Expert answer:Commercial law

Solved by verified expert:Use of applicable legal terms answer the following questions1. When does title pass in a sales contract? Explain 2. Can an order instrument become a bearer instrument and visa-versa? Explain. 3. Compare and contrast holder and assignee? 4. Assume you borrow money from a family friend and, as part of the oral contract, you agree to provide accounting services. Would this loan be a negotiable instrument. Explain. 5. Compare and contrast repossession and foreclosure. 6. How can a seller limit their warranty liability on the sale of goods? 7. How can an endorser limit their liability on an order instrument? Explain.
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BUSINESS LAW
TEXT AND CASES
Commercial Law for Accountants
Fourteenth Edition
MILLER
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
The seller must transfer and deliver
conforming goods and the buyer must
accept and pay for conforming goods
[UCC 2–301, 2A–516(1)].
 Every party to every contract for the
sale or lease of goods owes every other
party a duty of good faith (honesty in
fact).

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22

Tender of Delivery: Occurs when the seller
or lessor makes conforming goods
available and gives the buyer or lessee
whatever notification is reasonably
necessary to enable the buyer or lessee to
take delivery [UCC 2–503(1), 2A–
508(1)].
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
33

Tender of Delivery:
 Requires reasonable notice, reasonable
hour, and manner.
 Generally, all goods must be tendered in
one installment (unless agreed upon by
parties).
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
44

Place of Delivery: Parties can agree on
goods tendered at a particular destination
for buyer to take possession.
 If the contract does not specify, then
place is the seller’s place of business, the
seller’s residence, or the location of the
goods (if both parties know in advance
that the goods will be there). 
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
55

Delivery via Carrier:
 Shipment Contracts: Unless otherwise
agreed, the seller must do the following:
• Put goods into hands of independent
carrier.
• Make contract for transportation that is
reasonable according to nature of the
goods and their value.
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
66

Delivery via Carrier:
 Shipment Contracts:
• Obtain and promptly deliver or tender
to the buyer any documents necessary.
• Promptly notify buyer that shipment
has been made.
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
77

Delivery via Carrier:
 Shipment Contracts:
• If the seller does not make a reasonable
contract for transportation or notify the
buyer of the shipment, the buyer can
reject the goods if a material loss or a
significant delay results.
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
88

Delivery via Carrier:
 Destination Contracts: Seller has duty
to:
• Tender the goods at a reasonable
hour.
• Hold the goods available for a
reasonable period of time for the
buyer/lessee to take possession.
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
99

Delivery via Carrier:
 Destination Contracts: Seller has duty to:
• Obtain and promptly deliver any
documents of title the buyer/lessee needs
to take possession of the goods from the
carrier.
• Promptly notify the buyer/lessee that
goods are available for her to take
delivery.
10
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10

The Perfect Tender Rule:
 The seller or lessor has an obligation to
ship or tender conforming goods.
 The buyer or lessee is then obligated to
accept and pay for the goods according
to the contract terms (UCC 2–507).
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
1111

If goods—or tender of delivery—fail in any
respect to conform to the contract, the
buyer has the right to do any of the
following (UCC 2–601, 2A–509):
 Accept the goods.
 Reject the entire shipment.
 Accept part and reject part.
• SEE CASE IN POINT 14.4 WILSON SPORTING GOODS CO.
V. U.S. GOLF AND TENNIS CENTERS, INC. (2012).
1212
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
Exceptions to the Perfect Tender Rule:
 Agreement of the Parties: Exceptions
to the perfect tender rule may be
established by agreement.
 Cure: The right of the seller or lessor to
repair, adjust, or replace defective or
nonconforming goods with reasonable
grounds (UCC 2–508, 2A–513). 
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
1313

Exceptions to the Perfect Tender Rule:
 Reasonable Grounds: Even if the contract time
for performance has expired, the seller or
lessor can still cure if she/he had reasonable
grounds to believe that nonconforming tender
would be acceptable to the buyer or lessee
[UCC 2–508(2), 2A–513(2)].
 A price allowance (discount) on the goods can
serve as “reasonable grounds.”
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
1414

Exceptions to the Perfect Tender Rule:
 Limits the Right to Reject Goods: The
buyer or lessee must inform the seller
or lessor of the defect.
 If the defect is not disclosed, the buyer
or lessee cannot later assert the defect
as a defense if the defect is one that
the seller or lessor could have cured. 
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
1515

Exceptions to the Perfect Tender Rule:
 Substitution of Carriers: An agreed-on
manner of delivery may become
impracticable or unavailable through no
fault of either party. 
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
1616

