Rheinberg-Kellerei GMBH v. Vineyard Wine Co.
53 N.C. App. 560, 32 U.C.C. Rep. Serv. (West) 96, 281 S.E.2d 425 (1981)
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Rule of Law:
In a shipment contract, the risk of loss passes from the seller to the buyer upon delivery of the goods to a carrier only if the seller promptly notifies the buyer of the shipment in a manner that allows the buyer a reasonable opportunity to protect their interest, such as by obtaining insurance.
Facts:
- Plaintiff, a seller of wine, and defendant, a buyer, entered into a 'shipment' contract for the sale of wine.
- Plaintiff delivered the wine to a carrier for shipment.
- The shipment of wine was lost at sea sometime between December 12 and December 22, 1978.
- Plaintiff notified its own agent of the shipment details around November 27, 1978, but this information was not passed along to the defendant.
- The defendant did not receive shipping documents or any other form of notification until December 27, 1978, after the goods had already been lost.
Procedural Posture:
- Plaintiff (seller) sued defendant (buyer) in a state trial court.
- The trial court entered a judgment in favor of the defendant, concluding that the risk of loss for the wine never passed from the plaintiff to the defendant.
- The plaintiff, as appellant, appealed the trial court's judgment to the North Carolina Court of Appeals, an intermediate appellate court.
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Issue:
Under UCC § 2-504, does the risk of loss for goods lost in transit pass from a seller to a buyer in a shipment contract if the seller fails to give prompt notice of the shipment, thereby preventing the buyer from protecting its interest in the goods?
Opinions:
Majority - Wells, Judge
No. The risk of loss does not pass to the buyer if the seller fails to provide prompt notice of shipment. Under the UCC (G.S. 25-2-509), risk of loss in a shipment contract passes to the buyer when the goods are 'duly delivered to the carrier.' For a delivery to be 'duly' made, the seller must comply with the duties in G.S. 25-2-504, which includes the requirement to 'promptly notify the buyer of the shipment.' The purpose of this notification is to give the buyer a reasonable opportunity to guard against the risks of transit, primarily by obtaining insurance. Since the defendant was not notified of the shipment until after the wine was already lost, the notice was not 'prompt' within the meaning of the statute. This failure to notify, which resulted in the loss, meant the risk of loss never passed to the defendant, who was therefore entitled to reject the shipment.
Analysis:
This case clarifies the meaning of 'promptly notify' under UCC § 2-504(c), establishing that the requirement is not merely a formality but a substantive prerequisite for shifting the risk of loss to the buyer in a shipment contract. The court's functional approach means that the timeliness of a notice is judged by whether it gives the buyer a meaningful opportunity to take protective measures, like securing insurance. This decision emphasizes that a seller's failure to provide such effective notice can prevent the transfer of risk, even if the goods have been properly delivered to a carrier, thereby keeping the seller liable for goods lost in transit.
