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Remedies for Non-performance:

Perspectives from CISG, UNIDROIT Principles & PECL

Chengwei, Liu [*]
September 2003

[...]

CHAPTER 15. DAMAGES UPON TERMINATION

15.1 General Considerations
15.2 Damages upon Substitute Transactions
      15.2.1 Introduction
      15.2.2 Presupposed Situations Calling for Concrete Calculation
      15.2.3 Substitute Transaction must be Reasonable Substitute
15.3 Damages upon Current Price
      15.3.1 Introduction
      15.3.2 Presupposed Situations Calling for Abstract Calculation
      15.3.3 Determination of "Current Price"
    15.3.3.1 In general
    15.3.3.2 Reference point
    15.3.3.3 Relevant place
15.4 Further Damages

     The rule adopted in most legal systems, and the Vienna Convention as well, is that, in addition to avoidance, the party aggrieved by the breach may always claim damages to compensate for the loss caused by avoidance.[1] The fact that, by virtue of termination, the contract is brought to an end, does not deprive the aggrieved party of its right to claim damages for non-performance [...].[2]

15.1 GENERAL CONSIDERATIONS

Under the CISG, Arts. 75 and 76 provide two methods, representing specific applications of Art. 74, for measuring damages when a party avoids a contract due to a fundamental breach of the contract by the other party.

When the contract is avoided, damages generally amount to the difference between the contract price and the costs of a cover transaction (Art. 75); the cover transaction must, of course, be undertaken within a reasonable time after avoidance. This coincides with the duty to mitigate damages in Art. 77. Where the goods have a market price, the injured party can also measure his damages "abstractly", i.e., independently from any cover transaction, Art. 76. This method of measuring damages - the so-called market-price rule - presupposes that a cover transaction has not been undertaken with regard to the contract breached.[3]

While Arts. 75 and 76 specify the types of damages measurements authorized by the Convention, they also include the residual phrase, "as well as any further damages recoverable under article 74". Thus, losses which cannot be compensated invoking the latter two articles, can be so compensated under the broader rule of Art. 74 (see Chapter 13). In other words, Art. 74 establishes the rule for the measurement of damages whenever and to the extent that Arts. 75 and 76 are not applicable. Given the language and juxtaposition of the three articles, a tribunal could view Arts. 75 and 76 as specific applications of the sweeping language of the first sentence of Art. 74 and not as limitations placed on it. In a word, Arts. 75 and 76 appear to supplement Art. 74.[4]

15.2 DAMAGES UPON SUBSTITUTE TRANSACTIONS

15.2.1 Introduction

Judicial discretion in the assessment of damages can be reduced by standardizing the damages in question.[5] To this end, Art. 75 CISG measures damages concretely on the basis of a substitute transaction (a purchase in replacement or resale), and reads: "If the contract is avoided and if, in a reasonable manner and within a reasonable time after avoidance, the buyer has bought goods in replacement or the seller has resold the goods, the party claiming damages may recover the difference between the contract price and the price in the substitute transaction as well as any further damages recoverable under article 74."

Briefly speaking, damages under this provision are established by the action of the injured seller in reselling the goods and the action of the injured buyer in obtaining cover, that is, buying the goods elsewhere. The measure of damages is the difference between the price under the contract and the price of the substitute transaction, which allows the injured party to measure damages without having to show the market price for the goods. This article can be traced back to Art. 85 ULIS. However, a change between this provision and Art. 75 CISG has been noted by Stoll: "ULIS places abstract calculation of damages using the market price rule (Article 84) before concrete calculation of damages by reference to a substitute transaction (Article 85), whereas the Convention makes concrete calculation of damages the primary method and abstract calculation of damages using the market price rule is subsidiary to it (Article 76). That indicates the change in the relationship between the two rules. Moreover, Article 85 ULIS merely requires a substitute transaction to have been carried out 'in a reasonable manner', while the Convention adds by way of clarification that the substitute transaction must also have taken place 'within a reasonable time after avoidance'. Finally, Article 75 adds that the party entitled to damages may claim 'any further damages recoverable under Article 74'. This latter addition is not a substantial change, because under Article 86 ULIS the duty to pay damages is extended so as to include all further loss. . . ."[6]

