## Facts

- A Chapter 13 debtor agreed to transfer a 1977 boat to a buyer in exchange for vehicles and other assets.
- The debtor was not a boat dealer and did not hold himself out as having special skill or knowledge in boat sales.
- The buyer inspected the boat before the exchange; the debtor disclosed the engine was inoperable.
- The parties disputed whether the debtor disclosed a packing-gland leak and that the bilge pump needed continuous power to prevent sinking.
- On February 9, 2013, the parties completed the exchange: the debtor provided keys and executed title documentation; the buyer transferred the agreed property.
- The debtor notified the marina that the boat had been sold, and the marina treated the boat as no longer owned by the debtor.
- The boat remained at the marina because the buyer did not yet have a trailer to remove it.
- On February 18, 2013, the boat sank at the dock after the bilge pump lost power.
- The buyer filed an unsecured proof of claim for about $40,500 for damages tied to the sinking; the debtor objected, and the court held an evidentiary hearing.

## Issues

1. Under Texas UCC Article 2, did risk of loss pass to the buyer before the boat sank in a sale by a non-merchant seller?
2. Did alleged nondisclosure or misrepresentation about the leak and bilge pump constitute a breach shifting risk of loss back to the seller or otherwise support an allowable bankruptcy claim for the sinking?
3. After the debtor rebutted the proof of claim’s prima facie validity, did the buyer carry the ultimate burden to prove an enforceable claim and amount?

## Decision

- The court found the debtor was a non-merchant seller for UCC risk-of-loss purposes.
- The court determined the seller tendered delivery no later than February 9, 2013 by completing the exchange, transferring keys and title documentation, and notifying the marina.
- Because tender of delivery occurred before February 18, the court held risk of loss had shifted to the buyer before the sinking.
- The court did not find actionable nondisclosure or misrepresentation sufficient to treat the loss as resulting from the seller’s breach.
- The court sustained the debtor’s objection and disallowed the buyer’s claim to the extent it sought damages for the boat’s sinking (and any allowance, if any, was not based on the loss of the vessel).

## Legal Principles

- In bankruptcy claim allowance, a properly filed proof of claim is prima facie valid; the objector must produce evidence rebutting it, after which the claimant bears the ultimate burden of persuasion.
- Under Texas UCC risk-of-loss rules, in a sale by a non-merchant seller the risk of loss generally passes to the buyer upon the seller’s tender of delivery, absent a seller breach shifting the loss back to the seller.
- Tender of delivery may be satisfied when the seller completes the transfer and places the goods at the buyer’s disposal; physical removal by the buyer is not required.
- Alleged nondisclosure or misrepresentation must be proven and legally sufficient to constitute breach or fraud before it can support damages or alter default risk-of-loss allocation.

## Conclusion

The bankruptcy court applied Texas UCC Article 2 to conclude that the seller, a non-merchant, tendered delivery when the barter exchange closed and the marina was notified; therefore, risk of loss had shifted to the buyer before the boat sank, and the buyer failed to prove an allowable claim against the estate for the sinking-related damages.


In re Woolridge, No. 13-32725, 2014 Bankr. LEXIS 2275 (Bankr. S.D. Tex. May 22, 2014)