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NATIONAL LAW INSTITUTE UNIVERSITY, BHOPAL

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PROJECT FOR:
HUMAN RIGHTS
TRIMESTER VII

ON:

THE LAW RELATING TO DAMAGES UNDER INTERNATIONAL SALES: A COMPARATIVE OVERVIEW

BETWEEN THE CISG AND INDIAN CONTRACT LAW

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SUBMITTED TO: SUBMITTED

BY :

PROF. MONICA RAJE YASHVARDHAN

BANDI

2008 B.A.L.L.B (HONS.)

19
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TABLE OF CONTENTS

Introduction.................................................................................................................................................4
Table of Cases.............................................................................................................................................5
1. GENERAL PRINCIPLES GOVERNING MEASURE OF DAMAGES.............................................6
1.1 Indian Law.....................................................................................................................................6
(A) Section 73 ICA..........................................................................................................................6
(B) Three Rules in Hadley v. Baxendale..........................................................................................7
(B1) Damages for Injured Feelings..................................................................................................9
(B2) Mitigation of Damages............................................................................................................9
(B3) Extent of Knowledge of Special Circumstances....................................................................10
1.2 Application of the CISG..............................................................................................................10
(A) Article74 CISG........................................................................................................................11
(A1) "foresaw or ought to have foreseen"......................................................................................11
(A2) "as a possible consequence of the breach of contract"...........................................................12
(A3) "facts and matters of which he then knew or ought to have known".....................................13
(A4) Measure of damages..............................................................................................................13
1.3 Mitigation of damages.................................................................................................................14
2. SELLER'S RIGHT TO CLAIM DAMAGES....................................................................................16
[2.1] Indian Law................................................................................................................................16
[2.2] CISG.........................................................................................................................................17
3. BUYER'S RIGHT TO CLAIM DAMAGES.....................................................................................17
3.1 Indian Law...................................................................................................................................17
3.2 CISG............................................................................................................................................17
4. DAMAGES FOR BREACH OF WARRANTY................................................................................17
4.1 Indian Law...................................................................................................................................17
(A) Measure of damages by applying s.73 ICA.............................................................................18
4.2 CISG............................................................................................................................................19
(A) Measure of damages by applying Art. 74 of the CISG............................................................20
 5. DAMAGES ON REPUDIATION OF THE CONTRACT BEFORE DUE DATE............................21
5.1 Indian Law...................................................................................................................................21
(A) Measure of damages by applying s. 73 ICA............................................................................21
(B) Duty to mitigate.......................................................................................................................22
5.2 CISG............................................................................................................................................22
(A) Damages on avoidance for anticipatory breach.......................................................................22
(B) Measure of damages................................................................................................................23
(C) Duty to mitigate.......................................................................................................................24
6. INTEREST........................................................................................................................................25
6.1 Indian Law...................................................................................................................................25
(A) Pre-judgment interest..............................................................................................................25
6.2 CISG............................................................................................................................................26
(A) Pre-judgment interest..............................................................................................................26
CONCLUSION.........................................................................................................................................28
Bibliography..............................................................................................................................................30
 INTRODUCTION

This project seeks to provide a comprehensive critique of the similarity and differences of the treatment
of damages between Indian law governing contracts for sale of goods and the United Nations Convention
on Contracts for the International Sale of Goods (the "CISG"). This gains significance in view of the
principle that 'No aspect of a system of contract law is more revealing of its underlying assumptions than
is the law that prescribes the relief available for breach.'

India is one of the countries that, despite having participated in the 1980 Vienna Diplomatic Conference
which debated the various Articles of the CISG, chose not to ratify this Convention. Nevertheless, the
CISG may still apply to an Indian contracting party even though India itself is not a party to the
Convention. First, it is possible that one of the parties entering into a contract with the Indian party will
be from a Contracting State whose laws will apply by virtue of laws of private international law. 1 These
laws may well be the CISG. Secondly, an Indian party may well have his place of business in a
Contracting State and he may have entered into an agreement with a party whose business is also in a
Contracting State. In such a case, too, the CISG will apply. 2  Thirdly, the CISG may also apply in cases
where none of the parties have their place of business in Contracting States because the parties chose
CISG as the applicable law. This is in consonance with the principles of private international law.3 

1
Art. 1 (1)(b), CISG
2
Art. 1 (1)(a), CISG
3
Art. 1 (1)(b), CISG
 TABLE OF CASES

1. Arbitral Tribunal - Vienna 15 June 1994, SCH-4318 CLOUT abstract no. 94

2. Arbitral Tribunal - Vienna 15 June 1994, SCH-4366 CLOUT abstract no. 93
3. Baon v. Cooper Ltd. [1982] 1 All. E.R. 397
4. Bosogomoff v. Nahapict Jute Co. ILR 29 Cal. 587, 591
5. Burn & Co. v. H. H. Thakur Saheb & Co. AIR 1924 Cal. 427
6. Coorla Mills v. Valabhas AIR 1925 Bom. 547
7. Delchi Carrier, SpA v. Rotorex Corp, No. 88-CV-1078, 1994 WL 495787 (N. D. N. Y. Sept, 9,
1994)
8. Dudhia Forest Co-op. Labourers and Artisans Co. Ltd. v. Mohammed Saiyed & Abdul Rehmans
Co. 1980 (21) Guj. L.R. 272
9. G. D. Gear & Co. v. French Cigarettes C., AIR 1921 Lah. 742
10. Haji Ismail Sait & Sons v. Wilson & Co, ILR 41 Mad. 709
11. Heskel v. Continental Express Co., [1950] 1 All. ER. 1033, 1046.
12. Jarvis v. Swan Tours Ltd. (1973) 1 QB 223
13. Kedar Nath Behari Lal v. Shumbhunath Nandu Mull AIR (1927) Lah. 176
14. Kedar Nath Behari Lal v. Shumbhunath Nandu Mull AIR (1927) Lah. 176
15. La Blanche v. London & North Western Ry. Co. (1876) ICPD 286
16. Manindra Chandra Nandy v. Aswini Kumar ILR 48 Cal. 427
17. Michael v. Hart & Co. (1902) 1 KB 482
18. Monarch Steamship Co. v. A/B Karlshamns Oljefrabriker [1949] 1 All. E.R. 19
19. Mowbray v. Merryweather (1895) 2 Q. B. 640
20. Munniswami Chetty & Co., AIR 1944 Mad. 418
21. President of India v. La Pintada Compania Navegacion S. A. (1985) A. C. 104
22. Slater v. Hoyle & Smith Ltd (1920) 2 KB 11 at 17
23. Stroms, Braks Aktie Bolag v. Hutchinson (1905) A.C. 515
24. Thawardas Pherumal v. Dominion of India, AIR 1955 SC 468
25. The Heron II, [1969] 1 App. Cas. 350
26. Union of India v. Baij Nath Mandal, AIR 1951 Pat. 219 at 221
27. Union of India v. Baijnath (1951) Pat. 219
28. Weld-Blundell v. Stephens (1920) A.C. 956 at 983
29. Werheim v. Chitcoutimi Pulp Co. (1911) A. C. 301 at 308

1. GENERAL PRINCIPLES GOVERNING MEASURE OF DAMAGES

1.1 INDIAN LAW

Indian law relating to sale of goods is codified in two legislations: The Sale of Goods Act, 1930 (SGA)
and The Indian Contract Act, 1872 (ICA). Sections 73 & 74 ICA contain the principles governing
damages. The law relating to sale of goods (including provisions for damages) is also contained in the
SGA. The general law governing contracts is however contained in the ICA. The question that naturally
arises is how the law relating to damages specified in the two enactments is to be reconciled? The answer
is provided in s. 3 SGA.4 This section provides that the provisions of the ICA shall continue to apply to
the contracts for the sale of goods if they are not in conflict with the express provisions of the Sale of
Goods Act. Therefore an analysis of the damage provisions for the sale of goods under Indian law will
encompass a detailed study of these two enactments and the relevant case laws.

