Cite as Knapp, in Bianca-Bonell Commentary on the International Sales Law, Giuffrè: Milan (1987) 552-558. Reproduced with permission of Dott. A Giuffrè Editore, S.p.A.
1. History of the provision
2. Meaning and purpose of the provision
3. Problems concerning the provision
(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.
1. History of the provision
1.1. - The antecedent of Article 76 is to be found in Article 84 of ULIS, which read:
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.
1.2. - Differences of style aside, Article 76 of the Convention and Article 84 of ULIS resemble each other. Nonetheless, [page 552] there are two material differences. First, Article 84 of ULIS did not have the provision of the last sentence of Article 76(1), which makes more precise the regulation of damages in the case of avoidance of the contract. Second, Article 76 does not allow consideration of a substitute current price when application of the current price of the place of transaction is inappropriate. It allows the party claiming damages to do so only if there is no such current place.
1.3. - Moreover, Article 84 of ULIS did not mention the right of the injured party to recover «any further damages». Yet, there is no material difference between ULIS and the Convention on this point because such damages could have been recovered under Article 85 of ULIS.
2. Meaning and purpose of the provision
2.1. - Article 76 sets forth an alternative means of determining damages when the contract has been avoided. This alternative means, based on the same principle as provided in Article 75, applies in cases in which the contract was avoided but the injured party did not resell the goods in question or, as the case may be, did not purchase any goods in replacement in a reasonable manner and within a reasonable time after avoidance. The reason for the injured party's inaction are irrelevant under Article 76 (though they might be relevant under Article 77).
2.2. - The provision of Article 76 derives from the fact that, since avoidance of the contract releases both parties from their obligations (see Article 81(1)), the injured party who has declared the contract avoided will normally seek out a substitute transaction. Thus, the buyer would normally be expected to purchase substitute goods or the seller to resell the goods to a different purchaser. In such cases the measure of damages couId normally be expected to be the difference between the contract price and the resale or repurchase price, as is provided under Article 75 (see commentary on Article 75, supra).
2.3. - Article 76 permits the use of an analogous formula even though no resale or cover purchase took place in fact, or [page 553] when the resale or cover purchase was not made in a reasonable manner or within a reasonable time after avoidance.
2.4. - Article 76 also applies in cases where it is impossible to determine with certainty whether a substitute transaction has been entered into or which transaction was the resale or purchase contract in replacement of the contract breached. If the seller has a finite supply of the goods in question or the buyer has a finite need for such goods, it may be clear that the seller has resold or that the buyer has made a cover purchase. However, if the injured party is consistently in the market for goods of "the type in question, it may be difficult or impossible to determine which of many contracts of purchase or sale was in replacement of the one breached. In such a case the use of Article 75 may be impossible and, provided that the contract has been avoided, Article 76(1) will apply.
2.5. - Damages under Article 76 consist of a sum of money equal to the difference between the contract price and the current price of the goods in question. The underlying ideas of this formula are that:
(a) if the seller avoided the contract for breach by the buyer and the relevant current price is lower than that fixed by the contract, the seller, in reselling the goods, will suffer a loss in reselling for a price lower than he legitimately expected under the breached contract: and
(b) if the buyer avoided the contract for breach by the seller and the relevant current price is higher than that fixed by the contract, the buyer, in purchasing goods in replacement, will suffer a loss by paying a higher price than the price he would have been obliged to pay under the contract.
2.6. - Article 76 also provides for additional losses which the injured party might incur and which are recoverable even when the injured party does not suffer any «basic» loss under Article 76(1) (i.e., when the relevant current price is equal to the contract price).
2.7. - Additional losses are all losses, including loss of profit, suffered by the injured party as a consequence of the breach of [page 554] contract and foreseeable by the party in breach provided that they would not have been compensated under the «basic» formula of Article 76(1). Additional losses may be recovered under Article 74, provided the conditions of that article are satisfied.
2.8. - The following examples illustrate how damages are calculated under Article 76.
Example A: The contract price was 20,000. Seller avoided the contract because of Buyer's fundamental breach and did not resell the goods. The relevant current price of comparable goods was 18,500.
|Seller's damages under Article 76 were:||1,500|
|His loss of profit amounted to:||1,000|
|Seller's total damages under Articles 74 and 76 were:||2,500|
Example B: The contract price was 50,000. Buyer avoided the contract because of Seller's failure of due delivery and did not purchase any goods in replacement. The relevant current price of comparable goods was 53,000.
|Buyer's damages under Article 76 were:||3,000|
|Buyer's extra expenses caused by Seller's breach were:||2,500|
|His loss of profit amounted to:||1,500|
|Buyer's total damages under Article 74 and 76 were:||7,000|
2.9. - In calculating damages a question may also arise as to the relevant time. Because the current price varies in time, a primary question is what is the relevant time for specifying the current price or the substitute current price, if one is to be used in calculating damages under Article 76. This issue elicited much discussion at the Vienna Conference (see Official Records, II, 222-223; 394-396; 415).
