Module 1
The map of commercial law: goods, money and credit, the sources of the law, its guiding principles and the life of a commercial deal
Most of the world’s economic life is made of small transactions: a shop buys stock, a factory orders parts, a bank lends against the stock, a customer pays by card. Commercial law is the body of rules that makes these transactions safe enough to do thousands of times a day. It is different from the contract law you studied first, because it is built for strangers who must trust documents and records, who cannot stop to investigate each other, and who need to know quickly who owns what and who gets paid first. This module draws the map. It names the three questions that every commercial deal raises, shows where the rules come from, sets out the principles that run through them, and follows one deal from the first order to the day it goes wrong.
By the end of this module you can
- Name the three questions every commercial deal raises.
- Identify the main sources of commercial law.
- Explain the principles that guide it: certainty, speed, good faith and party autonomy.
- Follow a deal from sale to delivery, payment, credit, security and default.
- Tell commercial law apart from general contract and property law.
Part 1. The lecture
Three questions every deal raises
Take a simple deal. A bicycle shop orders forty electric bikes from a manufacturer, pays part now and the rest in sixty days, borrows from a bank to fund the purchase, and sells the bikes to the public. The law has to answer three questions about each step.
| Question | What it asks | Example (invented) |
|---|---|---|
| What was sold, and on what terms? | The contract of sale: description, quality, delivery, price, when ownership and risk pass | The bikes were described as ‘new, with a two-year battery’. When did they become the shop’s? Who bore the risk while they were on the lorry? |
| How is it paid for, and by what means? | Money, bills, cheques, cards, transfers, letters of credit, guarantees | The shop pays by bank transfer, and the manufacturer asks for a guarantee from the shop’s owner for the balance |
| Who has priority if the buyer cannot pay? | Who owns the goods, who holds security over them, and who is paid first | The shop fails. The manufacturer says ‘the bikes are ours until paid for’. The bank says ‘we hold security over the stock’. Both cannot win |
The third question is where commercial law is most distinctive. Contract law asks whether a promise was kept. Commercial law asks, when many people have claims on the same assets and there is not enough to go round, whose claim comes first and why. The answer decides who is paid and who loses, and the whole system of lending and trade rests on lenders being able to predict it.
Where the rules come from
Commercial law in the common-law world grew from the practice of merchants, and was later written into statutes. The sources differ by place, so a lawyer begins by finding out which applies.
| Source | What it covers | Where it is found (examples) |
|---|---|---|
| Sale of goods statutes | Contracts for the sale of goods: terms, passing of property and risk, remedies | England and many Commonwealth countries, which codified the law in the nineteenth century |
| The Uniform Commercial Code (UCC) | A model code in articles, covering sales, leases, negotiable instruments, bank deposits and payments, letters of credit, documents of title and secured transactions | Adopted, with local changes, by the US states |
| Personal property security acts (PPSAs) | A single, registration-based system for security over movable property, replacing a range of older devices | Canada (outside Quebec), Australia, New Zealand and other places |
| Common law and equity | Bailment, agency, guarantees, floating charges, the rules for the sale and mortgage of goods that older statutes did not replace | Everywhere in the tradition |
| International instruments | The Vienna Convention on contracts for the international sale of goods (CISG), rules on letters of credit, and the Incoterms trade terms (which are contractual, not law) | Dozens of countries, and in international trade by contract |
| Civil-law codes | Sale, pledge, retention of title and payment instruments, in a commercial or civil code | Continental Europe, Latin America and elsewhere |
- This course teaches the structure, using neutral terms and invented facts, and notes where the main systems differ. It does not state the rules of any one country.
- The three approaches to security are worth knowing at the outset: a collection of separate devices (pledge, mortgage, charge, conditional sale), a single functional system (the UCC’s Article 9 and the PPSAs) and the civil-law approach. Module 5 explains each.
- Always check the instrument. Many commercial rules can be changed by agreement, but some cannot, and some are mandatory for consumers, who are protected by other laws.
The principles of commerce
| Principle | What it means | Where it shows up |
|---|---|---|
| Certainty | Parties should be able to predict the result, because lenders and traders price risk | Registration systems, fixed rules for passing property and strict rules for documents |
| Speed | Deals must be completed quickly, and a business cannot wait for a court | Self-help remedies, quick enforcement of security, payment instruments that move without investigation |
| Good faith | Honesty in fact, and fair dealing, are expected of merchants | Protection of buyers in good faith, the duty to deal in a commercially reasonable way on default |
| Party autonomy | Parties may usually agree their own terms, and the law supplies terms where they do not | Implied terms that can be excluded, and freedom to choose security and payment methods |
| Protection of the innocent third party | A buyer who acts in good faith and pays value should not lose the goods because of a seller’s earlier dishonesty | Rules on good-faith purchasers, negotiable instruments and entrusting goods to a merchant (Module 4) |
| Fair treatment of creditors | Honest creditors who take security should be able to rely on it, and others should be able to find out about it | Public registers, notice, and rules that reward the first to register or take possession |
These principles often pull against each other. Certainty and speed suggest rigid rules, and good faith and fairness suggest flexibility. A great deal of commercial law is the compromise, and a lawyer who can name the principle in play can usually predict which way a court will lean.
