Thursday, August 27, 2015

Federal Insurance Co. v. Mathews Brothers, LLC, and Alban Tractor Co., Inc. (Maryland U.S.D.C.)

Filed: August 14, 2015

Opinion by: Richard D. Bennett


(1) The Maryland Uniform Commercial Code (UCC) applies to the manufacture of a yacht because the predominant purpose is the provision of a good with labor incidental thereto.

(2) The UCC applies to the manufacture and installation of a yacht engine and related parts because the predominant purpose is the provision of a good with labor incidental thereto.


Original Owner contracted with Builder to manufacture a yacht (Yacht Contract).  Builder then contracted with Engine Company to install an engine on the yacht (Engine Contract).  Engine Company provided an engine to Builder, who physically placed it on the yacht.  Before delivery to Original Owner, Engine Company performed final “hook ups” and accessory installations, conducted a “PAR Test” and replaced the engine.  Then, Builder delivered the completed yacht to Original Owner.  Original Owner died and his estate sold the yacht to Second Owner, who procured insurance from Insurance Company.  Subsequently, the yacht sunk and Insurance Company paid Second Owner on the insurance contract.  Then, Insurance Company sued Builder and Engine Company.


The Court determined the Yacht and Engine Contracts were mixed contracts because they involved both goods and services.  The Court accordingly applied the predominant purpose test to determine whether these mixed contracts are controlled by the UCC.  The UCC applies to transactions in goods, which are “movable at the time of identification to the contract for sale.”  The predominant purpose test asks “whether (the contract’s) predominant factor, (its) thrust, (its) 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, labor incidentally involved (e.g., installation of a water heater in a bathroom).”

The Court cursorily concluded the Yacht and Engine Contracts were contracts for the sales of goods, with labor incidentally performed.  Therefore, the UCC and its four-year statute of limitations applied and the default three-year statute of limitations in the Courts and Judicial Proceedings Code did not apply.  The UCC’s statute of limitations ran from the date of tender of delivery to the Original Owner, which expired over 18 months before the filing of the action, thus Insurance Company’s claims were barred.  Builder’s and Engine Company’s Motions to Dismiss were Granted pursuant to FRCP 12(b)(6).

The full opinion is available in PDF.

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