Governing Law: CL vs UCC — Contracts

Nadia hires a Franklin cabinetmaker to design custom cabinets, build them, and install them in her home. One price, $40,000. Months later a cabinet door warps, and she wants to sue on the implied warranty that a seller of goods owes her. Does she have one? Nobody can tell you until they look at the invoice.

Because the invoice splits that price into $31,000 of materials and fabrication and $9,000 of installation labor. Goods dominate, so the whole contract, installation included, is governed by UCC Article 2, and the warranty is hers. Flip those two numbers and the same warped door gets her nothing. That is this topic. Picking the rulebook, before you pick a rule.

Here is the route. First the dividing line, and the two words that define Article 2's turf. Then the definition of goods, including the strange edges, crops, custom orders, and things cut loose from land. Then merchants, a status that switches on extra rules. Then hybrid deals mixing goods and services, where this gets hard. And finally why the label changes the outcome.

Here is the whole topic in one line. UCC Article 2 governs contracts for the sale of goods. The common law governs everything else. Article 2 is the narrow, specialized rulebook, and the common law is the default that catches whatever Article 2 does not reach. So your first question is not, is this a contract? It is, is this a contract for goods?

Everything else is a huge category. Services, consulting, repair, medical care, transportation. Real estate, land and buildings. Employment, the promise to work and the promise to pay wages. Intangibles, insurance policies, loans, pure licenses of intellectual property. And construction. That last one catches people. Building a house is a service, even though lumber and fixtures change hands.

Two words define Article 2's turf. Sale, and goods. Both have to be true. Drop the sale and you land elsewhere. A forklift rented for a year is a lease of goods, and leases have their own article, 2A. Drop the goods and you are in the common law, or another specialized statute. A promissory note is Article 3. Shares of stock are Article 8.

Now the statute. Under § 2-102, Article 2 applies to transactions in goods, which in practice means contracts for the sale of goods. A sale, under § 2-106, is the passing of title from seller to buyer for a price. One carve-out worth knowing. Article 2 does not reach a deal dressed up as a sale that really operates only as security for a loan.

So everything turns on one word. Goods. Under § 2-105(1), goods are all things movable at the time they are identified to the contract for sale, including things specially manufactured for the buyer. Movable is the heart of it. You can pick it up, ship it, hand it over. A refrigerator, a car, a ton of wheat, a custom wedding dress. And note the timing. Movable when identified, not when the deal is signed.

That timing rule does real work. A boutique orders 400 dresses sewn to its own exclusive design. Nothing exists when the contract is signed. Still goods, because specially manufactured and not-yet-existing items count all the same. Custom does not mean service. Three things are carved out instead. The money in which the price is paid, investment securities, and things in action, meaning intangible rights you could only sue on.

That money exclusion is narrower than it sounds. It covers money used as the price, the dollars you hand over. A collector who buys a rare 1890 gold coin for $8,000, prizing it as a collectible object, is buying goods. The coin is a movable thing being sold, not a medium of exchange. Compare the same collector borrowing $8,000 on a promissory note. Article 3, and no sale at all.

Now the real-estate border, which the exam likes. Land and anything firmly attached to it is not goods. But a contract can turn attached things into goods. Under § 2-107, minerals or a structure to be removed from the land are goods only if the seller severs them. Growing crops and timber to be cut are goods no matter who does the cutting.

Try these two. A landowner sells the brick and timber of an old barn, and the buyer's own crew will dismantle it and cart it away. Goods, or not? Not. Buyer severance of a structure keeps the deal outside Article 2. Now a farmer sells a lettuce crop still growing in the field, and again the buyer's workers will cut it. Goods, or not? Goods. For crops, who harvests is irrelevant.

Once Article 2 is in, ask a second question. Is a merchant involved? Article 2 governs every sale of goods, whether the seller is a national retailer or your neighbor selling a used bicycle. But the Code holds professionals to a higher standard. So a handful of rules switch on only when a merchant is a party, or only between merchants, meaning both sides are.

