inga kankei) is still indispensable in treating a breach of
contract and the resulting damages; and, in the writer's view, the Adequacy (satesei; Adaquanz)
of such a cause-and-effect relation would remain a useful legal concept in deciding whether an
outcome is properly attributable to the Actor (k~isha).
V. ORDINARY DAMAGE AND SPECIAL DAMAGE

1. Herein we shall designate simply as Ordinary Damage (tsaj5 songai)
what C. C. art. 416 (1) calls " damages likely to arise in the normal course of
events " and as Special Damage (tokubetsu songai) what the same art. 416 (2)
designates as " damages resulting from special circumstances ". Below, we
shall begin by dividing breach of contract into seller's breach and buyer's
breach explaining them by particular reference to Japanese precedents.
Contract responsibility can be broadly divided into Main (kihonteki) con-
tract liability and Supplementary (hoja-teki) contract liability. This is a dis-
tinction based on whether the breach hindered the realization of the benefits
of performance or whether apart from these benefits, harm was done to
the persons and/or property of the parties (cf. note 9a above). Main con-
tractual liability (non-performance of obligations) is divided into Delay in Per-
formance (rik5 chitai; Leistungsverzug); Impossibility of Performance (rik5
fun5; Unmdglichkirt der Leistung); and improper performance (Schlechterffil-
lung). By contrast, supplementary contractual liability includes " Culpa in
Contrahendo " (teiyaku jo no kashitsu) whereby, during the negotiation of
a contract or at the time the contract took effect, harmful acts were performed'o
as well as " Positive Violations of Contract " (sekkyoku teki keiyakushingai;
positive Vertragsverletzungen) harmful to the persons and/or property of the
parties independent of the purposes of the contract during its performance. 4'
This type of contractual liability is an idea that is gradually appearing in the
precedents as well, but it is as yet an extremely undeveloped field in Japanese
law. Therefore, the account given below focuses on damages in ordinary
cases of non-performance of obligation.
Furthermore, damages for improper performance (cases where the subject
matter delivered has defects), depend on whether these defects can be sub-
sequently corrected. This means that the regulations governing delay in per-
formance when defects can be cured, or impossibility of performance when
defects cannot be cured are applied by analogy,42 hence that it is enough to
consult the rules concerning delay and impossibility concerning damages. In
connection with improper performance, the relation between Implied War-
ranty (kashi tampo) (Jap. C. C. art. 570) and improper performance has become
a problem in Japan. Regarding the Japanese " law of warranty ", here we
shall confine ourselves to the following points. In Japan, hitherto, the com-
monly accepted view was that implied warranty was based on a special statutory
responsibility but more recent theories have it, rather, that it is also one sort of
"breach of contract " and attempt to construe it as a special sort of improper
40 See Z. KITAGAWA, supra note 9a, at 194 ff, 339 ff.

