N.C. Gen. Stat. § 25-2-326

History

(1965, c. 700, s. 1; 2000-169, s. 10.)

AMENDED OFFICIAL COMMENT (1999 ED.)

Prior Uniform Statutory Provision: Section 19(3), Uniform Sales Act.

Changes: Completely rewritten in this and the succeeding section.

Purposes of Changes: To make it clear that:

(1) Both a "sale on approval" and a "sale or return" should be distinguished from other types of transactions with which they frequently have been confused. A "sale on approval," sometimes also called a sale "on trial" or "on satisfaction," deals with a contract under which the seller undertakes a risk in order to satisfy its prospective buyer with the appearance or performance of the goods that are sold. The goods are delivered to the proposed purchaser but they remain the property of the seller until the buyer accepts them. The price has already been agreed. The buyer's willingness to receive and test the goods is the consideration for the seller's engagement to deliver and sell. A "sale or return," on the other hand, typically is a sale to a merchant whose unwillingness to buy is overcome only by the seller's engagement to take back the goods (or any commercial unit of goods) in lieu of payment if they fail to be resold. A sale or return is a present sale of goods which may be undone at the buyer's option. Accordingly, subsection (2) provides that goods delivered on approval are not subject to the prospective buyer's creditors until acceptance, and goods delivered in a sale or return are subject to the buyer's creditors while in the buyer's possession.

(2) The right to return goods for failure to conform to the contract does not make the transaction a "sale on approval" or "sale or return" and has nothing to do with this section or Section 2-327. This section is not concerned with remedies for breach of contract. It deals instead with a power given by the contract to turn back the goods even though they are wholly as warranted. This section nevertheless pre-supposes that a contract for sale is contemplated by the parties although that contract may be of the particular character that this section addresses (i.e., a sale on approval or a sale or return).

(3) Subsection (3) resolves a conflict in the pre-UCC case law by recognizing that an "or return" provision is so definitely at odds with any ordinary contract for sale of goods that if a written agreement is involved the "or return" term must be contained in a written memorandum. The "or return" aspect of a sales contract must be treated as a separate contract under the Statute of Frauds section and as contradicting the sale insofar as questions of parole or extrinsic evidence are concerned.

These two transactions are so strongly delineated in practice and in general understanding that every presumption runs against a delivery to a consumer being a "sale or return" and against a delivery to a merchant for resale being a "sale on approval."

If a buyer's obligation as a buyer is conditioned not on his personal approval but on the article's passing a described objective test, the risk of loss by casualty pending the test is properly the seller's and proper return is at his expense. On the point of "satisfaction" as meaning "reasonable satisfaction" when an industrial machine is involved, this Article takes no position.

4. Certain true consignment transactions were dealt with in former Sections 2-326(3) and 9-114. These provisions have been deleted and have been replaced by new provisions in Article 9. See, e.g., Sections 9-109(a)(4); 9-103(d); 9-319. Cross References:

Point 2: Article 9.

Point 3: Sections 2-201 and 2-202. Definitional Cross References:

"Between merchants". Section 2-104.

"Buyer". Section 2-103.

"Conform". Section 2-106.

"Contract for sale". Section 2-106.

"Creditor". Section 1-201.

"Goods". Section 2-105.

"Sale". Section 2-106.

"Seller". Section 2-103.

NORTH CAROLINA COMMENT

Subsections (1)(a) and (2) define and state the effect of a "sale on approval." There is no real change in prior North Carolina law. See United States v. One 1955 Model Ford, 157 F. Supp. 798 (E.D.N.C. 1957); Glascock v. Hazell, 109 N.C. 145, 13 S.E. 789 (1891), that in a sale on approval where goods are subject to approval by the vendee, title does not vest in the vendee until such approval is manifested. This, of course, would determine the rights of creditors, risk of loss, etc., in North Carolina.

There are apparently no "sale or return" cases in North Carolina which treat the exact subject matter of these subsections, but subsections (1)(b) and (2) relating to "sale or return" contracts are in accord with the general understanding of the consequences of this type contract. (Title passes immediately upon delivery to the buyer subject to the buyer's right, a condition subsequent, to return the item to the seller and to revest the title in the seller. The ordinary incidents of ownership are in the buyer until the buyer's option to return is exercised. This would include the risk of loss, rights of creditors, etc.) See Vold, Sales 382-3 (2d ed.). Compare Fountain v. Jones, 181 N.C. 27, 106 S.E. 26 (1921). These subsections more clearly define the terms "sale on approval" and "sale or return" and their consequences in North Carolina but there is no real change in prior law.

Subsection (3) provides that where a person has a place of business at which he deals in goods of the kind received for sale under a name other than that of the person making delivery, words such as "on consignment" purporting to reserve title until payment will not prevent a transaction from being a sale or return, thus subjecting the goods to levy by the creditors of the person receiving delivery. Thus, possible doubts as to the nature of the transaction are resolved in favor of creditors of the person receiving delivery. The possibility of using a form of bailment to conceal what is essentially a sale is reduced. Provisions are made whereby the seller-consignor can protect himself by following specified procedures.

Subsection (3) is entirely new in North Carolina law.

Subsection (4) states, in effect, that any "or return" provision is so definitely at odds with any ordinary contract for the sale of goods that where written agreements are involved the "or return" provision must be contained in a written memorandum. It contradicts the "sale" aspect of the contract within the parol evidence rule. While North Carolina did not have the statute of frauds as to contracts for the sale of personal property, it did have the parol evidence rule. Subsection (4) accords with the case of Shoop Family Medicine Co. v. Davenport, 163 N.C. 294, 79 S.E. 602 (1913) and Shoop Medicine Co. v. J. A. Mizell & Co., 148 N.C. 384, 62 S.E. 511 (1908). Where there is a written contract of sale the buyer may not introduce parol agreement allowing return of the article purchased not contained in the written agreement. The UCC provision accords in result with prior North Carolina law.