On the other hand, it is clear that, the only modification of Art. 75 CISG to its original provision, i.e. 1978 Draft Art. 71, was to change a conjunction to "as well as" rather than "and" (apart from an adjustment of the article reference to conform to the new sequence). The Secretariat Commentary on 1978 Draft Art. 71 should therefore be relevant to the interpretation of CISG Art. 75.[7] In the UNIDROIT Principles, Art. 7.4.5 provides under the heading "Proof of harm in case of replacement transaction" that: "Where the aggrieved party has terminated the contract and has made a replacement transaction within a reasonable time and in a reasonable manner it may recover the difference between the contract price and the price of the replacement transaction as well as damages for any further harm." This article is regarded as corresponding "in substance to Art. 75 CISG" and establishing, alongside the general rules applicable to the proof of the existence and of the amount of the harm, one of the presumptions which may facilitate the task of the aggrieved party.[8] The use of this provision and its Commentary as a potential aid to the interpretation of CISG Art. 75 is thus self-evident.[9] The author thinks that it is the case for using of Art. 9:506 PECL, which reads similarly: "Where the aggrieved party has terminated the contract and has made a substitute transaction within a reasonable time and in a reasonable manner, it may recover the difference between the contract price and the price of the substitute transaction as well as damages for any further loss so far as these are recoverable under this Section." and the Comments thereon. With these relevant sources, as well as other scholarly writings concerned, the author will further the concrete calculation established under Art. 75 CISG below.

15.2.2 Presupposed Situations Calling for Concrete Calculation

The wording of Art. 75 makes it clear that, this provision concerns the measure of damages in situations where there has been an avoidance or cancellation of the contract by an aggrieved buyer or seller, and applies when the buyer, after the seller's breach, has bought goods in replacement of those that were the subject of the contract, or when the seller, after the buyer's breach, has sold the contract goods.

"It is a condition for the calculation of damages under Article 75 that the contract has been avoided (before) (c. Articles 49; 61 and 72; 73; and 81). Otherwise, if the seller has declared the contract avoided, he can sell the goods and if the buyer has declared the contract avoided, he can procure the goods."[10] Further, "[t]he presumption comes into play only if there is a replacement transaction and not where the aggrieved party has itself performed the obligation which lay upon the non-performing party (for example when a shipowner itself carries out the repairs to its vessel following the failure to do so of the shipyard which had been entrusted with the work)."[11] However, "[t]he party who is true to the contract does not always have an obligation to effect a substitute transaction, unless the loss can be mitigated in comparison to the calculation under Art. 76."[12] Note in particular that Art. 75 imposes no duty on the seller to notify the buyer of his intention to resell and the fact that, literally construed, the article only applies to a resale of goods that have been identified to the contract at the time of the buyer's breach.[13]

Nonetheless, if the contract has been avoided, the formula contained in Art. 75 will often be the one used to calculate the damages owed the injured party since, in many commercial situations, a substitute transaction will have taken place.[14] "Where the contract has been avoided, both parties are released from any future performance of their obligations and restitution of that which has already been delivered may be required. Therefore, the buyer would normally be expected to purchase substitute goods or the seller to resell the goods to a different purchaser. In such a case the measure of damages could normally be expected to be the difference between the contract price and the resale or repurchase price as is provided under article 71 [draft counterpart of CISG article 75]."[15]

In short, it is often appropriate to measure the aggrieved party's loss by the cost of procuring a substitute performance. Where the aggrieved party has in fact made a reasonable cover transaction, PECL Art. 9:506 (as well as Art. 7.4.5 UPICC and Art. 75 CISG) provides that the difference between the contract price and the cover price is recoverable.[16]

15.2.3 Substitute Transaction must be Reasonable Substitute

As noted above, Art. 75 CISG "sets forth a means of calculating damages when the contract has been avoided and replacement goods have in fact been purchased or the seller has in fact resold the goods".[17] In such cases, damages are to be measured by the difference between the cost of the substitute transaction and the contract price. However, it is subject to some restrictions. "The condition provided for in Art 75 is that the replacement purchase or the resale must be made 'in a reasonable manner and within reasonable time' after avoidance. Here the term 'reasonable manner' is to be interpreted as the duty of the buyer to buy the goods at the lowest possible price and of the seller to sell them at the highest possible price. The 'reasonable time' starts to run at the time when the aggrieve party avoided the contract."[18]

