Commercial Litigation and Arbitration

In Adjudicating a Mixed Goods and Services Contract, or a Contract that Involves the Sale of Goods as Well as Real Estate, Court Applies the Predominant Purpose Test to Determine whether Contract Is Subject to UCC

From Cranpark, Inc., v. Rogers Group, Inc., 721 F. Supp. 2d 613 (N.D. Ohio 2010):

The case at bar appears to offer an issue of first impression: when a contract involves the sale of goods, as well as a real estate term, and the goods have no prior relationship to the real estate (e.g., as a fixture, as a mineral, or as a crop) does the UCC apply, and to what extent?

In analogous situations, Ohio courts apply the following test when considering whether a mixed goods and services contract is governed by the UCC: "the test for the inclusion in or the exclusion from sales provisions is whether the predominant factor and purpose of the contract is the rendition of service, with goods incidentally involved, or whether the contract is for the sale of goods, with labor incidentally involved." Allied Indus. Service Corp. v. Kasle Iron & Metals, Inc., 62 Ohio App. 2d 144, 405 N.E.2d 307, 310 (Ohio App. 6th Dist. 1977). At least one Ohio court has stated that " the 'predominant purpose' doctrine . . . does not apply to real estate transactions." Fox & Lamberth Ents., Inc. v. Craftsmen Home Improvement, Inc., No. 21060, 2006 Ohio 1427, 2006 WL 759658 at *5 (Ohio App. 2 Dist., Mar. 24, 2006). The Court notes, however, that this statement was dicta because the issue of a real estate transaction was not before the Fox court. Id. at *5 ("[The predominant purpose test] would not be an issue in the present case, since the agreed-upon terms were for the sale of goods. In any event, there was no agreement for a lease. . . "). Further, it makes sense that the predominant purpose test, as it is normally known, would not apply to real estate transactions because the test has typically been stated in terms of mixed goods and services contracts. See, e.g., Allied Indus., 405 N.E.2d at 310. As with Easterling, the Fox court's conclusion leaves unanswered the question of how courts are to determine whether an agreement is a real estate transaction. The Fox court's conclusion also leaves unanswered the question of whether a test, analogous to the predominant purpose test used in mixed goods and services contracts, could be applied to transactions that involve both goods and real estate. ***

The Court finds that the contract at issue in this case is not a "real estate transaction" because this contract involves a sale of goods with a real estate provision only incidentally involved. Therefore, the Court finds that a predominant purpose test is appropriate. The mere presence of a real estate provision does not take the entire agreement out of the UCC and does not render a predominant purpose test inappropriate here.

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