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ACCA Applied Skills · Corporate and Business Law (Global) · Obligations of the seller and buyer, and provisions common to both

Eta Ltd (seller) contracted under the CISG to deliver goods in three instalments to Theta Ltd. The first instalment is defective in a way that is a fundamental breach of that instalment only. The defect gives Theta no good reason to think future instalments will also be defective. Theta wishes to avoid the whole contract. Which statement is correct?

Theta may avoid only the defective first instalment. Under the CISG, a fundamental breach of one instalment permits avoidance of that instalment, but avoiding future instalments requires good grounds to infer further fundamental breaches, and none exist here.

  1. ATheta may avoid the whole contract, because any fundamental breach of one instalment ends the entire contract
  2. BTheta may avoid only the defective instalment, not the whole contract, as there are no grounds to infer future fundamental breachesCorrect
  3. CTheta may avoid nothing, because instalment contracts cannot be avoided
  4. DTheta may avoid the whole contract only if it pays for the first instalment

Explanation

For instalment contracts, a fundamental breach of one instalment allows avoidance of that instalment. Avoidance of future instalments needs good grounds to conclude a fundamental breach will occur in them. Here there are none, so only the defective instalment may be avoided.

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