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Report to the Uniform Law Conference of Canada on Convention on Contracts for the International Sale of Goods

Professor Jacob S. Ziegel, University of Toronto
July 1981

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Article 74

Damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach. Such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of contract.

COMMENT

1. Introductory. The four articles on the recovery and measurement of damages contained in Section II generally deal with the subject in a manner familiar to common law lawyers. Art. 74 lays down the principal rule for the recovery of damages and, with an important qualification, corresponds to the well known rules in Hadley. v. Baxendale (1854) 9 Exch. 341. Article 75 is a particularized application of art. 74 and allows damages to be measured by the actual results of a resale by the seller or a covering purchase by the buyer, as the case may be. The provincial Acts contain no provisions corresponding to art. 75, but the Uniform Commercial Code does. See UCC 2-706, 2-712. Article 76 adopts the well known market price test for measuring damages where there is a "current price" for the goods and art. 75 does not apply. Finally, art. 77 imposes on the aggrieved party the equally familiar duty to mitigate his damages.

2. Art. 74. This article conforms to the rules in Hadley v. Baxendale and their statutory reproduction in OSGA 48 and 49, subject to the following exceptions:

(a) The article would appear to be broad enough to include a claim by the seller in respect of consequential damages suffered by him as a result of the buyer's failure to pay the price. As previously indicated (supra art. 61), the Anglo-Canadian position is unsettled. In principle I believe art. 74's approach to be correct.

(b) The test of foreseeability in art. 74 is substantially broader than the test in Hadley v. Baxendale, as refined by the House of Lords in The Heron II (1969) 1 A.C. 350. In the latter case Lord Reid expressly rejected the test of "possible" damages adopted in art. 74. Its retention in art. 74 could lead to the admissibility of damage claims that have hither-to been rejected and enlarge the seller's already very substantial exposure to liability. Surprisingly, no concern was expressed at Vienna about the generous foreseeability test in art. 74 and the article was adopted without amendment. In practice, a well drafted sales contract will almost invariably exclude or limit the seller's liability for consequential damages, whether or not they were foreseeable, and it may be that sellers are more concerned about any liability for consequential damages than they are about degrees of foreseeability.

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Pace Law School Institute of International Commercial Law - Last updated April 23, 1999
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