As a general rule, the circumstances in which damages may be awarded are stated in the SGA but the
measure of damages is to be determined with reference to ss. 73 and 74 ICA. 

(A) Section 73 ICA

Section 73 ICA reads:

"Where a contract has been broken, the party who suffers by such breach is entitled to receive,
from the party who has broken the contract, compensation for any loss or damage caused to him thereby,
which naturally arose in the usual course of things from such breach, or which the parties knew, when
they made the contract, to be likely to result from the breach of it.

"Such compensation is not to be given for any remote and indirect loss of damage sustained by
reason of breach.

4
Munniswami Chetty & Co., AIR 1944 Mad. 418, which confirmed the view that provisions of the ICA apply to the
sale of goods
 "Compensation for failure to discharge obligation resembling those created by contract: When an
obligation resembling those created by contract has been incurred and has not been discharged, any
person injured by the failure to discharge it is entitled to receive the same compensation from the party
in default, as if such person had contracted to discharge it and had broken his contract.

"Explanation: In estimating the loss or damage arising from a breach of contract, the means which
existed of remedying the inconvenience caused by non-performance of the contract must be taken into
account." The fundamental principle underlying damages is that a party who has sustained loss with
regard to breach of contracts is with respect to damages to be placed in the same position that he would
have been in had the contract been performed.5 

(B) Three Rules in Hadley v. Baxendale6

Section 73 ICA affirms the rule of the Common Law of England as laid down in Hadley v.
Baxendale.7  The law laid down by Hadley forms the cornerstone of any analysis of the damage
provisions in India.8  They may be stated in the form of three rules: 

1. Damages naturally arising from a breach of contract according to the usual course of things are always
recoverable (general damages).
2. Damages which do not arise in the usual course of things from a breach of contract, but which arise in
special circumstances are not recoverable except when the special circumstances are known to the person
who has broken the contract (special damages).
3. Where the special circumstances are known (or have been communicated to the person who breaks the
contract) and where the damage flows naturally from the breach of contract, in those special
circumstances, such special damage must be supposed to have been contemplated by the parties to the
contract and is recoverable (special damages).

Damages that naturally arise from the breach are those that directly flow from it. It is the product of
normal circumstances without the aid of "adventitious, accidental circumstances".9Further, merely
because a particular damage was unexpected and the parties could not reasonably foresee it does not
5
Union of India v. Baij Nath Mandal, AIR 1951 Pat. 219 at 221
6
156 Eng. Rep. 145 (Ex. 1854)
7
C. K. Rao, Law of Damages and Compensation, 1959, Law Book Company, India, p. 132
8
Indian law of damages closely follows the common law tradition
9
Weld-Blundell v. Stephens (1920) A.C. 956 at 983
cease to be a damage which arose naturally in the usual course of things. 10 The measure of general
damages is the pecuniary difference between the existing state of the plaintiff and that which it would
have been had the contract been performed.11

The amount of compensation recoverable under this section may be expressed in the form of the
following four rules:

1. Damages recoverable must be such as naturally arise in the usual course of things from the breach of
contract; or
2. It must be damage which the parties knew when they made the contract, to be likely to result from the
breach;
3. Such damage must in neither case be remote or indirect; and
4. In both cases the means which existed of remedying the inconvenience caused by non-performance of
the contract, that is to say from the breach is to be taken into account. 

The market price of goods is taken to be the benchmark on the basis of which damages are
assessed.12 Where the time for the performance of contract is fixed this is the date of breach and the
damages will be calculated on the difference between the market price and the contract price on that day. 
However where the time for performing the contract has been postponed at the request of either the seller
or the buyer and the contract is ultimately broken damages have to be calculated with reference to the last
date to which the contract was extended.  However here it must be stated that market price of goods is
only a presumptive test. There is an important exception: if in fact the purchaser, when he obtains
possession of the goods, sells them at a price much greater than the market value. In such a case he can
allow for the profit he actually makes and he can recover only his actual loss; otherwise he would be
placed in a better position than if the contract had been performed.13

However, the Hadley test fails when there is no market. In such a case the measure of damages
must be the worth of the article at the time it ought to have been delivered. It cannot, however, be argued
that in such cases only nominal damages can be awarded because the market price is difficult to

10
C. K. Rao, Law of Damages, p. 127
11
Michael v. Hart & Co. (1902) 1 KB 482
12
Werheim v. Chitcoutimi Pulp Co. (1911) A. C. 301 at 308, followed in Union of India v. Baijnath (1951) Pat. 219
13
Kedar Nath Behari Lal v. Shumbhunath Nandu Mull AIR (1927) Lah. 176
determine.14 The general rule is that where there is no available market one has to go to the place which is
nearest to the place where the breach occurred. The most reasonable view seems to be that that taken by
the Madras High Court15 which held that Illustration (a) to s. 73 ICA did envisage damages in cases
where there was no available market as well. The court quantified the damage as the sum by which the
contract price falls short of the price for which the purchaser might have obtained goods of a like quality
at the time when they ought to have been delivered.

In the case of non-acceptance of goods that are specially made to order and which are not
marketable the rule for measuring of damages is the value of the goods. 16  It is unclear how the CISG
would provide for such circumstances. It is probable that the words "foreseeable" and "possible" will
have to be taken recourse to for this purpose and the result may well be similar to the analysis of the
Madras High Court.

(B1) Damages for Injured Feelings

In some cases damages have been awarded for injured feelings. 17 Damages have also been awarded
for mental anguish.18 However it must be noted that these are not applicable in contracts of sale
generally.19 There is no such provision in the CISG.

