Choosing between common law and the UCC

The Governing-Law Gate: Identify the Promised Subject

Choosing between common law and UCC Article 2 turns on the transaction’s subject: Article 2 governs a transaction in goods, while common law governs a transaction whose predominant subject is services or another non-goods performance. Under UCC § 2-102, Article 2 applies to transactions in goods. Under § 2-105, goods are movable things identified to the contract, including specially manufactured goods. The contract’s label-“services,” “installation,” or “turnkey project”-does not decide the regime.

Run the analysis in this order:

1. Identify the promised performance. Ask what the buyer is receiving at formation: a movable item, labor or expertise, or both. A custom-made movable item remains a good under § 2-105; the fact that substantial labor is needed to create it does not make it a service.

2. Separate pure transactions from hybrids. A pure sale of goods falls under Article 2. A pure service arrangement falls under common law. If one integrated bargain combines goods and services, apply the predominant purpose test.

3. For a hybrid, determine the predominant purpose objectively. Ask what the parties principally sought when they contracted, using the agreement’s structure and the surrounding commercial facts.

4. Apply the resulting regime to the integrated bargain. If the goods purpose predominates, Article 2 ordinarily governs the single hybrid transaction. If the service purpose predominates, common law ordinarily governs it. Do not split an integrated bargain merely because the invoice lists separate prices.

The important boundary is not “any goods versus no goods.” A service provider may supply incidental materials without turning the transaction into a sale of goods. Conversely, a seller may perform substantial design, fabrication, delivery, and installation without losing Article 2 coverage when the central bargain is the acquisition of a movable product. This is closed-book material: be able to state § 2-102, § 2-105, and the predominant purpose test from memory.

A sequential screen makes the order concrete:

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The first question is about the subject matter, not the amount of work. The second recognizes that a goods transaction may include services. The third is reached only for the hybrid.

The Predominant Purpose Test: Weigh the Bargain at Formation

The predominant purpose test asks whether the primary objective of the integrated transaction was the sale of goods or the provision of services. The test is objective and applies the circumstances known when the parties formed the contract, not the characterization a party invents after a dispute arises.

No single fact controls. Courts commonly examine:

These factors are evidence of purpose, not independent elements that must all point in one direction. A court may regard a contract as a goods transaction even when services cost more if the buyer principally sought a particular movable product. Likewise, a low-cost component can remain incidental when the buyer principally purchased expertise or continuing labor.

Several near-miss distinctions matter:

• Custom product versus service: A fabricated machine, cabinet, or component is still a good if the promised result is a movable item to be delivered. Custom specifications show how the good will be made, not that the transaction is for services.
• Installation versus service: Installation is usually incidental when it merely makes the purchased product usable. Installation points toward services when the buyer principally hired the provider to perform construction, integration, or ongoing technical work.
• Separate price versus separate transaction: Separate line items help reveal the parties’ structure, but they do not create separate legal regimes. The decisive question is whether the bargains are genuinely independent or one integrated transaction.
• Large labor component versus service purpose: Labor-intensive manufacture does not itself establish a service contract. The fact that distinguishes the regimes is what the buyer principally sought: the movable output or the labor and expertise.
• Materials versus goods transaction: Materials consumed in performing a service are ordinarily incidental. A specifically identified movable product that the seller must deliver is evidence of a goods purpose.

For example, a company hiring an engineer to inspect an existing production line and recommend repairs is principally buying expertise, even if the engineer supplies replacement parts. A company hiring a manufacturer to produce and install a custom production line is principally buying equipment if the line is the central deliverable, even though design and installation are substantial.

The test is especially important when price allocation creates a false answer. A contract may assign 60 percent of its price to labor because installation is expensive, yet still have a goods purpose if the buyer would not have entered the transaction without the equipment. Conversely, a contract may list expensive equipment separately while the real commercial objective is years of maintenance and supervision. Read the commercial arrangement as a whole.

Common errors are avoidable:

• Treating the word “services” in a contract as controlling when the buyer’s stated objective was to obtain a movable product.
• Treating a custom-made item as a service because the seller used extensive labor to produce it.
• Treating separate prices for equipment and installation as proof that the contract must be divided.
• Treating the higher dollar component as automatically predominant without considering the buyer’s primary objective.
• Applying the predominant purpose test to a pure service contract that contains only incidental materials.

One Integrated Bargain: The Product Hidden Inside the Work

Metro Kitchen signed one integrated contract with OvenWorks, a commercial-equipment manufacturer, to design, fabricate, deliver, and install a custom pizza oven. The total price was $120,000: $95,000 for the oven and $25,000 for design, delivery, installation, and staff training. Metro’s stated objective was to obtain the oven, and the dispute concerns OvenWorks’ failure to deliver it on time. Which law governs the contract?

Three Governing-Law Drills: The Fact That Controls the Regime

High-Yield Points - ⚡ Biggest Takeaways

Start with the transaction’s subject: movable goods trigger UCC § 2-102; service-centered bargains trigger common law. For an integrated hybrid, weigh the buyer’s objective and the whole bargain at formation, not one price or label. Custom manufacture and substantial installation do not defeat Article 2 when the movable product is the central deliverable.