In other words, it is to be interpreted in such a way that the party who is true to the contract must try to effect the substitute transaction either as the buyer at the lowest possible price or as the seller at the highest possible price. Other contractual stipulations may have to be taken into account, e.g. the duration of the period of guarantee. An unreasonable substitute transaction cannot be considered to measure the damages. This follows, inter alia, from the obligation under Art. 77 to mitigate losses. Jurisdiction in regard to Art. 85 ULIS, which contains a relevant rule, in respect of the reasonable manner, called for a cautious and circumspect businessman. Furthermore, the substitute transaction has to be effected within a reasonable time. This is to prevent the loss from further increasing under worsening market conditions.[19]

The Secretariat Commentary makes it clear: "For the substitute transaction to have been made in a reasonable manner within the context of article 71 [draft counterpart of CISG article 75], it must have been made in such a manner as is likely to cause a resale to have been made at the highest price reasonably possible in the circumstances or a cover purchase at the lowest price reasonably possible. Therefore, the substitute transaction need not be on identical terms of sale in respect of such matters as quantity, credit or time of delivery so long as the transaction was in fact in substitution for the transaction which was avoided."[20]It should also be noted that the time limit within which the resale or cover purchase must be made for it to be the basis for calculating damages under article 71 [draft counterpart of CISG article 75] is 'a reasonable time after avoidance'. Therefore, this time limit does not begin until the injured party has in fact declared the contract avoided.[21]If the resale or cover purchase is not made in a reasonable manner or within a reasonable time after the contract was avoided, damages would be calculated as though no substitute transaction had taken place. Therefore, resort would be made to article 72 [draft counterpart of CISG article 76] and, if applicable, to article 70 [draft counterpart of CISG article 74][22]

However, the substitute transaction may occur in a different situation than that provided for in the contract. The amount of damages, therefore, will be altered to reflect any increased costs or expenses saved. On the other hand, the difference in price between the avoided contract and the contract which was newly concluded can, however, be the result of different terms, e.g. guarantee, or of different auxiliary costs, e.g. packaging, transportation). Due account has to be taken of this situation, i.e. the price difference has to be adjusted accordingly.[23] Under the U.C.C. language, items such as transportation expenses saved by the aggrieved party in a substitute transaction are deducted from cover or resale damages. A similar result can be reached under Art. 75 of the Convention by construing the phrase "price in the substitute transaction" to permit such adjustment. Equitable considerations demand this construction, given that increased transportation costs and similar items of extra expense associated with a substitute transaction would constitute losses suffered "as a consequence of breach" and thus would be recoverable under CISG Art. 74.[24] It is supported by Art. 7.4.2 (1) UPICC which clearly requires in this respect "taking into account any gain to the aggrieved party resulting from its avoidance of cost or harm" when applying the full compensation rule.

To sum up, where the aggrieved party has in fact made a cover transaction, the difference between the price of the substitute transaction and the price of the avoided original contract is the loss to be recovered. However, the replacement transaction must be performed within a reasonable time and in a reasonable manner so as to avoid the non-performing party being prejudiced by hasty or malicious conduct.[25] If the substitute transaction occurs in a different place from the original transaction or is on different terms, the amount of damages must be adjusted to recognize any increase in costs (such as increased transportation) less any expenses saved as a consequence of the breach.[26] In any event, the aggrieved party cannot recover the difference between the contract price and the price of an alternative transaction which is so different from the original contract in value or kind as not to be a reasonable substitute.[27]

15.3 DAMAGES UPON CURRENT PRICE

15.3.1 Introduction

There are occasions when the buyer or seller does not make a replacement purchase or resale, respectively, but instead, due to a breach of contract, prefers to avoid the contract. In such cases the question arises as to how compensation should be calculated. This situation is known in all legal systems; in the civil law countries the so-called abstract damages are calculated, as opposed to concrete damages which occur when a purchase in replacement or resale took place and are thus easier to calculate.[28]

Under the CISG, it is Art. 76 that measure such abstract damages, which reads: "(1) If the contract is avoided and there is a current price for the goods, the party claiming damages may, if he has not made a purchase or resale under article 75, recover the difference between the price fixed by the contract and the current price at the time of avoidance as well as any further damages recoverable under article 74. If, however, the party claiming damages has avoided the contract after taking over the goods, the current price at the time of such taking over shall be applied instead of the current price at the time of avoidance. (2) For the purposes of the preceding paragraph, the current price is the price prevailing at the place where delivery of the goods should have been made or, if there is no current price at that place, the price at such other place as serves as a reasonable substitute, making due allowance for differences in the cost of transporting the goods." Thus, instead of gauging damages by the price differential of a substitute transaction, Art. 76 CISG authorizes damages on the basis of the market price at the time of avoidance.

