“Goods” vs “Services” – What Are You Selling?

Whether you are selling “Goods” or “Services” makes a big difference under the law. For “Goods,” the concepts in law go back hundreds of years with merchant ships and trading companies.  The centuries – old concepts have been codified in the Uniform Commercial Code (“UCC”).  The advantage of the UCC is that the UCC provides a well-established set of rules with a well-defined body of case law.  Parties can predict with a high degree of certainty how commercial transactions will be handled by the courts.

For the UCC to apply, you need to be dealing with “Goods.”

But what if you have a mixed sale of good and services?  For example, the sale of software commonly causes confusion.  An ordinary, off-the-rack sale of software is typically the sale of “goods,” whereas a custom – made software program that involves intellectual property development is more “service” than “goods”.  If the product “bespoken,” that is, more custom made, it more likely involves services.  If the product is a “commodity,” then it is more like a good.

The law looks at the “predominant purpose” test.  If the parties’ agreement is predominantly for goods and only incidentally for services, the UCC will apply.

Another way to approach the mixed package views the goods and services in isolation and determines whether one has any value without the other.  If the service to make a product work is meaningless, without value standing by itself and in the absence of the product, the court will construe the point of the agreement as one to furnish the product, not services.

There are some things the parties can do to make it more likely, if a dispute arises later, how the transaction will be characterized.  A lawyer can help.

The Court will be guided by the parties’ contract language.  In other words, the terms used by the parties will provide insight into the characterization of the agreement.  The Courts use the totality of facts, following a continuum between “Goods” and “Services.”  For example, what do parties call themselves?  “Buyer” and“Seller” connote a “good” versus the terms, “User” and “Supplier” signifies a service contract.

Does title to the product pass?  If so, the parties are dealing with a good.

If one party agrees to deliver, assemble and install, the Court may be looking at a service agreement, depending on the time for assembly and installation.

Does a party make one payment (good) or several payments in installments over time (service)?

These are a few suggestions.