Summary
In Ask Technologies, a case from this district, the buyer of computer hardware claimed that he rejected or revoked acceptance of the goods because he had communicated his dissatisfaction to the seller by means of letters and phone calls.
Summary of this case from In re Indesco International, Inc.Opinion
01 Civ. 1838 (RLC)
October 20, 2003
NORMAN M. VALZ, ESQ., Philadelphia, Pennsylvania, for Plaintiffs and Counter-Defendants
Ethan Leonard, THE LAW OFFICES OF NEAL BRICKMAN, New York, for Defendants and Counter-Claimants
OPINION
ASK Technologies, Inc. ("ASK"), a Pennsylvania corporation with offices in New York City, brought suit against Cablescope, Inc., a New York corporation, alleging breach of contract and fraudulent misrepresentation. Ask sues to recover payments plus interest for computer hardware and services to provided to defendant, Cablescope, allegedly owed pursuant to a contract between the two parties. Defendant has filed a counterclaim alleging breach of contract and fraud in the inducement and seeks damages for business losses allegedly sustained as a result of the breach.
BACKGROUND
A bench trial was held from December 11, 2002 to December 12, 2002. In May 1998, Cablescope, a cable supply and installation firm, sought to upgrade their information systems network. (Greenhouse at 57; Def. Ex. I.) Cablescope began negotiations with ASK for the purchase of new hardware and software better suited to their business needs than their existing system. (Def. Ex. F.)
ASK is a mid-size firm and provides its clients with technology and support, including computer equipment, installation, software and networking systems. (Def. Ex. D.) After consulting with ASK about their specific technological needs, Cablescope entered into a contract with ASK. The plaintiff agreed to sell, deliver, and install new computer hardware and software to Cablescope (Def. Ex. I.) Delivery and installation were scheduled to take place sometime between June and July of 1998.
Pursuant to the parties' agreement, an ASK technician, Eli Hertz, commenced installation of hardware and software at the Cablescope office in June 1998. On June 24th, several weeks' after Mr. Hertz began, Cablescope claimed they were unsatisfied
with the quality of Mr. Hertz's work and informed plaintiff that Cablescope did not want him to return. (Greenhouse at 69; Stansfield at 119.)
Numerous bugs had arisen in the new system, and Cablescope found Mr. Hertz unwilling or unable to perform the necessary fine-tuning required to integrate the new system with the existing system. (Stansfield at 117.) Cablescope notified ASK president, Kirk Jackson, via letter on July 9, 1998, that the installation had not been adequately performed. (Def. Ex. 8.) Following that letter, on July 20, 1998, Cablescope reiterated in writing that they ""consider[ed] the installation to be flawed and consequently the invoice to be invalid." (Def. Ex. 10.) On the basis of plaintiff's non-performance, defendant refused to pay for services and equipment already supplied by plaintiff. (Def. Ex. 14.)
The plaintiff now argues that Cablescope accepted the computer equipment without payment. Plaintiff further claims that Cablescope did not return the hardware, nor did it reject the goods as is required under Article 2 of the Uniform Commercial Code ("U.C.C."). Lastly, the plaintiff claims the defendant fraudulently misrepresented the poor performance of the computers in order to avoid payment for the goods. ASK argues that because Cablescope did not return or reject the goods, ASK is entitled to payment for the goods and services it provided plus interest as provided for under the contract. See U.C.C. § 2.
I.
The parties' contract provided for both goods (computer equipment) and services (installation and set up), and therefore represents a mixed contract. A mixed contract is deemed a contract for services when service predominates, and a contract is for sale of goods when the services are merely incidental to the sale of goods.Triangle Underwriters, Inc. v. Honeywell, Inc., 604 F.2d 737, 742-43 (2d Cir. 1979) (concluding that computer system equipped with custom software was governed byU.C.C. § 2). In the present case the sale of goods represented the bulk of the value of the contract with $41,015.93 of the $50,610.93 bill covering the cost of hardware alone. The U.C.C. § 2 governs the parties' rights and obligations under the contract.
The first question is whether ASK performed its contractual obligations as the seller. It is undisputed that ASK delivered all the computer equipment provided for under the agreement. The parties disagree as to whether ASK completed the services portion of the contract under which ASK was to install the equipment. Cablescope contends that the installation was a failure, and that consequently ASK did not complete their obligations under the contract.
Whether the court considers the subjective approval of the buyer or applies an objective standard in assessing the seller's performance is dependent on the type of goods involved. Where the contract hinges on the operative fitness or utility of the goods supplied, the provision is "construed as imposing only the requisite of satisfying a reasonable man," and has been applied to the installation and repair of machinery and appliances. Fursmidt v. Hotel Abbey Holding Corp., 10 A.D.2d 447, 449; 200 N.Y.S.2d 256, 259 (1960). If the contract concerns "fancy, taste, sensibility, or judgment" as in the "painting of a portrait" or the "services of an orchestra'' then satisfaction is subjective and can only be given by the purchaser. Id.
