Question

Cey Corp. entered into a contract to sell parts to Deck, Ltd. The contract provided that the goods would be shipped "FOB Cey's warehouse." Cey shipped parts different from those specified in the contract. Deck rejected the parts. A few hours after Deck informed Cey that the parts were rejected, they were destroyed by fire in Deck's warehouse. Cey believed that the parts were conforming to the contract. Which of the following statements is true?

A. Regardless of whether the parts were conforming, Deck will bear the loss because the contract was a shipment contract.
B. If the parts were nonconforming, Cey will bear the risk of loss, even though the contract was a shipment contract.
C. If the parts were conforming, risk of loss does not pass to Deck until a reasonable period of time after they are delivered to Deck.
D. If the parts were nonconforming, Deck had the right to reject them, but the risk of loss remains with Deck until Cey takes possession of the parts.

Answer 1

The correct statement is D. If the parts were nonconforming, Deck had the right to reject them, but the risk of loss remains with Deck until Cey takes possession of the parts.

Step-by-step explanation:

The correct statement is D. If the parts were nonconforming, Deck had the right to reject them, but the risk of loss remains with Deck until Cey takes possession of the parts.

FOB (Free On Board) is a shipping term that determines the point at which the risk of loss transfers from the seller to the buyer. In this case, since the contract specified FOB Cey's warehouse, the risk of loss remained with Cey until the parts were delivered to Deck and Cey took possession.

Regardless of whether the parts were conforming or nonconforming, Deck did not bear the loss because the contract was a shipment contract (Option A). The risk of loss passes to the buyer (Deck) once the goods are delivered to them and they take possession (Option C). Therefore, the correct statement is D.