## Facts

- James Roy Hawkins agreed to buy farm equipment from West Implement Company, Inc. for $61,500.
- The parties’ sales arrangement contemplated that West would deliver the equipment to Hawkins.
- Hawkins made a down payment and financed the balance through Deere Credit Services, Inc.
- The Deere Credit agreement required Hawkins to obtain physical-damage insurance from John Deere Insurance Company (JDIC).
- The Deere Credit agreement also stated that Hawkins bore the risk of loss for damage to the goods and that his debt would not be reduced if the goods were damaged.
- The Deere Credit agreement did not refer to West or state that it changed risk of loss under the sales contract.
- West carried insurance with Federated Mutual Insurance Company (Federated) covering West’s equipment.
- Before West delivered the equipment, and while both the JDIC and Federated policies were in effect, a fire destroyed the equipment.
- Litigation followed to determine who bore the risk of loss for the pre-delivery fire and, as a result, whether Federated (insuring West) or JDIC (insuring Hawkins) was responsible for the loss.

## Issues

1. Whether a risk-of-loss clause in the buyer’s financing agreement with the lender shifted pre-delivery risk of loss from the seller to the buyer, so that the seller’s insurer (Federated) was not responsible for the fire loss.

## Decision

- The court treated the material facts as undisputed and resolved the dispute on summary judgment as a question of law.
- The court held that the risk-of-loss language in Hawkins’s financing agreement governed the relationship between Hawkins and the lender (and related insurance obtained for the lender’s protection), not the allocation of risk of loss between Hawkins and West under the sales transaction.
- Because the goods were destroyed before delivery as contemplated by the sales arrangement, the risk of loss remained with West under the applicable UCC risk-of-loss rules.
- As a result, Federated could not avoid responsibility for the loss by relying on a clause in a credit agreement to which West was not a party.
- The court rejected Federated’s position that the credit agreement shifted the seller’s pre-delivery risk of loss to Hawkins.

## Legal Principles

- Summary judgment is proper when there is no genuine dispute of material fact and the movant is entitled to judgment as a matter of law. (Fed. R. Civ. P. 56.)
- Under UCC Article 2, risk of loss generally remains on the seller until delivery or tender of delivery as required by the parties’ sales agreement, unless the buyer and seller agree otherwise.
- A financing agreement between a buyer and a lender may allocate economic responsibility for damage to collateral as between those parties (including the borrower’s continued duty to repay), but it does not, by itself, reallocate risk of loss in the separate sales contract with a nonparty seller.
- Contract terms that affect a seller’s risk of loss ordinarily must be found in the buyer-seller agreement (or another agreement binding the seller), not solely in buyer-lender documents.

## Conclusion

In Hawkins v. Federated Mutual Insurance Company, the court held that the risk-of-loss clause in Hawkins’s financing agreement with Deere Credit did not shift pre-delivery risk of loss from the seller, West, to Hawkins; because the equipment burned before West delivered it, West retained the UCC risk of loss and Federated, as West’s insurer, remained responsible for the loss.


Hawkins v. Federated Mutual Insurance Company, 1996 U.S. Dist. LEXIS 21436 (1996)