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Published by Manz, Vienna: 1986. Reproduced with their permission.

excerpt from

Uniform Sales Law - The UN-Convention on Contracts for the International Sale of Goods

Univ. Prof. Dr. Peter Schlechtriem [*]

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1. Extent and Measure of Damages (Articles 74-76)

The Convention's provisions on the kind and extent of damages correspond in general to Section IV of ULIS; the principles established in the 1978 Draft Convention were no longer disputed in Vienna. The fundamental rule in Article 74 makes three basic decisions. First, damages are always monetary compensation (Article 74 sentence 1). Second, the loss to the party affected must have been caused by the other party's breach, whether this was a result of a late or non-conforming performance or of no performance at all, or because the goods are directly or partly unusable because they are burdened with third-party claims (Article 74 sentence 1).[393] Finally, the only damages that must be compensated are those which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract. The historical roots and development of and the basic idea behind this rule on the limitation of damages have been the subject of many commentaries.[394] The underlying idea is that the parties, at the conclusion of the contract, should be able to calculate the risks and potential liability they assume by their agreement.[395] Judicial discretion in the assessment of damages can be reduced by standardizing the damages in question, but exceptions must remain for individual cases where a typically unforeseeable risk of damage has been assumed by the party in breach. The assessment of the possible types of damages - which makes it possible to describe concretely the risk each party can be said to have assumed [396] - will be especially difficult with respect to consequential damages caused by defective goods to the person or property of the buyer. In most domestic legal systems, such violations belong to the domain of non-contractual liability, including products liability for injuries caused by defective goods. Article 5 entirely removes personal injuries from the sphere of application of the Convention. But a broader formulation - which would have excluded product liability even for property damage - could not be agreed upon in Vienna.[397] Therefore, in the event such damages were foreseeable to the seller, they can be awarded under CISG. In assessing this forseeability, the usual or intended use by the buyer should be the decisive factor. Even in cases where there is contractual liability under the Convention, domestic provisions for liability in tort should not be displaced.[398] [page 97]

When the contract is avoided, damages generally amount to the difference between the contract price and the costs of a cover transaction, together with any further damages (Article 75);[398a] the cover transaction must, of course, be undertaken within a reasonable time after avoidance.[399] This coincides with the duty to mitigate damages in Article 77.

Where the goods have a market price, the injured party can also measure his damages "abstractly", i.e., independently from any cover transaction, Article 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.[400] To meet the requirement, it is enough that the injured party is constantly dealing in "market transactions" and that it is therefore difficult or impossible to determine which particular transaction should be considered the cover for the breached contract.[401]

As the reference point for the measure of damages, the 1978 Draft Convention (Article 72(1)) looked to the time when the injured party first could have declared avoidance. This was designed to prevent the injured party from speculating at the other's expense. The rule was found to be objectionable in Vienna, however, because it was too uncertain and gave too much discretion to the courts,[402] especially in cases of anticipatory breach. These objections finally [403] led to choosing the "declaration of avoidance" [404] or the "taking over" of the goods as the reference point for calculating damages, the earlier of the two being decisive. Where the "declaration of avoidance" controls, there will be little change in the result: 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. The difficulty of determining the "proper" time to declare an avoidance remains therefore. 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.[page 98]

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FOOTNOTES

* The author of this book participated at the Conference as a member of the delegation from the Federal Republic of Germany. The views expressed here are personal to the author and do not necessarily represent the position of the F.R.G. or its delegation.

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393. Cf. infra at VI.I. (regarding Article 80).

394. Cf. D. König, "Voraussehbarkeit des Schadens als Grenze vertraglicher Haftung zu Artt. 72, 86, 87 (EKG)", in Das Haager Einheitliche Kaufgesetz und das Deutsche Schuldrecht, Kolloquium zum 65. Geb. von Ernst von Caemmerer 75 et seq. (1973); Dölle (Weitnauer) ULIS Articles 82-89 § 25 et seq.

395. Cf. Schlechtriem, supra note 42, at 48-49.

396. Cf. König, supra note 394, at 75 et seq.; see also Huber at 499; Schlechtriem, supra note 42, at 51-52.

397. See supra at III.G.

398. The seller of a defective machine that causes a fire and consequently destroys the buyer's plant cannot, therefore, use the buyer's failure to give notice under Article 39 to defeat the buyer's tort claims under domestic law. This result, however, contrasts to the majority opinion on failure to give notice in the F.R.G. in cases where the German Commercial Code § 377 applies. See supra at III.G.

398a. This includes "lost volume" losses if these were foreseeable. Ziegel, Remedial Provisions at 9-41; Honnold Commentary § 415.

399. See also ULIS Article 85; but cf. the narrower requirements in the German Commercial Code § 376(3).

400. Contra Huber at 470-71.

401. See Secretariat's Commentary at 188 note 3.

402. See A/Conf. 97/C.1/SR.30 at 4 et seq. (= O.R. 395) (discussion).

403. Whereas the First Committee had rejected a motion to this effect by Norway (A/Conf. 97/C.1/L.194= O.R. 132), a corresponding motion brought jointly by Australia, Greece, Mexico, Norway, and Turkey (A/Conf. 97/L.11 = O.R. 172) was, surprisingly, passed by the necessary two-thirds majority. See A/Conf. 97/C.1/SR.10 at 6 et seq. (= O.R. 285 et seq.) (discussion).

404. Reference to the time of avoidance corresponds to ULIS Article 84(1), but it must be remembered that, in ULIS, the contract is voided by operation of law in important cases, so that the other party cannot speculate by choosing between a claim for performance and an avoidance. Cf. ULIS Article 61(2), 25 sentence 2; Hellner, Ipso Facto Avoidance at 95 et seq.

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