(B2) Mitigation of Damages

In India the duty to mitigate the damages has been recognised and laid down in the explanation attached
to s. 73 ICA which reads:

"In estimating the loss or damage arising from a breach of contract, the means which existed of
remedying the inconvenience caused by non-performance of the contract must be taken into account.
14
Stroms, Braks Aktie Bolag v. Hutchinson (1905) A.C. 515 the Privy Council upheld the view that where there is no
market for goods their value must be ascertained by taking the price at the place of manufacture and adding to it the
cost of carriage and adding to it the importers profit. It has been held in Hinde v. Liddel, (1875) 10 Q.B. 265 that if
the buyer can obtain in the market an article that is the nearest available substitute for the one he failed to obtain
under the contract, the value of that substitute even though of superior quality and the price must be taken as the
value of the article for the owner
15
Haji Ismail Sait & Sons v. Wilson & Co, ILR 41 Mad. 709
16
G. D. Gear & Co. v. French Cigarettes C., AIR 1921 Lah. 742
17
Jarvis v. Swan Tours Ltd. (1973) 1 QB 223
18
R. K. Abichandani, Pollock and Mulla on The Indian Contract and Specific Relief Act, 1994 N. M. Tripathi, India,
p. 841
19
 "The expression 'the means which existed of remedying the inconvenience' has been interpreted to
mean that it lays a duty upon a person complaining of a breach of contract, to use common intelligence
and guidance, and take all natural and obvious steps available to diminish the loss arising from the
breach.20 However the rule in the explanation to s. 73 must be applied with caution: a party, who has
already put himself in the wrong by breaking his contract, has no right to impose new and extraordinary
duties on the aggrieved party. The latter can be only expected to use ordinary and reasonable
diligence.  It must be noted that a person is under no obligation to take any steps to minimise the
damages until a breach of the contract has actually accrued. The amount of damages should not,
therefore, be reduced on the ground that he did not try to minimise the same before the date on which the
defendant actually committed the breach."21 

Expenses arising from a contract are a loss or damage arising naturally from the contract. The test
of reasonableness under the circumstances is whether a prudent man would have acted in the same way,
as he did if the original wrongful act had been the result of his own default.22 

(B3) Extent of Knowledge of Special Circumstances

Section 73 ICA provides that an aggrieved party is entitled to receive compensation for loss or
damage which the parties knew, at the time of entering into the contract, to likely to result from the
breach of it. However it must be noted that s. 73 does not refer to knowledge of special circumstances. It
speaks only of knowledge in respect of loss or damage that is likely to result from the breach. It also does
not refer to any undertaking, express or implied, to bear special or exceptional loss. It follows that is both
parties knew that a particular kind of loss would be likely to result from the breach, the defaulting party
will have to make good that particular loss, and it is not necessary to show that he has undertaken to
make it good to the party suffering.23 Therefore mere notice or knowledge is sufficient to fix
responsibility though no undertaking to bear the loss is given.24

1.2 APPLICATION OF THE CISG

20
C. K. Rao, Law of Damages, p. 298
21
Burn & Co. v. H. H. Thakur Saheb & Co. AIR 1924 Cal. 427
22
La Blanche v. London & North Western Ry. Co. (1876) ICPD 286
23
A. H. P. Mohammad v. Sakavat Hussain AIR 1923 Mad. 103 at 107
24
Since Art. 70 of the 1978 Draft CSIG is substantially similar to Art. 74 of the Official Text (with the exception of
the inclusion of the word "of" before "which" in the second sentence, which appears to be merely a grammatical
alteration, the two Articles are identical) the Commentary is a useful guide for the interpretation of Art. 74 CISG
(A) Article74 CISG

Art. 74 CISG reads as follows:

"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."
The Secretariat Commentary on the 1978 Draft 25 states that Art. 74 applies whenever the contract
has not been declared avoided by the party claiming damages, whether or not it could have been. It also
applies where the contract has been avoided but there are damages in addition to those that can be
calculated under Arts. 75 or 76 CISG.

The basic philosophy of the action for damages under Art. 74 CISG is to place the injured party in
the same economic position he would have been in if the contract had been performed.  The specific
reference to loss of profit is necessary because in some legal systems the concept of 'loss' standing alone
does not include loss of profit. This is in accordance with the philosophy under the ICA's damage
provisions. The terms which appear in Art. 74 CISG will now be examined in detail.

(A1) "foresaw or ought to have foreseen"

The principle of recovery of the full amount of damages suffered by the party not in breach is
subject to the qualification that the amount of damages that can be recovered by the party not in breach
"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 which he then knew or ought to have
known, as a possible consequence of the breach of contract".26 However, if a party at the time of the
conclusion of a contract consider that breach of the contract by the other party would cause him
exceptionally heavy losses or losses of an unusual nature, he may make this known to the other party
with the result that if such damages are actually suffered they may be recovered. The provision is exactly
the same under Indian law.

25
Secretariat Commentary on Art. 70 of the 1978 Draft, paragraph 3
26
Art. 74 CISG
 Under Hadley, the damages must actually be 'contemplated' and not merely 'foreseeable'. The
question is whether the choice of the word 'foreseeable' (in CISG) instead of 'contemplated' should make
a difference in the scope of liability. A plain reading of the words would suggest that a difference in the
scope of liability is intended. Most authorities in the United States and some in England equated
'foreseeable' with 'in the contemplation of the parties' and concluded that Hadley established a rule of
foreseeability.27 The British case, The Heron II, preferred the 'contemplation' test and rejected the use of
'foreseeable' as a standard for measuring damages.28  

In applying the Convention relating to a Uniform Law on the International Sale of Goods (ULIS)
the German Supreme Court held that the seller is liable for damages that a "... reasonable, ideally typical
obligor would know to be a serious consequence of a breach in light of the circumstances." 29 This test is
similar to the Hadley rule and approximates the 'natural cause' test under the ICA.

(A2) "as a possible consequence of the breach of contract"

The United States District Court (Northern District of New York) in Delchi Carrier S.p.A. v.
Rotorex Corporation30 held that the CISG requires that damages be limited by the familiar the principle of
foreseeability established in Hadley v. Baxendale. It has been suggested that this is an incorrect
interpretation of Art. 74 CISG. Article 74 limits recovery for consequential damages to those matters that
"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." On the other hand in Hadley the rule of foreseeability tends to restrict recovery
to a greater degree in that it requires the loss to have been "such as may reasonably be supposed to have
been in the contemplation of both parties, at the time they made the contract, as the probable result of the
breach of it."31 It is evident that Hadley's "probable result" limitation is much more restrictive than the
"possible consequence" limitation of Art. 74. It follows that since Hadley states the rule in s. 73 ICA, the

27
Arthur G. Murphey, "Consequential Damages in Contracts for the International Sale of Goods and the Legacy of
Hadley" (1989) 23 Wash. J. Int'l L. & Econ 415
28
The Heron II, [1969] 1 App. Cas. 350
29
Art. 82 ULIS provides (in almost the same terms as Art. 74 CISG) that, where the contract has not been avoided,
liability to pay damages extends to the loss, including loss of profit, suffered and confines liability to the loss which
the party in breach ought to have foreseen at the time of the conclusion of the contract as a possible consequence of
the breach of the contract.
30
71 F.3d 1024 (2d Cir. 1995)
31
V. S. Cook, "The UN Convention on Contracts for the International Sale of Goods: A Mandate to Abandon Legal
Ethnocentricity" (1997) 16 Journal of Law and Commerce 257 at 259
rule in Art. 74 is wider than the rule in s. 73. In determining the standard of foreseeability under Art. 74
the usual or intended use by the buyer should be decisive.32 Subsequent cases obfuscated the issue.
In Victoria Laundry (Windsor) Ltd. v. Newman Industries 33,  an attempt was made by Lord Asquith to
describe the required degree of probability that the loss would occur. He described it as "liable to
result"34and such that "a reasonable man"35"could foresee"  that the loss was "likely so to result"or a
"serious possibility" or "a real danger" and the probability was "on the cards". Twenty years later,
however, the House of Lords in The Heron II rejected the use of the term "foreseeable" and gave
individual views of "probable" being the test.