This provision corresponds to Art. 84 ULIS, but differs from it in some important respects.[29] With regard to its original provision, i.e. 1978 Draft Art. 72, it has been noted that: "Paragraph (2) of CISG article 76 and paragraph (2) of 1978 Draft article 72 are substantively identical. Nevertheless, the Secretariat Commentary on 1978 Draft article 72 is only of limited utility, as paragraph (1) is significantly different."[30] In the UNIDROIT Principles, Art. 7.4.6 provides under the heading "Proof of harm by current price" that: "(1) Where the aggrieved party has terminated the contract and has not made a replacement transaction but there is a current price for the performance contracted for, it may recover the difference between the contract price and the price current at the time the contract is terminated as well as damages for any further harm. (2) Current price is the price generally charged for goods delivered or services rendered in comparable circumstances at the place where the contract should have been performed or, if there is no current price at that place, the current price at such other place that appears reasonable to take as a reference." This article is said to "corresponds in substance to Art. 76 CISG", and is prescribed to "facilitate proof of harm where no replacement transaction has been made, but there exists a current price for the performance contracted for."[31] This provision and its Comments may thus play as a potential aid to the interpretation of CISG Art. 76. As is the case for Art. 9:507 PECL, which reads briefly: "Where the aggrieved party has terminated the contract and has not made a substitute transaction but there is a current price for the performance contracted for, it may recover the difference between the contract price and the price current at the time the contract is terminated as well as damages for any further loss so far as these are recoverable under this Section." and the Comments thereon. With these relevant sources, as well as other scholarly writings concerned, the author will further the abstract calculation established under Art. 76 CISG below.

15.3.2 Presupposed Situations Calling for Abstract Calculation

Just like Art. 75, Art. 76 CISG presupposes that the original contract has actually been avoided. However, the abstract calculation of the damages provided for in Art. 76 is possible only when the obligee has not effected a substitute transaction. The reasons for his inaction are irrelevant here.[32] To meet the requirement, it is enough that no resale or cover purchase took place in fact or where it is impossible to determine which was the resale or purchase contract in replacement of the contract which was breached or where the resale or purchase was not made in a reasonable manner and within a reasonable time after avoidance, as is required by Art. 75.[33]

The abstract method of calculating damages does not require the obligee to have tried concluding a substitute transaction. Unless the loss can be mitigated in comparison to the calculation under Art. 76. The obligee cannot ignore the results of an actual resale or covering purchase and claim higher damages. In other words, if the obligee effects a cover transaction and then measures his damages according to the abstract method because this is more favourable to him, he acts dishonestly and violates the principle of good faith. In such a case, the obligor can remind him of his duty to mitigate losses under Art. 77. On the other hand, it cannot be excluded that the obligee first measures the loss abstractly and then proceeds to a cover transaction. There can be no objection against it if this is more favourable to him and if, in so doing, he uses the market developments in his favour. Should it become clear, however, that a cover transaction is possible only under more unfavourable terms and this is transaction carried out within a reasonable time, additional differences in price can be claimed as further damages. In addition, when the obligee purchases and sells continuously and, therefore, no contract can be qualified as a substitute purchase or sale, losses can also be calculated abstractly under Art. 76. Some authors assume that it is always at the buyer's discretion to decide whether he measures his losses according to the abstract or the concrete method, hence an abstract calculation would be admissible in the case of a substitute transaction. But an abstract calculation that is preceded by a cover transaction is admissible and advisable only when the cover transaction was not effected in a reasonable manner.[34]

It appears that a party that has entered into a substitute transaction within the meaning of Art. 75, therefore, must proceed under that provision and cannot claim damages under Art. 76. An attempt at resale or cover that does not meet the requirements of Article 75 (e.g., because the substitute transaction did not occur within a reasonable time after avoidance), however, does not prevent the aggrieved party from claiming market price damages under Art. 76. To avoid over-compensating the aggrieved party, nevertheless, such substitute transactions should be deemed to establish an upper limit on the amount of damages recoverable under Art. 76, although the text of the Convention does not mandate this result.[35]

15.3.3 Determination of "Current Price"

15.3.3.1 In general

A third requirement contained in Art. 76 calling for abstract damages is that "there is a current price for the goods". The concept of "current price" is essential when applying Art. 76, since the abstract calculation is based on "the difference between the price fixed by the contract and the current price".

