Generations v. Zarbock

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NOTICE: THIS DECISION DOES NOT CREATE LEGAL PRECEDENT AND MAY NOT BE CITED EXCEPT AS AUTHORIZED BY APPLICABLE RULES. See Ariz. R. Supreme Court 111(c); ARCAP 28(c); Ariz. R. Crim. P. 31.24 IN THE COURT OF APPEALS STATE OF ARIZONA DIVISION ONE GENERATIONS RANCH, LLC, a limited liability company, Plaintiff/Appellant, v. RICHARD ZARBOCK and ELIZABETH ZARBOCK, individually and doing business as ARIZONZA MD BARN COMPANY, Defendants/Appellees. ) ) ) ) ) ) ) ) ) ) ) ) ) DIVISION ONE FILED: 01/19/2012 RUTH A. WILLINGHAM, CLERK BY: DLL 1 CA-CV 10-0771 DEPARTMENT A MEMORANDUM DECISION (Not for Publication Rule 28, Arizona Rules of Civil Appellate Procedure) Appeal from the Superior Court in Maricopa County Cause No. CV2007-011463 The Honorable Jeanne Garcia, Judge AFFIRMED Walker & Harper, P.C. By Michael J. Harper Attorneys for Plaintiff/Appellant Titus Brueckner & Levine PLC By John R. Tellier Attorneys for Defendants/Appellees T I M M E R, Presiding Judge Payson Scottsdale ¶1 In this breach-of-contract case, plaintiff Generations Ranch, LLC, ( Generations ) appeals the trial court s judgment in favor of defendants Richard and Elizabeth Zarbock and their business, Arizona MD Barn Company (collectively, MD Barn ). Generations argues the court improperly relied on and applied the Uniform Commercial Code, as adopted in Arizona ( UCC ), and erroneously interpreted the parties contract in ruling that MD Barn did not breach its agreement to construct a horse barn on Generations property. For the reasons that follow, we disagree and therefore affirm. BACKGROUND 1 ¶2 MD Barn is a dealer of modular pre-engineered steel barns manufactured by MD Enterprises, Inc. (the Manufacturer ). On November 19, 2004, MD Barn and Generations entered into a written proposal/contract ( Contract ) whereby Generations would purchase, and MD Barn would deliver and erect, modular components for an eleven-stall horse barn on Generations ranch property outside Casa Grande. The Contract required Generations to pay MD Barn a total of $149,437, payable in essentially three stages: pre-delivery, construction progress payments, and a final payment upon completion. 1 We view the evidence in the light most favorable to upholding the judgment. Federoff v. Pioneer Title & Trust Co. of Ariz., 166 Ariz. 383, 388, 803 P.2d 104, 109 (1990). 2 ¶3 Contrary to MD Barn s recommendations and normal business practice, it acquiesced to Generations demand that the barn components be delivered before the concrete pad upon which the barn would be erected was laid. 2 Although it appears from the record that MD Barn typically pours the concrete as part of its normal services for customers, Generations took the concrete work out of [the] [C]ontract[,] and made arrangements with another party for the concrete work. ¶4 Generations paid MD Barn the requisite pre-delivery payment of $124,675, and [a]ll the barn component parts[] were delivered on July 11, 2005, directly from the Manufacturer. components consisted of two truckloads worth of The materials that, when unloaded, comprised a pile approximately one hundred yards long. Later that day, MD Barn delivered bundle-wrapped, one-inch thick sheets of foam insulation. ¶5 Around July 23, a wind storm passed through the area and relocate[d] some [of the] insulation. Zarbock visited the site and drove around A day or two later, the property with Donald Paunil, a member of Generations who was responsible for 2 Richard Zarbock, a principal of MD Barn, testified, Barns are always delivered after the concrete is done. . . . And we start building and erecting the building the same day. He explained that this practice is preferred for scheduling purposes and because [a] barn laying down on the ground will deteriorate. Zarbock further explained that when construction begins immediately after delivery, any missing parts will be discovered and quickly remedied. 