Opinion ID: 2157724
Heading Depth: 1
Heading Rank: 4

Heading: Is This Case Goods or Services?

Text: Kor-It and Insul-Mark contend that the undisputed facts establish, or at least create a genuine issue of material fact, that provision of the coating material, a good, was the predominant thrust of the contract. They argue that this goods aspect predominates over the services aspect, which was only a necessary part of the procurement of coating. Modern Materials argues that the Sales article of the U.C.C. does not apply in this case because its contract with Kor-It and Insul-Mark was predominantly for services. It notes that Kor-It President Peter Bernacchi himself stated that the purpose of the transaction was to have Modern Materials perform a service on his company's product. Modern Materials contends that it was the complicated coating process that was purchased, and not the coating material used to coat the screws. We do not begin our analysis with a presumption that the parties' transaction was predominantly for goods and thus governed by the U.C.C. We reject Kor-It and Insul-Mark's invitation that we err on the side of finding the transaction to be predominantly for goods. Kor-It and Insul-Mark, the parties seeking the benefit of the code, bear the burden of establishing that the thrust of the transaction was predominantly for goods and only incidentally for services. See Air Heaters v. Johnson Electric, 258 N.W.2d 649 (N.D. 1977). We hold that the thrust of the agreement between Kor-It and Modern Materials was predominantly for performance of a service. Kor-It's main purpose in entering into the coating transaction was to improve the rust-resistance of its screws. Its specifications regarding rust-resistance related to the quality of its screws after application of a fluorocarbon coating material, and not to the quality of the coating material by itself. Kor-It bargained for a service which would improve the durability of its screws. It hired Modern Materials based on the company's promise that the Process 300/400 when applied to your metal ... fasteners will exceed 30 Kesternick [sic] cycles with less than 10% red rust. (Record at 297) (emphasis added). Kor-It's president described what he wanted: I had a service that I needed to be performed on my product, and we mutually agreed ... [Modern Materials] could do the service for me. (Record at 888). Similarly, Modern Materials' correspondence with Kor-It referred to its process and its performance in producing the process. (Record at 398, 810, 892, 1199). Kor-It neither specified nor involved itself in the decision-making regarding which coating material Modern Materials would apply to the screws. (Record at 917-18, 1114, 1259, 1274-75). The record demonstrates that Kor-It's only concern was with the finished product (Record at 918-19), i.e., the finished, rust-proofed, screws. The performance Kor-It contracted to obtain was the transformation of its screws from a non-coated form to a coated form with enhanced rust-resistance. Modern Materials' complex multi-step application process was the crucial element completing this transformation. The transfer of the coating material, a good, in the process was incidental to the larger service. Particularly revealing is the pricing method Modern Materials used for the coating. Kor-It was charged not by the gallon for the coating, as Modern Materials was charged by its coating supplier. Instead, it was charged by the pound of screws coated. If the coating material itself were the predominant thrust of the contract, presumably Kor-It would have paid a price based on the gallons of coating used. Charging instead by the pound of screws coated appears to tie the price to the cost of processing such an amount of screws. Keeping in mind the uniformity policies underlying the U.C.C. when we hold that the thrust of the coating transaction was predominantly for services, we note that our holding is in with closely analogous mixed transaction cases from other jurisdictions. For example, in McCool v. Hoover Equip. Co., 415 P.2d 954 (Okla. 1966), the Supreme Court of Oklahoma found to be a predominantly service transaction an arrangement whereby a purchaser sent its crankshafts to a company which chrome-plated the shafts and returned them. Similarly, courts in various jurisdictions have held that arrangements for application of pesticides and herbicides are predominantly service transactions. Abelman v. Velsicol Chemical Corp., 15 U.C.C.Rep.Serv.2d (Callaghan) 93, 1991 WL 213402 (Md.Cir.Ct. 1991); Grossman v. Aerial Farm Serv., 384 N.W.2d 488 (Minn. Ct. App. 1986); Missouri Farmers Ass'n v. McBee, 787 S.W.2d 756 (Mo. Ct. App. 1990). Finally, in Matthews v. Metropolitan Contract Carpets, 8 U.C.C.Rep.Serv.2d (Callaghan) 893, 1988 WL 124900 (E.D.Pa. 1988), the court concluded that an agreement to strip and apply an acrylic finish to a floor was predominantly a service contract. The court reasoned: If the contract had simply called for TFC to supply a can of acrylic coating, the agreement would doubtless have been a sales contract. However, that TFC was brought in to strip an existing layer of wax and to lay on a new surface indicates that this was predominantly a contract to apply, rather than supply, an acrylic finish. Id. at 895. Based upon the facts of this case as well as the well-reasoned conclusions of other courts, we hold as a matter of law that the thrust of the coating agreement between Kor-It and Modern Materials was predominantly for the performance of services. The U.C.C. does not apply to the transaction, and the parties' dispute is therefore governed by our common law.