41 See Z. KITAGAWA, sura note 9a, at 42 ff., 307 ff.
42 As to the effects of Imperfect Performance (fukanzen rika), cf. S. WAGATSUMA, Supra
note 5, at 153 ff., and Oho supra note 5, at 105 ff.
performance (cf. above note 27). Consequently, we shall here consider the
special rules governing implied warranty as one sanction of damages accom-
panying breach of contract.43
2. Among seller's breach of contract, there are cases wherein the seller
performs late after a delay, " Delayed Performance " (chitai rik6). In such
cases, which damages are considered ordinary, which special? It might be
convenient to clarify this matter by dividing the cases into the following two
groups:
(a) Cases in which the buyer does not stand in a contractual relationship
with any third party.
In such cases, the most important question is how to determine the amount
of damages by delay when there has been a change in the price of the goods
concerned. As ordinary damages, the Supreme Court has awarded the dif-
ference between the contract price and the price at the time of the delayed de-
livery. This refers specifically, to a case of the sale of soy bean oil in which,
after delay, the market price dropped and as foreseeable " special damage ",
the court of first instance awarded the difference between the price paid and
the market price at the time when delivery should have been made. The
Supreme Court, reversing this decision, held the difference between the pur-
chase price and the price at the time of delayed delivery as " ordinary dam-
age ".44 But the Great Court of Cassation once decided that damages due to
price change were special damages: Where the seller made delayed delivery of
cotton tape covered by a trade contract, the purchaser suffered damages due to
subsequent changes in the exchange rate (that is, of Indian rupees). These
damages were held to be special damages. Since the seller foresaw or could
have foreseen the likelihood of fluctuation in the rate of the rupee, in that case,
he was held liable. 45 For this reason, as long as one used this case as a guide,
the purchaser was burdened with proving the foreseeability of special circum-
stances. This means, for example, that if the subject matter of contract are
immovables, the buyer could not readily recover the difference between the price
at the time of expected performance and that at actual performance, because
such a resale price would ordinarily be difficult to establish. Rather, the
buyer must prove as a special circumstance his intention to resell and the pos-
sibility of resale immediately after timely performance together with the
foreseeability of such matter to the seller.46
43 As Expectation (or Performance) Interest (rik5 rieki), the difference between the contract
price or the value of perfect goods, without defects, and the value of the defective goods ordinari-
ly becomes the amount of damages. Cf. Z. KITAGAWA, supra note 9a, at 369-70.
44 Kasuya K.K.v. Yury6 Sat6 HaikyOkedan, 15 Minshfi 2706 (Sup. Ct., Dec. 8, 1961).
However, the writer doubts the correctness of the decision in holding that this difference was the
Lucrum Cessans (ubekarishirieki) from resale of the bean oil by the purchaser. The amount
paid by a purchaser for freight and insurance, if any, is of course deductible; it was so held ih
Yonezawa v. Arakawa, 4 Hy6ron-Minp6 613 (Tokyo Dist. Ct., Sept. 8, 1915).
45 Hidalari v. Nippon Seityfi K.K., 2 Saibanrei (Min) 12 (Gr. Ct. Cass., June 8, 1928)
46 Yamamoto v. Maeda, 8 Saibanrei 1 (Gr. Ct. Cass., Jan. 16, 1934).
62 LAWIN JAPAN: AN ANNUAL [Vol. 3 : 43
At present, this is no longer sustained by later decisions but, as we shall see
later, the case law, including the recent precedents, does not provide a clear
solution to this problem. In particular, presumably induced by the influence
of the theory of German civil law on Japanese scholarly theory, since dam-
ages due to " price fluctuation " have been often legally construed as Loss of
Profits (isshitsurieki; lucrum cessans-cf. BGB § 252) which would have accrued
from resale (the abovementioned Supreme Court decision clearly construes it
still, as profit from resale; cf. above, note 44), the result has been a confusion
in legal thinking, as it had been construed, not as ordinary damages but, often
as damages due to the special circumstances of resaleability.
(b) Cases in which the purchaser stands in a contractual relationship to a
thirdparty.
These cases are of several kinds. The first kind is the purchase and sale
of ships. When the seller delays performance and makes a late delivery, and
when the purchaser has, after the delay, resold to a third party, what becomes
of the purchaser's delay damages? On this point, the Great Court of Cassa-
tion has ruled that in general the loss of profit which would have accrued from
a charter party during the period of delay, would be ordinary damages; but,
since a resale contract has been drawn up, the profits which would have accrued
from such a charter had already been forfeited.47 It has further ruled in an-
other case that, since the delivery of the goods, in this case bridge-building
stones, has been delayed, the purchaser may demand the expenses incurred as
special damages, when the purchaser, in order to get his buyer to accept post-
ponement of performance of the resale contract, had supplied substitute
material for temporary bridge construction.4 8
3. In 2, we discussed delay damages but here we will take up Substitute
Damages (tempo baisho) for seller's breach of contract. Substitute or com-
pensatory damages may be demanded in cases of impossibility of performance
or, even in the event of delay of performance (Leitstungsverzug), in cases ful-
filling certain fixed conditions such as contract cancellation or, even when no
cancellation takes place, if demand for performance is made within a specified
period of time (on this point see II, above). Here also, the cases may be
divided into two types:
(a) Cases wherein the purchaser does not stand in a contractualrelationship
to a third party.
Most important here are cases of price fluctuation. This is, in terms of
Japanese law, the question of the so-called " highest intermediate price " with
regard to which neither theory nor precedent has arrived at satisfactory rules.
Even the precedents are undergoing repeated change.
In the very early precedents concerning substitute or compensatory dam-
ages, the difference between contract and market price was regarded as or-
47 Tokyo Kaiun K.K. v. Hashimoto, 6 Minshia 464 (Gr. Ct. Cass., July 7, 1927).
48 Yusa v. Ono, 14 Minroku 1073, (Gr. Ct. Cass., Oct. 28, 1908).
dinary damages. 49 Thereafter, the reason given in the court decisions for
treating this difference as ordinary damages is, for.example, that where the
price rises sharply, the purchaser could have resold the goods at the higher
price and profited from the resale equal to the difference in price. 0 However,
once the purchaser's damages due to price fluctuation were construed, as seen
above, as " profit which would have accrued " (lucrum cessans; loss of profits),
the decisions were then modified as follows: when damages due to price fluc-
tuation are construed as Profits that would have accrued from Resale (tembai
rieki), the " profits " may not-as a matter of course at least-be looked upon
as ordinary damages. Also in Japanese law, in contrast to the German Civil
Code (art. BGB 252),61 the legal treatment of burden of proof and foreseea-
bility differs greatly depending on whether the profits that would have accrued
are ordinary damages or special damages. It is, in this view, more reasonable
to look upon resale profits as special damages. Herein lies the reason Japanese
law has often come to construe buyer's damages due to price fluctuation as
damages due to special circumstances (that is, possibility of resale) as specified
in C. C. art. 416 (2).62
This approach is typified by the Great Court of Cassation decision of 1918,
which went so far as to say that a sharp rise in prices is only a special circum-
stance.5 3 Furthermore, where burden of proof is concerned, the profit that
would have accrued to the buyer from a sharp price rise on resale may be de
facto presumed in the case of sale of securities, but in the sale of standing trees
and/or land, no such presumption is possible, and the burden of proof thus
falls upon the purchaser. 4 Thus, damages due to price fluctuation are equated
with the " profits " that would have accrued to the buyer through resale and
the central issues then become questions such as (1) the nature of the subject-
matter of sale; (2) whether the buyer is a merchant constantly engaged in
49 Sakamoto v. Yutani, 10 Minroku 1404 (Gr. Ct. Cass., Nov. 7, 1904); MutO v. Shimo-
mura, 11 Minroku 1607 (Gr. Ct. Cass., Nov. 28, 1905).
50 Watanabe v. Mizuumi, 12 Minroku 1358 (Gr. Ct. Cass., Oct. 29,1906); Naoki v. Hat-
tori, 14 Minroku 290 (Gr. Ct. Cass., March 18, 1908), where the court held that a buyer could
claim for the amount of the increase in price as lucrum cessans if he bought the goods in his busi-
ness, even though in fact he did not resell.
51 BGB art. 252: " Der zu ersetzende Schaden umfasst auch den entgangenen Gerwinn.
Als entgangenen gilt der Gewinn, welcher nach dem gewohnlichen Laufe oder Dinge der nach
den besonderen Umstiinden, insbesondere nach den getroffienen Anstalten und Vorkehrungen,
mit Wahrscheinlichkeit erwartet werden konnte."
52 Ogasa Gink ov. Doi, 4 Hyaron-Mimp6 154 (Tokyo App. Ch., Feb. 22, 1915), where the
court said that it was foreseeable that a purchaser of stocks would resell unless special circum-
stances existed; Kawai v. Yoshizawa, 1106 Shinbun 25 (Tokyo Dist. Ct., Dec. 10, 1915), where
it was held that the seller of zinc was not liable for the loss of profits which had become evident
three months after the delay in performance for the reason that according to commercial usage
in zinc sales, buyers did not keep the purchased zinc for such a long period. Also the cases
discussed below show the same trend.
53 Kuroharav. M.M.A. Nawara, 24 Minroku 1658 (Gr. Ct. Cass., Aug. 27, 1918), where,
in a sale of matches, the increase in price was held foreseeable at the date performance was due.
54 Kadomatsu v. Kasuga, 3 Minshrs 232 (Gr. Ct. Cass., May 27, 1924), which quashed the
lower court decision that had used the increased price at the time of initiation of the suit as a
standard in a sale of standing trees.
resale; (3) whether he was in a situation in which resale would have been
possible and the like.65 Such trends would explain a decision to the effect that
ordinarily, regarding readily saleable stocks, retention over 8 months after the
expected time of performance by the purchaser-merchant of stocks, is a special
circumstance. This was the reason given for over-ruling the court of first
instance which held that the difference between the contract price and the in-
flated price 8 months after the due date of performance, was substitute or com-
pensatory damages. 6 However as this case also shows, it should be remem-
bered that there is no direct essential connection between damages due to price
fluctuation and profits to be derived from resale. Rather, as some decisions of
the Supreme Court show, damages due to price fluctuation are to be regarded
as ordinary damages accompanying breach of contract.
Of course, one can take the view that the precedents just cited are losing
their authority. Even before World War II, a number of precedents held
damages due to a rise in prices to be ordinary damages."7 Notably, since the
War the Supreme Court has repeatedly held damages due to price fluctuation
to be ordinary damages. Specifically, in a judgment rendered in 1953,68 which
involved a contract for the sale of wood (for the manufacture of geta [wooden
sandals]) where the seller did not perform, the purchaser cancelled the contract
approximately one year after it had been drawn up and the Court regarded the
difference between the inflated price at the time of cancellation and the pur-
chase price as ordinary damages. Also there is a judgment rendered in 1961,69
concerning a contract for the sale of dried noodles, which was cancelled ap-
proximately one year after conclusion of the contract because of non-perform-
ance on the part of the seller. Here too, the Court supported the purchaser's
claim for ordinary damages equal to the difference between the price at the
time of the expected performance and the contract price. There remains the
question of what prices, in point of time, are the standard for calculating
damages (to be explained below in VI), but the direction of the precedents at
present seems to be toward treating damages due to price fluctuation, as or-
dinary damages. [cf. note 44 above, for a Supreme Court decision taking an
55 Arakawa v. Taki, 3266 Shinbun 15 (Gr. Ct. Cass., April 15, 1931), where the court said
that proof of a purchase with the intention to resell and of an increase in the market price of
flour at the time of the seller's nonperformance were sufficient; Kawai v. Ishikawa, 300 H6ritsu
Shinpa 25 (Tokyo Dist. Ct., June 11, 1932), which did not allow the recovery of an increase in
the market price as loss of profit because no contract for resale had existed; Yamazaki Shaten
Gshigaishav. Sakogawa, 21 Hy6ron-Minpa 1134 (Tokyo Dist. Ct., Sept. 29, 1392), where the
court said that the loss of profit from resale was foreseeable, since the buyer was a broker of rice.
56 Ikeda v. Utimura, 4 Hanketsu zensha (No. 5) 6. (Gr. Ct. Cass., March 5, 1937).
57 Osugi v. Mabuchi, 1 Minsh 283 (Gr. Ct. Cass., June 5, 1922), where the court said that
it was ordinarily not special circumstances for the price of goods to change according to economic
conditions of the time. Cf. cases cited at note 38, supra. Unknown v. Unknown, 9 Hanketsu
zenshri 14 (Gr. Ct. Cass., Aug. 10, 1934), where the court said, in case of a sale of rice between
merchants, that the benefit to be accrued by an increase in price was ordinary damages.
58 Osumi v. Asahikawa Ky6ryoku Sen'i K6gy6, 7 MinshQ 1446 (Sup. Ct., Dec. 18, 1953).
59 Tsurutani Sh6kai v, Kimura Sh6ten, 15 MinshQ 1105 (Sup. Ct., April 28, 1961).
identical position with regard to delay damages].ssa
(b) Cases where the purchaser has entered into a contractual relationship
with a third party.
Herein, we will summarize issues raised by the precedents. The main
point raised will be further analyzed below in VII. First of all, the purchaser's
resale to a third party is frequently encountered. In such cases, how does the
contract for resale affect calculation of damages incurred due to seller's non-
performance? This reduces itself to the question of whether the calculation
of damages, based on the purchaser's resale price, constitutes ordinary damages
or special damages. In the majority of precedents, the damages in such cases
are regarded as special; for example, there is a decision which holds that a
resale contract is a special circumstance foreseeable by a merchant in commer-
cial sales situations.60 In contrast to this case, if the subject of the sale is tim-
ber or land, the requisites for such a finding are rather strict, holding that fore-
seeability of a resale contract is not enough but that the resale price, etc., also
must be foreseeable.61 Perhaps, since the reported cases are still rare, issues
arising from resale contracts have not yet been adequately grasped and analyzed.
On the other hand, profits from resale are regarded as ordinary damages in
the following cases. A purchaser who resold some matchsticks shortly after
concluding a contract to purchase them, cancelled the purchase contract on
the grounds of breach of contract by the seller, but it was held that he could
not recover damages based on the subsequently inflated price of matchsticks.
For this was a case of special damages and in the present case there were no
special circumstances to justify a prediction of continued possession by the
purchaser of the goods up to and including the time at which the price took
a sharp rise, were it not for the breach. It was therefore held that he could
only recover the difference between the resale price and the contract price as
ordinary damages.62
Occasionally, a purchaser, because of the seller's breach of contract, is un-
able to perform his resale contract and as a result he must pay his purchaser
damages for breach of contract. Are these ordinary damages or special dam-
59a But the Supreme Court held recently in Fujishiro v. Chiba, 16 Minshci 2280 (Nov. 16,
1962) where an obligation to return land by the execution of an option to repurchase became
impossible, that the ordinary damages were to be measured by the maiket price at the time when
