Question

Jenkins agreed to purchase goods from Smith, F.O.B. Smith’s plant. The goods in Smith’s plant are separated and stenciled with Jenkins’ name. Jenkins then telephones Smith and repudiates. The goods are subsequently destroyed by fire. Assume that Smith had no insurance on the goods. If Smith sues Jenkins for the purchase price, what is the result? Use UCC provisions to support your answer/analysis. Cite the specific sections of the UCC that support your argument.

Answer 1

In this specific case Smith can sue Jenkins and the section under which Smith can sue Jenkins is section 2-510 (3) of the UCC or the Uniform Commercial Code. This section of UCC deals with effect of breach on risk of loss.

As per this section in cases in which buyer, with regards to the conforming goods, has already identified to the contract for sale, and then repudiates the contract or is otherwise is in breach before the risk of loss has been passed from the seller to the buyer, then the seller has the right, to the extent of any deficiency in his effective insurance coverage, to treat the risk of loss as resting on the buyer and that too for a commercially reasonable time.

In this case the goods have already been separated and stenciled as per Jenkin’s purchase requirements and hence the goods will be assumed to be conforming. The agreement was on FOB at Smith’s plant (free on board) and so the law will assume that Jenkins will pay for the goods, the carriage and insure against loss during transit. Now when the term is FOB at the place of shipment then the seller has the obligation to ship the goods in the manner provided in this article and bear the expense and risk of putting them into the possession of the carrier. Moreover section 2-509 (1) states that the risk of loss in case of a destination contract will pass onto the buyer as and when the goods are duly tendered to the buyer at the designated destination in a manner that enables the buyer to take delivery.

In this case Smith met the provisions of section 2-213 (1) (a) and 2-505 (1) (b) when he separated and stenciled the goods for Jenkins’ therefore the risk was passed to Jenkins. As such Smith can recover the entire amount because of the fact that the risk of loss has been passed to Jenkins.