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Tousley-Bixler Construction Co. v. Colgate Enterprises, Inc.

Indiana Court of Appeals
1982 Ind. App. LEXIS 1037, 32 U.C.C. Rep. Serv. (West) 1339, 429 N.E.2d 979 (1982)
ELI5:

Rule of Law:

A contract for the sale of minerals or the like (such as clay soil) to be removed from realty is a contract affecting an interest in land governed by common law if the buyer is to sever the materials. Such a transaction is only considered a sale of goods under the Uniform Commercial Code (UCC) if the seller is to perform the severance.


Facts:

  • Tousley-Bixler Construction Co., Inc. (Tousley-Bixler), a contractor, needed clay soil for a city sanitation project.
  • Tousley-Bixler contacted Colgate Enterprises, Inc. (Colgate) about purchasing clay from Colgate's nearby property, which would require Tousley-Bixler to remove four feet of topsoil to reach the clay.
  • On April 2, 1976, Tousley-Bixler delivered a purchase order to Colgate for 50,000 cubic feet of clay.
  • Colgate signed and returned the purchase order after adding a new typed statement requiring payment for any material used in 1976 to be made by January 10, 1977.
  • After receiving the altered purchase order, Tousley-Bixler sent a notice to cancel the order, citing a failure to agree on brush removal.
  • Colgate responded by letter, stating it was unaware of a problem and told Tousley-Bixler to proceed with the original agreement.
  • Tousley-Bixler never removed any clay from Colgate's property.

Procedural Posture:

  • Colgate Enterprises, Inc. sued Tousley-Bixler Construction Co., Inc. in an Indiana trial court for breach of contract.
  • The case was tried before a jury.
  • The trial court gave the jury instructions based on both common law and the Uniform Commercial Code (UCC).
  • The jury returned a verdict in favor of Colgate, awarding $42,500 in damages.
  • Tousley-Bixler (appellant) appealed the judgment to the Court of Appeals of Indiana, arguing that the trial court erred by applying the UCC.

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Issue:

Does a contract for the sale of clay soil to be excavated and removed by the buyer constitute a contract for the sale of 'goods' governed by the Uniform Commercial Code (UCC)?


Opinions:

Majority - Buchanan, C.J.

No. A contract for the sale of clay soil to be severed by the buyer is a contract affecting an interest in land and is not a sale of 'goods' under the UCC. The court reasoned that UCC § 2-107(1) explicitly states that a contract for the sale of 'minerals or the like' is a contract for the sale of goods only if they are to be severed by the seller. Because the buyer, Tousley-Bixler, was responsible for excavating the clay, the transaction falls outside the UCC's scope and is governed by common law principles of real property. The court classified the clay soil as 'minerals or the like' under § 2-107(1), making subsection (2) inapplicable. Giving jury instructions based on the UCC was reversible error because UCC principles of contract formation (like § 2-207, which allows additional terms in an acceptance) directly conflict with the common law 'mirror image' rule, under which Colgate's addition would have been a counteroffer. This conflict prejudiced Tousley-Bixler, as it was impossible to know which incorrect legal standard the jury applied.



Analysis:

This decision clarifies the critical distinction between the UCC and real property law for contracts involving the extraction of materials from land. It reinforces that the identity of the party performing the severance—seller versus buyer—is the dispositive factor under UCC § 2-107(1) for 'minerals or the like'. By categorizing subsurface clay as 'minerals or the like', the court ensures that such transactions, when the buyer excavates, remain subject to the formalities of real estate law, such as the Statute of Frauds for land. This prevents parties from using the UCC's more flexible contract formation rules to bypass stricter, well-established real property principles, thereby impacting contracts in construction, mining, and resource extraction industries.

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