HYBRID CONTRACTS FOR THE SALE OF GOODS AND SERVICES AND THE PREDOMINANT FACTOR TEST

Florida’s Uniform Commercial Code (also known as the UCC) applies to transactions for goods.  “Goods” is defined by Article II of the UCC as “all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities (chapter 678) and things in action.”   Fla. Stat. s. 672.105(1).

The UCC does NOT apply to transactions for services.  Transactions for services are governed by common law.

Oftentimes, transactions or contracts include BOTH goods and services.  In this scenario, referred to as a hybrid contract, does the UCC or common law apply?  In this scenario, courts apply the predominant factor test to determine whether the UCC or common law governs the transaction:

Whether the UCC or the common law applies to a particular hybrid contract depends on “whether the[ ] predominant factor, the [ ] thrust, the[ ] purpose [of the contract], reasonably stated, is the rendition of service, with goods incidentally involved (e.g., contract with artist for painting) or is a transaction of sale, with labor incidentally involved (e.g., installation of a water heater in a bathroom).”  In such instances, the determination whether the “predominant factor” in the contract is for goods or for services is a factual inquiry unless the court can determine that the contract is exclusively for goods or services as a matter of law. 

Allied Shelving & Equipment, Inc. v. National Deli, LLC, 154 So.3d 482, 484 (Fla. 3d DCA 2015) (citations omitted).

To illustrate, in Allied Shelving & Equipment, a vendor was hired to provide and install a pallet rack system (large shelves) in a warehouse.  Each party claimed the other materially breached the contract.  An issue on appeal was whether the trial court erred by applying the common law instead of the UCC to the hybrid contract which involved both the sale of goods  (providing the racks) and services (installing the racks).  The trial court found that the predominant factor of the transaction was services, hence the application of the common law.  The appellate court affirmed (because the parties did not have a court reporter at the trial so the appellate court was not in a position to analyze the evidence introduced into the record.)

The Eleventh Circuit Court of Appeals in BMC Industries, Inc. v. Barth Industries, Inc., 160 F.3d 1322 (11th Cir. 1998) provided some pointers to determine whether a contract is predominantly for the sale of goods or services:

First, the language of the contract itself provides insight into whether the parties believed the goods or services were the more important element of their agreement. Contractual language that refers to the transaction as a “purchase,” for example, or identifies the parties as the “buyer” and “seller,” indicates that the transaction is for goods rather than services. 

Courts also examine the manner in which the transaction was billed; when the contract price does not include the cost of services, or the charge for goods exceeds that for services, the contract is more likely to be for goods. 

BMC Industries, supra at 1330 (internal citations omitted).

In looking at these pointers, the BMC Industries’ Court found that the hybrid contract was predominantly for goods—meaning the UCC applied—based on the contract language including the fact that it was called a purchase order and over half the contract amount was allocated towards the delivery of the goods. 

Whether the UCC or common law applies is an important consideration in any transaction.  Goods are procured all the time in construction.  Services are also procured all the time in construction.  And, services and good are procured in the same transactions.  Also, important, as contracts start to cater more towards modular construction and prefabrication, whether the UCC or common law applies is a consideration that needs to be factored in when preparing the contractual language.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

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