Summary of a Recent
Judicial Development in
Commercial Transactions

Factual Issues Regarding Which Party Bore Risk of Loss
Preclude Summary Judgment

Walt McCarter
National AgLaw Center Research Associate

Summary of Decision

In Oakley Fertilizer, Inc. v. Continental Insurance Co., 276 S.W.3d 342, 2009 WL 112536 (Mo. Ct. App. 2009), the Missouri Court of Appeals held that genuine issues of fact remained as to which party to a contract for the sale of fertilizer bore the risk of loss for the fertilizer shipment at the time it was damaged by Hurricane Katrina, and therefore the court reversed the lower court's order of summary judgment.

Background

A fertilizer seller brought an action against its insurance company to recover for losses of fertilizer damaged by Hurricane Katrina after being loaded onto barges for shipment to a buyer. Id. at *1. The insurance policy stated that it covered "all shipments for the Assureds own account or for the account of Owners of the cargo transported by the Assured which the Assured agrees to insure, such agreement to be made prior to any known or reported loss, or prior to or simultaneous with the sailing of the vessel." Id. The seller had mailed a sales contract to the buyer, which included a term providing that the cargo's title and risk of loss would transfer from the seller to the buyer after the seller received "good funds" from the buyer. Id. The contract had been received but not signed or returned; however, the buyer had subsequently emailed the seller a purchase agreement which provided that risk of loss transferred to the buyer when the cargo was loaded aboard the barges. Id. The shipment of fertilizer had been loaded onto barges when Hurricane Katrina hit, but the seller informed the buyer that the cargo had not been damaged. Id. The buyer tendered full payment for the shipment, but after it arrived the seller rejected it because it was "crusty" and "wet." Id. The seller sold the fertilizer for salvage value and reimbursed the buyer, and then attempted to recover its losses from the insurance company. Id. The insurer denied coverage on the grounds that the cargo's title and risk of loss transferred to the buyer at the time the cargo was loaded, prior to the damage, and therefore the buyer was responsible for the loss. Id. The trial court granted summary judgment to the insurer after finding that the parties had not reached an agreement as to the time of transfer of title, and so under the Uniform Commercial Code (UCC), the title and risk of loss had transferred to the buyer at the time the cargo was loaded, and the seller appealed. Id. at *2.

Arguments

The seller argued that the trial court erred in granting summary judgment to the insurance company because there were genuine issues of material fact regarding which party held the risk of loss when the cargo was damaged. Id.

The insurer argued that title and risk of loss passed to the buyer at the time the barges were loaded, and so the insurance policy did not cover the loss. Id. It also argued that summary judgment was appropriate because other parties (the carrier and the buyer) had insured the cargo, the seller had failed to give notice of the shipment to the insurance company, and the seller had voluntarily refunded the buyer's payment. Id. at *5.

Analysis and Holdings

The court, examining the sale contract and the purchase agreement between the parties, noted that title and risk of loss transferred to the buyer after the loss under the sales contract, and before the loss under the purchase agreement. Id. at *2. To determine which provision controlled, the court looked at UCC § 2-207, which states:

(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.
(2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:
(a) the offer expressly limits acceptance to the terms of the offer;
(b) they materially alter it; or
(c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.
(3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this chapter.
Id. at *3 (quoting UCC § 2-207).

The court found that the seller's sales contract and the buyer's purchase agreement constituted offer and acceptance, and thus created a valid contract. Id. at *4. Therefore, the risk of loss provision in the purchase agreement became a part of the contract unless it "materially altered" the contract. Id. The court adopted the majority view that "the question of materiality under UCC § 2-207(2) is generally a question of fact and is not appropriate for summary judgment." Id. at *5.

Regarding the insurance company's other arguments, the court found that it was unclear whether the other parties had insured the shipment and thus summary judgment was not appropriate on that basis. Id. at *6. The court also found that the insurance company had waived its argument that the seller had failed to notify it of the shipment because "an insured's failure to provide its insurer with timely notice, as required by the policy, must be raised by the insurer as an affirmative defense." Id. Lastly, the court concluded that whether the seller's reimbursement to the buyer was voluntary or obligatory hinged on which party bore the risk of loss, which had not yet been determined. Id. at *7. The court therefore reversed the order of summary judgment and remanded for further proceedings. Id.

The case was decided on January 20, 2009.