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GUIDE TO CISG ARTICLE 75

Secretariat Commentary (closest counterpart to an Official Commentary)


Guide to the use of this commentary

The Secretariat Commentary is on the 1978 Draft of the CISG, not the Official Text, which re-numbered most of the articles of the 1978 Draft. The Secretariat Commentary on article 71 of the 1978 Draft is quoted below with the article references contained in this commentary conformed to the numerical sequence of the Official Text, e.g., article 71 [draft counterpart of CISG article 75].

To the extent it is relevant to the Official Text, the Secretariat Commentary on the 1978 Draft is perhaps the most authoritative source one can cite. It is the closest counterpart to an Official Commentary on the CISG. A match-up of this article of the 1978 Draft with the version adopted for the Official Text is necessary to document the relevancy of the Secretariat Commentary on this article. See the match-up for this article for a validation of citations to this Secretariat Commentary. This match-up indicates that article 71 of the 1978 Draft and CISG article 75 are substantively identical.


Text of Secretariat Commentary on article 71 of the 1978 Draft
[draft counterpart of CISG article 75]   [Damages in case of avoidance and substitute transactions]

PRIOR UNIFORM LAW

ULIS, article 85.

COMMENTARY

1. Article 71 [draft counterpart of CISG article 75] 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.

Basic Formula

2. In such case the injured party may "recover the difference between the contract price and the price in the substitute transaction", i.e. the price paid for the goods bought in replacement or that obtained in the resale. In addition, he may recover any further damages recoverable under article 70 [draft counterpart of CISG article 74] [see footnote 1].

3. If the contract has been avoided, the formula contained in this article 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. 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.

4. Article 71 [draft counterpart of CISG article 75] provides that the injured party can rely on the difference between the contract price and the price in the substitute transaction only if the resale or cover purchase were made in a reasonable manner. 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.

[Nicholas states: "[I]f the seller resells at less than the market price (or the buyer makes a cover purchase at more than the market price), he will have difficulty in showing that he acted reasonably. On the other hand, if the seller resells at more than the market price, the Convention (art. 76(1)) debars him from having recourse to the abstract measure. This seems harsh ... in that it gives to the party in default the benefit of a good bargain made by the aggrieved party, but the rule was adopted in the interest of certainty and to prevent abuse. ... Of course it will not be easy or even possible to identify the substitute transaction if the party making it is frequently in the market for such transactions. If the substitute transaction cannot be identified, the abstract measure of article 76 will apply." Barry Nicholas, "The Vienna Convention on International Sales", 105 L. Quarterly Rev. 231 (1989).]

5. 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.

6. 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].

[Sevón states: "Article 75 provides that the seller may recover the difference between the contract price and the price in the substitute transaction. ... Alternatively, the seller may choose not to reveal the price of the substitute transaction but to claim damages under article 76 for the difference between the contract price and the current price of such goods." Lief Sevón, in: Sarcevic & Volken ed.,"The Vienna Sales Convention: History and Perspective, Oceana (1986), p. 229. Citing article 76(1)'s statement that an avoiding party can claim market price damages "if he has not made a purchase or resale under article 75, "Flechtner, however, points out "A party that has entered into a substitute transaction within the meaning of article 75 ... must proceed under that provision and cannot claim damages under article 76." This is in accord with the legislative history of articles 75 and 76. UNCITRAL Yearbook VIII, A/CN.9/SER.A/1977, pp. 58-59, paras. 470-472. Flechtner further notes: "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) ... does not prevent the aggrieved party from claiming market price damages under article 76." In these circumstances, he states: "To avoid overcompensating the aggrieved party ... such substitute transactions should be deemed to establish an upper limit on the amount of damages recoverable under article 76, although the text of the Convention does not mandate this result." Harry Flechtner, "Remedies Under the Convention", 8 J.L. & Com. 101 (1988).]

7. If resort is made to article 72 [draft counterpart of CISG article 76], the difference between the contract price and the market price is calculated as of the time the party claiming damages first has the right to declare the contract avoided, which is also the earliest moment in time that the difference between the contract price and the price received on resale or paid for the cover purchase may be calculated under article 71 [draft counterpart of CISG article 75].

[Because Article 76 of the Official Text changed the calculation rule recited in article 72 of the 1978 Draft, a corrected version of the above sentence would read, "If resort is made to article 76, the difference between the contract price and the market price is calculated as of the time of avoidance. If, however, the party claiming damages avoided the contract after taking the goods the current price of the time of such taking over shall be applied instead of the current price at the time of avoidance."]

Additional Damages

8. Article 71 [draft counterpart of CISG article 75] recognizes that the injured party may incur further damages which would not be compensated by the basic formula. These further damages are recoverable under article 70 [draft counterpart of CISG article 74].

9. The 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. The amount of the recoverable damages of this type is often limited by the requirements of foreseeability in article 70 [draft counterpart of CISG article 74] [see footnote 2].


FOOTNOTES

1. See paras. 8 and 9, infra.

2. See para. 8 of the commentary to article 70 [draft counterpart of CISG article 74]. (OFFICIAL RECORDS, p. 60).


Pace Law School Institute of International Commercial Law - Last updated August 30, 2006
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