In determining what category an agreement falls into, the court considers the extent of control the buyer exercises over the entire operation, and the extent to which the purpose of the goods contracted for is to bring enjoyment or fulfillment to the buyer beyond a particular functional use. See id. In the instant case, Cablescope consulted heavily with ASK to ascertain what equipment best suited its needs and exercised very little control in the method of plaintiff's performance. (Diller at 153, 157.) Cablescope did not request or expect any other purpose beyond the traditional function of the goods purchased, therefore the reasonable man standard should be applied to determine if ASK performed under the contract.
Though there were complications with the installation many of those were only short-term inconveniences, and not unusual with the type of computer installation performed. (Marmion at 94, 97.) After this initial period of fine-tuning, Cablescope went on to use the equipment for nine months. (Stansfield at 138.) Physical delivery of monitors, hard drives and other accessories and the apparent functionality of the system within a reasonable time demonstrates satisfactory performance by ASK.
The defendant Cablescope alleges that the goods delivered were non-conforming and that the installation was defective. Under U.C.C. § 2, when a buyer is not satisfied with the goods received, the buyer has three options. See U.C.C. § 2-602, U.C.C. § 2-608, U.C.C. § 2-714. The buyer can (1) reject the non-conforming goods; (2) accept the goods and later revoke acceptance; (3) accept the goods and sue for damages resulting from the non-conformity. If the buyer does none of these and fails to pay for goods received then the buyer is in breach and seller is entitled to payment. Cliffstar Corporation v. Elmar Industries, 254 A.D.2d 723, 678 N.Y.S.2d 222 (4th Dep't 1998).
Under the UCC § 2-607 the buyer is required to alert the seller that goods are non-conforming. In order to effectively reject or revoke, the buyer must unequivocally communicate his intent to the seller. Sears, Roebuck Company v. Galloway, 195 A.D.2d 825, 827, 600 N.Y.S.2d 773, 775 (3rd Dep't 1993) (establishing ""the burden is on the buyer to establish any breach with respect to the goods accepted." U.C.C. § 2-607)7(4).)
Through letters and phone calls defendant communicated its dissatisfaction with the quality of the work performed. Among the problems, Cablescope found dates and times that were not synchronized, printing difficulties, and a "fuzzy" monitor display. (Def. Ex. 6.) Yet, many if not most of these problems were addressed quickly, and Cablescope continued possession and use of the goods for months after its letters of dissatisfaction to ASK's president. (Id.) In his testimony, Cablescope's president acknowledged that the hardware was used for nine months following installation. (Stansfield at 138.) Such usage belies unequivocal rejection or revocation of the goods. This continued use leads the court to conclude that there was constructive acceptance of the goods.
II.
Plaintiff further alleges that Cablescope fraudulently misrepresented the working order of the equipment in an attempt to avoid payment. Under New York law in order to maintain a cause of action for fraud distinct from a breach of contract action, the misrepresentation must be "collateral and extraneous to the terms of the enforceable agreement in place between the parties." International CableTel Incorated v. Le Groupe Videotron LTEE, 978 F. Supp. 483 (1991); Also see McKernin v. Fanny Farmer Candy Shops, Inc., 176 A.D.2d 233, 574 N.Y.S.2d 58 (1991). The misrepresentation alleged in the instant case is neither extraneous nor collateral. Whether the goods were sufficiently operational is directly implicated in the breach of contract action.
III.
Cablescope counterclaims fraud in the inducement based on the Plaintiff's representations in the course of negotiations that it would install, among other things, an SQL server database. In order to make out a separate tort action, the contracting party must have breached a duty distinct from or in addition to the breach of contract. Bernstein v. Polo Fashions, Inc., 55 A.D.2d 530, 531, 389 N.Y.S.2d 368 (1st Dep' t 1976).
Parties are in agreement that the SQL server was delivered to defendant's offices. Even if, as defendant alleges, the technician initially sent to perform the entire installation could not or would not install the SQL server, the evidence does not establish that ASK had no intention of providing a technician that could perform the installation. On the contrary, uncontested evidence was presented that the installation of the server was then voluntarily taken over by another consultant already employed at Cablescope. (Marmion at 101; Def. Ex. J.) There was no further evidence presented that demonstrated the plaintiff's intentional misrepresentations of fact prior to the agreement intended to induce Cablescope into entering the contract. Defendant's claim is neither distinct from nor in addition to its breach of contract claim.
CONCLUSION
The court finds in favor of the plaintiff on the breach of contract claim. Defendant is ordered to pay for equipment provided plus interest as provided for in the contract. Plaintiff's charge of fraudulent misrepresentation is dismissed as are all crossclaims made by the Defendant.