(A3) "facts and matters of which he then knew or ought to have known"

The requirement of knowledge which the parties should have foreseen as a consequence of the
breach of contract under the CISG resembles the Indian position which is clearly that the natural
consequences of breach of contract are in the contemplation of reasonable men.36

(A4) Measure of damages

The first sentence of Art. 74 CISG does not specify the time or place for measuring the loss
suffered by the injured party. This issue is likely to arise in international transactions, particularly
transactions involving goods that fluctuate significantly in price. A footnote to the 1978 Secretariat
Commentary of Art. 70 offers one plausible answer to this problem. The footnote states that the place for
measurement should be where the seller delivered the goods, and adds that the point in time should be an
"appropriate one...such as the moment the goods were delivered, or the moment the buyer learned the
non-conformity would not be remedied by the seller" under other Articles of the Convention.37 

Breach of warranty claims would probably be covered under the exclusion in Art. 5 and therefore
the correct position of law is that personal injury is excluded from the scope of the convention. 38 In

32
J. E. Murray, "The Neglect of CISG: A Workable Solution" (1998) 17 Journal of Law and Commerce 365 at 370
(arguing that the Hadley test is broader than Art. 74)
33
[1949] 2 K.B. 528 (C.A.)
34
Lord Du Pard in Monarch Steamship Co. v. A/B Karlshamns Oljefrabriker [1949] 1 All. E.R. 19
35
[1949] 1 All. E.R. 997 at 1003
36
H. K. Saharay and S. K. R. Chowdhury, Dutt on Contract, 1994 Eastern Law House, India, p. 559
37
Secretariat Commentary on Art. 70 of the 1978 Draft, footnote 2
38
J. S. Sutton, "Measuring Damages Under the United Nations Convention on the International Sale of Goods"
(1989) 50 Ohio State Law Journal 737 at 744
addition, the language of Art. 74 CISG appears to authorise only commercial measures of damages. 39
Under Indian law, however the position is different and damages for personal injury can be claimed if
they "are the natural consequence of the breach of contract" and therefore "reasonably in the
contemplation of the parties". 

It should also be borne in mind that the Convention does not have a rule concerning punitive
damages. The position is the same in India unless there is a clause in the contract providing for such
damages in which case such damages will be available.

There the goods have a market price, the injured party can also measure his damages independent
of any cover transaction. This method of measuring damages presupposes that a cover transaction has not
been undertaken with regard to the contract breached. 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. 40
However, the requirement of constant dealing in market transactions stated by Schlechtriem is not stated
in the CISG and, if correct, differs from Indian law which does not impose any such restriction.

1.3 MITIGATION OF DAMAGES

The duty to mitigate damages is present in Art. 77 CISG, which reads:

"A party who relies on a breach of contract must take such measures as are reasonable in the
circumstances to mitigate the loss, including loss of profit,, resulting from the breach. If he fails to take
such measures, the party in breach may claim a reduction in the damages in the amount by which the
loss should have been mitigated."
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. The cover transaction must be
undertaken within a reasonable time after avoidance. This is in keeping with the duty to mitigate damages
in Art. 77 CISG. The requirement of mitigation is present under Indian law as well. Article 75 of the
Convention, however, does not specify the adjustment for expenses saved by the party claiming damages
as a result of the breach such as transportation expenses saved by the aggrieved party in a substitute

39
Mowbray v. Merryweather (1895) 2 Q. B. 640
40
P. Schlechtriem, Uniform Sales Law, p. 298
transaction41 A similar result can be reached under Art. 75 CISG by construing the phrase 'price in the
substitute transaction' to permit such adjustment. Equitable considerations demand this construction,
given that increased transportation costs and similar items of extra expense associated with a substitute
transaction would constitute losses suffered 'as a consequence of breach' and thus would be recoverable
under Art. 74 CISG. The position, if Art. 75 is so construed would be the same as Indian law.42

The thrust of Art. 77 is to deny recovery of damages that could have been reasonably avoided. The judge
in Delchi43 turned a shield into a sword and interpreted Art. 77 CISG as requiring mitigation and allowing
consequential damages for costs incurred in the mitigation process. This interpretation is in accordance
with Indian law44 but it is doubtful if this is the correct interpretation of the provision.

Further Art. 77 CISG provides that, if it is clear that one party will commit a fundamental breach of the
contract, the other party cannot await the contract date of performance before he declares the contract
avoided and takes measures to reduce the loss arising out of the breach by making a cover purchase,
reselling the goods or otherwise.45 This position is very different from Indian law where the duty does not
arise till the breach of contract.

Article 74 CISG provides for damages for loss suffered 'as a consequence of the breach' for both the
buyer and the seller. This should cover the losses caused by expenses and other inconvenience which the
parties could be reasonably expected to foresee.

Thus if the seller fails to deliver, a buyer who elects not to avoid the contract and who seeks specific
performance under Art. 46(1) CISG can also claim damages under Art. 74 of the Convention for losses
caused by the delay in receiving the goods provided the losses were foreseeable when the contract was
formed and could not have been avoided by reasonable attempts to mitigate. 46 Art. 74 damages can also
be recovered by the buyer "if it reduces the price under Art. 50, seeks substitute goods under Art. 46(2),

41
P. Schlechtriem, Uniform Sales Law, p. 298.Explanation to s. 73, ICA and Illustration (b). See also Thawardas
Pherumal v. Dominion of India, AIR 1955 SC 468
42
R. K. Abichandani, Indian Contract and Specific Relief Act, p. 835.E. C. Schneider, "Consequential Damages in
the International Sale of Goods: Analysis of Two Decisions" [1996] 16 Journal of International Business Law 615;
cited from http:// cisgw3.law.pace.edu/cisg/wais/db/articles/schnedr2.html
43
71 F.3d 1024 (2d Cir. 1995)
44
Heskel v. Continental Express Co., [1950] 1 All. ER. 1033, 1046.
45
Secretariat Commentary on Art. 73 of the 1978 Draft, paragraph 4
46
Secretariat Commentary on Art. 73 of the 1978 Draft, paragraph 4
or demands repair of defective goods under Art. 46(3) CISG." 47 The position is the same under Indian
law.

