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Gregory Funding LLC v. Saksoft, Inc. | 2016 WL 4480693 (2016)
Article Two of the Uniform Commercial Code, or U C C, applies to transactions in goods. It doesn’t apply to contracts for services. In Gregory Funding L L C versus Saksoft, Incorporated, the parties strike a software development deal involving both goods and services. Does the U C C apply?
Gregory Funding, a residential loan servicing company, entered a contract with software developer Saksoft to create a custom software product.
They titled their contract Master Software Services Agreement and referred to Saksoft as, quote, “service provider,” unquote, throughout. The agreement also contained a statement of work that outlined the project requirements and touted Saksoft’s deep base of knowledge and software industry expertise.
According to the agreement, Saksoft would supply a team for the project, producing cost savings for Gregory. Saksoft would provide a project manager on site at Gregory plus developers and a project manager located in India. The agreement also provided terms of payment. Saksoft’s compensation was linked to the number of hours the team worked.
Six months into their deal, Gregory became dissatisfied with the on site project manager Saksoft provided. Saksoft provided a replacement, but it took two months. The development of the software lagged behind schedule.
The parties entered into a second statement of work, which provided that Saksoft would add a business analyst to the team. Saksoft hired three business analysts, but Gregory rejected each of them. After nearly three years of disappointment, Gregory hired its own analyst and refused to pay several months of Saksoft’s invoices.
Negotiations between the parties failed, and Gregory sued Saksoft. Gregory stated several claims, including breach of the implied warranty of fitness for a particular purpose. This U C C breach of warranty theory only applies to contracts for the sale of goods. Saksoft moved to dismiss the claim, arguing that the contract was primarily for services, not goods. The district court took the motion under advisement.
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