The Application Of The Loss Of Profit Formula In The Calculation Of Damages For Breach Of Contract

Article 584 of China’s Civil Code stipulates that the non-breaching party shall receive compensation for the available benefits,but it does not specify how to calculate the available benefits in specific cases.At present,most of the research on the determination of liquidated damages in domestic theoretical circles focuses on restrictive rules such as alternative trading systems,reliance interest systems and related foreseeable rules,and few scholars have tried to construct a relatively complete calculation path for liquidated damages.The core concept of damages for breach of contract is to fully compensate for the losses of the non-breaching party,and the profit loss formula can fully satisfy the non-breaching party’s claim for compensation of available benefits,reflecting the adherence to the concept of full compensation.In traditional civil law theory,there are two methods of calculating damages for non-breaching parties: subjective and objective.The subjective calculation method focuses on the benefits that the non-breaching party can obtain from the normal performance of the original contract and uses this as the basis for compensation,and the objective calculation method usually compensates the plaintiff for the loss of market price.The loss of profit formula is a subjective calculation method that is more in line with the principle of non-difference and the objective of damages,and should therefore be applied in priority.The basic form of the loss of profit formula is the difference between the contract price minus the cost of performance.Of course,different types of contracts and the formula for breach scenarios may vary.When the buyer breaches the contract,it usually needs to consider the status of the seller’s performance,mainly including three situations: unfulfilled,partially performed and completed.The higher the seller’s degree of fulfillment,the less the expected cost of performance and the higher the amount of damages.When the seller fully performs,the buyer’s compensation is exactly equal to the contract price,since the cost of performance is expected to be zero.When a seller defaults,it is usually considered that the buyer may use it for three different transaction purposes: consumption,resale and reproduction.When the buyer is used for resale,the compensation is equal to the portion of the resale price that is higher than the original contract price;When the buyer is used for business reproduction,the amount of compensation is the buyer’s own reproduction and operating profits proved by the buyer;When the buyer is used for consumption,the loss of profit formula is less likely to work and can be remedied by other means.In more specific breach scenarios,a distinction between contracts for the sale of goods and contracts for the service is necessary.In the case of a breach of contract for goods,the seller’s situation as a producer,operator and reseller is different,and whether the seller should obtain an alternative profit depends on its ability to supply and the nature of the goods supplied;When the seller of the goods contract breaches the contract,it is necessary to discuss the three situations in which the buyer is used for reproduction,resale and consumption.In the context of resale,it is easier to determine the loss of available interest of the buyer.When the buyer is a reproducer or operator,it usually means that it is more difficult to probify.When the buyer is used for consumption or personal use,the completion cost rule can play a role;In the case of breach of service contract,the loss of profit formula is not applicable to all scenarios.Especially in the face of personal or moral damage caused to the other party by breach of contract by the service provider,it is necessary to resort to methods such as reliance damage compensation for relief.In the calculation of damages for breach of contract,some restrictive rules also have a great impact on whether the available benefit is established and its amount,including the foreseeability rule,the certainty rule,the derogation rule,the fault rule,and the profit and loss offsetting rule.As a deduction in the profit loss formula,unforeseeable losses,uncertain losses,losses for breach of derogation obligations,losses caused by the negligence of the non-breaching party,and gains from breach of contract need to be deducted from the total amount of available benefits.Of course,in the process of deduction,it is necessary to pay attention to the constituent elements of the rules,and at the same time,the connection between the rules cannot be ignored.