2. SELLER'S RIGHT TO CLAIM DAMAGES

[2.1] INDIAN LAW

Section 56 SGA provides that where the buyer wrongfully neglects or refuses to accept and pay for the
goods the seller may sue him for damages for non-acceptance. 

The precondition for the seller to get any damages is that the buyer had to have acted 'wrongfully' in
refusing to accept delivery.48 The determination of whether the act of neglect or refusal was 'wrongful' is
a question of fact and has to be determined in the facts and circumstances of each particular case. 

Under Indian law the seller has various remedies against the goods and the buyer personally and even
when those remedies exist, it still has the right to sue for damages under this section. 49  However, where
the property in the goods has not passed to the buyer 50 and the contract does not entitle him to make a re-
sale and charge the buyer with the difference between the contract price and the price realized on re-sale,
or to sue the  buyer for the price irrespective of delivery, the remedy provided by this section is the only
one by which he may recover damages for the breach of contract. 

The expression 'property in the goods' refers to ownership. When the Indian law of sale of goods refers to
property in the goods it means that that person is the owner of the goods. The rules governing damages
are determined with reference to s. 73 ICA.

[2.2] CISG

Acceptance of the goods and payment of the price in accordance with the contract and the
convention is an obligation of the buyer under the Art. 53 CISG. There is a general rule under Art. 61 (1)
47
An aggrieved seller is protected by an equivalent provision in Art. 61(2), CISG
48
K. Shanmuskari, A. Ramaiyas, The Sale of Goods Act, 1995 The Law Book Company Pvt. Ltd., India, p. 841
49
Coorla Mills v. Valabhas AIR 1925 Bom. 547
50
When the property in the goods passes to the buyer is to be determined with respect to the rules provided on this
behalf in the SGA. See s. 19 SGA. This enquiry is however beyond the scope of this article
(b) CISG which states that where the buyer fails to perform any of his obligations under the contract or
the Convention, the seller may claim damages in accordance with Arts. 74-77 CISG.  This would include
a case of non-acceptance of the goods and non-payment of the price. The principles of damages have
already been dealt with earlier under Art. 74 CISG.

3. BUYER'S RIGHT TO CLAIM DAMAGES

3.1 INDIAN LAW

Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may sue the
seller for damages for non-delivery. The general principles governing damages under this section is dealt
with under ss. 73-74 of the ICA.

3.2 CISG

Article 30 CISG sets out the seller's obligation to deliver the goods, hand over any documents relating to
them and transfer the property in the goods as required by the contract and the convention.

Article 45 CISG states that where the seller fails to perform any of his obligations the buyer has the right
to claim for damages under Arts. 74-77 of the Convention. This would clearly include a breach of the
obligations under Art. 30 of the Convention. 

4. DAMAGES FOR BREACH OF WARRANTY

4.1 INDIAN LAW

The SGA makes a distinction between a condition and a warranty. A stipulation in a contract of sale may
be a condition or a warranty. A condition is a stipulation essential to the main purpose of the contract, the
breach of which gives a right to treat the contract as repudiated whereas a warranty is a stipulation
collateral to the main purpose of the contract, the breach of which gives rise to a claim of damages but
not to a right to reject the goods and treat the contract as repudiated. Whether a stipulation in a contract is
a condition or warranty or neither depends on the construction of the contract in each case. 51 It must be

Dudhia Forest Co-op. Labourers and Artisans Co. Ltd. v. Mohammed Saiyed & Abdul Rehmans Co. 1980 (21)
51

Guj. L.R. 272

noted that the buyer has the right to treat the condition as a warranty if he so wishes. 52 There are
circumstances where the buyer may be compelled to treat a breach of condition as a breach of warranty,
for example, where a contract of sale is not severable and the buyer has accepted the goods or a part of
them then the breach of any condition to be fulfilled by the seller can only be treated as a breach of
warranty. 

Section 59 is a codification of the common law of the United Kingdom. 53 It states that cases where the
seller breaches a warranty or where the buyer elects or is compelled to treat any breach of a condition by
the seller as a breach of warranty the buyer is not entitled to reject such goods by reason only of such
breach. However the buyer has two other remedies, being to:

1. Rely on the breach as against the seller suing for the price and set off damages, as far as possible,
against the price; or
2. Sue the seller for damages for breach of warranty.

It may be noted here that the buyer may, in all cases, pay the price for the goods and bring a distinct
action for damages. 

(A) Measure of damages by applying s.73 ICA

The measure of damages in the case of breach of warranty is the estimated loss directly and naturally
arising in the ordinary course of events from the breach, and this loss, in the case of breach of warranty of
quality, is the difference between the value of goods at the time of delivery to the buyer and the value
they would have had if they answered to the warranty. 54 Where there is a market value, the actual contract
price or the price at which the goods have been resold is irrelevant for fixing these values. However there
is rarely any market price for damaged or defective goods, and thus the price at which the buyer resold
the goods may be evidence of their value.55 

Under the second rule in s. 73 ICA special damages for the breach of warranty were held recoverable on
the principle that such damages were known to the parties at the time of entering into the contract. 56
52
Sub-section 13 (1) SGA
53
R. K. Abichandani, Pollock and Mulla on The Sale of Goods Act 1990, N. M. Tripathi, India, p. 357
54
Bosogomoff v. Nahapict Jute Co. ILR 29 Cal. 587, 591
55
Slater v. Hoyle & Smith Ltd (1920) 2 KB 11 at 17
56
Illustration (m) to s. 73 ICA
However where the particular purpose for which the goods were required was not communicated to the
seller, special damages resulting from breach of warranty cannot be granted. Thus the measure of
damages for breach of warranty cases is to be determined on the basis of the principles laid down in s. 74
ICA.

4.2 CISG

The Indian law with regard to breach of warranty focuses greatly on the conceptual difference between
"condition" and "warranty". Therefore for any meaningful comparison between CISG and Indian law it is
necessary to examine whether any similar concepts exist in the CISG.

An examination of the terms used in the CISG would lead to the conclusion that though the distinction is
not made in terms of "condition" and "warranty". However the concepts find a place in the CISG. Case
law dealing with breach of warranty under the Convention also brings an important fact to light: breach
of warranty under the CISG generally refers to a breach of an assurance of facts regarding the goods and
such breach  may be "fundamental".57 In contrast the definition of "warranty" under Indian law excludes
such a possibility. The Circuit Court case Delchi Carrier S.p.A. v. Rotorex Corporation arose as a
warranty dispute between a U.S. seller of compressors ("Rotorex") and its Italian customer ("Delchi"), a
manufacturer of air conditioner units. Interpreting Art. 25 of the Convention, the court held that Rotorex's
failure to deliver conforming goods constituted a "fundamental" breach, which is a breach that
substantially deprived Delchi of "... [what] it was entitled to expect under the contract."