Art. 7.4.6 (2) UPICC defines the "current price" as "the price generally charged for goods delivered or services rendered in comparable circumstances at the place where the contract should have been performed or, if there is no current price at that place, the current price at such other place that appears reasonable to take as a reference". Its Official Comment states accordingly: "current price" is the price generally charged for the goods or services in question. The price will be determined in comparison with that which is charged for the same or similar goods or services. This will often, but not necessarily, be the price on an organised market. Evidence of the current price may be obtained from professional organizations, chambers of commerce, etc.[36]

In this respect, Knapp notes that: "The concept of a current price does not presuppose official or unofficial market quotations as is required in the case of stock exchange goods. Any goods that are available on the market or elsewhere do have a market price. An exception could be goods which are made under special order by the buyer and for which damages would have to be calculated under Article 74 and not Article 76."[37]

15.3.3.2 Reference point

As for the reference point for the measure of damages, the 1978 Draft stated as the decisive time such time at which the injured party first had the right to declare the contract avoided. This was supposed to prevent speculation on the part of the obligee. "The rule was found to be objectionable in Vienna, however, because it was too uncertain and gave too much discretion to the courts, especially in cases of anticipatory breach. These objections finally led to choosing the 'declaration of avoidance' or the 'taking over' of the goods as the reference point for calculating damages, the earlier of the two being decisive."[38]Thus, CISG Art. 76 now contains two tests to determine the time of the current price and damages are thus generally measured by the market price "at the time of avoidance"; if the aggrieved party avoids the contract after "taking over the goods", however, the reference point is "the time of such taking over".[39]

However, the time of avoidance of contract may in practice be difficult to ascertain and could therefore lead to abuse. For instance, the party who plans to avoid the contract may speculate by waiting to avoid the contract at a time which, financially speaking, is more favorable for him.[40] To avoid speculation, the time limit for avoidance has to be taken into consideration. Insofar as there are no time limits for avoidance of a contract, Art. 77 is to be consulted in regard to the obligation to mitigate losses.[41]If a party delays in declaring avoidance and the difference between the market and the contract price increases, he may be held to have violated his duty to mitigate damages.[42] On the other hand, to largely exclude speculations, at least on the part of the buyer, another time was fixed for the taking over of the goods.[43] The intention of fixing such an early time is to prevent the buyer from speculating on the movement of market prices and delaying avoidance of the contract.[44] In order to keep possible abuses to a minimum, Art. 76 provides that in cases where the party claiming damages has avoided the contract "after taking the goods", the "current price of such taking over shall be applied instead of the current price at the time of avoidance".[45]

However, the latter alternative reference point of "after taking over the goods" is hardly understandable according to some other commentators.[46] Nonetheless, it is broadly recognized that this alternative "prevents an avoiding buyer who has received delivery from manipulating the time of avoidance in order to increase the seller's liability." Moreover, Honnold holds that: Despite this apparent purpose, Art. 76(1) does not limit the application of the alternative measuring point to buyers. It might therefore apply, e.g., to an avoiding seller who delivered and then "took over" the goods after they were wrongfully rejected by the buyer. However, the alternative should not apply when an aggrieved buyer rejects the goods immediately after the inspection permitted by CISG Art. 38.[47]

15.3.3.3 Relevant place

In regard to the place where the current price is to be determined, Art. 76 refers to: a) "the place where delivery of the goods should have been made", or alternatively b) "if there is no current price at that place", then "such other place as serves as a reasonable substitute". It should also be mentioned that Art. 76 reminds the contracting parties that "the allowance for differences in the cost of transporting the goods" should be added.[48]

