Jan. 7, 2025
The Georgia Court of Appeals’ decision in Dixie Amusement, LLC v. Primero Games, LLC, 907 S.E.2d 702 (Ga. Ct. App. 2024), underscores the importance of understanding hybrid contracts and the application of the Uniform Commercial Code (UCC) under Georgia law. Hybrid contracts, which blend the sale of goods with the provision of services, require careful legal analysis to determine the governing framework. For instance, a contract to purchase and install heating and air conditioning systems in an apartment complex is a classic example of a hybrid contract.
The governing law for hybrid contracts hinges on their “predominant purpose.”[1] When the primary focus of the contract is the sale of goods, the UCC applies, even if services play a significant role. Conversely, when the furnishing of services is the predominate purpose and goods are merely incidental, ordinary contract principles apply. This distinction is crucial, as the UCC provides a more flexible framework for contract formation and may impose different statutes of limitations compared to common law.[2]
The Dixie Amusement Dispute
The dispute in Dixie Amusement centered on coin-operated amusement machines (COAMs) and associated software licensing terms. Dixie Amusement, a COAM licensee, purchased machines and software from Primero Games under various agreements. Starting in 2015, Primero included references to its “Terms of Sale” on invoices, which introduced software licensing fees. Dixie disputed these terms, arguing they were not part of their agreements. The trial court issued a declaratory judgment in favor of Primero, finding that the “Terms of Sale” applied to all software licenses purchased by Dixie under Section 2-201, because Dixie failed to object to the additional terms in the invoices. Dixie appealed.
The Court’s Analysis
The Court of Appeals first confirmed that the UCC applied to the hybrid contracts in dispute because the predominant element of the contracts was the purchase of goods, such as COAMs and chipsets. It then addressed the key issue on appeal: whether Primero’s “Terms of Sale” were binding.
Specifically, the appellate court rejected the trial court’s reliance on Section 2-201, noting that it only “determines whether a contract is enforceable against the statute of frauds.” Disputes over the inclusion of additional terms, such as Primero’s “Terms of Sale,” are instead governed by Section 2-207. This section allows additional terms to become part of a contract unless they materially alter the agreement or the other party objects. The court emphasized that the failure to object to terms in an invoice does not automatically make them binding, as the statute of frauds under Section 2-201 merely removes the defense that a contract lacks a written confirmation, not that additional terms were agreed upon.
The court also addressed the question of material alteration, which involves determining whether the inclusion of additional terms would result in surprise or hardship for the other party. The Court of Appeals found that the trial court had not properly considered whether Primero’s licensing fees, introduced through the “Terms of Sale,” materially altered the original agreements. Recognizing that this issue involves fact-specific inquiries, the appellate court remanded the case for further analysis under the correct UCC framework. This decision also overturned aspects of prior case law, reinforcing that Section 2-207 governs disputes over additional terms in contracts, rather than relying solely on Section 2-201.
Implications for Construction and Manufacturing Industries
This ruling is particularly important for the construction and manufacturing industries, where hybrid contracts are common. In the construction industry, agreements often involve the purchase and installation of equipment, blending goods and services. Similarly, in the manufacturing sector, contracts frequently cover both the supply of machinery or components and the provision of services such as installation, maintenance, or software integration.
The Dixie Amusement decision underscores the need for clear terms and mutual agreement in contracts. The ruling also highlights the risks of relying on invoice terms that are not explicitly accepted, reinforcing the importance of negotiating and documenting terms clearly at the outset of the transaction.
If you have questions about any of the matters discussed above, please contact one of the authors or your regular Nelson Mullins contact.
Jake Carroll advises clients in the construction, manufacturing, and real estate industries in complex transactions, contract and business disputes, and related corporate matters. Carroll is the co-author of the Georgia Construction Law Handbook, a leading treatise published annually, and is an active member of the Construction Law Section of the Atlanta Bar Association, serving as the section’s Chair in 2022-2023.
Carroll Hart is a Senior Associate in Nelson Mullins’ Atlanta office and focuses his practice on construction transactions and complex commercial and construction litigation. Hart currently serves on the Board of Directors for the Construction Law Section of the Atlanta Bar Association.
[1] O.C.G.A. § 11-2-102.
[2] Southern Tank Equip. Co. v. Zartic, Inc., 471 S.E.2d 587, 588 (Ga. Ct. App. 1996) (determining the predominant purpose of a contract for a chemical mixing tank and associated pump and pipe system was the sale of goods; therefore the four-year statute of limitations was applicable, not the six-year statute of limitations for written agreements).
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