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

Lumina Ltd (seller) agreed under a contract governed by the CISG to deliver 10 consignments of components to Brandt GmbH (buyer), one each month. After the third consignment, Brandt GmbH discovered that it was seriously defective in a way that amounted to a fundamental breach of that consignment. Brandt GmbH has good grounds to conclude that the future consignments will also be seriously defective. Which of the following is the correct position?

Brandt GmbH may declare the contract avoided for future consignments, provided it gives notice within a reasonable time. Where one instalment is fundamentally breached and there are good grounds to expect further fundamental breaches, the CISG allows avoidance for the future, but only by notice.

  1. ABrandt GmbH may declare the contract avoided for future consignments, provided it gives notice within a reasonable timeCorrect
  2. BBrandt GmbH may avoid only the third consignment and has no right to avoid future consignments until they are actually delivered
  3. CBrandt GmbH may avoid the whole contract automatically without giving notice, because the breach is fundamental
  4. DBrandt GmbH may only claim damages, because avoidance is not available under an instalment contract

Explanation

Under the CISG rules on instalment contracts, a fundamental breach of one instalment allows avoidance of that instalment. If the breach gives the other party good grounds to conclude that a fundamental breach will occur in future instalments, the buyer may declare the contract avoided for the future, provided it does so within a reasonable time. Avoidance is never automatic, so it requires a declaration of notice, which rules out the third option. The second option ignores the right to avoid for the future.

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