Custom Communications Engineering, Inc. v. E.F. Johnson Co.

• Decision Date: 30 December 1993
• Citation: 636 A.2d 80,269 N.J.Super. 531
• Parties: , 22 UCC Rep.Serv.2d 971 CUSTOM COMMUNICATIONS ENGINEERING, INC., a New Jersey Corporation, Plaintiff-Appellant, v. E.F. JOHNSON COMPANY, a Minnesota Corporation; Tel-Air Communications, Inc., a New Jersey Corporation; and Jonach Electronics, Inc., Defendants-Respondents, and Western Union Corporation, a Delaware Corporation; Robert Libbey, an individual; Reilly Radio Communications, a sole proprietorship; Glen Reilly, an individual; Communications Services, Inc., a New Jersey Corporation; Kreeger Associates, a sole proprietorship; and Bruce Kreeger, an individual, Defendants.
• Court: New Jersey Superior Court — Appellate Division

Page 531

269 N.J.Super. 531

636 A.2d 80, 22 UCC Rep.Serv.2d 971

CUSTOM COMMUNICATIONS ENGINEERING, INC., a New Jersey Corporation, Plaintiff-Appellant, v. E.F. JOHNSON COMPANY, a Minnesota Corporation; Tel-Air Communications, Inc., a New Jersey Corporation and Jonach Electronics, Inc. Defendants-Respondents and Western Union Corporation, a Delaware Corporation; Robert Libbey, an individual; Reilly Radio Communications, a sole proprietorship; Glen Reilly, an individual; Communications Services, Inc., a New Jersey Corporation; Kreeger Associates, a sole proprietorship; and Bruce Kreeger, an individual, Defendants.

Superior Court of New Jersey Appellate Division.

Submitted Oct. 27, 1993.

Decided Dec. 30, 1993.

Hersh, Ramsey & Berman, P.C., Morristown, attorneys for appellant (David Scott Mack, on the brief).

Schenck, Price, Smith & King, Morristown, attorneys for respondents (Michael A. Moroney and Edward W. Ahart, of counsel; M. Sheilah O'Halloran and Paul Weidlich, on the brief).

Before Judges KING, HAVEY and ARIEL A. RODRIGUEZ.

The opinion of the court was delivered by

HAVEY, J.A.D.

The central issue on appeal is whether the four-year statute of limitations under the Uniform Commercial Code (UCC), N.J.S.A. 12A:2-725(1), is applicable to the parties' dealership agreement.

Plaintiff Custom Communications Engineering, Inc. (Custom) appeals from an order for summary judgment dismissing its complaint against defendants E.F. Johnson Company (Johnson), Tel-Air Communications, Inc. (Tel-Air) and Jonach Electronics, Inc. (Jonach). In its complaint, Custom seeks damages against Johnson for economic loss arising from Johnson's termination of its dealership agreement with Custom. The remaining defendants are other Johnson dealers who, Custom alleges, conspired with Johnson and tortiously interfered with Custom's agreement. The Law Division judge determined that N.J.S.A. 12A:2-725(1) applied and therefore Custom's complaint was time-barred because it was filed four years after the accrual of its cause of action. We affirm the summary judgment order as to Johnson, but reverse as to the defendant-dealers.

Johnson is a manufacturer of radio equipment. On June 17, 1978, Custom entered into a Land Mobile Dealer Agreement with Johnson which granted Custom the right to sell and service Johnson's products within a designated "Dealer's Territory" in northern New Jersey. The agreement provides that Custom is required to use its best efforts to promote the sale of Johnson products in the designated area and to maintain an inventory of products, as well as a service facility for the benefit of Johnson customers.

The agreement also restricts Custom to the selling of Johnson products within its designated territory. Although the agreement does not expressly state that Custom's territory was exclusive, Custom claims that Johnson had made oral representations as to its exclusivity. Paragraph 3 of the agreement provides that Custom may sell Johnson products in the territory of other dealers only upon their approval and upon Custom paying them compensation for the sales. Paragraph 11 specifies that the relationship between the parties was "that of buyer and seller." Finally, paragraph 14 provides that either party may terminate the agreement, with or without cause, upon thirty days' written notice.

According to Custom, in 1978 Johnson began making sales in Custom's territory through other dealers without permission and without compensating Custom. Custom also claims that Johnson established other dealers in Custom's "exclusive" territory beginning some time in 1981-82. On March 18, 1985, Johnson terminated the agreement.

On March 20, 1985, Custom filed a complaint against defendants alleging breach of contract, conspiracy and tortious interference with its agreement. Custom amended the complaint on April 8, 1985 adding a count charging Johnson with a violation of the New Jersey Franchise Practices Act, N.J.S.A. 56:10-1 to -15. Custom also demanded an accounting and a credit for the sales made by Johnson and its other dealers within Custom's territorial limits. The complaint was dismissed on January 24, 1986 for failure to answer interrogatories.

Custom filed a second complaint on July 7, 1986 which, except for the abandonment of its claim under the Franchise Practices Act, was essentially identical to its original complaint. The second complaint was dismissed without prejudice for lack of prosecution on January 31, 1987.

