When Does an Agreement to Repurchase Construction Material Equal a Contract for Services?

Recently, in the case of CPG Int’l LLC v. Shelter Products, Inc., No. 3:15cv1045 (M.D. Pa. 2017) the United States District Court for the Middle District of Pennsylvania denied a motion for partial summary judgment on the grounds that the claim at issue was not barred by the statute of frauds, which applies to contracts for the sale of goods, because the purchaser actually agreed to provide a service to the seller in repurchasing inventory and relocating it to another distributor.

In the CPG case, TimberTech, a manufacturer of highly engineered building materials had a longstanding distribution relationship with Shelter Products Inc. (“Shelter”). Shelter had purchased several thousands of dollars of materials from TimberTech for resale when TimberTech informed Shelter that TimberTech was going to be merged into CPG International (“CPG”). TimberTech allegedly orally agreed to ensure that if CPG did not retain Shelter as a distributor after the merger, TimberTech would ensure that the materials purchased from it by Shelter were repurchased and moved to another distributor at no cost to Shelter.

After the merger, Shelter was terminated as a distributor but owed several thousand dollars for materials ordered from and delivered by TimberTech. Accordingly, CPG filed an action to recover the unpaid amounts for those goods. Shelter counterclaimed, alleging the oral contract between it and TimberTech and seeking to have CPG repurchase the materials from Shelter and relocate them to another distributor. CPG moved for summary judgment on Shelter’s counterclaim based on the statute of Frauds, which would render the alleged oral agreement for the repurchase of the materials void.

In considering this issue, Judge Munley held: “Viewing Shelter’s credible evidence in the light most favorable to it, a reasonable juror could conclude that CPG agreed to assist Shelter with moving its TimberTech inventory to a surviving distributor. That is, the agreement at issue is for services, not for the sale of goods. Thus, Pennsylvania’s statute of frauds fails to preclude the parties’ oral agreement, and the court will deny CPG’s motion for summary judgment on this issue.”

One must wonder how the Court came to the conclusion that an agreement to repurchase materials and have them shipped at no cost constitutes a contract primarily for services under hornbook case law starting with Bonebrake v. Cox, 499 F.2d 951 (8th Cir.1974) (proper inquiry is whether contract’s predominant factor, thrust, purpose, “reasonably stated, is the rendition of service, with goods incidentally involved (e.g. contract with artist for painting) or is a transaction of sale, with labor incidentally involved (e.g. installation of a water heater in a bathroom.)”); cited in, Cober v. Corle, 610 A.2d 1036 (Pa. Super. 1992).

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