However it is clear that the distinction exists is so far as the CISG provides for "fundamental breach" of
the contract. Article 25 CISG defines fundamental breach as one which results in "such detriment to the
other party as substantially to deprive him of what he is entitled to expect under the contract". Therefore
it is obvious that such a stipulation is "essential to the main purpose of the contract" in terms of the Indian
law on the point. Further, Art. 72 CISG gives the right of avoidance of the contract the moment it is clear
that the other party will commit a fundamental breach of the contract.58 Therefore the result of a
"fundamental breach" under the CISG is the same as that of a "breach of a condition" under Indian law.

57
As the U.S. District Court for the Northern District of New York stated in Delchi Carrier, SpA v. Rotorex Corp,
No. 88-CV-1078, 1994 WL 495787 (N. D. N. Y. Sept, 9, 1994)
58
Art. 72(1), CISG. See also Secretarial Commentary on Art. 63 of the 1978 Draft, paragraph 1
Hence it may be said that the concept of "fundamental breach" in the CISG approaches that of
"condition" under Indian law.

The question of whether breach of warranty cases are covered under the CISG must also be answered in
the affirmative. Article 74 CISG authorises a buyer who has accepted the goods to recover damages for
breach of warranty.

(A) Measure of damages by applying Art. 74 of the CISG

Damages under the CISG are measured by the difference between the value of the goods delivered and
"the value they would have had if they had been as warranted." In a German case59 the Supreme Court
had stated that under Art. 82 ULIS, a seller is liable for damages for a delivery of defective goods,
including lost profits, but only to the extent that losses and lost profits should have been foreseen by the
seller at the time of formation of the contract. Art. 82 ULIS is substantially similar to Art. 74 CISG and
therefore the analysis is material. 60 The subjective and objective test (as in Art. 74 CISG) was used to
measure damages.

In Delchi, having determined a breach of warranty, the court examined Art. 74 of the Convention to
determine the recovery amount that would "equal ... the loss" suffered by Delchi, including consequential
and incidental damages "suffered by [Delchi] as a consequence of the breach" and it applied the
"foreseeabiliy" test for this purpose. Thus the case is a clear authority on the point that the principles laid
down in Art. 74 CISG for calculating damages have to be used for calculating damages in breach of
warranty cases as well.

Take, for example, where a seller delivers non-conforming goods and the buyer can neither avoid the
contract nor demand substitute goods because the defects do not satisfy the fundamental breach
standard.61 Further, say that the buyer cannot require the seller to repair because that would be
"unreasonable having regard to all the circumstances."  In such cases under Art. 74 of the Convention, the
buyer can claim damages measured by its losses from the defects. 62  In these circumstances, Art. 74

59
http://cisgw3.law.pace.edu/cases/791024g1.html
60
For the use of prior convention to interpret a subsequent one see F. A. Mann, "Uniform Statutes in English Law"
(1983) 99 Law Quarterly Review 382
61
Articles 46(2), 49(1) CISG
62
The buyer could also use the reduction in price remedy in this setting, although resort to this remedy is optional:
see Art. 50 CISG
authorises a buyer who has accepted the goods to recover damages for breach of warranty. The measure
of damages under Art. 74 CISG is the difference between the value of the goods delivered and 'the value
they would have had if they had been as warranted.' The conclusion which, the authors' opinion, follows
is that the principles of damages as laid down under Art. 74 CISG (foreseeability, subjective and
objective test etc.) will have to be used to determine the measure of damages for breach of warranty. The
position is the same under Indian law.

5. DAMAGES ON REPUDIATION OF THE CONTRACT BEFORE DUE DATE

5.1 INDIAN LAW

Where either party to a contract of sale repudiates the contract before the date of delivery, the other party
may either treat the contract as subsisting and wait till the date of delivery, or he may treat the contract as
rescinded and sue for damages for breach of contract. This section (which does not appear in the English
Sale of Goods Act) deals with the case of anticipatory breach of contract. The term "repudiation" may be
taken to be a refusal to perform the contract. 63 What constitutes repudiation is to be inferred from the
circumstances of the case and the conduct of the party. If he brings an action for damages after treating
the contract as rescinded (akin to "avoided" under the CISG) he will be entitled to such damages as
would have arisen from the non-performance of the contract at the appointed time. 

(A) Measure of damages by applying s. 73 ICA

The most important question in the case of anticipatory breach is with reference to what date is the
market price to be calculated, whether on the date of breach or on the date fixed for performance. As per
the first rule in s. 73 ICA, the rule in India is that in estimating damage in the case of anticipatory breach
the value of the performance at the date fixed for performance must be taken and not the value at the date
when the refusal to perform was made. The reasoning is that "since the value of a contract would
normally be determined by the benefit which its performance would confer, the exact measure of
damages upon an anticipatory breach is ... precisely the same as it would be, if the repudiation were not
accepted as a breach and the injured party brought a suit, after the time of performance, for the non-
performance at the time set."64 The rule is the same as in England.

63
A. N. Saha, Mitras Legal and Commercial Dictionary, 1990, Eastern Law House, India, p. 617
64
Manindra Chandra Nandy v. Aswini Kumar ILR 48 Cal. 427
(B) Duty to mitigate

Where a party to a contract refuses to perform the contract the other party has a right to decide whether
he accepts the repudiation at once, or refuse to accept the repudiation and wait till the date of
performance of the contract. In the case of an anticipatory breach of contract the duty to mitigate the
damages arises immediately on the acceptance of the repudiation. On the other hand if the repudiation is
not accepted and the promisee waits till the due date and still the promisor refuses to perform the contract
the duty to mitigate arises only on the contractual date for performance. The position is the same under
English law as well. 

5.2 CISG

(A) Damages on avoidance for anticipatory breach

The CISG gives a right to a party to declare the contract avoided if it becomes apparent that one of the
parties to the contract would commit a fundamental breach of contract. 65 However the party intending to
avoid the contract is to give notice of such avoidance to the other party, if time allows, so that it can
provide adequate assurance of its performance.66  It is important to note that notice of the intent to avoid
is unnecessary if the other party has already declared that he will not perform the contract. 

The point to be noted here is that under the CISG (as under the SGA) there is an immediate right to
avoidance if the other party refuses to perform the contract. It is also evident from a reading of Art. 81 of
the Convention that avoidance of contract releases both parties to the contract from their obligations
under it "subject to any damages that may be due". The measure of damages will have to be determined
in accordance with Arts. 75 and 76 CISG.

(B) Measure of damages

Articles 75 and 76 of the Convention provide two methods for measuring damages when a party avoids a
contract due to a fundamental breach of the contract by the other party and they are specific applications
of Art. 74 CISG. Article 74 establishes the rule for the measurement of damages "whenever and to the
extent that Arts. 75 and 76 are not applicable."
65
Article 72(1) CISG
66
Article 72(2) CISG
Damages under this provision are established by the action of the injured seller in reselling the goods and
the action of the injured buyer in buying the goods elsewhere.67 The measure of damages is the difference
between the price under the contract and the price of the substitute transaction.68 

The substitute transaction may occur in a different location than that provided for in the contract. The
amounts of damages are altered to reflect any increased costs or expenses saved. The injured party is
obligated to obtain cover or seek resale in a "reasonable manner [and] within a reasonable time after
avoidance."69 Therefore the time limitation does not begin to run until the party in breach has actually
avoided the contract. If the substitute transaction is not carried out in a reasonable manner the injured
party can rely on Art. 76 CISG that provides for measurement of damages by current market price.

