## Facts

- O.C.T. Equipment, Inc. (O.C.T.) agreed to purchase a used tractor from Shepherd Machinery Co. (Shepherd) and paid Shepherd a $42,000 down payment toward the price.
- The tractor was stored at Keen Transport’s (Keen) yard in California, where Keen held the tractor as a third-party bailee.
- The parties arranged that O.C.T. would take delivery at the Keen yard, rather than having Shepherd ship the tractor to O.C.T.
- Shepherd maintained control over release of the tractor from the Keen yard by instructing Keen not to release the tractor to O.C.T. until Shepherd later notified Keen to do so.
- Before Keen acknowledged that it was holding the tractor for O.C.T. (and before Shepherd authorized release), a Keen employee accidentally damaged the tractor’s engine.
- Shepherd informed O.C.T. of the damage and told O.C.T. it would need to work with Keen regarding the loss.
- O.C.T. rejected delivery of the damaged tractor and demanded return of its down payment.
- Shepherd refused to refund the payment, asserting that the risk of loss had transferred to O.C.T. under Oklahoma’s UCC provisions governing goods held by a bailee.
- O.C.T. sued for breach of contract and sought rescission and recovery of the amount paid; the parties filed cross-motions for summary judgment.
- The trial court granted summary judgment to O.C.T. and ordered Shepherd to refund the amount O.C.T. had paid; Shepherd appealed.

## Issues

1. Under Oklahoma’s UCC risk-of-loss rules for identified goods held by a bailee and to be delivered without being moved, did the risk of loss shift to O.C.T. before the tractor was damaged when Keen had not acknowledged O.C.T.’s right to possession and Shepherd still controlled release?
2. If the risk of loss had not shifted, was O.C.T. entitled to reject delivery and recover the down payment as a matter of law?

## Decision

- The Oklahoma Court of Civil Appeals affirmed the trial court’s summary judgment in favor of O.C.T.
- The court held that the undisputed facts showed the risk of loss remained with Shepherd when the tractor was damaged.
- Because the risk of loss had not passed to O.C.T., O.C.T. was entitled to refuse the damaged tractor and obtain a refund of the amount it paid.

## Legal Principles

- When identified goods are in the possession of a bailee and are to be delivered without being moved, Oklahoma’s UCC places risk of loss on the seller until the buyer receives a negotiable document of title, receives a nonnegotiable document of title or other written direction to deliver, or the bailee acknowledges the buyer’s right to possession.
- A seller’s instruction to a bailee not to release goods to the buyer unless the seller authorizes release supports the conclusion that the bailee has not acknowledged the buyer’s right to possession.
- If damage occurs before the UCC’s bailee-acknowledgment (or equivalent document) condition is met, risk of loss remains on the seller, and the buyer is not required to bear the casualty loss.

## Conclusion

Because the tractor was damaged while still held by Keen as bailee before Keen acknowledged O.C.T.’s right to possess the tractor and while Shepherd retained control over the tractor’s release, the risk of loss had not transferred to O.C.T. Under Oklahoma’s UCC, Shepherd bore the loss and was required to refund O.C.T.’s down payment, so the summary judgment for O.C.T. was affirmed.


O.C.T. Equipment, Inc. v. Shepherd Machinery Co., 95 P.3d 197 (2004)