On June 1, a seller agrees to sell an antique car for 20,000. On July 15, before risk passes, the car is destroyed by fire. The car later increases in value to 30,000. The seller sues for contract price and the buyer counterclaims for 30,000. What is the likely outcome?

• A. Seller will win the contract price; buyer loses.
• B. Both claims fall; the contract is avoided and neither party can recover.
• C. Buyer must pay 20,000; seller must refund 20,000.
• D. Car's increased value goes to the buyer.

Answer: (B)

When the subject matter of a contract for the sale of goods is destroyed before the risk of loss passes to the buyer, the contract is discharged and neither party may recover. Here, the antique car was destroyed before risk of loss had shifted to the buyer, so performance became impossible and the contract ends without liability on either side. The seller cannot demand payment for a car that no longer exists, and the buyer cannot recover the purchase price or damages for non-delivery. The fact that the car later increased in value is irrelevant because there was no delivery or payment obligation triggered by a surviving subject matter. Thus, neither party can prevail on a contract-price or value-based claim, and the contract is considered avoided.