Damages in the Event of Termination of a Sales Contract

Damages in the Event of Termination of a Sales Contract

Who is entitled to damages when a sales contract is terminated?

In commercial relationships, the termination of a sales contract due to a breach of obligations by one party can result in significant financial harm to the other party. The Law on Obligations (or applicable contract law) clearly prescribes the circumstances under which the injured party may claim damages in such cases.

General Rule – Right to Compensation for Damages (Art. 445)

When a sales contract is terminated due to a breach of contract by one of the contracting parties, the other party is entitled to claim compensation for the damage suffered, in accordance with the general rules governing liability for contractual breaches.

Compensation When the Goods Have a Current Market Price (Art. 446)

If the sales contract is terminated due to breach by one party, and the goods involved have a current market price, the injured party may claim:

The difference between the contract price and the current market price on the date of termination, at the market where the transaction was to take place.

If there is no market price at that location, the price of the nearest comparable market shall be used, with any difference in transportation costs added.

This provision is intended to protect the party that would otherwise suffer financial harm due to changes in market conditions.

Cover Sale or Cover Purchase – When One Party Fails to Perform (Art. 447)

If the subject matter of the sales contract is a quantity of goods defined by type, and one party fails to perform their obligation on time, the other party may conduct a cover sale or cover purchase and claim the difference between the contract price and the price obtained (or paid) in the cover transaction.

Compensation for Greater Damages (Art. 448)

In addition to basic compensation, the injured party may claim greater damages if the harm suffered exceeds the usual amount.

This applies in situations where the termination of the contract results in additional costs, loss of profit, or other specific economic losses.

The termination of a sales contract does not automatically release the parties from liability. If one party suffers damages as a result of the other party’s breach, the law provides specific mechanisms to protect their rights and enable financial recovery.