the impossibility had occurred and that the special damages were to be measured by the increased
price, and these special damages were recovered there; hence, the trend mentioned in the
text is not necessarily established in the courts.
60 Takiura v. Gfmeigaisha Shibakawash5ten, 3 Hyoron Minp6 730 (Tokyo Dist. Ct., Dec.
15, 1914) relating to a contract to import western cloth; Nakamasu v. Yuasa B5eki K.K., 10
Hy6ron-Shaho 31 (Tokyo Dist. Ct., Dec. 27, 1920) relating to a buyer who was also a broker.
61 Okamoto v. Abe, 8 Minsha 373 (Gr. Ct. Cass., April 5, 1929); Enomoto v. Sagaki,
3341 Shinbun 14 (Gr. Ct. Cass., Nov. 14, 1931); Taniguchi v. Misasa Shaji K.K., 4543 Shin-
bun 7 (Gr. Ct. Cass., Feb. 28, 1940), which held the seller must compensate when he had known
the resale price.
62 Hokkai Ringy6 K.K. v. Nanise, 27 Minroku 603 (Gr. Ct. Cass., March 30, 1921).
ages? It is reasonable to regard them as special, 63 but there are also cases
which regard them as ordinary damages.64
Now, what of cases in which purchaser, where the seller fails to perform,
purchases goods of the same sort and quality, from another party in order to
perform his resale contract? There are several decisions on this point and
they can be divided into judgments regarding the difference between covering
price and contract price as ordinary damages 65 and those regarding it as special
damages.66
In the problems we have dealt with in this section (b), there remains much
room for development. Particularly important are such factors as whether
the parties are merchants, what kind of property is involved in the sale, whether
the contract between the parties is a one-time contract or a continuing one,
under what economic circumstances was the contract drawn up, and the like.
Such factors should be typified: for example, in continuing transactions be-
tween merchants, in which the commodities dealt with are readily marketable,
the difference of market prices typically is the amount of ordinary damages.
Analysis of matters such as these, in our belief, will assume great importance
in the future.
4. In comparison to breach of contract by the seller, problems of buyer's
breach are comparatively simple. First of all, there are special rules in the
C. C. art. 419 concerning delay damages on money obligation, called Delay
Interest (chien risoku; Verzugszinsen), in cases in which the buyer has delayed
payment of the price:
Art. 419 (1) With regard to the non-performance of an obligation
which has money for its subject, the amount of damages is determined
by the legal rate of interest, but if the conventional rate of interest ex-
ceeds the legal rate of interest, the conventional rate governs.
(2) With regard to the damages of the preceding Section, the credi-
tor is not bound to prove the damage and the debtor cannot set up a
defence of vis major.
63 Fushinaga v. Hara, 1298 Shinbun 29 (Osaka Dist. Ct., March 26, 1917) relating to a
sale of land where the seller knew of a liquidation clause.
64 Honolulu Junk Shakai v. Yamasawa, 2133 Shinbun 18 (Tokyo App. Ch., Oct. 4, 1922)
relating to a sale of steel between steel merchants where the buyer paid amicable settlement
money to a third party.
65 Suwa v. Aoki, 1103 Shinbun 24 (Tokyo Dist. Ct., Feb. 14,1916), where a sales contract
was cancelled due to the seller's non-performance and the buyer thereafter purchased from a
market alternative goods at a resonable price; Suwa v. Aoki, 24 Minroku 2169 (Gr. Ct. Cass.,
Nov. 14, 1918), which quashed the lower court decision that disregarded a covering price after
cancellation; Hirouchi v. Inugai, 1800 Shinbun 13 (Kobe Dist. Ct., Oct. 4, 1920) relating to a
case where the damage was covered by a reasonable price after the cancellation of a sales contract
of handbags due to non-performance.
66 Saiwai Bussan K.K. v. Daidd Kashi Yfgen Kaisha, 9 Tokyo Ka-Min Jih6 (No. 9) 172
(Tokyo High Ct., Sept. 29, 1958) held that a seller who had known of the existence of a resale
contract entered into by the buyer was liable for the difference between the original contract
price and the cover price where the buyer had to cover goods at a reasonable price from another
market.
This delay interest, regardless of whether or not there are concrete damages,
may be demanded as a matter of course when the buyer delays payment. This
is one example of what is known as the abstract method of calculating damages
(in this connection, cf. VII-4 below). The generally accepted view is that even
when the seller proves damages in excess of the delay interest, he may not
recover them. 67
When a moratorium has been declared as an emergency measure in the face
of a panic, delayed payment is excused and delay interest does not arise as long
as the moratorium is in effect.68 However, it is held that the accumulation
of the said interest is not suspended by the moratorium in instances where delay
interest calculations are based on contractual interest rates.69 Further, since
delay interest is damage and not interest, there is a dispute among the theorists
as to whether delay interest may be charged on the accrued delay interest.70
Furthermore, where the calculation of delay interest is based on contractual
interest rates, can it be so governed even when these contractual interest rates
are unreasonably high? Since special regulations such as the Law Governing
Restriction of Interest on Loans, 7 ' do not apply to other money debts than
loan contract, the court may not lower the agreed interest rate.72 However,
it is to be understood that, where a violation of public order and good morals
(C. C. art. 90) is concerned, the court may declare all or part of the contractual
interest null and void. 73
5. We shall now consider the substitute (or compensatory) damages which
the seller may demand in lieu of performance, where the purchaser does not
pay the price, or in other ways violates the contract.7 " This may be divided
into two problems, one where the seller has a contractual relationship with a
third party and one where he does not.
(a) Where the seller has no contractualrelationship with a. third party.
There are few decisions in this area. We cite here a case of an installment
contract where the contract was cancelled for failure to pay installments. On
the question as to whether the seller could recover profits he might have made
67 Oho, supra note 5, at 137; S. WAGATSUMA, supra note 5, at 138. For an opposing view,
see YAMANAKA, SAIKEN S)RON (General principles of the law of obligation) 103 (1953).
68 Hirano Shoten v. Nihon Seika K.K., 6 MinshC 611 (Gr. Ct. Cass., Nov. 21, 1927);
Ex parte Ueda, 7 Minshfi 180 (Gr. Ct. Cass., March 31, 1928).
69 Akitani v. Aoyagi, 7 Minsha 365 (Gr. Ct. Cass., May 15, 1928).
70 Courts have not so far granted computations based on a compound interest rate for
Delay Interest (chien risoku). Oro v. Nishikawa, 21 MinshQ 107 (Gr. Ct. Cass., Feb. 4, 1942).
See literature cited in Oho, supra note 5, at 137-38.
71 Risoku seigenha (Usury law) (Law No. 100, 1954).
72 CIvIL CODE art. 420 (1): "The parties may determine in advance the amount of com-
pensation for damages payable in the event of the non-performance of an obligation; in such
case the Court cannot increase or reduce the amount."
73 S. WAGATSUMA, supra note 5, at 146.
74 As already mentioned at II. 3 in the text, the courts' attitude that a claim for damages,
in lieu of the claim for purchase price, is not allowable unless the contract is cancelled, is not
in harmony with the cases of sellers' non-performance.
68 LAW IN JAPAN: AN ANNUAL [Vol. 3: 43
by leasing the subject (a piano) to another during the period in which the
breach occurred, the decision here cited did not award damages.'-
(b) Where the seller has a contractualrelationship with a third party.
There is a case in which, because the purchaser did not pay the price, the
contract was cancelled by the seller and shortly thereafter the goods were sold
at a price lower than the contract price. Here, the decision is that the dif-
ference between the original contract price and this resale price may constitute
ordinary damages flowing from the purchaser's non-performance.16 In con-
nection with this, there is a case where, since the purchaser did not take de-
livery of the goods (plate glass), the seller disposed of it at auction (cf. above,
note 2); and it was held that the difference between the contract price and the
auction price was ordinary damages.77 Also, there are cases where, in order
to supply a buyer, a seller ordered the goods from a third party but, since the
purchaser did not take the goods, the contract was later cancelled. In such
cases, it has been found that the difference between the market price at the
time of cancellation, and the price in the order (from the third party) is the
amount of damage suffered by the seller.7 8
6. Hitherto, we have treated breach of contract by dividing it into two
types: seller's non-performance and buyer's non-performance. However,
there is in Japanese law another type, called " Positive Violation of Obliga-
tions " (sekkyoku-teki saiken shingai; positive Forderungsverletzungen), which
is a kind of supplementary contractual liability (see supra note 9). These are
cases where, because the mode of performance is improper, or because the
subject-matter of the performance is defective, damages go beyond the bar-
gained-for value. As stated above (cf. 1), damages duL to defects in the goods
themselves, do not belong to this type. These damages are concerned with
improper performance. Damages thus arising, may be recovered by analogy
to the two above-cited " patterns ", i.e. of delay damages and of compensatory
damages. For example, in a case where a seller sold standardized sake [rice
wine] barrels knowing that they would be resold to third parties, but where
the supplied goods did not meet the standard, he was held liable for the loss
suffered by the purchaser in curing the defective goods." Here, the damages
were similar to the purchaser's cover.
On the other hand, where the purchaser's health has been injured by de-
fective goods (for example, foodstuffs infected by typhus germs) or where the
purchaser was damaged by an improper delivery which violated the seller's
obligation, even without the presence of defects in the goods (as, for example,
when delivering furniture, the purchaser's other furniture in the room is inad-
vertently damaged), the resultant damages are not " performance interests"
75 Matsumoto v. Kaminaga, 2069 Shinbun 21 (Tokyo App. Ch., Aug. 10, 1922).
76 Nishiyoshi v. Chin, 22 Minroku 1991 (Gr. Ct. Cass., Oct. 27, 1916).
77 Kumadoriya v. Nakayama, 17 Hy6ron-Sh6h6 63 (Tokyo App. Ch., Sept. 29, 1927).
78 Jed6 v. Fumashaten K.K., 17 Hy6ron-Minpo 135 (Gr. Ct. Cass., Nov. 26, 1927).
79 Kosaku v. Higuchi, 19 Hanrei Taimuzu 68 (Tokyo High Ct., Aug. 4, 1951); but it is
not clear whether the court regarded it as ordinary damages.
(Erfiillungsinteresse). This is, so to speak, the problem of reparation for Con-
sequential Damages (kekka songai; Folgeschdden), as opposed to Erfidlungs-
interesse.s0 The damages arising from these so-called " positive violations of
contract " give rise in turn to questions of concurrency with tort that are much
disputed in the theoretical realm but, as far as our present problem is con-
cerned, most of them can probably be classified as special damages.80 a
Few precedents are reported on this point, but the following example is of
some interest. Where a retailer of milk, who was supplied with milk containing
germs causing intestinal disorder by the wholesaler, and lost his customers as
a result, the court held that, since customers are not a right or an interest pro-
tected by law, there was no duty to pay damages resulting from the loss of
customers or inability to get new ones. 81
7. Also, although inadequately discussed in Japanese law, an important
question in the law of damages is the extent of liability for damages ancillary
to non-performance. Conceivable damages in such cases include reasonable
expenses incurred in covering for non-performance, those required for resale
contracts and the like while, in the case of improper performance, they include
expenses of inspection for defects, custodial expenses for defective goods and
the like. The treatment of such incidental damages is to be determined by
whether the primary damages to which they are incidental (chiefly compensa-
tory damages and delay damages) are ordinary damages or special damages.
Where these incidental damages are concerned, certain lower courts have
taken the following views. In a case where a contract for sale of a tractor was
cancelled for partial non-payment, and the purchaser returned the tractor, the
court recognized as ordinary damages the seller's payment to the tractor driver
in repossessing the tractor, the cost of transporting the tractor and the like, in
addition to the difference between the purchase price new and the current
price after use, but refused to award expenses paid for lawyer's fees in con-
nection with repossession.12 In contract damages, the precedents are in
80 Cf. Z. Kitagawa, supra note 4, 73 HOGAKU RONSO (No. 1) 4-5 (1963). By the way,
it should be noted that in Japan and in Civil Law countries loss of profit is regarded as a
typical Performance Interest, not as Consequential Damages.
80 a Japanese practising lawyers have been inclined to treat consequential damage cases,
especially " positive violation of contract " as tort cases, though the rule on burden of proof
favors the injured party under contract theory. For instance, in Akaho v. K6shin Sangy6
K.K., 427 Hanrei Jih6 11 (Nagano Dist. Ct., Nov. 11, 1965) defendant entered into an agree-
ment to deliver propane gas to plaintiff. Under this agreement a 50 kg. gas cylinder filled
with propane gas was to be installed at the plaintiff's factory. Due to a defective valve operated
by defendant, propane gas later escaped and was ignited by a coal cooking stove nearby. As
a result, plaintiff was injured by fire, and also his house and factory were entirely destroyed
by fire. In a suit for damages plaintiff relied only upon tort liability taking pains to establish
defendant's fault, while under contract theory defendant would have been required to prove
that he was not responsible for plaintiff's injury and loss.
81 Tsujimura v. Osawa Nyrak6gy6 K.K., 11 Kakyr minshfi 170 (Urawa Dist. Ct., Jan. 29,
1960).
82 Nittoku Joshrlrya K.K. v. Nakano Kansetsu K.K., 12 Kakya minshri 1801 (Tokyo
Dist. Ct., July 28, 1961).
general indecisive about lawyer's fees. However, we have a decision holding
that a person against whom suit was unjustly pressed for tort damages, was
entitled to recover damages within well-defined limits including a lawyer's fee
for appearance in court, as damages due to tort. 33 And, whether or not law-
yer's fees should be granted in all breach of contract cases, there is at least
reason to grant them in cases of wilful breach of contract or where there are
other specific reasons. 4
8. There is a wide variety of types of sales contracts, depending upon their
form, subject-matter of the sale, the parties and the like. Depending upon
whether it is a sale of movables or immovables, civil sale or commercial sale,
wholesale or retail and the like, there are ample reasons for rather typical dif-
ferences in the scope of damages and in the distinction between ordinary or
special damages, as has frequently been seen in the above-cited Japanese pre-
cedents. It is also conceivable that, in the event of special contracts for pur-
chase and sale, special rules of damages might develop for several standard
types of contracts.
To cite several concrete examples, the peculiar character of the sale of stocks
and other securities has already been noted in specific decisions (as, for exam-
ple, in the view that resale at inflated prices is the common thing, in view of
the fact that market fluctuation can be extreme).85 Where sale of intellectual
property (gewerbliches Eigentum) is concerned, unlike ordinary contract goods,
there are evident peculiarities even in the measure of damage, because of the
difference between intellectual property and ordinary commodities." How-
ever, we shall not touch upon these special topics here. Contracts in inter-
national trade are important special contracts worth nothing: There is one
case where an American firm contracted to sell grain to a Japanese firm on a
large scale but was partially unable to perform because of export restrictions.
The courts granted, as ordinary damages, the fees borne by the Japanese firm
for opening of letters of credit, interest on the letters of credit, and a set-off
charge because of partial cancellation of the forward exchange contract.87
83 Shakura v. Ikeda, 22 Minsha 1179 (Gt. Ct. Cass., Nov. 2, 1943).

