Most courts follow the "predominant factor" test to determine whether hybrid contracts are transactions in goods and therefore covered by the Uniform Commercial Code or transactions in services and therefore excluded. Under this test, a court determines whether their predominant factor, their thrust, their purpose, reasonably stated, is the rendition of service, with goods incidentally involved or is a transaction of sale, with labor incidentally involved.
After the delivery date specified in a contract for the design, manufacture, and installation of equipment, plaintiff company filed suit against defendant subsidiary for breach of contract and against defendant parent company for promissory estoppel. Following a jury verdict against defendants, the district court denied defendants' motions for judgment as a matter of law and for a new trial and rendered judgment for plaintiff. On appeal, the court vacated the judgment against defendants and remanded the case for a retrial of the claim against defendant subsidiary and with directions to dismiss defendant parent company from the case.
Is a contract that is exclusively for services governed by Article 2 of the Uniform Commercial Code?
Contrary to the district court's ruling, the U.C.C. applied to the contract because it was predominantly a transaction in goods as evidenced by the contractual language, the surrounding circumstances, and nature of the goods. Although courts generally do not find any single factor determinative in classifying a hybrid contract as one for goods or services, courts find several aspects of a contract particularly significant. 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. Movable goods is another hallmark of a contract for goods rather than services. Further, after holding that waiver under the U.C.C. did not require detrimental reliance, the court concluded that plaintiff waived the delivery date as a matter of law but that a triable issue of fact remained as to whether defendant subsidiary tendered the equipment within a reasonable time under the circumstances. The court VACATED the judgments against defendant parent company and subsidiary and REMANDED the case with instructions for the entry of a judgment for defendant parent company but for a retrial on the issue of whether defendant subsidiary's tender was within a reasonable time.