On April 19, 1988, Custom filed the present complaint which basically mirrored the second complaint, except that it adds a count charging Johnson with wrongful discharge. Defendants moved for summary judgment, arguing that Custom's cause of action accrued no later than 1982, and thus was barred by the four-year statute of limitations under the UCC, N.J.S.A. 12A:2-725. Judge D'Ambrosio of the Law Division agreed, reasoning that since the parties were involved in a "sales" agreement, Custom's claim of breach of contract was governed by the UCC time-bar. He also concluded that because Custom's tort claims against all defendants were "derivative" of its breach of contract claim, they were barred as well.

I

N.J.S.A. 12A:2-725(1) provides that an action for breach of any contract for "sale" under the UCC must be commenced within four years after the accrual of the cause of action. N.J.S.A. 2A:14-1, the six-year statute of limitation generally governing breach of contract claims, expressly states that its time-bar does not apply to any action governed by N.J.S.A. 12A:2-725(1). Article 2 of the UCC applies to "transactions in goods." N.J.S.A. 12A:2-102. The term "goods" is defined as "all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid[.]" N.J.S.A. 12A:2-105(1). A "sale" involves "the passing of title from the seller to the buyer for a price." N.J.S.A. 12A:2-106(1).

Notwithstanding these narrowly-defined terms, whether N.J.S.A. 12A:2-725(1) applies depends on how the contract between the parties may be accurately characterized: as one involving a transaction of goods ( N.J.S.A. 12A:2-102) plus incidental services, or as one for services plus the incidental sale of goods. See Meyers v. Henderson Constr. Company, 147 N.J.Super. 77, 79, 370 A.2d 547 (Law Div.1977). The legal analysis most frequently employed when courts are faced with such mixed contracts is that Article 2 of the UCC is applicable "if the sales aspect predominates and is inapplicable if the service aspect predominates." Sonja A. Soehnel, Annotation, Applicability of UCC Article 2 to Mixed Contracts for Sale of Goods and Services, 5 A.L.R. 4th 501, 505 (1981), and see cases annotated therein.

Custom argues that the six-year statute of limitations under N.J.S.A. 2A:14-1 applies because its agreement with Johnson was a dealership or distributorship, the predominate purpose of which was not the "sale" of goods, but for Custom to act as Johnson's agent in promoting its products, and to provide a service facility for customers who have purchased those products.

No doubt there are nonsale aspects to the parties' agreement. However, we view the nonsale components as intending to foster the dominant purpose of the agreement: to sell Johnson products through Custom to customers in Custom's distribution area. For example, under the agreement, Custom is required to buy from Johnson and maintain an inventory of Johnson products. Also, Custom's purchase orders are subject to the price, terms and conditions set by Johnson at the time the order was made, and Johnson reserves the right to "alter ... the credit terms upon which [Custom] buys [Johnson's] Products and parts thereof." (Emphasis added). Finally, paragraph 11 of the agreement expressly states that the relationship between the parties shall be "buyer" and "seller." Thus, it is clear that a critical aspect of the agreement is the sale of goods from Johnson to Custom "for a price." N.J.S.A. 12A:2-106(1).

We accept Custom's argument that the agreement may be characterized as a dealership or distributorship contract: Custom is an intermediary in the consumer chain whose function is to promote and sell products manufactured by Johnson. Focusing strictly on the definitions under Article 2, one might assume that the UCC does not reach such a relationship because of the hybrid nature of the parties' respective roles.

However, the rule in most out-of-state jurisdictions is that dealerships or distributorships are to be treated as sales of goods contracts under the UCC. See Intercorp, Inc. v. Pennzoil Company, 877 F.2d 1524, 1527 (11th Cir.1989) (Alabama law); Monarch Beverage Company, Inc. v. Tyfield Importers, Inc., 823 F.2d 1187, 1190 (7th Cir.1987) (Indiana law); Sally Beauty Company, Inc. v. Nexxus Products Company, Inc., 801 F.2d 1001, 1006 (7th Cir.1986) (Texas law); Corenswet, Inc. v. Amana Refrigeration, Inc., 594 F.2d 129, 134 (5th Cir.), cert. denied, 444 U.S. 938, 100 S.Ct. 288, 62 L.Ed.2d 198 (1979) (Iowa law); De Filippo v. Ford Motor Company, 516 F.2d 1313, 1322-23 (3rd Cir.), cert. denied, 423 U.S. 912, 96 S.Ct. 216, 46 L.Ed.2d 141 (1975) (Pennsylvania law); Paulson, Inc. v. Bromar, Inc., 775 F.Supp. 1329, 1333 (D.Haw.1991), and cases cited therein (Hawaii law); Jo-Ann, Inc. v. Alfin Fragrances, Inc., 731 F.Supp. 149, 154 (D.N.J.1989) (New Jersey law); Babst v. FMC Corp., 661 F.Supp. 82, 87 (S.D.Miss.1986) (Mississippi law); Kirby v. Chrysler Corp., 554 F.Supp. 743, 749-50 (D.Md.1982) (Maryland law); Moridge Mfg. Company v. Butler 451 N.E.2d 677, 680 (Ind.Ct.App.1983). The common theme expressed in nearly all of the cases is that, although most dealership or distributorship agreements involve more than a mere sale of goods, the sales aspect of the relationship predominates. See Sally, 801 F.2d at 1005-06. Accordingly, courts have not hesitated to conclude...