84 Cf. S. WAGATSUMA, supra note 5, at 126-27, which states the requirement that no
circumstance exist which cannot be regarded as justifiable to respond to the suit against him
as a matter of course.
85 With regard to sales of stocks, the regulations under the Shaken torihikiha (Securities
transaction law) (Law No. 25, 1948) are important, e.g., art. 20 thereof; see text of art. 20 at
note 2a above) i.e., a special provision relating to the amount of compensatory damage for
which the reporter of a false Registration Statement (yahash5ken todokeidesho) is liable.
86 Cf. Mori v. Suzue, 4443 Shinbun 7 (Tokyo App. Ch., Jan. 21, 1939), where it is held
that the price of a Utility-Model Right (jitsuy6 shin'anken) may be ascertained from the transfer
price or from royalties received, but in essence, it could be decided by examining how much
of the amount could be added as a value of the right to the otherwise ordinary sale price (i.e.,
the total of the cost, sales expenses, profit, etc.). See also supra note 2a.
87 Toky5 B5eki K.K v. Ruben Import-Export Corp., 5 KakyQ minsha 1704 (Tokyo Dist.
Ct., Oct. 12, 1954) held that loss of profits through a resale contract, of which notice had been
given at the time of the original contract, was special damages.
VI. THE STANDARD TIME FOR THE CALCULATION