Exceptions to the Perfect Tender Rule:
 Substitution of Carriers: If a commercially
reasonable substitute is available, this
substitute performance is sufficient tender to
the buyer and must be used [UCC 2–614(1)].
• Seller or lessor is required to arrange for a
substitute carrier and is usually responsible
for additional shipping costs (unless the
contract states otherwise).
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
1717

Exceptions to the Perfect Tender Rule:
 Installment Contracts: Require or authorize
delivery in two or more separate lots to be
accepted and paid for separately.
• A buyer or lessee can reject an installment
only if the nonconformity substantially
impairs the value of the installment and
cannot be cured [UCC 2–307, 2–612(2),
2A–510(1)].
18
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
18

Exceptions to the Perfect Tender Rule:
 Installment Contracts: Unless the
contract states otherwise, the entire
installment contract is breached only
when one or more nonconforming
installments substantially impair the
value of the whole contract.
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
1919

Exceptions to the Perfect Tender Rule:
 Commercial Impracticability: Events that
were unforeseen by either party may make
performance commercially impracticable.
• When this occurs, seller or lessor must
notify the buyer or lessee as soon as
practicable that there will be a delay or
nondelivery (UCC 2–615, 2A–405).
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
2020

Exceptions to the Perfect Tender Rule:
 Commercial Impracticability: Only
unforeseeable events provide a
defense.
• SEE CASE IN POINT 14.9 MAPLE FARMS V. CITY SCHOOL
DISTRICT OF ELMIRA (1974).
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
2121

Exceptions to the Perfect Tender Rule:
 Commercial Impracticability and Partial
Performance: The seller or lessor can
partially fulfill the contract but cannot
tender total performance. 
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
2222

Exceptions to the Perfect Tender Rule:
 Commercial Impracticability and Partial
Performance:
• Seller or lessor is required to distribute
any remaining goods or deliveries fairly
and reasonably among the parties to
whom it is contractually obligated [UCC
2–615(b), 2A–405(b)]. 
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
2323

Exceptions to the Perfect Tender Rule:
 Commercial Impracticability and
Partial Performance:
• The buyer or lessee must receive
notice of the allocation and has the
right to accept or reject it [UCC 2–
615(c), 2A–405(c)].
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
2424

Exceptions to the Perfect Tender Rule:
 Destruction of Identified Goods: An
unexpected event may totally destroy
the goods through no fault of either
party before risk passes to the buyer or
lessee. 
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
2525

Exceptions to the Perfect Tender Rule:
 Destruction of Identified Goods: If the
goods were identified at the time of contract
formation, the parties are excused from
performance (UCC 2–613, 2A–221).
 If the goods are partially destroyed, the
buyer or lessee can inspect them and either
treat the contract as void OR accept the
damaged goods with a price reduction.
26
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
26

Exceptions to the Perfect Tender Rule:
 Assurance and Cooperation:
• Right of assurance (in writing): Until
received, the other party has the right to
“suspend” performance or delivery.
• Duty of cooperation: If one party is not
cooperating, the other party has the right
to suspend performance and hold the
first party in breach.
27
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
27
Payment: Unless agreed otherwise, the
buyer or lessee must make payment at the
time and place the goods are received [UCC
2–310(a), 2A–516(1)].
 Credit has to be prearranged.
 Payment can be made by the means agreed
on between the parties or other method
generally acceptable in the commercial
world.
28

© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
28

Right of Inspection: Buyer has absolute
right to inspection before payment, unless
C.O.D.
 Goods must be conforming before
payment. If the goods are not as ordered,
the buyer or lessee has no duty to pay.
 Inspection can take place at any
reasonable place/time and in any
reasonable manner.
29
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
29

Acceptance: Buyer can accept goods:
 By words or conduct.
 If buyer had reasonable amount of time
and failed to reject.
 Buyer performs an act that is
inconsistent with the seller’s ownership.
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
3030

Partial Acceptance: If some of the goods
do not conform to the contract, and seller
has failed to cure, buyer can make a partial
acceptance [UCC 2–601(c), 2A–509(1)].
 But buyer cannot accept less a single
commercial unit.
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
3131
Anticipatory Repudiation: Occurs when
a party communicates intention she/he
will not perform when performance due.
 Suspension of Performance Obligations.
 Nonbreaching party may suspend
performance and treat the AR as
material breach and pursue a remedy;
or wait a reasonable time. 

© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
3232

A Repudiation May Be Retracted:
 The UCC permits breaching party to
“retract” repudiation by any method
that clearly indicates their intent.
 However, no retraction if the
nonbreaching party has materially
changed their position.
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
3333

Remedies for breaches under the UCC are
cumulative. When buyer or lessee is in
breach, seller has various remedies under
UCC, depending on circumstances.
 Important Considerations: Which party
has possession of the goods, whether
goods are in transit, and whether the
buyer has rejected/accepted the goods.
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
3434

Goods in Possession of Seller:
 The Right to Cancel the Contract: If the
buyer or lessee breaches the contract, the
seller or lessor can choose to cancel the
contract [UCC 2–703(f), 2A–523(1)(a)].
• Seller must notify buyer.
• Buyer is not discharged from remaining
obligations.
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
3535

Goods in Possession of Seller:
 Right to Withhold Delivery: If breach by
buyer, seller can withhold delivery of all
goods [UCC 2–703(a), 2A–523(1)(c)].
 The seller or lessor can also refuse to
deliver the goods to a buyer or lessee who
is insolvent unless the buyer or lessee
pays in cash [UCC 2–702(1), 2A–525(1)].
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
3636

Goods in Possession of Seller:
 Right to Resell or Dispose of Goods:
Seller can resell and keep profits from sale
and hold buyer liable for difference.
 Seller must give the original buyer
reasonable notice of the resale, unless
goods are perishable/will rapidly decline
in value [UCC 2–706(2), (3)].
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
3737

Goods in Possession of Seller:
 Right to Resell or Dispose of Goods:
• Unfinished Goods: Seller can (1) cease
manufacturing and resell for
scrap/salvage or (2) complete
manufacture of the goods, sell them,
and hold buyer responsible for
deficiency.
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
3838

Goods in Possession of Seller:
 Right to Recover the Purchase Price or
Lease Payments Due:
• Seller can recover purchase price plus
incidentals [UCC 2–709(1), 2A–529(1)].
If unable to resell, seller must hold
goods for buyer. 
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
3939

Goods in Possession of Seller:
 Right to Recover the Purchase Price or
Lease Payments Due:
• Seller can sell goods anytime prior to
collecting judgment.
• If the goods are resold, net proceeds
must be credited to the buyer or lessee
because of the duty to mitigate damages.
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
4040

Goods in Possession of Seller:
 Right to Recover Damages for Buyer’s
Nonacceptance: If buyer repudiates—or
wrongfully chooses to accept—goods,
seller can bring action to recover
damages (lost profits, OR contract price
– market price, plus incidentals ) [UCC 2–
708(1), 2A–528(1)].
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
4141

When Goods Are in Transit: Goods are “in
transit” when seller has tendered goods to
carrier.
 Effect of Insolvency and Breach: Seller can
stop goods in transit if:
• Buyer is insolvent: Seller can stop entire
shipment of goods.
• Buyer is in breach: Seller may stop a
whole truckload or whole container. 42
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
42

When Goods Are in Transit:
 Requirements for Stopping Delivery:
To stop delivery, the seller or lessor
must timely notify the carrier or other
bailee that the goods are to be
returned or held for the seller or
lessor. 
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
4343

When Goods Are in Transit:
 Requirements for Stopping Delivery:
Seller has the right to stop delivery of
the goods until:
• Buyer receives the goods.
• Carrier or bailee acknowledges rights
of buyer in the goods (reshipment or
holding goods for buyer).
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
4444

When Goods Are in Transit:
 Requirements for Stopping Delivery:
• Negotiable document of title has been
transferred to buyer’s possession.
• Once the seller or lessor reclaims the
goods in transit, she/he can pursue the
remedies allowed to sellers and lessors
when the goods are in their possession.
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
4545

When Goods Are in Possession of Buyer
or Lessee: The seller or lessor can recover
the purchase price of the goods or the
lease payments due, plus incidental
damages [UCC 2–709(1), 2A–529(1)].
 In some situations, the seller has the
right to reclaim the goods.
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
4646

When Goods Are in Possession of Buyer
or Lessee:
 In some situations, seller can reclaim
goods received by an insolvent buyer if
demand made within ten days of
receipt.
 Seller’s right to reclaim goods is subject
to rights of a good faith purchaser.
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
4747

When Seller or Lessor Refuses to Deliver
the Goods: The buyer has the right to:
 Cancel (rescind) the contract. Buyer or
lessee is relieved of any further
obligations under the contract but
retains all rights to other remedies
against the seller or lessor [UCC 2–
711(1), 2A–508(1)(a)].
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
4848

When Seller or Lessor Refuses to Deliver
the Goods: The buyer has the right to:
 Recover goods paid for if seller
insolvent—whether partial or full
payment. Seller or lessor must have
become insolvent within ten days after
receiving the first payment and goods
must be identified to the contract.
© 2018 Cengage. May not be scanned, copied or duplicated, or pos …
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