Martin v. Melland's Inc.

• Decision Date: 12 July 1979
• Docket Number: No. 9603,9603
• Citation: 283 N.W.2d 76
• Parties: 27 UCC Rep.Serv. 94 Israel MARTIN, Plaintiff and Appellant, v. MELLAND'S INC., Defendant and Appellee. Civ.
• Court: North Dakota Supreme Court

Page 76

283 N.W.2d 76

27 UCC Rep.Serv. 94

Israel MARTIN, Plaintiff and Appellant, v. MELLAND'S INC., Defendant and Appellee.

Civ. No. 9603.

Supreme Court of North Dakota.

July 12, 1979.

Chapman & Chapman, Bismarck, for plaintiff and appellant, argued by Daniel J. Chapman, Bismarck.

Hjellum, Weiss, Nerison, Jukkala & Vinje, Jamestown, for defendant and appellee, argued by Gerald W. Jukkala, Jamestown.

ERICKSTAD, Chief Justice.

The narrow issue on this appeal is who should bear the loss of a truck and an attached haystack mover that was destroyed by fire while in the possession of the plaintiff, Israel Martin (Martin), but after certificate of title had been delivered to the defendant, Melland's Inc. (Melland's). The destroyed haymoving unit was to be used as a trade-in for a new haymoving unit that Martin ultimately purchased from Melland's. Martin appeals from a district court judgment dated September 28, 1978, that dismissed his action on the merits after it found that at the time of its destruction Martin was the owner of the unit pursuant to Section 41-02-46(2), N.D.C.C. (Section 2-401 U.C.C.) ¹. We hold that Section 41- 02-46(2), N.D.C.C., is inapplicable to this case, but we affirm the district court judgment on the grounds that risk of loss had not passed to Melland's pursuant to Section 41-02-57, N.D.C.C. (Section 2-509 U.C.C.) ².

On June 11, 1974, Martin entered into a written agreement with Melland's, a farm implement dealer, to purchase a truck and attached haystack mover for the total purchase price of $35,389. Martin was given a trade-in allowance of $17,389 on his old unit, leaving a balance owing of $18,000 plus sales tax of $720 or a total balance of $18,720. The agreement provided that Martin "mail or bring title" to the old unit to Melland's "this week". Martin mailed the certificate of title to Melland's pursuant to the agreement, but he was allowed to retain the use and possession of the old unit "until they had the new one ready." The new unit was not expected to be ready for two to three months because it required certain modifications. During this interim period, Melland's performed minor repairs to the trade-in unit on two occasions without charging Martin for the repairs.

Fire destroyed the truck and the haymoving unit in early August, 1974, while Martin was moving hay. The parties did not have any agreement regarding insurance or risk of loss on the the unit and Martin's insurance on the trade-in unit had lapsed. Melland's refused Martin's demand for his new unit and Martin brought this suit. The parties subsequently entered into an agreement by which Martin purchased the new unit, but they reserved their rights in any lawsuit arising out of the prior incident.

The district court found "that although the Plaintiff (Martin) executed the title to the . . . (haymoving unit), he did not relinquish possession of the same and therefore the Plaintiff was the owner of said truck at the time the fire occurred pursuant to Section 41-02-46 of Subsection 2 (Subsection 2 of Section 41-02-46) of the North Dakota Century Code."

Martin argues that the district court erroneously applied Section 41-02-46(2), N.D.C.C. (§ 2-401 U.C.C.), regarding passage of title, to this case and that Section 41-02-57 (§ 2-509 U.C.C.), which deals with risk of loss in the absence of breach, should have been applied instead. Martin argues further that title (apparently pursuant to Section 41-02-46(1), N.D.C.C.) and risk of loss passed to Melland's and the property was then merely bailed back to Martin who held it as a bailee. Martin submits that this is supported by the fact that Melland's performed minor repairs on the old unit following the passage of title without charging Martin for the repairs. Melland's responds that Section 41-02-46(2), N.D.C.C., governs this case and that the district court's determination of the issue should be affirmed.

One of the hallmarks of the pre-Code law of sales was its emphasis on the concept of title. The location of title was used to determine, among other things, risk of loss, insurable interest, place and time for measuring damages, and the applicable law in an interstate transaction. This single title or "lump" title concept proved unsatisfactory because of the different policy considerations involved in each of the situations that title was made to govern. Furthermore, the concept of single title did not reflect modern commercial practices, I. e. although the single title concept worked well for "cash-on-the-barrelhead sales", the introduction of deferred payments, security agreements, financing from third parties, or delivery by carrier required a fluid concept of title with bits and pieces held by all parties to the transaction.

