Sales of Goods vs. Services under Virginia Contract Law

June 13, 2013

Importance of Reducing a Service Contract to Writing

As in many jurisdictions throughout the country, the sale of goods and services in Virginia are treated differently and are recognized under completely separate legal, frameworks.  Although implementation is not mandatory, the Uniform Commercial Code (the “UCC”) is a recommendation of laws that should be adopted by all jurisdictions in the United States for uniformity regarding the sales and leases of goods as well as many other commercial transactions. Under Virginia law, the sale of goods is codified in great detail in the Virginia Code, which is a direct result of Virginia’s adoption of the UCC.

Virginia’s Uniform Commercial Code (the “VUCC”) defines “Goods” to mean all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale (§ 8.2-105) other than the money in which the price is to be paid, investment securities (Title 8.8A) and things in action. “Goods” also includes the unborn young of animals and growing crops and other identified things attached to realty as described in the section on goods to be severed from realty (§ 8.2-107). Unfortunately, the VUCC does not cover “Services” and rather leaves such up to judicial interpretation, application of various other statutes, and common law rights established through case law.

The Virginia Antitrust Act (“VAA”) does shed some light on the definition of “Services,” at least with respect to the prohibition on restraints of trade and monopolistic practices that act or tend to act to decrease competition in the Commonwealth of Virginia (§ 59.1-9.2). Specifically, the VAA defines “Services” to include any activity that is performed in whole or in part for the purpose of financial gain, including but not limited to personal service, rental, leasing or licensing for use (§ 59.1-9.3). It important to note that this definition is not listed under the VUCC and the distinction is important. The more detailed codification of the sale of goods under the VUCC allows for more consistency in how contractual issues regarding goods are resolved in a Virginia law applied contract dispute and the Virginia case law reflected is therefore very consistent. This can be very helpful in a breach of contract situation, as the rules and procedures are often well defined.

As a result of Virginia’s thorough codification of contracts with respect to the sales of goods, it is important when drafting or negotiating a contract for the sale of goods to be sure to understand the applicable statute, especially as the drafting party, in order to understand when the contract is departing from the statute.  In most circumstances, as long as a contract for the sale of goods is reasonable and not for the sale of illegal goods or an illegal purpose, the contract can somewhat depart from the statutory rules and guidelines. Nevertheless, it is important to understand the implications of deviance as it could restrict or lessen a party’s rights in an event of a breach of the contract or other contractual dispute.

As the legal framework for analyzing service based contracts are often interpreted through case law, with little statutory guidance, Virginia case law has some variance with issues relating to partial performance of the service contracted for under an agreement, which makes it especially important to reduce a service based contract to writing. This can especially be problematic given the large number of verbal contracts or “handshake” agreements, which are often quite prevalent among and between services based organizations. Such agreement types, considering Virginia’s lack of codification regarding service contracts, can lead to unnecessary disputes between parties because it is not always clear to these parties what remedies exist and who is at fault.   In addition, without statutory language the parties are often forced to pay for an attorney on the back-end to analyze the facts of the situation and the case law, as that information is not as easily determinable on their own, which leads to additional costs and expense for the parties involved.

In some cases, services based organizations mistakenly believe they have more protection than they do.  For example, construction firms and contractors may wish or try to rely on something similar to the “cure” language found in the UCC or VUCC (§8.2-508; §8.2-510) in an attempt to mitigate or eliminate damages arising out of a service based breach of contract or other contractual dispute. However, such organizations or individuals fail to realize that such statutory language only applies to the sale of goods and not the services that they contracted to perform.  As a result, there is a heightened urgency for service based agreements to be reduced to writing as there is little statutory language that can be relied upon.  The minimal expense to formalize such an agreement at the onset can save much headache and future expense.