Courts Continue to Examine Mixed Goods Cases

In mixed-sales transactions, those involving goods and services, most courts apply a predominant purpose test to determine if Article 2 of the UCC applies to the transaction applying sections 2-102 and 2-105. See, e.g., Warshaw v. QBE Ins. Corp., 78 U.C.C. Rep. Serv. 2d 434 (D. Mass. 2012)(providing that “where a contract implicates both goods and services, the test to determine the applicability of art[icle] 2 is whether ‘the predominant factor, thrust or purpose of the contract is . . . the rendition of service, with goods incidentally involved.’”). Under this test, Article 2 applies if the transaction is predominantly for the sale of goods, but does not apply if the transaction is predominantly for the provision of services. Courts continue to look at how this test works in individual cases.

For instance, in Audio Visual Artistry v.Tanzer, No. W2012–00216–COA–R3–CV, 2012 WL 6697600, at *1 (Tenn. Ct. App. Dec. 26, 2012), the court considered whether a contract for the installation of a “smart home system” during the construction of a new home was one for the sale of goods. Stephen Tanzer (“Tanzer”) and Audio Visual Artistry (“AVA) contracted for the sale and installation of electronic and entertainment equipment in Tanzer’s home, which was under construction. The contract, which was for a custom home theater, music, phone and lighting system, itemized the pricing for the contract into components that included equipment, labor, and cable, with the equipment forming the bulk of the price. A dispute developed over the functionality of some components of the Tanzer system. AVA filed suit for breach of contract to recover unpaid invoice amounts and Tanzer filed a counter-complaint. Accordingly, the court correctly ruled that Article 2 governs transactions where goods and services are bundled if “the goods element predominated.”

The court outlined four factors key to application of the predominant purpose test: (1) the language of the contract; (2) the nature of the seller’s business; (3) the purpose of the contract; and (4) the amounts paid toward the goods and services components of the contract. Although the AVA-Tanzer transaction involved a service, the installation of the smart home system during the construction phase, the court concluded that the contract was distinguishable from other construction agreements typically outside the scope of Article 2. The language of the contract, which repeatedly referred to the purchase of equipment and the installation of the components into the home, did not change the moveability of the goods sold. Moreover, AVA’s business was the sale of “smart home” components of multiple manufacturers, with installation being incidental to the sales aspect. Additionally, even Tanzer described the contract as one for electronic equipment and the contract amounts paid for the equipment far outweighed the installation charges, indicating that the contract was predominantly for the sale of goods.

- JSM