OF DAMAGES
1. The time from which damages should be calculated, has undergone

frequent changes in the precedents (as, for example, in the case of the highest
intermediate price). Often the treatment is not based on precise distinctions
between ordinary or special damage, or presence or absence of causal relation-
ships. For example, there was one case which held that when the price rose
sharply after the cancellation of a sales contract, a cause-effect relationship
between the breach and the damage incurred after cancellation, was necessary
in order to recover damages accruing after calcellation. 8 Consequently, it is
necessary to determine whether such damages following cancellation, are or-
dinary or special damages.8 9 However, in my view damages accompanying
price fluctuations (apart from unusual rises due to inflation) are normal occur-
rences in sales contracts, and the question as to which point in time is the
standard for fixing the price should be regarded as a problem related to ordinary
damages.
Where the distinction between ordinary and special damages is concerned,
we have already seen in V that, according to sales types, the very same kind of
damages (for example, profit which would have accrued from resale) may
receive different legal treatment. In the same way (or in an even more com-
plex way) where the standard time for calculation of damages is concerned,
such things as the background of the transaction-the parties to the sale, the
subject-matter, the form of transaction and the like-must be taken into ac-
count. The judge undeniably has discretion in determining the standard time,
but it is expected that he will render his judgment in accordance with standards
typically determined by the many factors cited above. Consequently, the
clear generalization and classification of these standards is an extremely im-
portant undertaking.
The right to damages, as we have already indicated above in II, takes effect
at the time of breach of contract. This applies equally to substitute (com-
pensatory) damages and delay damages. However, the determination of the
amount of loss and the amount of damages need not necessarily coincide with
the time of the breach of contract. The reason for this is that the loss arising
from a breach of contract may be seen as reciprocally determined by the changes
and developments in the sales contract, both before and after breach, and by
the factual and legal relationships among the parties connected with it. For
example, if one were to take a case in which a purchaser has already concluded
a resale contract before the breach of the original contract took place, it is, at
88 Iseda v. Emoto, 26 Minroku 1298 (Gr. Ct. Cass., Aug. 28, 1920); Kumagai v. Yama-
guchi, 2475 Shinbun 9 (Gr. Ct. Cass., July 20, 1925).
89 Okuyama v. Kobayashi, 6 Saibanrei-Minp6 36 (Gr. Ct. Cass., Feb. 24, 1932) stated
that the damages which had accrued after cancellation were not necessarily damages accruing
from special circumstances.
the very least, necessary to examine whether the standard time shall be the
time of the breach of contract or the time of the resale contract. Furthermore,
when, after the seller's breach of contract, the buyer, in order to perform his
resale contract, has covered himself, the time of covering is also an important
point in time. In any case, unless the time for calculating damages is justly
selected in each judgment in determining the amount of damages, the judgment
is likely to be reversed as contrary to law on the grounds of inadequate reason-
ing.90
In the Japanese cases, the critical point in time has been variously declared
to be (1) the time of breach, (2) the time for performance, (3) the time of can-
cellation of the contract, (4) the time of institution of the suit, (5) the time of
the conclusion of oral arguments, (6) the time of the highest intermediate
price, (7) the time of such substitute acts as cover or resale and the like. Be-
low, we shall deal briefly with this question by having a simple overall look at
the judgments just mentioned. 9'
2. First of all, the critical time may be held to be the time of breach or
the time for performance. As far as responsibility for delay in performance
is concerned, the two points in time coincide, and therefore, impossibility of
performance becomes a principal point at issue. Needless to say, where the
contract has been cancelled, the relationship thereto also would become another
issue. In one case, Y recommended that X purchase certain stock, promising
that Y would make the second and the following stock payments himself. X,
accordingly, made the first stock payment. Y however did not make the sub-
sequent payments, as a result of which X's rights in the stock were forfeited.
In this fact pattern, the Great Court of Cassation held that the damages result-
ing from the forfeiture of the stock, unless there were special circumstances,
were measured by the price at the time of forfeiture. 2 It also held that, where
an obligation resulting from a compromise contract to purchase factories and
dwellings became impossible to perform, there can be no free choice of a point
in time between the loss of the subject-matters and the judgment, but that
damages must be fixed as of the time of impossibility of performance." Re-
cent decisions of the Supreme Court, though not concerning sales contracts,
also have chosen the time of impossibility of performance.94
90 Cf. Jikiuke Syori Ky5gikai v. Tada, 11 Minsha 960 (Sup. Ct., June 7, 1957) quashed
the decision below, which had calculated damages based on the market price shortlyafter the
time of the initiation of the suit.
91 After this article was drafted, Hirai, Songai baishogaku no santei no kijunji ni kansuru
ichi-hasatsu(An observation on the standard time for the calculation of damages), in 83 H6GAKU
KYOKAI ZASSHI (Nos. 9-10) 1283-1324 (1966); 84 Ibid. (Nos. 3 & 6) 345-382, 771-812 (1967),
appeared.
92 Satake v. Sud6, 4 Saibanrei-Minpb 84 (Gr. Ct. Cass., July 1, 1930).
93 Sugimoto v. Iguchi, 3448 Shinbun 7 (Gr. Ct. Cass., May 27, 1932).
94 Kamitani v. Sufuku, 8 MinshO 637 (Sup. Ct., March 9, 1954), relating to performance
of an obligation to return an object which had been acquired by an Execution (ky5sei shikk)
based on a Declaration for Provisional Execution (karishikk sengen); Sugimoto v. Kubota, 9
Minshfi 556 (Sup. Ct., April 19, 1955), relating to impossibility to perform an obligation to
return a leased house. See also the dictum in Fujishiro v. Chiba, 16 MinshO 2280, supra note
59 a (Sup. Ct., Nov. 16, 1962), which regarded the value at the time of impossibility of per-
formance as the standard.
In contradiction to this, there are several decisions that have adopted the
time for performance as the critical time in cases of impossibility of perfor-
mance, or in cases where the contract was cancelled after a delay."5 The
Supreme Court as well, in a case where a contract for sale of dried noodles was
cancelled following a delay in performance, regarded the difference between
the sales price and the market price at the time for performance, to be ordinary
damages.96
Next, judgments which take the time of cancellation as the standard are
comparatively numerous. That is to say, in cases where a contract has been
cancelled because of failure to pay, the seller suffers damages equal to the
difference between the contract price and the reduced market value of the sub-
ject-matter involved at the time of cancellation." Consequently, in cases
where the buyer does not pay the price, and when the price has risen since the
time of contracting, the seller does not suffer damages.98 Here, does the seller
not suffer damages even where the prices at the time of contracting and at
cancellation, are the same? Regardless of fluctuations-and this is particularly
true, for example, in sales of movables among merchants-there is in my view
good reason to argue that past opportunities for another sale, which was for-
feited because of non-performance by the buyer, should be treated as loss, i.e.
the profit that would have accrued to the seller by finding another buyer, but
for the presence of the original buyer. Conversely, in cases where the contract
has been cancelled because of non-delivery by the seller, the purchaser may
demand the difference between the price at cancellation and the contract
price.99
However, if we adhere too firmly to the time of cancellation as the critical
time, where the price rises sharply thereafter, the question of these higher
prices cannot be simply disposed of as a problem of fixing the standard time,
but must be treated as a problem of calculating damages at cancellation and
damages accruing after cancellation. Regarding the damages after cancella-
tion, it would be seen in some cases, or required to decide separately whether
these damages were ordinary or special and whether there were causal relation-
95 Ihara v. Kat6, 1423 Shinbun 17 (Tokyo App. Ch., April 20, 1918); Ohashi v. Mori,
16 Hydron-Minpa 1095 (Tokyo App. Ch., April 7, 1927).
96 Tsuruya Sh6kai v. Kimura Shoten, 15 Minsha 1105 (Sup. Ct. April 28, 1961). (Al-
though the party's claim in this case was based on the value of the performance at due date
and the value at the time of rescission was not discussed as a basis, despite an increase in value
at that time, we can regard this decision as accepting the theory of the time of due date, since
courts are not bound by the party's assertion on this point).
97 Unknown v. Unknown, 1130 Shinbun 31 (Gr. Ct. Cass., Feb. 21, 1916).
98 Sugawara v. Takahashi, 16 Hy6ron-Minp6 537, (Gr. Ct. Cass., April 26, 1927).
99 Muramatsu v. Narimasa, 9 Hyoron-Minp6 330 (Tokyo Dist. Ct., Feb. 23, 1920);
Iwamoto v. Nagai Sh6kai, 4681 Shinbun 15 (Gr. Ct. Cass., Feb. 5, 1941), which held that
the standard time was the time of cancellation even if the buyer had committed himself to
resell at a lower price than the market value at the time of the cancellation; Kirya Seizai K.K.
v. Kimura, 7 Minshia 1093 (Sup. Ct., Oct. 15, 1953); Osumi v. Asahikawa Ky6ryoku Sen'i
K6gy6, 7 Minshfi 1446 (Sup. Ct., Dec. 18, 1953); Sonobe v. Iwai, 16 Minsha 1583 (Sup. Ct.,
July 20, 1952), relating to a right to lease land.
ships. We have already touched on the doubt tangential to this point (cf. 1).
As noted more specifically in V above, there are many sales contracts where
one party stands in a contractual relationship to a third party. The thinking
on this point includes cases in which breach of contract has nothing to do with
the formation of the third-party relationship (for example, resale by a whole-
saler as his normal course of business) and cases in which such third-party
relationships have been necessitated by breach of contract (for example, cov-
ering or resale). In either case, where broadly speaking, substitute acts inter-
vene, Japanese law has not yet adequately answered the question of how this
influences the standard time for calculating damages. There are a number
of judgments which view the time of such substitute actions as the standard
time. 0 However, there are also decisions which consider the time of can-
cellation as standard, on the grounds that where the seller does not perform,
even though a resale contract exists, the purchaser must cover at the current
price at the time of cancellation in order to perform his resale contract.' 0'
Consequently, there are some obstacles to disposing of this question by simply
saying that if there is a resale contract, the time of resale becomes the standard
as a matter of course. For, equal consideration must be given to such ques-
tions as when the resale contract was drawn up, what developments and changes
took place in the resale contract as a result of non-performance of the original
contract and the like.
Next, there are judgments, although small in number, which take the time
of suit as the standard. Where the price has steadily risen, the courts have
not chosen the time of cancellation but the time of filing suit as the standard
time in calculating damages. 0 2
Now, concerning the critical time for calculating damages, one of the most
hostly debated issues in Japanese law has been whether the obligee could
regard as the standard time the point when the price was highest between the
date of expected performance and the date of the claim. In this regard, the
precedents-at first, at least-most often answered this question in the affirma-
tive where a commercial sale was involved, reasoning that the purchaser
100 Nishiyoshi v. Chin, 22 Minroku 1991, supra note 76 (Gr. Ct. Cass., Oct. 27, 1916),
relating to a case of resale by the buyer at a lower price after cancellation; Ninomiya v. Arita,
1839 Shinbun 19 (Nagasaki App. Ch., April 7, 1921), although this decision was premised on
a resale price not much different from the market price at the time of the cancellation. For
a case of covering, see Suwa v. Aoki, 24 Minroku 2169, supra notes 37, 65 (Gr. Ct. Cass., Nov.
14, 1918). For a resale contract case, see Hokkai Ringyl K.K. v. Nanise, 27 Minroku 603,
supra note 62 (Gr. Ct. Cass., March 30, 1921), which expressly stated that, in case the market
price increased after the resale, the benefit accruing from the difference between the resale
price and the market price after the cancellation would go, not to the buyer-reseller, but to the
resale buyer.
101 Iwamoto v. Nagai Sh6kai, 4681 Shinbun 15, supra note 99 (Gr. Ct. Cass, Feb. 5, 1941).
102 Senba v. Nishikawa, 1428 Shinbun 19 (Osaka App. Ch., June 20, 1917), relating to
a sale of land.
could have profited by selling at the inflated price. 0 However, the position
taken by these precedents encountered scholarly criticism for treating the pur-
chaser as an omniscient and omnipotent merchant, and later, quite to the con-
trary, the purchaser was required to prove special circumstances, under which
by resale to a third party at the highest intermediate price, he could have reaped
04
a profit.
Finally, there remains, as a possible standard time, the time when Oral
Arguments in Court (katabenron) are concluded. In those cases where the
buyer, at the same time that he sues for delivery, seeks money damages, in case
the execution of specific relief (delivery of the goods) is impossible, the prece-
dents have for a long time regarded the time of the conclusion of oral argu-
ments in court as the time for calculating damages.' 05 Furthermore, there is
a recent Supreme Court decision which holds that as a rule, the time of im-
possibility is the standard but when there is a sharp price rise and such special
circumstances as price increases were foreseen or foreseeable at the time of the
breach, damages at the present inflated price (i.e. at the time of the conclusion
of oral arguments) are to be paid. 0
3. As we stated at the beginning, in fixing the standard time for calculating
damages, the court has discretionary power. Yet on the other side of the ques-
tion, it is not possible to ignore typical standards based on a wide variety of
factors such as types of sales, context of the transaction, parties to the sale,
subject-matter of sale and the like. Below we will explain briefly, factors to
be taken into account under Japanese law, when singling out and determining
these standards.
As a result of sales contracts, the seller and the purchaser gain a certain
profit centering around the price and the goods which they get respectively.
Concerned with this are varied and numerous kinds of profit such as that de-
rived from price rise in the case of a purchase made with resale in mind, the
profits obtainable from the use of raw materials or production facilities and the
like. In cases where a sales contract does not take its normal course because
of a breach, such contractual profits undergo a change in character due to the
breach of contract. The defaulting obligor must as a rule, pay damages equi-
valent to the profits which the other party would have normally received. In
this sense, the standard time for calculating damages should be the time
advantageous to the other party. This time also should be determined in
connection with circumstances (i.e. sharp rise of price) which the violator
103 Sakamoto v. Yutani, 10 Minroku 1404 (Gr. Ct. Cass., Nov. 7, 1904); Naoki v. Hattori,
14 Minroku 290 (Gr. Ct. Cass., March 18, 1908); Izaki v. Imai, 21 Minroku 1560 (Gr. Ct.
Cass., Oct. 2, 1915); Osugi v. Mabuchi, 1 Minshfi 283, supra notes 38, 57 (Gr. Ct. Cass.,
June 5, 1922).
104 Kadomatsu v. Kasuga, 3 Minshe 232, supra note 54 (Gr. Ct. Cass., May 27, 1924).
105 Suhara v. Terazawa, 22 Minroku 1141 (Gr. Ct. Cass., June 7, 1916), and many others.
Important cases are: Kujime v. Suzuki Shaten,, 19 MinshO 530 (Gr. Ct. Cass., March 13, 1940);
Nihon Seisen T6sei Kumini v. Toy6 Seisen K.K., 9 Minshel 22 (Sup. Ct., Jan. 21, 1955).
106 Fujishiro v. Chiba, 16 MinshO 2280, supra notes 59 a, 94 (Sup. Ct., Nov. 16, 1962).
anticipated or could have anticipated in the course of developments in the
contractual relationship. This point has been stressed one-sidedly in those
judgments which applied the so-called period of the highest intermediate
price. However, nowadays the precedents themselves do not permit the creditor
to choose at will, a point in time between breach of contract and filing suit
or conclusion of oral arguments iri conrt. Also, in order to be entitled to
choose this highest intermediate price, the obligee must prove that he would
have been able to profit from this highest price. In commercial sales where
ordinarily resale is intended, this timing would frequently become an issue.
Where performance on the due date is an essential element of contract
either from the nature of obligation or by agreement, e.g. a sales contract at a
fixed time (see Japanese C. C. art. 542; Japanese Com. C. art. 525), the due
date of performance would be most important as a time standard.
In contrast, since the civil law institution of cancellation of contract extin-
guishes the right of the parties to demand performance on the obligee's own
initiative and gives them only damages in liquidating their relationships, we
may regard the time of cancellation (or, the time of expiration of the reasonable
period in which the creditor requested the performance after the delay of
performance occured-Jap. C. C. art. 541) as the time which the obligee re-
gards as advantageous to himself. Therefore of course, such a point would have
significance in determining the standard time. On the other hand, the time of
conclusion of oral arguments in court in calculating damages based on breach,
hasnothing to dod irectly with placing the party in an advantageous position.
It should be noted however, that in a case where a claim for damages is sought
in the alternative with a demand for specific relief, precedents hold that the
time of conclusion of oral arguments becomes the standard time. It is occa-
sionally proper to regard the time of conclusion of oral arguments in court as
the critical time, as where in sales involving difficulties in covering, the price
has taken a sharp rise during the seller's delay, but it is not necessarily proper
to regard the conclusion of oral arguments in court as the standard time, if, for
example, during oral arguments the price rose under circumstances where,
following delay of performance, timely cover by the aggrieved party would
have been easy but was not made. 0
107 As to an assertion that the end of oral argument should be generally taken as the
standard time, see T. Taniguchi, Songai baish5gaku no santei (The calculation of the amount
of damages), in 4 MINP6, SGo HANREI KENKYU SOSHO (Comprehensive case study series, civil
law) 32 (1957); see also T. TANIGUCHI, SONGAI BAISH6HO GAISETSU (Introduction to the law of
damages) 70-73 (1964). This theory is based on an idea that the presently needed amount
should be recovered in order to accomplish the same result as recovering the enjoyment of the
original performance. According to this theory, where an amount based on the value at the
end of oral argument in court leads to an unfair result, as indicated in the text, the amount of
damages would be reduced based on the Principle of Set-Off of Negligence (kashitsu s6sai).
Where there is no remarkable change in the market, the difference arising from various
standard times may not have much effect on the amount of compensation. However, where
a change in the market is remarkable and especially where the pendency of a suit in court
ordinarily is long as in Japan, the adoption of the time at the end of the oral argument in court,
according to circumstances, may sometime prove to be useful as an adjustment device.
In the sale of movables, often the purchaser buys goods from another source
because of a breach of contract or the seller resells the goods to a third party.
In such cases where efforts at mitigation of damages are to be expected after
a breach, the aggrieved party should, under principles of good faith, take such
measures and if cover or resale is actually effected, such points in time become
critical. On the other hand, when such measures could have been taken at
a proper time to counter or prevent damages, it is not justifiable to allow a
party who did not take such measures to cancel the contract several years after
the breach and to enjoy damages awarded at the inflated price at the time of
cancellation. Under such circumstances, the standard time should be some
time before cancellation of the contract. Such time would be a reasonable
time after the breach during which substitute steps could have been taken.
Where the purchaser has concluded a resale contract after contracting, is the
resale time always the standard time? In other words, when the price at can-
cellation is higher than the resale price, must the purchaser always be satisfied
with an amount equivalent to the profit from the resale price and therefore
must he, as the resale seller, pay as damages to his resale-purchaser, a sum in
excess of the profit derived from the resale, which he can collect from his seller?
The precedents are divided into two types: one which regards the time of
resale as standard because the purchaser could not obtain more than the resale
profit from the original contract anyway; and another type which adopts the
time of cancellation, taking into account liability for non-performance of the
resale contract. This would be also related to the question of whether the
purchaser could have covered properly in order to perform the resale con-
tract. For example, in cases where he was aware of the tendency toward rising
prices and where he did not cover, though it was not particularly difficult, the
seller would not be liable for damages calculated from the time of contract
cancellation; on the other hand, when cover was difficult, it would be proper
to treat the time of contract cancellation as the standard time.
May the time standard for calculating damages be uniformly determined
through the several types of sales? Many exceptions must be recognized,
based on the types of sales and based on how they change as a result of breach,
even if the rule of thumb is the time of breach or the conclusion of oral argu-
ments in court. It would rather suffice to maintain that the time standard
may be fixed on the basis of several objective standards derived from further
scrutiny of the several points we have mentioned hitherto. It should be clear
on the basis of what we have already stated above, however, that this does
not constitute a grant of arbitrary powers to the court.
4. Furthermore, under C. C. art. 416 (2), special damages may be sought
when special circumstances were or could have been foreseen by the parties,
but in connection with timing, there is a dispute as to this time of foreseeability.
Both the precedents' 0 and the accepted theory, 09 hold the time to be the mo-
108 Kurohara v. M.M.A. Nawara, 24 Minroku 1658 (Gr. Ct. Cass., Aug. 27, 1918)
said that the time when the party should have foreseen special circumstances was up to the
ment of breach or the time when performance is due. In addition, there is a
judgment that holds that, if a seller in default knows about the agreed liquidated
damages for breach of a resale contract by his buyer, before the stipulated time
for performance of the resale contract, he will be assumed to have foreseen as
special damages such liquidated damages incurred by his buyer. 110 Given this
position, the "party" mentioned in the provision means. only the partyin breach.
On the other hand, there is a conflicting opinion which, under the influence of
Anglo-American legal thinking, holds that the scope of damages is circum-
scribed by the range of the risk taken when drawing up a contract, and that the
time of foreseeability also, for this reason, is the time at which the party took
the risk; that is, the time of contracting." 1 From this Anglo American posi-
tion one might say that the concrete determination of the risk is measured by
the presumed intention of the parties at the time of contracting; however, such
a notion based on assumpsit is not compatible with the structure of Japanese
law, which regards the right to demand performance (after the time of con-
tracting) as the core of the obligee's contractual rights. The better view would
be that the scope of damages is to be determined by considering to what extent
the risk and losses in contractual relation accruing from the breach are imputa-
ble to the party in breach.
VII. CLASSIFICATIONS OF DAMAGE; RULES FOR ADJUSTING

