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

Under the CISG, a seller has validly avoided a contract after the buyer failed to pay. The seller had received part-payment of the price. What may the seller be required to do regarding that part-payment?

The seller must refund the part-payment with interest running from the date it was paid. After avoidance each party can recover what it supplied, and the CISG expressly requires interest on a refunded price, so keeping it as a penalty is not allowed.

  1. AKeep it as a penalty, because the buyer was in breach
  2. BRefund it, together with interest from the date of paymentCorrect
  3. CRefund it without interest, because interest runs only on unpaid sums

Explanation

Where a party must refund the price on avoidance, it must also pay interest on the sum from the date of payment. The seller cannot keep the money as a penalty, and the interest rule applies to refunds as well as to arrears. So refund with interest is correct.

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