In other words, the decisive place is the place where the delivery was supposed to take place or the place, if the goods were taken over, where the delivery actually took place. According to Art. 31, this is the place of delivery. While this place may indeed be reasonable to the seller, it may well entail difficulties for the buyer. Since the place of delivery in many cases, e.g. handing over to the first carrier, is located in the seller's country, it can be difficult for the buyer to prove damages based on market prices in the seller's country.[49] Sutton notes in this respect: "In traditional international sales contracts, the place of delivery is the port of the first carrier for transportation to the buyer. For the seller, this rule poses few problems, as the port is likely to be in his or her country, and the market information for the goods will normally be readily available. The buyer, on the other hand, often will be far removed both from the seller's country and from current information concerning the markets in the seller's country. In a destination contract, in which the seller is obligated to deliver the goods to a port in the buyer's country, the reverse problem arises; the buyer has easy access to the local market, but the seller is often far removed from it." Sutton thus advises that: "One solution to these problems is to seek cover under article 75, which eliminates the burden on the buyer or seller of establishing the market price of the goods in what may be a distant country. Another option is to include in the contract a more predictable reference point for measuring the current market price by, for example, establishing a specific locale as the determinative market."[50]

On the other hand, if no current market price exists at the place where delivery of the goods should have been made, Art. 76(2) states that the parties should look to another market that represents a "reasonable substitute". When another place is found, the differing cost of transportation is to be included in calculating the price difference. It cannot be generally defined which other place might be considered as reasonable. One may find it difficult to imagine why there should be no current price at the contractual place of delivery. Rather it suggests that there is no current price at all.[51] Presumably there is some flexibility in Art. 76(2) and a court may be able to substitute the price obtaining at the place of arrival of the goods where that is a more reasonable market for a hypothetical covering purchase.[52] However, if a reasonable substitute market cannot be found, then the parties will not be able to measure damages under Art. 76. If no such price exists, damages must be calculated under Art. 74.[53]

15.4 FURTHER DAMAGES

Both Arts. 75 and 76 of the CISG contain a phrase of "as well as any further damages recoverable under article 74". Such provisions recognize that the injured party may incur additional losses, including loss of profit, which would not be compensated by the basic formula contained thereof. In such a case the additional losses may be recovered under Art. 74, provided that, of course, the conditions of Art. 74 are satisfied.[54] It follows that the non-performing party may also be liable for any further loss which the aggrieved party proves it has suffered. In other words, the rule that the aggrieved party may recover the difference under both Arts. 75 and 76 establishes "a minimum right of recovery". The aggrieved party may also obtain damages for additional harm which it may have sustained as a consequence of termination.[55]

On the one hand, to carry out a substitute transaction requires additional costs which are not covered and compensated for by the difference in price. If the substitute transaction had been possible without avoidance of the original contract, the seller would suffer further losses in regard to the profit he missed. Additional cost in doing business or lost profit can also constitute further damages, even if there is no difference between the contract price and the price in the substitute transaction, e.g. if prices have fallen in the case of an intended resale of the goods. In such a case further damages are the only losses suffered.[56] On the other hand, such further damages may occur when the loss is calculated abstractly at first, but it becomes clear later that a cover transaction is possible only under more unfavourable terms.[57] Among other things, "[t]he most usual type of further damages to be recovered under article 70 [draft counterpart of CISG article 74] would be the additional expenses which may have been caused as a result of the receipt of non-conforming goods or the necessity to purchase substitute goods as well as losses which may have been caused if goods purchased in the substitute transaction could not be delivered by the original contract date."[58]

Finally, it is to be noted that any additional damages are recoverable only where conditions of the general rule of damages has been satisfied: "Further damages are recoverable under the general rule of Article 74. This means, however, that any further damage is limited as to its foreseeability. In this case, too, it is a prerequisite that the injured party claims damages and proves the loss."[59]

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FOOTNOTES: Chapter 15

* Chengwei, Liu. LL.M. of Law School of Renmin University of China, P.O. Box 9-01 No. 1 (International Law), Law School of Renmin University of China, 59 Zhongguancun Street, Beijing 100872, China. E-mail: Genes@263.net.

1. See Jelena Vilus in "Provisions Common to the Obligations of the Seller and the Buyer", Petar Sarcevic & Paul Volken eds., International Sale of Goods: Dubrovnik Lectures, Oceana (1986); p. 249. Available online at <http://www.cisg.law.pace.edu/cisg/biblio/vilus.html>.

