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Reproduced with the permission of Oceana Publications

excerpt from

INTERNATIONAL SALES LAW

United Nations Convention on Contracts for the International Sale of Goods

Convention on the Limitation Period in the International Sale of Goods

Commentary by
Prof. Dr. jur. Dr. sc. oec. Fritz Enderlein
Prof. Dr. jur. Dr. sc. oec. Dietrich Maskow

Oceana Publications, 1992

Article 76 [Damages in case of avoidance and no substitute transactions]

[TEXT OF THE UNIFORM LAW]

(1) If the contact is avoided [1] and there is a current price [2] for the goods, the party claiming damages may, if he had not made a purchase or resale under article 75 [3], recover [7] the difference [4] between the price fixed by the contract and the current price at the time of avoidance [5] as well as any further [6] damages recoverable under article 74. If, however, the party claiming damages has avoided the contract after taking over the goods [8], the current price at the time of such taking over [9] 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 [10] 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 [11], making due allowance for differences in the price of transporting the goods.

[WORDS AND PHRASES, CONCEPTS

1. if the contract is avoided
2. and there is a current price for the goods
3. the party claiming damages may, if he had not made a purchase or resale under article 75
4. in this case, foreseeability is not relevant to recovery of the difference
5. the difference between the price fixed by the contract and the current price at the time of avoidance
6. as well as any further damages recoverable under article 74
7. here, the foreseeability rule applies
8. if, however, the party claiming damages has avoided the contract after taking over the goods
9. the current price at the time of such taking over shall be applied instead of the current price at the time of avoidance
10. the current price is the price prevailing at the place where the delivery of the goods should have been made
11. or ,if there is no current price at that place, the price at such other place as serves as a reasonable substitute ]

[COMMENTARY]

[1] [if the contract is avoided ]

Just like Article 75, this rule presupposes that the original contract has actually been avoided (c. Article 75, note 1). 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, Article 77 is to be consulted in regard to the obligation to mitigate losses.

[2] [ and there is a current price for the goods ]

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 (Knapp/BB, 557).

[3] [ the party claiming damages may, if he had not made a purchase or resale under article 75 ]

The abstract calculation of the damages provided for in Article 76 is possible only when the obligee has not effected a substitute transaction (Schlechtriem, 91). The reasons for his inaction are irrelevant here (Knapp /BB, 553).

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 Article 77.

The abstract method of calculating damages does not require the obligee to have tried concluding a substitute transaction (Stoll/Freiburg, 266).

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 (note 6). [page 305]

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 Article 76 (O.R., 60 fol). 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 (so Herber, 45 fol).

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 (Article 75, note 2).

[4] [in this case, foreseeability is not relevant to recovery of the difference]

Compare Article 75, note 4. No foreseeability is required in regard to this price difference (Knapp/BB, 558).

[5] [ the difference between the price fixed by the contract and the current price at the time of avoidance ]

This time of avoidance was the result of a lengthy discussion at the diplomatic conference (O.R., 222 fol, 394 fol, 415). The draft CISG 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. There was also fear of too much discretion on the part of the courts, and a decision was taken in favour of the actual time of avoidance. However, to largely exclude speculations, at least on the part of the buyer, another time was fixed for the taking over of the goods (note 9).

Hence the time of avoidance is relevant for cases of non-delivery (Article 49) or not taking delivery and/or non-payment (Article 64) as well as early avoidance of the contract (Article 72).

[6] [ as well as any further damages recoverable under article 74]

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.

Additional cost in doing business or lost profit (Article 74, note 5) 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 (Knapp/BB, 554).

[7] [here, the foreseeability rule applies]

In the case of such further damages, the foreseeability rule again applies. Compare also Article 75, note 7. [page 306]

[8] [ if, however, the party claiming damages has avoided the contract after taking over the goods ]

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 (85) 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.

[9] [ the current price at the time of such taking over shall be applied instead of the current price at the time of avoidance]

At that time the buyer may not have been aware of the reason for avoiding the contract. This is hardly understandable according to Schlechtriem (Lausanne, 92).

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 (Knapp/BB, 556). 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 Article 75.

[10] [ the current price is the price prevailing at the place where the delivery of the goods should have been made ]

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 Article 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 (Honnold, 415).

[11] [ or, if there is no current price at that place, the price at such other place as serves as a reasonable substitute ]

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 (note 2).

When another place is found, the differing cost of transportation is to be included in calculating the price difference. [page 307]

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Pace Law School Institute of International Commercial Law - Last updated September 25, 2002
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