THE SCOPE OF DAMAGES; THEORY OF DAMAGE
1. While damage may be divided into property damage and non-property

damage, up to this point we have considered property damage exclusively. As
a matter of fact, in breach of contract, particularly in sales contract, mental
damages do not frequently arise. However, in cases of supplementary con-
tractual liability such as the case wherein the goods purchased are foodstuffs
contaminated by noxious matter, mental damages may very well arise. With
regard to non-property damage, Japan's Civil Code does only provide it in
case of death by tort (C. C. art. 711), but both precedents and scholarly theory
support claims for Consolation Money (isharyo, that is, for non-property dam-
time for performance. In this case, where the market price of matches remarkably increased
due to World War I, which occurred after the due date, the court held that such already had
been foreseeable at the time of the due date.
109 S. WAGATSUMA, supra note 5, at 120; Oho, supra note 5, at 130; YUNOKI, supra
note 5, at 153.
110 Kojima v. Ishida, 7 Hanketsuzenshri (No. 17) 13 (Gr. Ct. Cass., May 8, 1940); see
also, Taniguchi v. Misasa Shaji K.K., 4543 Shinbun 7 (Gr. Ct. Cass, Feb. 28, 1940), dealing
with a resale contract concluded after the due time; both cases related to sales of land. The
same purport was expressed in Kawano v. Ddeishinyo Kinko, 10 Kakyo minshO 1639 (Tokyo
Dist. Ct., Aug. 5, 1959), relating to non-performance of an obligation to return certain corporate
shares.
111 Hirai, supra note 4, 81 H6GAKU KY6KAI ZASSHI 269 (1965).
ages) in breach of contract cases. 112 Still, there are no appropriate sales pre-
cedents. These non-property damages would probably come under the head-
ing of special damages under art. 416.
Next, in Japanese law, as mentioned in II. 2., there is a distinction between
Performance Interest (riko rieki; Erfiillungsinterresse) and Reliance Interest
(shinrai rieki, Vertrauensinteresse). The latter refers to damages suffered as a
result of trusting on faith that the contract would be effectively formed: this
becomes an issue when the contract is in point of fact, void or avoided, thus not
taking effect. For example, when the seller has avoided a contract on the
grounds of fraud, he may claim from the purchaser as compensation for reli-
ance interest, his contractual expenses, the wasted preliminary expenses and
the like, including profits which he would have made but had to forego by turn-
ing down profitable purchase offers from elsewhere. So far there are no deci-
sions in point dealing with Negligence in Drawing up a Contract (teyaku jo
no kashitsu; culpa in contrahendo), but scholarly opinion uniformly supports
recovery of such reliance interest in principle. 1x
2. We should next provide some explanation of the special institutions at
work in determining the scope of damages in Japanese law. We can only
single out the most important ones and supply an over-view of their contents.
First of all, where a damage claimant also profits somehow from the very
same breach, it is equitable to deduct such profits from the damages and to
award only the difference. This is called The Mutual Setoff of Profit by
Loss (son-eki sasai; compensatio lucri cum damno; Vorteilsausgleichung).14
For example, compensatio lucri cum damno applies to seller's expense of per-
formance from which he has been relieved by the purchaser's failure to make
payment. Furthermore, if the obligor gains a substitute for the subject-matter
of performance from the very same cause of impossibility of performance (e.g.
the insurance money), the obligee, to the extent of the losses which he suffered,
is entitled to demand reimbursement from that substitute. This Right to Sub-
stitute (daisha seikyfi-ken; cf. Art. 281 BGB; Art. 1303 French Civil Code),
is not provided in the Japanese Civil Code but was recently granted by the
Supreme Court114 a in accordance with prevailing scholarly theories.
Next, another important principle in determining the scope of damages,
is the Setoff for Negligence (kashitsu s5sai; Mitverschuldan) which is sim-
ilar to the problem of avoidable damages and of contributory or comparative
negligence. When a creditor with a right to damages is negligent, the court,
in determining liability and damages, should take this into account (C. C. art.
112 Sato v.Japan,22 Minroku 4 (Gr. Ct. Cass., Jan. 20, 1916), relating to a case of injuries
and death of a passenger due to a train accident which occurred in violation of a contract of
carriage, and some other cases. S. WAGATSUMA, supra note 5, at 118; Oho, supra note 5, at
126.
113 For details, see Z. KITAGAWA, supra note 9 a, at 194 ff., 339 ff.
114 S. WAGATSUMA, supra note 5, at 127-28; Oho, supra note 5, at 133. See note 2 a.
COMMERCIAL CODE art. 580 (3) reflects this principle.
114 a Kashiwara v. Shimada Fud~san K.K., 20 Minsh~i 2211 (Sup. Ct., Dec. 23, 1966).
418). Though the code speaks of creditor's negligence " with respect to the
performance of obligations ", both precedents and scholarly opinion go be-
yond this to include among examples of setoffs for negligence, not only cases
of creditor's negligence in violation of the contract itself (as when seller's delay
has been caused by the purchaser's moving his residence shortly before the
time for performance without informing the seller), but also cases of creditor's
negligence in bringing about or increasing damages (as when, as in the above
example, the purchaser has moved his residence after a delay in performance
without informing the seller, thus prolonging the delay)."' As a result of set-
off for negligence, the court may not only reduce the damages payable by the
defendant but, depending upon the circumstances, relieve him of all liability
under Art. 418. Though the principle of setoff for negligence has come up
more often in tort cases in Japanese law, it is an area where there is still much
room for development also in contract cases.
As one example of the principle of freedom of contract and Private Auto-
nomy (shi-tekijichi), the parties may determine contractually before a breach,
the amount of damages payable after breach. In such cases, the court may
not alter the agreed amount in any way (C. C. art. 420 (1)) unless the agreement
amounts to a violation of public order and good morals (C. C. art. 90).116 If
such a liquidated damage agreement is made and if the creditor proves the fact
of breach, he may demand the damages stipulated without proving the existence
or amount of actual damages."' Consequently, it is pointless to prove that
the breach was not caused by the obligor or that there were no damages or that
the actual damages were more or less than the previously agreed amount.
3. Now we enter into the theory of damage. As noted above, Japanese
precedents and scholarly theory have in many ways received foreign, especially
German, legal theories and institutions, and Japanese legal analysis has some-
times developed by a devious route. The law of damages is presently being
reexamined in Japan by legal scholars and there are still, in point of fact, many
unresolved issues (as for example, third party damages [Drittschaden]118 and
115 S. WAGATSUMA, supra note 5, at 128 ff.; Oho, supra note 5, at 133 ff. Unreasonable-
ness of a cover price at the time of a seller's non-performance may be counted as an illustra-
tion of failure to prevent an increase in damages. For a case showing similar reasoning, see
Japan v. Hayashi, 20 MinshO 1137 (Gr. Ct. Cass., Sept. 9, 1941), which held that a buyer
who had purchased land and who had paid an unreasonably high amount for removing obstacles
(houses) on the land, could not claim the entire amount of such expense as damages accruing
from the original seller's non-performance of his obligation, even if there had been an under-
standing that the expenses for removal were due to the original seller.
116 According to CIVIL CODE art. 420 (3): "A penalty is presumed to be a determination
in advance of the amount of compensation for damages."
117 This is the scholars' prevailing view and the position followed by the cases; e.g.,
Gyoku v. Utano, 1 Minsha 431 (Gr. Ct. Cass., July 26, 1922), relating to a lease of land.
118 Whether a factor can claim the benefit of entruster when the other party breaches
the contract or whether a seller who has concluded a contract of carriage for the buyer but
in his own name, can claim the benefit of the buyer against the carrier, are examples of third
party damage. If a defense of tua non interest is permissible against an obligee's claim and
if a defense of tecum non contraxi is permissible against a third party, e.g., the buyer and the
entruster in the above examples, the results would be unfair. Cf. Z. Kitagawa, supra note
4, 73 HOGAKU RONS6 (No. 3), at 28.
119
hypothetical causal relationships). This is not the place to handle them in
detail. Below we would like to take up the so-called Difference Theory (sagaku-
setsu; Differenztheorie), Abstract Calculation of Damages (chash5-teki songai
keisan; abstrakte Schadensberechnung) and Covering Damage (tempo songai;
Deckungsschaden) to analyze certain issues regarding the basic structure of
damages.
Where property damages are concerned, the difference theory prevails in
Japan. It regards the loss (for which damages are to be paid) as the difference
between the financial situation that should have existed and the actual financial
situation resulting from the breach.2o Historically this is a legal concept
created by 19th-century German Pandektenwissenschaft, and it supports func-
tionally the principle of full compensation which regards the scope of liability
for damages resulting from breach of contract as covering the total damages
within a relationship of (adequate) causation (cf. IV, (1)).121 Differenztheorie,
in Germany, the land of its origin, is premised on a consolidated damage con-
cept. In other words, from the fact that damages are regarded as the differ-
ence between two financial situations to be compared, each item of damage is
concretely singled out, but always only an abstract difference is found as damage
so that the peculiarities of each item disappear in this concept of damage. On
the other hand, as specified in C. C. art. 416 and explained in V above, in Japan
it is the concept of itemized damage (ordinary and special damage in particular)
rather than that of consolidated damage that is put forward. Consequently, in
the Japanese Civil Code the relationship between Differenztheorie and the con-
cept of consolidated damage, which in Germany are indivisible (even if not in
logic), is not carried on through.
This is not to say however, that for this reason Differenztheorie is utterly
119 The problem is whether, if there had been other circumstances on the obligee's side
at the time for performance which would have caused the same damages even in the absence
of the actual breach of a contract or if such a circumstance had appeared after the breach,
the existence of such circumstances should be taken into account in computing the amount
of compensation; e.g., a situation where a buyer would not have been able to enjoy profit by
a performance due to the destruction of his factory by an earthquake, although in fact the seller
did not perform his obligation. For details, see Uebayashi, Songaibaish5 to senzaitekikahatsuteki
jij5 no k5ryo (Compensation for damages and the consideration of hidden or later-accruing
circumstances), 3 HOGAKU ZASSHI (No. 1) 87, (No. 2) 93, (No. 3) 64 (1957); Uebayashi, Son-
gai baishagaku santei to senzaiteki k6hatsuteki jijo shinshaku no kahi (The computation of
amount of damages and propriety of considering hidden or later-accruing circumstances), 43
MINSH6H6 ZASSHI (No. 1) 20-57 (1960). Cf. also Z. Kitagawa, supra note 4, 73 H6GAKU RONS6
(No. 3), at 34 ff. Chagenji v. Et5, 7 Saibanrei-Minp6 228 (Gr. Ct. Cass., Oct. 2, 1933), is a
case where a horse, which was the subject matter of an obligation to deliver, was injured
by the obligor's negligence during the obligor's delay, and the horse was delivered thereafter.
It was held that the obligor should prove, in order to escape the liability for damages, that
the injury to the horse would have occurred even if he had performed his obligation on the
due date of performance.
120 Oho, supra note 5, at 126; YUNOKI, supra note 5, at 135.
121 Z. Kitagawa, supra note 8, 73 H6GAKU RONS6 (No. 4), at 31-32, 57, 67; Z. Kitagawa,
supra note 4, 73 HOCAKU RONS6 (No. 1) 8 ff. (1963); Hirai, supra note 4, 80 HOGAKU KY6KAI
ZASSHI (No. 6) 67-68 (1964).
useless. For in particular where property damage is concerned, the difference
between the property which the aggrieved party would have had but for the
breach, and the property he does have after breach, is still the basic method for
determining damages. The problem is that the property to be compared refers
not to property in an all-inclusive sense but always to items of property. For
example, in a sale of commodities between a retailer and a wholesaler who does
not perform, profit from resale by retailer may be cited as a property item for
comparison, in addition to the exchange value of the commodities in question,
while there is usually no need to take into account the retailer's other items of
property. The reason is that in such commercial transactions, the resale profit
is a typical contractual profit. On the other hand, where purchased and de-
livered commodities begin to decay, contaminating other goods in the retailer's
store and causing special damages, we determine damages by calculating, among
the other items of property, the prices of these other stored goods. In this way,
concerning itemized damage, difference theory signifies comparison with re-
lation to the several damaged items, determined by types on the basis of varied
contractual elements such as kind of sale, the parties to the sale, the goods and
the like. 122
Although Japanese decisions have adopted a legal construction closely re-
sembling the German, still we can not say that the courts accept the principle
of full compensation, after the German model, as the Japanese principle of
damages. It seems that Japanese precedents, and most of the scholarly opinion
as well on these points, by a clear conceptual reexamination of the concepts of
damage and Differenztheorie just mentioned, can move in a more predictable
and rationalized direction. The above mentioned modification of difference
theory is one suggestion.
4. The calculation of damages under the Defferenztheorie is done by cal-
culating item by item the damages actually suffered by the aggrieved party,
and this method is called the concrete calculation of damages (konkrete Scha-
densberechnung). In contrast, there is also a method which calculates in a
standardized way, disregarding the concrete situation of the obligee who
suffered the damages; this is called abstract calculation of damages (abstrakte
Schadensberechnung). A concrete example of this would be where, for non-
performance of a sale of goods, the difference between the contract price and
the market price or price at a Commodity Exchange is regarded as the amount
of damages,123 no attention being-paid under these circumstances, to the items
of damages actually suffered by the obligee as a result of this non-performance..
Also, concerning damages from delay, the delay interest for monetary obliga-
tions is also one example of the abstract calculation of damages. This method
122 This has been already pointed out in Z. Kitagawa, supra note 4, 73 H60AKU RONS6
(No. 3), at 51-52.
123 For example, BGB §376 (2): " Wird Schadensersatz wegen Nichter fUllung verlangt
und hat die Ware einen Borsen-oder Marktpreis, so kann der Untershied des Kaufpreises und
der Barsen-oder Marktpreises zur Zeit und am Ort der geschuldeten Leistung gefordert
werden." See also the Law of Obligation of Switzerland, art. 191 (2) (3) OR.
of calculation, particularly in the field of commodity transactions, is widely rec-
ognized. 124 A characteristic of this method of calculation is that, among the
obligee's property items, it is always concerned exclusively with the subject-
matter of performance. For example, as noted in a judgment quoted in V above,
as ordinary damages after a sharp price rise, the difference between contract and
market price at the time for performance 25 (or between the contract and
market price at the time of cancellation)12 are recognized, and in such a case
the calculation of damages was in accordance with the abstract calculation of
damages.
Then, under what circumstances may such methods of calculation be per-
mitted? Because there are no statutory provisions in Japanese law, we should
decide it by taking into account the reason behind these standardized methods
and the function and significance thereof. Particularly important is the char-
acteristic of this method of calculation which, by such a concise method of
calculation, enables us to handle the problem of damages in a standardized way,
clearly and quickly. Consequently, for marketable commodities this should
be an acceptable method for calculation of damages. However, this abstract
calculation of damages is not the same as the profit that would have accrued
from the resale of the goods but rather may be regarded as a legal fiction to
cover actions based on market price.1'2 In the Japanese cases this legal tech-
nique, so effective in commodity sales, is not sufficiently employed. So in
particular, damages based on a sharp price rise have often been regarded in the
same way as lost resale profits.' Furthermore, as an additional comment, it is
clear that in Japanese law, ordinary damages are not always calculated by the
method of abstract calculation. For example, profit from resale is ordinary
profit for the merchant who is constantly reselling and this is a concrete calcula-
tion of damages.
Furthermore, in procedural law, there is the question as to which calculation
of damages the parties may rely upon. In general, the plaintiff is permitted to
prove damages over and above those arrived at by abstract calculation. Yet,
on the other hand, it would be rather difficult for the defendant to prove that the
real damages are less than those so calculated (again relating to the standard
time when, for example, the plaintiff appropriately covered himself prior to
the cancellation of a contract more cheaply than he could have done after the
cancellation of the contract, the defendant may offer such proof in his favor).
Consequently, when the abstract method is used, the burden of proof of actual
124 1 RABEL, supra note 10, at 454 ff.