The measurement of damages rule authorised by Art. 76 may be used when resale or purchase is not
reasonable under Art. 75 CISG, when no resale or purchase occurs, or when it is impossible to tell "which
was the resale or purchase contract in replacement of the contract which was breached." 70 The relevant
date for determining the market price is the first date when the contract could have been avoided.

Articles 75 and 76 CISG have the phrase, "as well as any further damages recoverable under Art. 74."
The scope of this phrase is controversial and it remains unclear if this phrase extends t a "lost volume"
situation.71 Some scholars maintain that the damages provisions of the Convention also allow, albeit not
explicitly, for lost volume damages.72 Indeed in Delchi the Court noted that the CISG allows lost profits
from a diminished volume of sales.73 "Lost volume" transactions are completely alien to the Indian law of
damages. 

The 'further damages' to be recovered under Art. 74 CISG would usually 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

67
Called a "cover transaction"
68
J. S. Sutton, "Measuring Damages Under the United Nations Convention on the International Sale of Goods"
(1989) 50 Ohio State Law Journal 737 at 745
69
Secretariat Commentary on Art. 71 of the 1978 Draft Convention, paragraph 4
70
Secretariat Commentary on Art. 72 of the 1978 Draft Convention, paragraph 3
71
'Lost volume' refers to a situation where if the buyer breaches the contract the seller loses profits since they have
an unlimited supply of goods to sell
72
Professor Farnsworth points to the broad language of Art 74, authorizing damages for "loss of profits" as
justification for his view: see E. A. Farnsworth, Damages, p. 252
73
1994 WL 495787, p. 6
substitute transaction could not be delivered by the original contract date. The amount of the recoverable
damages of this type is limited by the requirements of foreseeability. The position is the same under
Indian law.

Article 76 of the Convention, which deals with situations where the contract is avoided but a substitute
transaction is not entered into, relies on the 'declaration of avoidance' or the 'taking over' of the goods as
the reference point for calculating damages, the earlier of the two being decisive. Commentators have
noted, and the authors agree, that this solution is very unsatisfactory and uncertain. 

The result in India is quite different. Where the time for the performance of contract is fixed this is the
date of breach and the damages will be calculated on the difference between the market price and the
contract price on that day. Where the time for performing the contract has been postponed at the request
of either the seller or the buyer and the contract is ultimately broken damages have to be calculated with
reference to the last date to which the contract was extended. 74 The result in India is more certain and the
date of performance of contract is a more certain reference point than either 'declaration of avoidance' or
'taking over of goods' and avoids the problems envisaged by Schlechtriem. 

(C) Duty to mitigate

The duty to mitigate applies to an anticipatory breach of contract under Art. 72 CISG as well as in
relation to a breach in respect of an obligation the performance of which is currently due. If it is clear that
one party will commit a fundamental breach of the contract, the other party cannot await the contract date
of performance before he declares the contract avoided and takes measures to reduce the loss arising out
of the breach by making a cover purchase, reselling the goods or otherwise. 75 This is diametrically
opposite to the position in India where the duty to mitigate arises only if a party exercises the right to
avoidance immediately. Otherwise the duty arises only when the date of performance has passed.

6. INTEREST

6.1 INDIAN LAW

74
Kedar Nath Behari Lal v. Shumbhunath Nandu Mull AIR (1927) Lah. 176
75
Secretariat Commentary on Art. 73 of the 1978 Draft, paragraph 4
Both the seller and the buyer have been given the right to recover interest where under law they can be
recovered.76 

If there is no contract to the contrary, the court may award interest at such rate as it thinks fit on the
amount of the price to77:

1. The seller in a suit by him for the amount of the price. The interest will be from the date of the tender
of the goods or from the date on which the price was payable; or
2. The buyer in a suit by him for the refund of the price in a case of a breach of the contract on the part of
the seller-from the date on which the payment was made.

(A) Pre-judgment interest

The common law of the United Kingdom does not permit the award of interest by way of general
damages for delay in payment of a debt.78 However the court can enforce a stipulation between the
parties in their contract regarding payment of interest within the bound of statutory provisions. Special
damages could be awarded where the plaintiff had actually incurred interest charges in raising finance
from another source as a result of the defendant's failure to pay money when due.79 

Under the Indian Interest Act 1978 the Court may, if it thinks fit, allow interest to the person entitled to
damages at a rate not exceeding the 'current rate of interest' 80 for the period from the date mentioned in
this regard in a written notice given by the person claiming it to the person liable for the interest claimed,
to the date of institution of the proceedings.81 However pre-judgment interest will only be given on a 'sum
certain'82 and is therefore not available for unliquidated damages.83 

However, it must be noted that interest by way of damages may be awarded if there is an express
stipulation to that effect. 

76
Section 61(1) SGA
77
Section 61(2) SGA
78
President of India v. La Pintada Compania Navegacion S. A. (1985) A. C. 104
79
Baon v. Cooper Ltd. [1982] 1 All. E.R. 397
80
The current rate of interest is an amount that can be calculated. It has been defined in s. 2 (b) of the Indian Interest
Act 1978
81
Section 3 of the Interest Act (1978)
82
Section 2 (c) of the Indian Interest Act (1978) defines 'debt' in these terms
83
AIR 1979 SC 852
6.2 CISG

(A) Pre-judgment interest

Article 78 CISG deals with the issue of interest on damages. The provision does not apply to interest
payments on the refund of the purchase price if the purchase contract is avoided because this case is
covered by the specific provisions of Art. 84 CISG. It also does not apply to interest payments on interest
and, thus, gives no right to compound interest. 

Here it must be noted that the interest provision under Art. 84 gives the buyer the right to interest from
the seller from the date on which the price was paid. This requirement is the same as under Indian law.

Article 78 CISG authorises recovery of interest on the payment price or 'any other sum that is in arrears'.
It is clear that, like in Indian law, the seller in a suit for refund of the price can get interest on it. However
it is doubtful whether a party is entitled to recover interest on an unliquidated amount, which was the
position upheld in Delchi . Given the internationally controversial nature of interest, the final language of
Art. 78 entitling a party to interest on "any ... sum ... in arrears" was a compromise among the States
which should not be interpreted to encompass unliquidated damages. The history of the Article supports
this view.84

The other problem is the interest rate applicable. 85  In Delchi the court "in its discretion" awarded interest
at the rate established by United States federal law for the award of post-judgment interest. However it
made no reference to Art. 7 CISG which lays down rules for interpreting the Convention. It did not
examine the legislative history of the Convention or refer to scholarly opinion. Therefore the case cannot
be said to serve as a good authority to determine the interest rate applicable.

