05 - Asynchronous Recording - CISG Remedies

Remedies for Breach of Contract under CISG

Avoidance

  • Available to the innocent party if:
    • There has been a fundamental breach of the contract.
    • The innocent party gives a notice of avoidance.
  • Avoidance means terminating the contract.
    • The innocent party can ask for restitution, like taking goods back or refunding money, to return to the pre-contract position.
  • A fundamental breach is defined as a breach that significantly deprives the other party of the whole benefit of the contract.
    • Minor breaches are not sufficient to avoid the contract; it must be a substantial breach.

Specific Relief

  • A court is not bound to grant specific relief (or specific performance) unless its own law would allow it.
  • Common law courts typically do not grant specific performance, while civil law courts often do.

Damages

  • Article 74: Expectation Measure
    • The innocent party claims damages to be put in the position they would have been had the contract been performed.
    • Example:
      • Value of conforming goods: X
      • Value of non-conforming goods: Y
      • Damages: \text{Difference between } X
        obracketand Y
    • Lost profits can also be claimed, subject to foreseeability limitations.
  • Article 74 is available whether or not the contract has been avoided and regardless of the severity of the breach.
  • Articles 75 and 76 are only available if the innocent party has avoided the contract.

Substitute Transaction (Article 75)

  • Occurs when, after avoiding the contract, the seller resells the goods, or the buyer buys substitute goods.
    • Seller's Perspective: If the buyer breaches by not collecting goods, the seller resells them.
    • Buyer's Perspective: the seller breaches by not delivering, so the buyer avoids the contract and buys goods from another source.
  • The party can recover the difference between the contract price and the price of the substitute transaction.
  • Requirements for Substitute Transaction
    • Must be entered into in a reasonable manner.
      • The goal is to obtain a reasonable price for similar goods, not necessarily the best possible price.
    • Must be entered into within a reasonable time.
      • The party must mitigate their loss and avoid speculation to the detriment of the other party.

Market Price Measure (Article 76)

  • Available when the contract has been avoided, but a substitute transaction has not been entered into.
  • The innocent party can claim the difference between the market price and the contract price.
  • The market price is determined at the time and place of delivery.
  • Damages are equal to market price minus contract price (or vice versa, depending on who is claiming).

General Rule on Damages (Article 74)

  • A sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach.
  • Goal: Put the innocent party in the position they would have been had the contract been performed.
  • Limited by the foreseeability requirement.
  • Covers lost profit and incidental losses.

Article 75: Substitute Performance

  • If the seller resells the goods or the buyer buys goods elsewhere after avoiding the contract, they can get the difference between the contract price and the price of the substitute transaction.
  • A substitute transaction must be entered into in a reasonable manner and within a reasonable time.
    Example scenario:
    Imagine the buyer should receive grade A apples on January 1st, but the seller doesn't deliver. The buyer waits until January 5th, avoids the contract, and then wants to buy the most expensive grade A apples to recover from the seller. However, the buyer must try to source grade A apples reasonably from the market.