125 Tsurutani Sh6ten v. Kimura Sh6ten, 15 MinshQ 1105 (Sup. Ct., April 28, 1961).
126 Osumi v. Asahikawa Ky6ryoku Sen'i K6gy6, 7 MinshQ 1446 (Sup. Ct., Dec. 18,
1953).
127 Z. Kitagawa, supra note 4, 73 H6GAKU RONs6 (No. 1) 22 ff. (1963).
128 Kasuya K.K. v. Yuryd Sat6 Haikyakedan, 15 Minshui 2706, supra note 44 (Sup. Ct.,
Dec. 8, 1961), regarded damages caused by an increase in the market price as the loss of profit,
lucrum cessans. However, this decision was rendered with regard to compensation for delay
and was not compensation based on an abstract damage computation. As to the difference
between the two, see 1 RABEL, supra note 10, at 379, 511-14.
damage does not rest upon the plaintiff and to this extent this method benefits
the plaintiff.
5. Between abstract and concrete calculations of damages is sandwiched
the problem of so-called Covering Damages (tempo songai; Deckungsschaden).
A typical example of this is cover by the purchaser with commodities of the
same type and quality. Since damages in such cases are damages actually in-
curred, there is no calculation of abstract damages. Yet on the other hand,
the cover price is also not based on concrete calculation of damages in that in
comparison with the various items of the purchaser's property, it shows a stand-
ard objective, that is, the market price. The Japanese precedents also re-
cognize the Deckungsschaden or covering damages.'2 9 This may be called, so
to speak, a method of calculation in transition from the concrete to the abstract
method. Under this method, whether the cover was proper with respect to
time, place and method is adjudged on the basis of the good-faith principle.
Therefore the covering damages are not so characterized by the clarity, standard
and speed, as by the abstract calculation of damage.
Here let me say a word about the relationship between concrete and abstract
calculation of damages and covering damage on the one hand, and difference
theory on the other hand. As a matter of difference theory principle, the
amount of damages is based on the concrete calculation of damages, determined
by the difference between the obligee's present property situation and the
property situation he would possess if it were not for the breach of contract.
The property that is to figure in the comparison is not the obligee's total pro-
perty but the items concerned in the ordinary and special damages resulting
from the breach of contract. The difference theory in this sense is not a theory
from which we logically derive the concept of consolidated damage. Thus,
when calculation is being made, there are both cases wherein it confines itself
to the prices of goods to be delivered and others in which, in addition, a cover
price which is considered appropriate is cited as an item of property. The
former is abstract calculation of damages while the latter is an example of cov-
ering damage. The questions of which method of calculation to employ and
which items of property to cite together with the question of the standard time
for the calculation of ordinary and special damages, typically are determined by
contractual elements such as types of sale, parties, subject-matter and the like,
while maintaining a mutual relationship with them all.
VIII. FURTHER CONSIDERATIONS

