Home -> Law Blog Directory -> Construction Law Blogs -> The South Carolina Construction Law Blog

Construction Law

: The South Carolina Construction Law Blog

Do You Know What the Statute of Limitations is for Your Subcontract?

By Ryan McCabe

   The statute of limitations for a breach of a subcontract is three years. See S.C. Code Ann. § 15-3-530. However, subcontracts?contracts executed usually between general contractors and subcontractors?can become subject to a six year statute of limitations under the Uniform Commercial Code (UCC) if a court deems the subcontract to be for a sale of goods as opposed to a service contract. SeeS.C. Code Ann. § 36-2-725.

   It is not always easy to establish a clear distinction between a subcontract for the sale of goods and a subcontract to perform a service. In a typical situation, a subcontractor will execute a "mixed contract" with a general contractor for both the sale of goods and the performance of services. For example, a mixed contract may exist when there is a subcontract to furnish all labor, material, and equipment necessary to install a floor. The subcontractor is performing a "service" by installing the floor but he is also, arguably, selling the materials used to install the floor, which, under the UCC, are considered "goods." See S.C. Code Ann. § 36-2-105(defines "goods").

   In considering whether a mixed contract is for the sale of goods under the UCC or, simply, a contract for the performance of a service, courts generally employ the "predominant thrust" or "predominant factor" test. Under this test, the court considers "whether [the subcontract?s] predominant factor, [its] thrust, [its] purpose, reasonably stated, is the rendition of service, with goods incidentally involved . . . or is a transaction of sale, with labor incidentally involved." Ranger Construction Co. v. Dixie Floor Company, Inc., 433 F.Supp. 442, 444 (D.S.C. 1977).

   Some basic factors that a court may find persuasive in determining a service subcontract exists, as opposed to a sales subcontract, include:

(1) whether the contract was a construction contract or a contract for the purchase and sale of goods;

(2) whether the party is referred to in the subcontract as a subcontractor or as a supplier or materialman;

(3) whether the party was not contracting for materials alone but rather was contracting for performance of an entire segment of the prime contract;

(4) whether the party was a "service corporation" engaged in providing a particular service, like installing and constructing a floor;

(5) whether the party planned to purchase the materials used in performing the service completely from an independent dealer; and,

(6) whether the party, at any time relevant to the lawsuit, operated as a supplier or maintained a supply house for materials.

   Subcontractors should bear in mind these factors and whether they are performing a service under the contract or simply supplying materials. The difference could result in an extra three year time period in which another party can bring a lawsuit against the subcontractor.

   The following are suggestions for subcontractors to help ensure your subcontracts are subject to a 3 year, as opposed to a 6 year, statute of limitation:

(1) Be sure to identify all subcontracts as Construction Contracts;

(2) Be sure you are identified in all subcontracts as a Subcontractor and not as a Materialman or Supplier; and,

(3) Make sure the subcontract does not reference a "sales" or "purchase" but, instead, references the services to be performed; for example, "to furnish all labor, materials, and equipment for the installation of flooring."

Full post as published by The South Carolina Construction Law Blog on September 13, 2007 (boomark / email).