Business Law and the Regulation of Business 11th Edition by Richard Mann, Barry Roberts

Exercise 18

FACTS Jordan Panel Systems, Inc. (Jordan) ordered custom-made windows from Windows, Inc. (Windows). The purchase contract provided that the windows were to be shipped properly packaged for cross-country motor freight transit and ''delivered to New York City.'' Windows constructed the windows according to Jordan's specifications and arranged to have them shipped to Jordan by a common carrier, Consolidated Freightways Corp. (Consolidated). Windows delivered them to Consolidated intact and properly packaged. During the course of shipment, however, the goods sustained extensive damage. Much of the glass was broken and many of the window frames were gouged and twisted. Jordan's president signed a delivery receipt noting that approximately two-thirds of the shipment was damaged due to ''load shift.'' Jordan made a claim with Consolidated for damages it had sustained and also ordered a new shipment from Windows, which was delivered without incident. Jordan did not pay for either shipment of windows, and Windows brought suit. Jordan cross-claimed for incidental and consequential damages resulting from the damaged shipment. The parties resolved the claim by Windows, and the only issue that remains is Jordan's counterclaim. The district court granted Windows' motion for summary judgment on this matter. Jordan brings this appeal.
DECISION Judgment affirmed in favor of Windows.
OPINION Leval, J. Jordan seeks to recover incidental and consequential damages pursuant to [U.C.C.] § 2-715. Under that provision, Jordan's entitlement to recover incidental and consequential damages depends on whether those damages ''result[ed] from the seller's breach.'' A destination contract is covered by § 2-503(3); it arises where ''the seller is required to deliver at a particular destination.'' In contrast, a shipment contract arises where ''the seller is required *** to send the goods to the buyer and the contract does not require him to deliver them at a particular destination.'' § 2-504. Under a shipment contract, the seller must ''put the goods in the possession of such a carrier and make such a contract for their transportation as may be reasonable having regard to the nature of the goods and other circumstances of the case.'' § 2-504(a). ***
Where the terms of an agreement are ambiguous, there is a strong presumption under the U.C.C. favoring shipment contracts.
Unless the parties ''expressly specify'' that the contract requires the seller to deliver to a particular destination, the contract is generally construed as one for shipment. [Citations.]
Jordan's confirmation of its purchase order, by letter to Windows dated September 22, 1993, provided, ''All windows to be shipped properly crated/packaged/boxed suitable for cross country motor freight transit and delivered to New York City.'' We conclude that this was a shipment contract rather than a destination contract. To overcome the presumption favoring shipment contracts, the parties must have explicitly agreed to impose on Windows the obligation to effect delivery at a particular destination. The language of this contract does not do so. Nor did Jordan use any commonly recognized industry term indicating that a seller is obligated to deliver the goods to the buyer's specified destination.
Under the terms of its contract,Windows thus satisfied its obligations to Jordan when it put the goods, properly packaged, into the possession of the carrier for shipment. Upon Windows' proper delivery to the carrier, Jordan assumed the risk of loss, and cannot recover incidental or consequential damages from the seller caused by the carrier's negligence.
This allocation of risk is confirmed by the terms of [U.C.C.] § 2-509(1)(a), entitled ''Risk of Loss in the Absence of Breach.'' It provides that where the contract ''does not require [the seller] to deliver [the goods] at a particular destination, the risk of loss passes to the buyer when the goods are duly delivered to the carrier.'' [U.C.C.] § 2-509(1)(a). As noted earlier, Jordan does not contest the court's finding that Windows duly delivered conforming goods to the carrier. Accordingly, as Windows had already fulfilled its contractual obligations at the time the goods were damaged and Jordan had assumed the risk of loss, there was no ''seller's breach'' as is required for a buyer to claim incidental and consequential damages under § 2-715.
INTERPRETATION Unless specifically designated as a destination contract, a sales contract that involves shipment by a carrier is a shipment contract.
ETHICAL QUESTION Did the court fairly decide this case? Explain.
CRITICAL THINKING QUESTION What factors should be taken into consideration in deciding whether a contract is a shipment or a destination contract? Explain.