2. See Comment 2 on Art. 7.3.5 UPICC.

3. See Peter Schlechtriem, Uniform Sales Law - The UN-Convention on Contracts for the International Sale of Goods, Manz, Vienna (1986); p. 98. Available online at <http://www.cisg.law.pace.edu/cisg/biblio/schlechtriem-75.html>.

4. See Jeffrey S. Sutton in "Measuring Damages Under the United Nations Convention on the International Sale of Goods"; 50 Ohio State Law Journal, 1989, pp. 737-752. Available online at <http://www.cisg.law.pace.edu/cisg/biblio/sutton.html>.

5. Supra. note 3, p. 97.

6. See Stoll in "Commentary on the UN Convention on the International Sale of Goods", Peter Schlechtriem ed. (Oxford 1998); p. 573. Available online at <http://www.cisg.law.pace.edu/cisg/text/matchup/matchup-u-75.html>. ULIS, Art. 85 reads: "If the buyer has bought goods in replacement or the seller has resold goods in a reasonable manner, he may recover the difference between the contract price and the price paid for the goods bought in replacement or that obtained by the resale."

7. See the match-up, available online at <http://www.cisg.law.pace.edu/cisg/text/matchup/matchup-d-75.html>. Art. 71 of the 1978 Draft reads: "If the contract is avoided and if, in a reasonable manner and within a reasonable time after avoidance, the buyer has bought goods in replacement or the seller has resold the goods, the party claiming damages may recover the difference between the contract price and the price in the substitute transaction and any further damages recoverable under the provisions of article 70."

8. See Comment 1 on Art. 7.4.5 UPICC.

9. See Albert H. Kritzer in "Editorial remarks on the manner in which the UNIDROIT Principles may be used to interpret or supplement CISG Article 75". Available online at <http://www.cisg.law.pace.edu/cisg/principles/uni75.html>.

10. See Fritz Enderlein, Dietrich Maskow, International Sales Law: United Nations Convention on Contracts for the International Sale of Goods, Oceana Publication (1992); p. 303. Available online at <http://www.cisg.law.pace.edu/cisg/biblio/enderlein.html>.

11. Supra. note 8.

12. Supra. note 10.

13. See Jacob S. Ziegel in "Report to the Uniform Law Conference of Canada on Convention on Contracts for the International Sale of Goods". Available online at <http://www.cisg.law.pace.edu/cisg/text/ziegel75.html>.

14. See Secretariat Commentary on Art. 71 of the 1978 Draft, Comment 3. Available online at <http://www.cisg.law.pace.edu/cisg/text/secomm/secomm-75.html>.

15. See Secretariat Commentary on Art. 72 of the 1978 Draft, Comment 2. Available online at <http://www.cisg.law.pace.edu/cisg/text/secomm/secomm-76.html>.

16. See Comment and Notes to the PECL: Art. 9:506. Comment A. Available online at <http://www.cisg.law.pace.edu/cisg/text/peclcomp75.html>.

17. Supra. note 14, Comment 1.

18. Supra. note 1.

19. Supra. note 10.

20. Supra. note 14, Comment 4.

21. Supra. note 14, Comment 5.

22. Supra. note 14, Comment 6.

23. Supra. note 10, p. 304.

24. See Harry M. Flechtner in "Remedies Under the New International Sales Convention: The Perspective from Article 2 of the U.C.C.", 8 Journal of Law and Commerce (1988); 53-108. Available online at <http://www.cisg.law.pace.edu/cisg/text/flecht74,75,76.html>.

25. Supra. note 8.

26. Supra. note 14.

27. Supra. note 16, Comment B.

28. Supra. note 1, p. 250.

29. ULIS treats abstract assessment of damages under the current price rule as having the same standing as concrete assessment of damages under Art. 85 ULIS, so that the promisee is free to choose between those methods of assessment where the goods have a current price. "Article 84 ULIS [sets abstract damages as] the current price on the day on which the contract was avoided. [CISG Article 76 applies a different formula]. ... Article 84(2) ULIS provides that the current price to be taken into account is that prevailing the market in which the transaction took place, or, if this is inappropriate, the price in a market which serves as a reasonable substitute. The [CISG] made this rule more precise. ..." See the match-up available online at <http://www.cisg.law.pace.edu/cisg/text/matchup/matchup-u-76.html>. Art. 84 ULIS reads: "1. In case of avoidance of the contract, where there is a current price for the goods, damages shall be equal to the difference between the price fixed by the contract and the current price on the date on which the contract is avoided. 2. In calculating the amount of damages under paragraph 1 of this Article, the current price to be taken into account shall be that prevailing in the market in which the transaction took place or, if there is no such current price or if its application is inappropriate, the price in a market which serves as a reasonable substitute, making due allowance for differences in the cost of transporting the goods."

