Sale on approval and sale or return; rights of creditors.
(1) Unless otherwise agreed, if delivered goods may be returned by the buyer even though they conform to the contract, the transaction is
(a) a "sale on approval" if the goods are delivered primarily for use, and
(b) a "sale or return" if the goods are delivered primarily for resale.
(2) Goods held on approval are not subject to the claims of the buyer's creditors until acceptance; goods held on sale or return are subject to such claims while in the buyer's possession.
(3) Any "or return" term of a contract for sale is to be treated as a separate contract for sale within the statute of frauds section of this article (section 2-201) and as contradicting the sale aspect of the contract within the provisions of this article on parol or extrinsic evidence (section 2-202).
Source:Laws 1963, c. 544, Art. II, § 2-326, p. 1731; Laws 1999, LB 550, § 56.
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 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.
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".
2. The right to return goods for failure to conform to the contract of sale 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 presupposes 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).
If a buyer's obligation as a buyer is conditioned not on his or her 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 or her expense. On the point of "satisfaction" as meaning "reasonable satisfaction" when an industrial machine is involved, this article takes no position.
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 parol or extrinsic evidence are concerned.
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 9-103(d), 9-109(a)(4), and 9-319.
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.