Custom Communications Engineering, Inc. v. E.F. Johnson Co.
22 U.C.C. Rep. Serv. 2d (West) 971, 636 A.2d 80, 269 N.J. Super. 531 (1993)
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Rule of Law:
Dealership and distributorship agreements are governed by the Uniform Commercial Code (UCC) when the predominant purpose of the agreement is the sale of goods. Consequently, claims for breach of such agreements are subject to the UCC's four-year statute of limitations.
Facts:
- On June 17, 1978, Custom Communications Engineering, Inc. (Custom) entered into a dealership agreement with E.F. Johnson Company (Johnson), a radio equipment manufacturer.
- The agreement granted Custom the right to sell and service Johnson's products within a designated territory in northern New Jersey and required Custom to maintain an inventory of Johnson products.
- The agreement specified that the relationship between the parties was 'that of buyer and seller.'
- According to Custom, Johnson began allowing other dealers to make sales within Custom's designated territory in 1978 and established competing dealers in the territory between 1981-82.
- On March 18, 1985, Johnson terminated the dealership agreement upon thirty days' written notice, as permitted by the contract's terms.
Procedural Posture:
- On March 20, 1985, Custom Communications Engineering, Inc. filed its initial complaint against E.F. Johnson Company and other dealers in the Law Division (trial court).
- The complaint was dismissed on January 24, 1986, for failure to answer interrogatories.
- Custom filed a second complaint on July 7, 1986, which was dismissed for lack of prosecution on January 31, 1987.
- Custom filed the present (third) complaint on April 19, 1988.
- The defendants moved for summary judgment, arguing the claims were barred by the UCC's four-year statute of limitations.
- The Law Division judge granted summary judgment in favor of all defendants, holding that the UCC applied and the claims were time-barred.
- Custom, as the appellant, appealed the trial court's grant of summary judgment to the Superior Court of New Jersey, Appellate Division. Johnson and the other dealers are the appellees.
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Issue:
Does the four-year statute of limitations under the Uniform Commercial Code (UCC) apply to a mixed dealership agreement that involves both the sale of goods and the provision of services?
Opinions:
Majority - Havey, J.A.D.
Yes, the four-year statute of limitations under the UCC applies to the dealership agreement because its predominant purpose was the sale of goods. While the agreement had service components, its primary function was to facilitate the sale of Johnson products through Custom. The court reasoned that contract provisions requiring Custom to buy and maintain inventory, referring to the parties as 'buyer' and 'seller,' and giving Johnson control over credit terms for product purchases demonstrated that the sales aspect predominated. Adopting the majority rule from other jurisdictions, the court held that treating dealership agreements as sales contracts under the UCC promotes the code's goals of consistency and predictability in the commercial marketplace. Therefore, Custom's breach of contract claim against Johnson, as well as its related tort claims for economic loss, are barred by the UCC's four-year statute of limitations. However, the tort claims against the other dealers are not barred, as those dealers were not parties to the contract and their alleged interference falls outside the UCC's scope.
Analysis:
This decision formally aligns New Jersey with the majority of jurisdictions by applying the 'predominant purpose' test to classify dealership agreements as contracts for the sale of goods under the UCC. It solidifies the UCC as the primary legal framework for resolving commercial disputes within a distribution chain, prioritizing uniformity and predictability over the hybrid nature of such agreements. The ruling also reinforces the economic loss doctrine, preventing parties from recasting a breach of contract claim as a tort to circumvent the UCC's statute of limitations when suing another party to the contract. This provides clarity for manufacturers and distributors, establishing that claims for economic loss under these agreements must be brought within the UCC's four-year window.
