Eberhard Manufacturing Co. v. Brown
232 N.W.2d 378, 17 U.C.C. Rep. Serv. (West) 978, 61 Mich. App. 268 (1975)
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Rule of Law:
Under the Uniform Commercial Code (UCC), a contract for the sale of goods that lacks an F.O.B. term or other explicit allocation of risk is presumed to be a 'shipment contract,' meaning the risk of loss passes to the buyer when the goods are duly delivered to the carrier, even if a 'ship to' address is specified.
Facts:
- Plaintiff and Defendant had a distributorship agreement for truck and trailer body hardware.
- Plaintiff sold goods to Defendant pursuant to this agreement.
- A shipment of goods from Plaintiff to Defendant was lost in transit.
- The parties' contract did not contain an F.O.B. (Free On Board) term.
- Plaintiff’s internal policy was to sell its goods F.O.B. its factory.
- Plaintiff placed the goods on board a common carrier with instructions to deliver them to Defendant's place of business in Birmingham.
- Plaintiff had promised Defendant would be the sole distributor in Michigan for its products.
- Defendant incurred expenses in preparing for and acting as Plaintiff's distributor.
Procedural Posture:
- Plaintiff brought an action in the 48th District Court to recover for the price of goods sold and delivered to Defendant.
- Defendant counterclaimed for damages for breach of the distributorship agreement.
- The 48th District Court judge, sitting without a jury, entered judgment for Defendant on his counterclaim in the amount of $6,315.82.
- Plaintiff appealed to the circuit court.
- The circuit court affirmed the district court judgment, with Plaintiff as the appellant and Defendant as the appellee.
- Plaintiff filed an application for leave to appeal to the Michigan Court of Appeals, which was denied.
- The Michigan Supreme Court granted leave to appeal and remanded the cause to the Michigan Court of Appeals for further proceedings.
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Issue:
Does a contract for the sale of goods that contains no F.O.B. term or explicit risk allocation, but specifies a 'ship to' address, constitute a 'destination contract' under the Uniform Commercial Code, thereby placing the risk of loss on the seller until tender at destination?
Opinions:
Majority - J. H. Gillis
No, a contract for the sale of goods lacking an F.O.B. term or explicit risk allocation, despite specifying a 'ship to' address, constitutes a 'shipment contract' under the Uniform Commercial Code, not a 'destination contract.' The court held that under Article 2 of the UCC (MCLA 440.2509(1)), a 'shipment' contract is considered the normal type, and a 'destination' contract is a variant requiring specific agreement from the seller to deliver to a named destination and bear the risk until arrival. The mere inclusion of a 'ship to' address is insufficient to transform a shipment contract into a destination contract because such an address is necessary for any contemplated carriage. Since the contract contained no F.O.B. term or other explicit agreement on risk of loss, the presumption of a shipment contract controls, meaning the risk of loss passed to the buyer (Defendant) when the goods were delivered to the common carrier. Therefore, the trial court erred in giving Defendant credit for the lost shipment. The court also affirmed the trial court's finding that the parties agreed Defendant would be the sole distributor, as this finding of fact was clearly supported by testimony and not clearly erroneous under GCR 1963, 517.1.
Concurring - R. M. Maher
Justice Maher concurred with the majority opinion.
Dissenting - Quinn
While concurring with the majority regarding the $559.03 credit issue for the lost shipment, Justice Quinn dissented on the remaining part of the opinion, specifically concerning the counterclaim for damages for breach of the distributorship agreement. Justice Quinn's reading of the record led to the conclusion that the contract was mutually rescinded on February 12, 1969, thereby discharging all rights and duties. Furthermore, Justice Quinn believed that Defendant never expected to recover the expenses incurred as a distributor and would not have made such a claim except for Plaintiff's lawsuit. This conclusion was based on testimony from Stanley Brown, the lack of an assertion of such a claim during rescission, and the nature of Exhibit 7, a letter where Defendant listed expenses as a reason to dispute payment, not as a claim for reimbursement. Justice Quinn would have reversed and remanded for a judgment in favor of Plaintiff on the counterclaim.
Analysis:
This case clarifies the default rules for risk of loss in commercial transactions under the Uniform Commercial Code, emphasizing the presumption of a shipment contract when terms are ambiguous. It places the burden on parties to explicitly include 'destination' terms (like F.O.B. destination) if they intend for the seller to bear the risk until goods arrive. This decision reinforces the importance of precise contractual language regarding risk allocation, particularly for businesses involved in shipping goods across distances. For future cases, it means courts will strictly interpret UCC default rules against a destination contract unless clear intent is shown, preventing buyers from unilaterally converting shipment contracts to destination contracts based on a mere 'ship to' address.