1. Concerning damages, Japanese law in keeping with the civil law system
has extremely comprehensive rules, and both the cases and the scholarly theory
offer interpretations of the law as such a comprehensive system. The rules
on the scope of damages (Civil Code article 416) are placed within the frame-
work of the General Principles of the Law of Obligations, and at present it is
129 See those decisions accompanying the text V. 2. (b) and V. 3. (b).
generally considered, though there are some opposing views, that they are ap-
plicable to nonperformance of obligations and also to torts. On the other hand,
none of the Civil Code provisions covering various types of contracts has special
rules on the scope of damages. Hence, Civil Code article 416 is applied to all
types of contracts-sales, leases, agencies, employment, and others. Also,
while the Commercial Code as a special branch of civil law has established
several special rules applicable to commercial sales, there are no specific rules
for the measure of damages. Consequently, it must be understood that there
are in Japanese law no provisions on damages specifically concerned with the
sale of movables; therefore, in the precedents as well, there is no special legal
classification set aside for them.
The question is how under such abstract Civil Code provisions, Japanese
lawyers treat precedents and scholarly opinions. When a Japanese lawyer
finds a leading decision concerning the issue involved in the case he is handling,
does he think this decision is " law "? Maybe not. His legal reasoning in
these circumstances would proceed as follows: At first he must know the mean-
ing of Code provisions involved in his case (i.e., when must the special cir-
cumstances be foreseeable under article 416 (2) of the Civil Code; what is
the meaning of " ordinary " damages, etc.) In this process of interpretating
the code, precedents and scholarly views are useful. By his interpretation, the
Japanese lawyer reasons that, for instance, his client's damages should be " or-
dinary damages " and, further, that the " standard time " for determining the
scope of damages should be the " time of cancellation of contract." So, the
law which is interpreted by reviewing precedents or scholarly opinions is
not, in its legal nature, the same as the precedents or scholarly opinions
themselves. When he thus ascertains the meaning of the Code provisions in-
volved, the lawyer can predict the application of the code by the judge. The
application of law to his case means that his case will fall within the purvue
of the code provision thus interpreted. Thus precedents as well as scholarly
views only assist in articulating the meaning of Code provisions. In that they
both may enter into the application of the code law to the case, they can be
called a kind of source of law. But this does not mean that scholarly theories
or decisions constitute " the law " which is directly applied in the case. This
is one of the most difficult, but significant distinctions in the civil law system.
Such a process of legal reasoning once tended to focus the lawyer's attention
on the exegesis of legal norms without much concern for underlying factual
situations, though, this one-sided approach has greatly diminished. But the law
of damages, like other fields of law in Japan, has not been free from abstract and
generalized conceptual arguments. Furthermore, complications are caused
in Japan by the fact that shortly after the enactment of the Japanese Civil Code
lawyers came under powerful German influences, as pointed out. The pre-
vailing theory that the scope of damages is to be determined by " adequate
causation " is one such influence. Due to German influence, which I call the
" Theory-Reception," Japanese legal development has acquired some peculiar
features. Considerations of such influence are also necessary and appropriate
to point out continuity and discontinuity in the development of Japanese law.
2. In Japanese law, as in the civil law generally, the obligatory right to
performance (specific performance or relief) is the focal point of the law of
contracts. It is created by contractual agreement and thus exists from the
time of contracting. The right to damages is also conceived as a substitute
for performance (substitute damages) or as an extension of the original right to
performance (damages for delay). Under this system the question is from
what time the right to damages (especially substitute damages) comes into
existence, for the aggrieved party, of course, cannot get judgment both for
performance and for substitute damages. In this sense substitute damages
take the place of right to performance. This does not necessarily mean that
substitute damages come into existence at the time when right to performance
is discharged (by cancellation of contract or by impossibility of performance).
Rather, substitute damages take shape from the time of breach, and can be
demanded upon the fulfilment of certain conditions imposed by law (e.g., where
time is of the essence, or when notice of demand for performance is made after
delay in performance.) Therefore, right to performance and right to substitute
damages can co-exist for some period.
3. The right to substitute damages takes the place of the original right to
performance. Then, does a security interest which accompanies the original
right to performance also secure substitute damages? Or, does the same time
limitation (extinctive prescription) applicable to the original right to perform-
ance extend to substitute damages? These are answered in the affirmative in
Japan. Where the original right is assigned, as a rule damages for delay are
also transferred. Particularly of significance is the doctrine that when the
original right to performance changes into right to substitute damages, the
time limitation is not thereby extended. So, in case of a five-year time limita-
tion, the right to damages shall expire five years after the time for performance,
even if it can be exercised several months after the time for performance.
4. The Japanese law covering the scope of damages has a dual structure
based on the distinction between (1) " such damages as would ordinarily arise
from the non-performance of an obligation ", and (2) " the damages which
have arisen through special circumstances " (Civil Code article 416) on the
one hand, and on the theory of adequate causation on the other hand. This
distinction may be traced to the common law doctrine, and " adequate causa-
tion " traces to the " theory reception " of German principle. These two,
based originally on different principles of compensation, have been reconciled
by saying that the scope of damages is to be determined by adequate causa-
tion, and furthermore that article 416 recognizes and articulates this position.
However, the meaning of " adequate causation " tends to remain in the realm
of abstract and generalized explanations while practical concerns are usually
centered around the characterization of the damages in any given case as
" ordinary " or " special " damages. As a whole, apart from its application in
certain decisions, the theory of adequate causation, so far as the scope of
damages is concerned, has not played a determining role in Japan, as it has in
Germany. Today several scholars suggest that we dispense with the theory
of adequate causation altogether.
5. Taking into account what is said in subpart 4 above, I have analyzed the
Japanese cases in this article, focusing on the distinction between ordinary
damages and special damages.
Thus, contractual liability can be divided into two categories: (1) main and
(2) supplemental liability. The second type of liability has not been sufficiently
analyzed in Japan, but it can be developed to cover losses and injuries which
go beyond the contemplated and bargained for contract interest (i.e., personal
injury to the purchaser of food-stuffs which contain infectious germs). Delay
damages due to delay in performance or delayed performance (extension of
original right to performance) and substitute damages (substitute for the right
to performance) are the two types of damages flowing from " main " contrac-
tual liability.
Besides these classifications, I have divided the cases into two types: (1)
where the aggrieved party does not stand in a contractual relation with a third
party; and (2) where he does. This classification enables us to clarify the
factual situations relevant to the distinction between " ordinary " and " special "
damages. For example, when buyer did not enter into a contract with a third
person confusion arose in the Japanese cases by the unhappy construing of
price fluctuations as a problem of loss of profits (lucrum cessans), which the
aggrieved buyer could have gained but for the seller's breach. However, the
Supreme Court is recently inclined to treat price fluctuations as ordinary
damages, though this attitude is not firmly established yet. The scope of
damages is the difference, for instance, between the purchase price and the
market price at the time of cancellation (see parts II: 1 and 111: 1, above). The
question is then the choice of a standard time for calculation of damages.
Different considerations are involved if the buyer has a contractual relation
with a third person; for example, when buyer, a wholesaler, purchases the
goods from seller in order to deliver them to retailers, or when buyer had to
cover goods of the same kind from another supplier because of seller's non-
delivery. Is the difference between the prices ordinary damages or special?
Some cases have held it to be ordinary damages; others have found special
damages. The answer cannot be made uniformly or found by inquiring into
the various factors such as the occupation and position of the contracting parties,
the nature of the purchased goods, or other factual criteria of each contract.
But there are some key factors that lead us to the answer (e.g., in a delivery
agreement between a manufacturer and a wholesaler and in case of nondelivery
by the manufacturer, the loss of profit of the wholesaler is ordinary damages).
However, there are not enough reported cases to enable us to formulate princi-
ples that correspond to " typical " factual situations.
This article has covered, mainly, the problem of price fluctuations in the
law of damages. The problem of damages accruing from the delivery of de-
fective goods, which is discussed briefly in this study (see part I: 6, above)
requires further treatment later.
6. The problem of the standard time from which to measure damages can-
not be answered by one uniform theory. In attempting to fix the standard
time the following must be considered: time for performance, time of breach
of contract, time of cancellation of contract, time of filing suit, time of end of
oral arguments in the court, time of resale or covering, etc. The court (as a
matter of law) has discretionary power to select a standard time. But in exer-
cising its discretion the court must consider various objective factors such as the
character of the contract parties, type of sales contract, and class of goods, etc.
In this connection, the standard time for the foreseeability of special circum-
stances (Civil Code art. 416 (2)) is, according to the settled precedents and pre-
vailing scholarly opinions, the time of breach, not the time of contracting. Yet,
because Code provisions concerning the standard time are lacking, and because
the distinction between ordinary and special damages are provided in abstract
and generalized Code provisions, the court has broad discretion in deciding the
scope of damages.
7. There are in Japanese law several institutions which will operate as ad-
justing principles in determining the scope of damages: Mutual setoff of profits
by losses (compensatio lucri cum damno), setoff for negligence, right to sub-
stitute, or liquidated damages agreements (part II. 3 above). These are intro-
duced to assist the aggrieved party in determining the scope of damages or to
avoid injustice, as well as to mitigate damages sometimes.
8. Several basic theories of damages supply a rationale for the issues and
topics hitherto discussed in this article. The " difference theory " is related
not only to the difference between the total property situations of the aggrieved
party, but also to the difference between two prices. The abstract calculation
of damages is the simplest case of the difference theory. This is the difference
between the purchase price and the market price at the standard time. The
abstract method of calculation, where the aggrieved party did not enter into a
contract relation with a third person-that is, where he made no such cov-
ering acts as resale or re-purchase-affords the simplest basis of determining
the scope of ordinary damages. However, if the aggrieved party has suffered
much more loss, he can establish it by the concrete method of calculation either
as ordinary. damages (e.g., a wholesale merchant's loss of profits) or as special
damages. In this sense the abstract calculation of damage often operates as
minimum compensation for the palintiff. Either against the abstract method
of calculation or against the concrete method, the defendant can raise a de-
fense of covering damage stating that the plaintiff could have resold the goods
at a higher price or repurchased the goods of the same kind at a lower price
than the alleged price by the plaintiff. (It is still an open question as to whether
this is a defense of setoff for the plaintiff's fault or an allegation as to another
standard time of determing the scope of damages).
If the aggrieved party has covered as plaintiff he would select the most favora-
ble method of calculation-(1) the abstract method of calculation, (2) the con-
crete method of calculation, or (3) the covering damage (that is, the difference
between the contract price and the resale or repurchase price). Whether the
covering damage is to be construed as a case of ordinary damages or of special
damages will depend on various objective factors such as the type of contracting
parties and type of sales contract, class of goods, etc. If the plaintiff takes the
abstract method of calculation as the basis for determining the scope of dam-
ages, the defendant under these circumstances can raise a defense alleging that
the plaintiff actually covered the goods at a lower price. Or, if the covering
damage is chosen by the plaintiff, the defendant can also allege that this act of
the plaintiff was unforeseeable by him and that the plaintiff should be satisfied
with the abstract method of calculation, or that the plaintiff could have resold
the goods at a higher price or repurchased goods of the same kind at a lower
price.
9. Nowadays, when considering the law of damages, it is necessary to note
the economic and social facts which underlie the legal relationships in sales.
In other words, it is important to relate the value criteria controlling these
facts and legal concepts. The stress often laid, in dealing with the various
questions of damages, on such elements of sales as types, parties, subject-mat-
ters, and the like is due to the necessity to clarify the relationship between
these legal concepts and facts. The present article has striven to make this
direction clear by scrutinizing various problems in the light of the basic legal
concepts of the law of damages in Japan. Next on the agenda for scholars will
be the task of classifying the diverse factual pattern in sales and of appropriately
applying to these patterns the foregoing analysis of doctrine as it has developed
in the Japanese law of damages.

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DAMAGES IN CONTRACTS FOR THE SALE

Professor Kitagawa's survey of the Japanese Law of Damages in Sales Con-

I. FOREWORD: REFLECTIONS ON THE SOURCES OF LAW

1. FOREWORD: REFLECTIONS ON THE SOURCES OF LAW

2 a There are some special provisions on the measurement of damages:

3 Cf. T. Kawashima, Dispute Resolution in ContemporaryJapan, in LAW IN JAPAN 41-72

4 OKAMATSU, MUKASHITSU SONGAI BAISHO SEKININ-RON (Liability without negligence to

5 Oho, SAIKEN SORON (General principles of law of obligation), in 20 H6RITSUGAKU ZEN-

11. THE RIGHT TO PETITION FOR SPECIFIC RELIEF

17 The Non-Retroactive-Effect Theory (hisakkyil khka setsu) is becoming prevalent in

111. THE LEGAL CHARACTER OF OBLIGEE'S RIGHT TO

1. As seen in II, the right to performance and the right to substitute

21 As to the following statements, see S. WAGATSUMA, supra note 5, at 101-102.

(positive Forderungsverletzungen). In such cases, there is no identity between

IV. ADEQUATE CAUSATION

V. ORDINARY DAMAGE AND SPECIAL DAMAGE

40 See Z. KITAGAWA, supra note 9a, at 194 ff, 339 ff.

83 Shakura v. Ikeda, 22 Minsha 1179 (Gt. Ct. Cass., Nov. 2, 1943).

VI. THE STANDARD TIME FOR THE CALCULATION

1. The time from which damages should be calculated, has undergone

VII. CLASSIFICATIONS OF DAMAGE; RULES FOR ADJUSTING

1. While damage may be divided into property damage and non-property

124 1 RABEL, supra note 10, at 454 ff.

VIII. FURTHER CONSIDERATIONS

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