30. See the match-up, available online at <http://www.cisg.law.pace.edu/cisg/text/matchup/matchup-d-76.html>. Art. 72 of the 1978 Draft reads: "(1)If the contract is avoided and there is a current price for the goods, the party claiming damages may, if he has not made a purchase or resale under article 71, recover the difference between the price fixed by the contract and the current price at the time he first had the right to declare the contract avoided and any further damages recoverable under the provisions of article 70. (2)For the purposes of paragraph (1) of this article, the current price is the price prevailing at the place where delivery of the goods should have been made or, if there is no current price at that place, the price at another place which serves as a reasonable substitute, making due allowance for differences in the cost of transporting the goods."

31. See Comment 1 on Art. 7.4.6 UPICC.

32. Supra. note 10, p. 305.

33. Supra. note 15, Comment 3.

34. Supra. note 10, pp. 305-306.

35. Supra. note 24.

36. See Comment 1 on Art. 7.4.6 UPICC.

37. See Knapp, Commentary on the International Sales Law: The 1980 Vienna Sale Convention, Cesare Massimo Bianca & Michael Joachim Bonell eds. (1987) [hereinafter Bianca & Bonell]; p. 557.

38. Supra. note 3.

39. The reasons for the adoption of the double test were apparently based on the fact that some delegates felt that the test in the draft article (the time when the aggrieved party first had the right to avoid the contract) was too vague, and because others were concerned that the substitution of the time of actual avoidance might enable the aggrieved party to postpone avoidance to take advantage of a fluctuating market. On the other hand, the time of delivery was not generally suitable either because there might not have been any delivery as in the case of an anticipatory repudiation. Thus the version of art. 76 eventually adopted was regarded as an appropriate compromise. (See Jacob S. Ziegel in "Report to the Uniform Law Conference of Canada on Convention on Contracts for the International Sale of Goods". Available online at <http://www.cisg.law.pace.edu/cisg/text/ziegel76.html>.)

40. Supra. note 1, pp. 250-251.

41. Supra. note 32.

42. Supra. note 3.

43. Supra. note 10, p. 306.

44. Supra. note 10, p. 307. On the other hand, an economic disadvantage may result for the buyer because of price movements from the time of the taking over of the goods to the time of avoidance. He may prevent this, however, in carrying out a cover transaction and claiming damages under Art. 75.

45. Supra. note 1, p. 251.

46. For example, Schlechtriem submits that: "It is more difficult to justify the second reference point - the 'taking over' of the goods (Article 76(1) sentence 2). In the event of a delayed or non-conforming performance, the buyer who can neither undertake nor prove a definite cover transaction under Article 75 uses the reasonable time period permitted by Article 49(2) at his own risk. In the case of Article 49(2)(b)(i), the reference point actually precedes the moment when the buyer could avoid the contract because the buyer, at that time, still did not know of the breach. The solution is thus difficult to understand." (Supra. note 3.) "Thus this can only be the buyer. To ensure the symmetry of the rights and obligations of both the seller and the buyer the Convention generally uses an abstract language. This is criticized by Hellner who considers it a serious mistake to believe that impartiality could be achieved in establishing identical rules to govern the obligations of both parties and breaches of contract by both sides." (Supra. note 44.)

47. See J. Honnold, Uniform Law for International Sales Under the 1980 United Nations Convention (1982); p. 414.

48. Supra. note 45.

49. Supra. note 44.

50. Supra. note 4.

51. Supra. note 44.

52. Supra. note 13.

53. Supra. note 15, Comment 7.

54. Supra. note 14, Comment 8; also supra. note 15, Comment 8.

55. See Comment 2 on Art. 7.4.5 UPICC; see also Comment 3 on Art. 7.4.6 UPICC.

56. Supra. note 23.

57. Supra. note 43.

58. Supra. note 14, Comment 9.

59. Supra. notes 23, 43.


Pace Law School Institute of International Commercial Law - Last updated October 27, 2003
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