Risk of Loss. Mark Olmstead sells trailers, doing business as World Cargo in St. Croix Falls, Wisconsin. In 1997, he also sold trailers from a site in Elk River, Minnesota. Gerald McKenzie ordered a custom made trailer from Olmstead and mailed him a

Question

check for $3,620. McKenzie said that he would pick up the trailer at the Elk River site. After the trailer was made, Olmstead shipped it to Elk River and kept it within a locked, fenced area. He told McKenzie that the trailer could be picked up any Tuesday or Thursday before 6:00 P.M. Over Olmstead's protest, McKenzie asked for the trailer to be left outside the fenced area. Olmstead told McKenzie that the area was not secure and that the trailer could not be locked, except to chain the tires. McKenzie insisted, however, and Olmstead complied. When McKenzie arrived to pick up the trailer, it was gone—apparently stolen. McKenzie filed a suit in a Minnesota state court against Olmstead to recover the amount of the check. Who bore the risk of loss in these circumstances? Why?

Answer 1

Risk of loss
The court ruled in favor of Olmstead. The court determined that the risk of loss passed to McKenzie by "contrary agreement" of the parties under UCC 2-509(4), finding that McKenzie instructed Olmstead to park the trailer outside the fenced area and secure the trailer with a chain, so that McKenzie could pick it up after hours. McKenzie appealed to a state intermediate appellate court, which affirmed the lower court's decision. The appellate court noted that this was not a shipment contract or a bailee situation and that thus, under UCC 2-509, "the risk of loss passes to the buyer on receipt of the goods if the seller is a merchant; otherwise the risk passes to the buyer on tender of delivery * * * subject to contrary agreement of the parties." The court acknowledged that Olmstead was a merchant, which would mean that he bore the risk of loss unless the parties agreed otherwise. "[A] contrary agreement need not be express or written and may be implied from the parties' conduct or the circumstances of the case," but the implications "should be explicit and understood by both parties." Here, "the parties expressly discussed the risk of leaving the trailer outside the fenced area," and "McKenzie assumed that risk by insisting that Olmstead comply with his directives." This is "sufficient to support the trial court's conclusion that a contrary agreement existed that shifted the burden of risk of loss to McKenzie once Olmstead complied with that agreement by moving the trailer outside an area over which he had control."