Brief Fact Summary. Cook Specialty Co., (Plaintiff), contracted to buy a machine from Schrlock, (Defendant), in the amount of $28,000. The machine was destroyed in transit to Plaintiff’s place of business. Plaintiff brought suit to recover its damages from the loss that were unsatisfied by the carrier’s insurance and moves for summary judgment.
Synopsis of Rule of Law. A contract is improper under U.C.C. Section:2-504 if the seller agrees to an inadequate valuation of the shipment and thereby extinguishes the buyer’s opportunity to recover from the carrier.
Once the movant has met the initial burden of demonstrating the absence of a genuine issue of material fact, the non-moving party must establish the existence of each element of its case.View Full Point of Law
Issue. Whether the contract Defendant made for delivery of the machine was not reasonable because Defendant failed to ensure that the carrier had sufficient insurance coverage to compensate Plaintiff for a loss in transit.
Held. No. Defendant’s conduct was reasonable because Defendant obtained a certificate of insurance and did nothing to impair plaintiff’s right to recover for any loss from the carrier.
Discussion. “F.O.B., place of shipment” means that the seller must at that place, ship the goods in the manner provided by U.C.C. Section: 2-504 and bear the expense and risk of putting them into the possession of the carrier. The risk of loss shifts to the buyer when the seller duly delivers the goods to the carrier. The goods are duly delivered when they are put in possession of a carrier and the seller makes such a contract for their transportation as may be reasonable having regard to the nature of the goods and other circumstances of the case.
Unreasonable cases include those where the package was underinsured, misaddressed, shipped by fourth class mail, and bore a ‘theft-tempting inscription. A contract is improper if the seller agrees to an inadequate valuation of the shipment and thereby extinguishes the buyer’s opportunity to recover from the carrier. That is quite different from a seller’s failure to ensure that a carrier has sufficient insurance to cover a particular potential loss, in which case the carrier is still liable to the buyer. The seller does not have an obligation to investigate the amount and terms of insurance held by the carrier.