Tuesday, September 6, 2005
Mail Order Company’s Shipping ‘Insurance’ Charge Was Not Unfair Business Practice, C.A. Rules
By DAVID WATSON, Staff Writer
A mail order and Internet seller of clothing did not commit an unfair business practice by charging purchasers an “insurance” fee to cover loss during shipment, the First District Court of Appeal ruled Friday.
Justice William D. Stein, writing for Div. One, said San Francisco Superior Court Judge Diane Elan Wick erred in granting judgment for plaintiff Jacq Wilson in his suit against Brawn of California, Inc. Wilson claimed the company was providing nothing of value for the $1.48 it charged him and other customers as an “insurance fee” with every order.
Wick accepted Wilson’s argument that because the goods could be returned for a full refund, Brawn already bore the risk of loss during shipping under the provisions of the Uniform Commercial Code. Wick ruled that by accepting returns with no questions asked Brawn brought its sales under provisions of the code applicable to sales “on approval.”
Sec. 2327 of the code, as adopted by California, specifies that in such a transaction, title to the good and risk of loss do not pass to the buyer until “acceptance.”
But Stein said Wick had misunderstood Sec. 2326 of the code, which explains when a transaction is a sale “on approval.”
That section, the justice explained “is designed to distinguish between two forms of bailment, not to convert ordinary retail sales contracts into ësales on approval.’ The section addresses transactions where the parties intend the goods in question to continue to be the seller’s property after the buyer takes possession of them.”
Examples, Stein said, are consignment sales and situations where “the parties intend to postpone the change in ownership until some time after delivery to allow the buyer an opportunity to decide whether or not to accept the goods.”
Rarely, if ever, the justice reasoned, will a transaction in which the purchaser has already paid for the goods be a sale “on approval” under the code.
“[W]e think that for such a purchase to be a sale on approval there must be some provision or objective fact demonstrating an intent that, notwithstanding that the buyer has paid for the goods, they do not ëbelong’ to the buyer until the buyer approves them, so that the seller’s rights in the goods are superior to the rights of the buyer’s creditors until the approval period has passed,” Stein wrote. “That Brawn, or any other retailer, permits a customer to return goods for a refund is a benefit to the customer, but does not in and of itself suggest that the parties intended the seller to retain an interest in the goods until some time after they are delivered to the customer, and does not convert a routine sale with a right to return into a sale on approval.”
Stein noted that Brawn had insurance covering the goods while in its warehouse, but did not actually insure them during shipment. Instead, the company merely replaced any goods lost on their way to the customer.
Nothing in the company’s order forms or behavior suggested that it regarded the goods as its property after they were shipped, he said.
“Brawn pays California use tax, rather than sales tax, on the theory that the goods were ësold’ when they left Brawn’s place of business, located outside of California,” he observed. “Brawn records the revenue for the goods sold at the point of shipment, and removes the goods from its inventory at the time of shipment.”
The transactions were most consistent with an a “standard, C.I.F.-type shipment contract, which the customers agreed to when they used Brawn’s mail order form to purchase goods,” Stein said. Under such a contract, the code places risk of loss during shipment on the buyer, he pointed out.
The “insurance fee” was a therefore a perfectly legal means for the company to use to charge the buyer for the costs it incurred in assuming that risk on the buyer’s behalf, Stein declared.
The case is Wilson v. Brawn of California, Inc., A105461.
Copyright 2005, Metropolitan News Company