Thus the concept of title under the U.C.C. is of decreased importance. The official comment to Section 2-101 U.C.C. (§ 41-02-01, N.D.C.C.) provides in part:

"The arrangement of the present Article is in terms of contract for sale and the various steps of its performance. The legal consequences are stated as following directly from the contract and action taken under it without resorting to the idea of when property or title passed or was to pass as being the determining factor. The purpose is to avoid making practical issues between practical men turn upon the location of an intangible something, the passing of which no man can prove by evidence and to substitute for such abstractions proof of words and actions of a tangible character." Uniform Commercial Code (U.L.A.) § 2-101.

Section 41-02-46, N.D.C.C. (§ 2-401 U.C.C.), which the district court applied in this case, provides in relevant part:

"Each provision of this chapter with regard to the rights, obligations and remedies of the seller, the buyer, purchasers or other third parties applies irrespective of title to the goods except where the provision refers to such title. Insofar as situations are not covered by the other provisions of this chapter and matters concerning title become material the following rules apply . . ."

Section 41-02-57, N.D.C.C. (§ 2-509 U.C.C.), is an "other provision of this chapter" and is applicable to this case without regard to the location of title. Comment one to Section 2-509 U.C.C. (§ 41-02-57, N.D.C.C.) provides that "the underlying theory of these sections on risk of loss is the adoption of the contractual approach rather than an arbitrary shifting of the risk with the 'property' in the goods."

The position that the Code has taken, divorcing the question of risk of loss from a determination of title, is summed up by Professor Nordstrom in his hornbook on sales:

"No longer is the question of title of any importance in determining whether a buyer or a seller bears the risk of loss. It is true that the person with title will also (and incidentally) often bear the risk that the goods may be destroyed or lost; but the seller may have title and the buyer the risk, or the seller may have the risk and the buyer the title. In short, title is not a relevant consideration in deciding whether the risk has shifted to the buyer." R. Nordstrom, Handbook of the Law of Sales, 393 (1970).

See also Comment, Ris of Loss Under Section 2509 of the California Uniform Commercial Code, 20 U.C.L.A.L.Rev. 1352 (1973); Annot., 66 A.L.R.3d 145 (Who Bears Risk of Loss of Goods under U.C.C. §§ 2-509, 2-510) (1975); 3A Bender's U.C.C. Service, Duesenberg & King, Sales and Bulk Transfers §§ 8.01-8.07 (Mathew Bender & Co. 1978); T. Quinn, Uniform Commercial Code Commentary and Law Digest, 2-296 2-303 (1978); Note, Title Theory and the Uniform Commercial Code, 30 N.D.L.Rev. 211 (1954). The Code's position on risk of loss and title is also discussed in the case law, See e. g. Caudle v. Sherrard Motor Company, 525 S.W.2d 238, 241 (Tex.Civ.App.1975); White Motor Corp. v. Bronx-Westchester White Trucks, Inc., 18 U.C.C. Rep.Serv. 382 (N.Y.Sup.Ct.1975).

The fact that risk of loss questions are now answered by Section 41-02-57, N.D.C.C. (§ 2-509 U.C.C.), rather than a title analysis and the confusion that this change has engendered is illustrated by Park County Implement Co. v. Craig, 397 P.2d 800 (Wyo.1964). In Craig, the seller of a truck sued the buyer for the purchase price after the truck had been destroyed in a fire on the buyer's premises. The buyer took delivery of the truck from the seller's place of business and drove the vehicle to his shop where he began to work on it. Fire subsequently destroyed the truck and the buyer argued that because the seller had not delivered a certificate of title to the vehicle, title had not passed, and the seller should bear the loss. The Wyoming Court rejected the buyer's argument but did so on the grounds that the buyer had accepted the goods pursuant to Section 2-606 U.C.C. (§ 41-02-69, N.D.C.C.) and therefore would be obligated to pay the contract rate as provided in Section 2-607 U.C.C. (§ 41-02-70, N.D.C.C.). The case is discussed in 3A Bender's U.C.C. Service, Supra at Section 8.04, n 2, as follows:

"That the rights and obligations of the parties did not depend upon title under the Code was noted by the court, but then, instead of going to the risk of loss sections (§§ 2-509 and 2-510), it went to Sections 2-606 and 2-607 and stated that the buyer was liable for accepted goods. Section 2-509(3) provides that risk of loss passes to the buyer on his receipt of the goods if the seller is a merchant, and since that is what occurred in this case, it would have been sufficient to dispose of the case. While the result is correct, the court seemed to be groping for a substitute concept to that of title, and settled upon sections dealing with acceptance, completely overlooking the fact that the Code specifically provides for the type of problem which the court had at hand."

See also Conte v. Styli, 26 Mass.App. 73 (1963), where the court determined a risk of loss problem on the basis of a title analysis, I. e. Section 2-401 U.C.C. Although...