Under § 2-104(1), a merchant is a person who deals in goods of the kind involved. Or who by occupation holds themselves out as having knowledge or skill peculiar to the goods, or to the business practices involved. A car dealer is a merchant in cars. A bakery is a merchant in bread, and also in the ordinary practices of buying flour. That second branch is why almost any business is a merchant as to its routine dealings.

Four heavily tested rules switch on that status. Firm offers under § 2-205, where only a merchant can make a signed written offer that stays open without consideration. The statute of frauds confirmation under § 2-201(2), which binds a non-signing party only between merchants. The implied warranty of merchantability under § 2-314, which attaches only when the seller is a merchant in goods of that kind. And the battle of the forms under § 2-207(2).

Now the part that is actually hard. Real deals are messy. A contractor supplies a furnace, a good, and installs it, a service. You buy carpet with installation rolled into one price. When one contract mixes goods and services, which rulebook governs? You cannot open both, because their rules conflict.

Most courts use the predominant purpose test. You look at the transaction as a whole and ask what it is really about. Is the main thrust a sale of goods, with services thrown in to make the goods work? Or is it really the rendering of a service, with goods supplied only incidentally? Whichever one predominates governs the entire contract. All of it. Both parts. It is all or nothing.

Courts weigh five things. The language of the contract, whether it speaks of a sale, a buyer and a seller, or of services rendered. The nature of the supplier's business. How the price is set, a lump sum or a bill that breaks out materials from labor. The relative value of goods against labor. And why the customer entered the deal at all.

Back to Nadia. Her contract is described as a purchase of cabinets. The cabinetmaker is in the business of selling cabinetry. The price is dominated by the goods, $31,000 against $9,000. And what she wanted was the cabinets themselves, with installation incidental to getting them in place. So the predominant purpose is a sale of goods, and Article 2 governs the entire contract, installation included. Which is how she reaches the implied warranty of merchantability.

Now flip the numbers. $9,000 in materials and $31,000 in skilled labor to remodel an existing kitchen. Same two ingredients, opposite answer. That deal is predominantly a service, so the common law governs the whole thing, including the goods. No implied warranty at all. The dollars did not just move the outcome. They moved the rulebook.

A minority of courts use the gravamen test instead. Rather than labeling the whole contract, they ask a narrower question. Which part of the deal is the complaint actually about? Defective goods, apply Article 2. Botched workmanship, apply the common law. One contract, two rulebooks, claim by claim. If the exam tells you a jurisdiction follows it, follow it. If the exam is silent, default to predominant purpose, because that is the majority rule.

A few hybrids recur constantly. Construction and remodeling are services under the common law. A restaurant meal is a sale of goods, because the Code says serving food or drink for value is a sale, so merchantability covers the burger. Blood transfusions and medical implants are generally services, and many states have statutes saying so. Software is the wild card. Off-the-shelf is often goods, custom-written often a service, and courts are split.

So why does the label matter this much? Because the two rulebooks answer the questions that drive most fact patterns, and they answer them differently. At common law an acceptance must mirror the offer exactly. Under § 2-207, a definite acceptance can form a contract even while adding terms. At common law an offer is revocable unless you paid for an option. Under § 2-205, a merchant's signed firm offer holds without a cent.

Keep going. Common law modification needs new consideration. Under § 2-209, a good-faith modification needs none. Common law performance is measured by substantial performance. Article 2 demands perfect tender under § 2-601. The common law implies no warranty of quality. Article 2 implies merchantability and fitness under § 2-314 and § 2-315. Even definiteness differs, because the Code fills gaps in price, place, and time.

One more divergence you will meet constantly. The statute of frauds. Under § 2-201, a contract for the sale of goods for $500 or more must be evidenced by a writing. The common law triggers instead on land, on contracts that cannot be performed within one year, on suretyship. Different trigger, different analysis, same lesson. The rulebook question comes first, every time.

