## Facts

- Cook Specialty Company (Cook) agreed to buy a Dries & Krump hydraulic press brake from Machinery Systems International, Ltd. (MSI) for $28,000.
- The sales contract stated delivery terms as “F.O.B. MSI’s warehouse in Schaumburg, Illinois,” making it a shipment contract with the place of shipment at MSI’s Illinois warehouse.
- MSI arranged transportation by hiring R.T.L. Lines, Inc. (Randy’s Truck Lines / RTL), a carrier owned/operated by Randolph Schrlock (also known as Randolph Scurlock).
- Before shipment, RTL provided MSI with a certificate of insurance showing a $100,000 face amount and a $2,500 deductible.
- RTL took possession of the press brake at MSI’s Illinois warehouse on or about October 20, 1989.
- During transit to Cook in Pennsylvania, the press brake fell from the truck because it was not properly secured and was destroyed.
- Cook recovered only $5,000 from RTL’s insurer, which was the maximum payable for that type of loss under the policy.
- Cook sued MSI, Schrlock/Scurlock, and RTL to recover the remaining portion of its loss (seeking the unpaid balance of the purchase price and related damages).
- Cook moved for summary judgment, asserting the risk of loss never shifted because MSI’s shipping arrangement was not “reasonable” under U.C.C. § 2-504; MSI filed a cross-motion for summary judgment.

## Issues

1. In an “F.O.B. seller’s warehouse” shipment contract, did MSI fail to make a reasonable transportation contract under U.C.C. § 2-504 by using a carrier whose insurance ultimately paid only $5,000, such that risk of loss did not pass to Cook upon delivery to the carrier?

## Decision

- The court held that MSI’s transportation contract satisfied U.C.C. § 2-504 and was reasonable given the circumstances.
- Because the contract was F.O.B. MSI’s Illinois warehouse and MSI duly delivered the press brake to the carrier at that location, the risk of loss shifted to Cook at that time.
- The court denied Cook’s motion for summary judgment and granted MSI’s cross-motion for summary judgment on the risk-of-loss question.

## Legal Principles

- Under U.C.C. § 2-319, an “F.O.B., place of shipment” term requires the seller to place the goods with a carrier at the named shipment point, bearing the expense and risk of getting the goods into the carrier’s possession; once the seller duly delivers to the carrier, risk of loss generally passes to the buyer.
- Under U.C.C. § 2-504, when the seller is required or authorized to ship by carrier (and the contract does not require delivery at destination), the seller must (i) put the goods in the possession of a carrier and (ii) make a transportation contract that is reasonable in light of the goods and circumstances; failure to do so can prevent risk of loss from shifting.
- A transportation contract may be unreasonable where the seller ships by an inappropriate method, misaddresses the shipment, agrees to an inadequate declared value/valuation that cuts off meaningful recovery from the carrier, or otherwise selects terms that materially impair the buyer’s ability to recover for in-transit loss.
- A seller does not, by virtue of § 2-504 alone, act unreasonably simply because it does not investigate or guarantee the scope, limits, or exclusions of a carrier’s insurance policy, so long as the shipping arrangement itself is commercially reasonable.
- When the seller’s shipment duties are met and goods are duly delivered to the carrier under a reasonable shipping contract, loss caused by the carrier’s mishandling in transit is borne by the buyer, who may pursue remedies against the carrier under applicable law.

## Conclusion

In *Cook Specialty Co. v. Schrlock*, the court treated the F.O.B. MSI warehouse term as a shipment contract placing the risk of loss on the buyer once MSI duly tendered the press brake to the carrier at the Illinois warehouse, so long as MSI’s transportation contract was reasonable under U.C.C. § 2-504. Because MSI obtained a carrier and shipping arrangement the court found reasonable—and § 2-504 did not require MSI to audit or guarantee the carrier’s insurance coverage—Cook bore the in-transit loss after delivery to the carrier, leading the court to deny Cook’s summary-judgment motion and grant MSI’s cross-motion on the risk-of-loss issue.


Cook Specialty Co. v. Schrlock, 772 F. Supp. 1532 (1991)