The life of a deal
Follow one deal from start to finish. Each stage is a module in this course.
| Stage | What happens | Module |
|---|---|---|
| 1. Sale | The buyer and seller agree description, price and delivery, and implied terms fill gaps. Property and risk pass at a fixed moment | 2 |
| 2. Performance and breach | Goods are delivered or not, accepted or rejected, paid for or not, and the parties use their remedies | 3 |
| 3. Resale and title | The buyer resells to a customer, and a question arises whether the customer gets good title | 4 |
| 4. Credit and security | A lender advances money against the stock, takes security, and makes it effective against others | 5 |
| 5. Default and priority | The buyer cannot pay, and the supplier, the bank, customers and other creditors compete | 6 |
| 6. Payment and guarantees | How money moves: instruments, transfers, letters of credit and guarantees | 7 |
How to approach any commercial problem
1. What was the transaction, and what are the goods or rights involved? 2. What did the contract say, and what terms are implied? 3. When did property and risk pass? 4. How was payment to be made, and what happened? 5. Who has security or a claim, and is it effective against others? 6. Who has priority, and what remedies are available? Use the six questions throughout the course and the capstone.
A last point of method. Commercial law cares about documents and records: contracts, delivery notes, invoices, registrations and bills of lading. A trader who keeps good records can usually prove who owns what. A trader who relies on handshakes often cannot, and loses. Teaching clients to keep records is half the work of a commercial lawyer.
Part 2. Lab: Which Part of the Map?
Sort each question by the part of commercial law it belongs to.
Situation 1 of 6
The goods were described as new but were reconditioned. What can the buyer do?
Where does this belong?
Part 3. Lab: First Question
Choose the best first question in each situation.
Situation 1 of 3
A client says: ‘My customer has gone bust and owes me 40,000 for the machines I delivered. The bank says it has taken everything. Can I get my machines back?’
What should you ask first?
Part 4. Lab: Spot the Commercial Law Mistake
Click the statements that misstate commercial law.
A trainee’s notes
Click every sentence that causes a problem, then press Check. There may be 3 problems, and some sentences are fine.
Part 5. Check your understanding
Ten questions drawn from a larger pool. Sign in to have your score saved towards your certificate.
You have finished the free module
Here is what you can do now, and where the course goes next
Module 1 gave you
- Name the three questions every commercial deal raises.
- Identify the main sources of commercial law.
- Explain the principles that guide it: certainty, speed, good faith and party autonomy.
- Follow a deal from sale to delivery, payment, credit, security and default.
- Tell commercial law apart from general contract and property law.
Next, 6 more modules and a capstone
- Module 2: The sale of goods: what a sale is, formation, the implied terms, when property passes, retention of title and who bears the riskYou will learn to say what a contract of sale of goods is and how it is formed.
- Module 3: Remedies in the sale of goods: the unpaid seller, the disappointed buyer, rejection and acceptance, damages, cure and what international sales do differentlyYou will learn to list the seller’s remedies and when each applies.
- Module 4: Title and the good-faith purchaser: nemo dat, the exceptions, void and voidable title, documents of title and how civil-law systems protect buyersYou will learn to state the nemo dat rule and why it exists.
- Module 5: Secured credit: why lenders take security, the traditional devices and the functional approach, collateral, attachment and perfectionYou will learn to explain why lenders take security and what it gives them.
- Module 6: Priority, default and enforcement: who is paid first, purchase money security, buyers, proceeds, insolvency and how a secured party enforces
- Module 7: Payments, negotiable instruments, letters of credit and guarantees: how money moves, who bears the loss and how to make a promise to pay safe
- Capstone: Capstone: Brightwater Cycles
Each module has its own practice labs and a graded quiz, and a Certificate of Completion follows when you pass them all. The whole course is $15 once, or included in an All-Access Membership.
Two Ways In
Introductory PriceCommercial Law and Secured Transactions: buy it on its own, or get it with All-Access
Unlock all of Commercial Law and Secured Transactions on its own with a one-time purchase, or get it as part of an All-Access Membership, which also covers every course and the other paid tools. A member never needs to buy it separately.
This is an early, introductory price for a brand-new product — it’s expected to rise as we add more content. Buy now and it’s yours at today’s rate, forever.
No account needed: you pay, and we email you a one-click sign-in.
All-Access is $29.99 a month or $149 a year, and covers every course and most tools, this one included. Create a free account to subscribe.
Look first, then buy. Free previews on every product page. Secure payment by Stripe. Pay once, keep it forever. Details
See what is included in All-Access →Not ready to buy? Create a free account to save your quiz scores and your place in this course, and to get the printable reports from the practice rooms.
General education on commercial law and secured transactions, using invented businesses, people and figures. It states common principles in simplified form and does not describe any one country’s law, which differs and changes; rules on sale, security, registration and priority are strict and local. It is not legal advice. Consult a qualified lawyer in the place that matters.
Teaching? Share this with your class
Free to use in class. The free parts open for everyone, no account needed.