So here is the reflex. Is the subject matter a good, something movable? If no, common law, or a more specialized body of law. If yes, is it a sale rather than a lease? A lease sends you to Article 2A. If it mixes goods and services, run the predominant purpose test and let one rulebook govern all of it. Then check merchant status.

A word on authorities, because this episode named no cases, and that was deliberate. NextGen questions hand you a transaction and ask which rulebook reaches it. They will not ask you for case names. You have two bodies of law here. A statute, UCC Article 2, and the judge-made rules distilled in the Restatement (Second) of Contracts.

If you keep only three numbers, keep these. § 2-105, the definition of goods, because everything downstream depends on it. § 2-104, the definition of merchant, because it switches on four of the most heavily tested rules in the subject. And § 2-107, the severance rule, because it is the one place where who does the cutting changes the answer.

Now the traps, straight from the examiners' favorites list. One. Confusing the parties for the subject matter. Two businesses can still have a services contract, and merchant status matters only after you have found goods. Two. Treating a lease of goods as a sale. That is Article 2A, so do not reach for the wrong warranty or writing rule.

Three. Splitting a hybrid contract. The predominant purpose test is all or nothing. Once goods predominate, Article 2 governs the service part too, and vice versa. Split it only under the minority gravamen test. Four. Thinking specially manufactured or not-yet-built items fall outside Article 2. They do not. Five. Assuming anything attached to land can never be goods. A growing crop or timber to be cut can be.

And one habit worth building. Make which rulebook your reflex first move on every contracts question. Scan for a good, a physical, movable item being sold. See one, and you switch on the UCC and ask about merchants. See a service, land, or a lease, and you stay in the common law.

Time for the quick check, straight from the BARGO question bank. An orthodontist sells her personal used sedan to a neighbor for $11,000. A car is a good and this is a sale, so Article 2 governs. But the implied warranty of merchantability attaches only when the seller is a merchant in those goods. She never advertises cars, holds no dealer license, and has sold one car in a decade.

Is the orthodontist a merchant as to the sale of her own car? Option one. Yes, because she runs a sophisticated business and deals commercially. Option two. No, because she neither deals in cars nor claims skill about them. Option three. No, because an isolated one-time sale can never fall under Article 2. Pause here if you want a moment.

The answer is option two. Merchant status under § 2-104 requires dealing in goods of the kind, or holding yourself out as having skill peculiar to those goods or practices. An orthodontist selling her personal car does neither as to cars, so no implied warranty attaches. Option one overgeneralizes. Being business-savvy does not make you a merchant in unrelated goods.

Option three is the interesting one, because it fails for a different reason. Article 2 still governs this sale. A single casual sale of a good sits squarely inside it. Article 2 simply does not trigger the merchant-only warranty. Classifying the deal and classifying the seller are separate questions. There are thirty plus more questions on this topic alone, each with every option explained like that.

Five things to take away. One. Article 2 governs contracts for the sale of goods and the common law governs everything else, so picking the rulebook is the first move in every contracts problem. Two. Goods are things movable when identified to the contract, and specially manufactured or not-yet-existing items still count.

Three. It takes both words, sale and goods. A lease of goods is Article 2A. Four. Once Article 2 applies, ask separately whether a merchant is involved, because firm offers, merchant confirmations, merchantability, and the battle of the forms all switch on that status. Five. For a hybrid deal, the majority predominant purpose test picks one rulebook for the whole contract.

Which is why Nadia's warped door is covered, and the same door in a labor-dominated remodel would not be. Same warp, same wood, different rulebook. Next time, Formation.

Practice this topic with more than 2,900 exam-style questions, free to start, at nextgenbargo.com. This episode is for education and exam preparation only, not legal advice, and we are not affiliated with or endorsed by the NCBE or any bar examining authority.