2.9.1. - Article 72 of the UNCITRAL Draft Convention (now Article 76) stated that the relevant time for determining the amount of the current price should be the time at which the injured party «first had the right to declare the contract avoided»; in other words, the time when the contract became avoidable. [page 555]
At the Vienna Conference several delegations objected to the formula. It was felt that the proposed wording was not clear enough and was too elastic, so that in practice it might be very difficult at times to determine when the current price could first have been avoided by the injured party. Such a determination would have been particularly difficult in an anticipatory breach of contract.
2.9.2. - Several amendments were proposed to avoid this difficult determination. Suggested solutions were to make the relevant time for determining the current price the time where the contract is avoided, or that of delivery, or the time of delivery or alternatively the time of avoidance, which ever of the two came first.
2.9.3. - Objections were rajsed to the proposal that the reference time should be the time of avoidance. It was emphasized that such, a formula, leaving it open to the injured party to determine when to avoid the contract and thereby control the relevant time determining the current price for calculating damages, might encourage the injured party to engage in speculation on price movements.
Nonetheless, concern was voiced that this danger not be overestimated. The formula was adopted as the general rule for determining the current price. The final version of Article 76 generally employs as the reference time for determining the current price (including the substituted current price) the time of avoidance of the contract.
2.9.4. - There is, however, one exception to the above-mentioned general rule, when the party claiming damages has avoided the contract after taking over the goods. In such cases the relevant time for determining the current price will be the time of taking over the goods, that is, a time prior to the time of avoidance. The reasoning behind this provision was to prevent speculation on price movements by the injured party who has avoided the contract after taking over the goods. Such speculation could take the form of postponing avoidance of the contract until the expected rise or fall in the current price of the goods in question. [page 556]
3. Problems concerning the provision
3.1. - The first problem concerns which price is to be used in the calculation of damages under Article 76(1). Pursuant to Article 76(2), the price is, as a general rule, the current price of comparable goods at the place where delivery of the goods should have been made.
3.2. - The place where delivery should have been made is determined by the application of Article 31. In particular, where the contract of sale involves carriage of the goods, delivery is made at the place at which the goods are handed over to the first carrier for transmission to the buyer. In destination contracts delivery is made at the named destination.
3.3. - The «current price» is that for goods of the contract description in the contract amount. Although the concept of a «current price» does not. require the existence of official or unofficial market quotations, the lack of such quotation raises questions as to whether there is a «current price» for the goods. This question must be examined in each case as a question of fact in the light of all the circumstances of the particular case.
3.4. - If there is no current price at the place where the delivery of the goods should have been made, the price to be used is the current price of comparable goods at another place which serves as a reasonable substitute, with due allowance for differences in the cost of transporting the goods. It follows that a current price at a place different from the place where the goods should have been delivered may be used in calculating the damages so long as this current price can serve as a reasonable substitute to the non-existent current price at the place of delivery. The reasonableness of such a substitution cannot be generally defined; it must be examined in each case from the point of view of an average merchant, in light of the justifiable interests of both parties.
3.5. - When using a substitute current price, the cost of transporting the goods is to be taken into account. That means that in fixing the substitute current price to be used in calculating [page 557] the damages under Article 76, due allowance is to be made for the difference between the cost of transporting the goods to their place of delivery under the contract or this Convention and the cost of carrying them to the delivery place of the substitute current price.
Article 76 does not require knowledge or foreseeability of the current price by the party in breach.
3.6. - The injured party may refer to the current price at a place different from the place of delivery under the contract or the Convention only when there is no current price at that place. Therefore, the injured party is not allowed to refer to the current price at a place different from the place of delivery even if such a current price would be more advantageous to him. Nor can the party in breach object that such other price would be more advantageous to him.
3.7. - According to the wording of Article 76(1) this provision is applicable only when there is a «current» price for the goods under the breached contract. The question is how to proceed when there is no such current price. It is true that Article 76(2) takes account of the case in which there is no current price at the place of delivery under the breached contract; however, it supposes that somewhere there is a current price for the goods in question which can serve as a reasonable substitute (see § 3.4., infra). Article 76(2) does not provide for the case in which there is no current price at all, as for example, when the goods to be delivered under the contract consist in a unique product manufactured under special order by the buyer. In the breach of such a contract it would be necessary to proceed under the general provision of Article 74. [page 558]