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

Under a CISG contract, Lumo Ltd sold 500 cartons of tinned fruit to Verda Ltd. The goods were being carried by sea when the contract was made. Lumo knew before contracting that the goods had already been damaged by a storm, but did not tell Verda. Which statement is correct about who bears the risk for the damage?

Lumo bears the risk. Although risk in goods sold in transit can pass to the buyer retrospectively from handover to the carrier, this does not apply where the seller knew of the damage at contracting and failed to disclose it to the buyer.

  1. AVerda bears it, because risk is treated as passing from the time goods were handed to the carrier
  2. BLumo bears it, because it knew of the damage and did not disclose it to the buyerCorrect
  3. CLumo bears it only if Verda had already paid the full price before the damage was found

Explanation

For goods sold in transit, risk may pass from the time of handing over to the carrier, but if the seller knew or ought to have known of the loss or damage and did not tell the buyer, the damage stays at the seller's risk. Option A ignores this exception. Payment is irrelevant to the rule.

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