As stated above, there was much debate over the drafting of Art. 78 CISG, resulting in a rule on interest
being omitted in earlier drafts of the Convention. There is therefore no commentary to allow insight on
its development as is provided for in other Articles. However, a 1976 draft included a provision for

84
Christian Thiele, "Interest on Damages and Rate of Interest Under Art. 78 of the U.N. Convention on Contracts for
the International Sale of Goods" (1998) 2(3) VJ 3
85
See Arbitral Tribunal - Vienna 15 June 1994, SCH-4366 Case law on UNCITRAL texts (CLOUT) abstract no. 93;
Arbitral Tribunal - Vienna 15 June 1994, SCH-4318 Case law on UNCITRAL texts (CLOUT) abstract no. 94 for
examples of how the tribunals tried to settle the issue with reference to the general principles on which the CISG is
based
interest awards to the seller. Article 58 of this draft provided for interest at the rate of the country of the
seller's principal place of business and this has been opined to be the correct rule. The International Court
of Arbitration has applied the law of the place of payment to determine the interest rate owed on an
unpaid balance to the seller.86  There is a view that in conformity with the general principles of the
Convention, specifically those from Art. 74 CISG (which strives to award recovery of suffered losses),
and Art. 75 CISG (which calculates compensation by the cost of the substitute transaction), interest
should be calculated by the cost of credit faced by the injured party.Thus the interest rate applicable
remains shrouded in mystery and appears to be at the discretion of the governing Court or Tribunal.

CONCLUSION

The most important issues, which arise from a comparative analysis of the law relating to damages in
international sale of goods, may be summarized as follows:

1. Section 73 ICA lays down the principles governing the measure of damages under Indian law. Its
counterpart in international trade law is Art. 74 CISG. Both provisions are identical in many respects and
both provisions lay down a subjective and an objective test for the determination of damages. However
86
J. M. Darkey, "A U.S. Courts Interpretation of Damage Provisions under the U.N. Convention on Contracts for the
International Sale of Goods: A Preliminary Step towards an International Jurisprudence of CISG or a Missed
Opportunity?" (1995) 15 Journal of Law and Commerce 139 at 149
the rule in Art. 74 CISG is wider than the rule in Indian law: the rule under Art. 74 requires damages to
be foreseen as a "possible" consequence whereas the Hadley rule refers to damages being a "probable
result" of the breach. This would arguably lead to a situation where the aggrieved party would have a
better chance of recovering damages under Indian law than under the CISG.
2. The analysis has also shown that both Art. 74 CISG and s. 73 ICA encompass damages for
inconvenience and expense caused because of non-conforming goods within their ambit. However the
major difference here is that, unlike s. 73 ICA, Art. 74 CISG does not include damages for personal
injury since by virtue of Art. 5 CISG, the CISG does not apply to the liability of the seller for death or
personal injury caused by the goods to any person. Therefore it is probable that additional costs of a
separate action for recovering the damages caused by defective goods causing personal injury may be
considered while determining the transaction costs.
3. Though damages for injured feelings have been held to be within the scope of s. 73 whereas no such
provision exists in the CISG. Nor does the CISG specify the time or the place for measuring damages.
This is bound to lead to some confusion since the time for measuring damages under Indian law is well
settled. This assumes significance in international transactions if the price of goods fluctuates wildly and
the time for measuring damages may have a significant impact on the quantification of damages. The
uncertainties may lead to substantial problems in case of any dispute and it may increase litigation costs
that have to be factored into the transaction costs.
4. In mitigation of damages, the major difference arises in the case of anticipatory breach of contract.
The time when the duty to mitigate damages under the CISG arises as soon as the aggrieved party comes
to know of the intent to breach. The position is different in India where the duty to mitigate arises only
upon breach of the contract or when the aggrieved party has rescinded the contract. Therefore the
position under Indian law is more favorable to the aggrieved party rather than to the breaching party. It
may also be stated that both parties a more certain test for determining the time for determining when the
duty to mitigate arises than is provided under the CISG and may choose to introduce contractual terms to
this effect. 
5. The seller's right to claim damages if the buyer refuses to accept the goods and pay the price both
under Arts. 53 and 61 (b) CISG and under s. 56 SGA is the same.
6. The law in India also provides a right to the buyer to get damages if there is non-delivery of the
goods as is clearly stated in s. 57 SGA. The law is the same under the CISG as an analysis of Arts. 30 and
45 demonstrates.
7. Damages for breach of warranty are available both under Indian law (S. 73 ICA and S. 59 SGA) and
under the Article 74 CISG. The term 'warranty' has different connotations under Indian law and under
CISG but the analysis showed that the essential concepts are the same.

In general one can conclude that the similarities relating to the law of damages between the CSIG and
Indian law outweigh the differences, and that the CISG may be a viable alternative when dealing with
international sale of goods transactions.

BIBLIOGRAPHY

BOOKS

 C. K. Rao, Law of Damages and Compensation, 1959, Law Book Company, India, p. 132
 R. K. Abichandani, Pollock and Mulla on The Indian Contract and Specific Relief Act,
1994 N. M. Tripathi, India, p. 841
 H. K. Saharay and S. K. R. Chowdhury, Dutt on Contract, 1994 Eastern Law House,
India, p. 559
  A. N. Saha, Mitras Legal and Commercial Dictionary, 1990, Eastern Law House, India,
p. 617
 K. Shanmuskari, A. Ramaiyas, The Sale of Goods Act, 1995 The Law Book Company
Pvt. Ltd., India, p. 841
 Schwenzer Ingeborg,  Schlechtriem Peter, Schlechtriem & Schwenzer: Commentary on
the UN Convention on the International Sale of Goods (CISG), Oxford University Press,
(2009)

ARTICLES

 Arthur G. Murphey, "Consequential Damages in Contracts for the International Sale of

Goods and the Legacy of Hadley" (1989) 23 Wash. J. Int'l L. & Econ 415
 V. S. Cook, "The UN Convention on Contracts for the International Sale of Goods: A
Mandate to Abandon Legal Ethnocentricity" (1997) 16 Journal of Law and Commerce
257 at 259
 J. E. Murray, "The Neglect of CISG: A Workable Solution" (1998) 17 Journal of Law and
Commerce 365 at 370 (arguing that the Hadley test is broader than Art. 74)
 J. S. Sutton, "Measuring Damages Under the United Nations Convention on the
International Sale of Goods" (1989) 50 Ohio State Law Journal 737 at 744
 E. C. Schneider, "Consequential Damages in the International Sale of Goods: Analysis of
Two Decisions" [1996] 16 Journal of International Business Law 615
 Christian Thiele, "Interest on Damages and Rate of Interest Under Art. 78 of the U.N.
Convention on Contracts for the International Sale of Goods" (1998) 2(3) VJ 3
 J. M. Darkey, "A U.S. Courts Interpretation of Damage Provisions under the U.N.
Convention on Contracts for the International Sale of Goods: A Preliminary Step
towards an International Jurisprudence of CISG or a Missed Opportunity?" (1995) 15
Journal of Law and Commerce 139 at 149