Reference no: EM131473635

Question: SEMA CONSTRUCTION, INC. v. DIVERSIFIED PROD. INDUSTRIES, 2007 CAL. APP. UNPUB. LEXIS 8189 (CAL. APP. OCT. 10, 2007)

FACTS SEMA Construction, Inc., contracted to purchase steel beams from Diversified Product Industries, Inc. (DPI), a steel broker. Both parties understood that SEMA had not yet obtained necessary access to the construction site on which the steel would be used to stockpile the large beams. DPI recognized that SEMA did not want to take delivery of the steel at one site and then pay to transport it to the construction site later. Thus, on the purchase order prepared by SEMA and the invoice prepared by DPI, both parties included the words "will advise" inside the "ship to" box. SEMA paid in full for the steel within a week of the purchase order. When, a month later, SEMA still did not have access to its construction site, it advised DPI to deliver the steel to an alternative storage site. An inventory of the steel after delivery revealed that 18 beams were missing (presumably stolen by an unknown party).

DPI informed SEMA that it would credit SEMA for the missing steel. SEMA responded in writing that because it had already paid DPI for the steel, SEMA expected immediate payment for the missing steel. DPI replied in writing that payment would "be made in due course" and pointed out that when it received SEMA's purchase order, DPI had advised SEMA that the steel had to ship immediately because it had come off another job site where the contractor had no space or time to store the steel. DPI stated that it tried several times unsuccessfully to obtain delivery instructions from SEMA, and the loss of the steel was caused by SEMA's delay. DPI stated it was "not in the storage business" and it was "inappropriate for [SEMA] to insist that DPI take on the responsibility of guarding over steel reserved for SEMA in some other company's facility." It closed the letter by stating DPI would "take responsibility for the missing steel" but that "[t]his unfortunate circumstance ... should serve as a valuable lesson learned for us both." SEMA bought replacement steel from another company for $ 0.065 per pound more than it contracted to pay DPI. When SEMA failed to receive a refund from DPI, SEMA filed a breach of contract claim against DPI. DPI countered that SEMA had breached the contract by failing to immediately provide a delivery date. SEMA won $38,985.32 and DPI appealed.

DECISION The appellate court found that SEMA's delay in designating a time and place of delivery was consistent with the terms of the contract the parties had entered into. Under UCC 2-311, "An agreement for sale which is otherwise sufficiently definite ... to be a contract is not made invalid by the fact that it leaves particulars of performance to be specified by one of the parties. Any such specification must be made in good faith and within limits set by commercial reasonableness." This contract contemplated that the delivery date would be specified at a later date by SEMA. SEMA did in fact request delivery within 30 days, which was a commercially reasonable time under the circumstances. DPI was also incorrect in arguing that SEMA bore the risk of loss either after the date it paid for the steel or after DPI informed SEMA the beams were ready for delivery. UCC 2-509 addresses risk of loss when there has been no breach of contract (as here). With a destination contract, the seller bears the risk of loss until the goods arrive at their specified destination. With a shipment contract, the risk of loss passes to the buyer when the goods are delivered to a carrier for shipment. The court did not have to decide whether this was a destination or shipment contract. If it was a destination contract, the risk of loss was on DPI until the goods arrived at their destination. If it was a shipment contract, the risk of loss was on DPI until the goods were delivered to a carrier. Here, the evidence showed that the steel was missing "before any carrier had an opportunity to load it and deliver it." Thus, the risk of loss remained on DPI. The judgment of the trial court was affirmed.