3 construction projects on the ranch. They discovered miles of insulation crumbs that looked like snow[.] ¶6 Also Zarbock and fasteners during visit, regarding a Paunil this needed to a dispute purportedly construct the arose between missing of According barn. box to Generations, MD Barn accused Generations of misappropriating it while Generations maintained the Manufacturer never delivered the fasteners. ¶7 risk Relying on a provision in the Contract that placed any of loss on Generations after the barn components were delivered, on September 8 Zarbock recommended that Generations provide its insurance company with a quote to purchase and ship replacement fasteners and insulation. accept responsibility for the Generations refused to missing/destroyed materials and instead demanded MD Barn bear the replacement costs. ¶8 The dispute remained unresolved when, on September 28, the concrete was poured, and Generations requested MD Barn begin erecting the barn as soon as possible. request despite cracking. MD Paunil s Barn concern responded by that Generations made this the letter concrete dated pad was October 11, informing Generations that its failure to pay for replacement of the insulation Contract. and fasteners constituted repudiation of the MD Barn therefore demanded reasonable and adequate assurances from Generations in the form of a certified check or 4 payment into escrow of an amount constituting the replacement costs plus the $24,762 balance of the Contract. MD Barn proposed Contract through contract Instead to of have to a resolve mutual the providing dispute release barn the the so that constructed requested by as Alternatively, terminating Generations [it] assurances see[s] that it the could fit. would perform on the Contract, or agreeing to terminate the Contract, Generations demanded on October 31 that MD Barn come out to the job site to pre-approve the concrete before beginning erection of the barn and additionally noted, [c]ommencing construction of the barn will indicate your acceptance and approval of the concrete and that the full barn warrantee period and warrantee coverage will be in effect. Based on Generations refusal to provide adequate assurances, MD Barn did not commence work on the barn. ¶9 At some point, the concrete pad was ripped out and replaced, and on June 7, 2006, Generations informed MD Barn that Paunil had discovered the box of fasteners hidden in the pile of barn components. Generations stated it was ready to move forward with the construction of the barn as soon as possible. MD Barn apparently ignored Generations, which in turn contracted 5 with another party to construct the barn with the assistance of the Manufacturer. 3 ¶10 The barn was completed in March 2007. On July 2, Generations filed a complaint against MD Barn for breach of contract and breach of the covenant of good faith and fair dealing. Generations prevailed at arbitration, and MD Barn appealed to superior court. trial, the Generations court ruled in unsuccessfully MD Barn s moved for After a two-day bench favor a new on both trial, claims. and this timely appeal followed. ¶11 We will defer to the trial court s factual findings unless they are clearly erroneous, but we draw our own legal conclusions from [the] facts found or implied in the judgment. In re Marriage of Gibbs, 227 Ariz. 403, 406, ¶ 6, 258 P.3d 221, 224 (App. omitted). 2011) (citations and internal quotation marks We review the court s denial of Generations motion for new trial for an abuse of discretion. White v. Greater Ariz. Bicycling Ass n, 216 Ariz. 133, 135, ¶ 6, 163 P.3d 1083, 1085 (App. 2007). 3 Once construction commenced, MD Barn delivered further components that it had stored at its facility; components Zarbock explained are typically delivered upon or near construction of the final building because they are not necessary to construction and are mobile and therefore easily stolen. 6 DISCUSSION I. ¶12 UCC Applicability of UCC Generations argues the court incorrectly relied on the in reaching its decision. Specifically, Generations contends the Contract was predominantly one regarding services, not goods, thus rendering the UCC inapplicable to this case. Barn responds the court properly found that the MD Contract primarily concerned goods and therefore fell within the scope of the UCC. ¶13 The UCC applies only to transactions involving goods, not services. The Contract See Ariz. Rev. Stat. ( A.R.S. ) § 47-2102 (2005). unquestionably concerns components) and services (installation). both goods (barn When deciding whether the UCC applies to such mixed contracts, Arizona courts first determine the predominate purpose of the contract and then apply the UCC only if the sale of goods predominates. Double AA Builders, Ltd. v. Grand State Constr. L.L.C., 210 Ariz. 503, 509-10, ¶ 33, 114 P.3d 835, 841-42 (App. 2005). Determining the predominant purpose of such a contract often involves resolving issues of fact, id. at 510, ¶ 34, 114 P.3d at 842, but whether a contract is predominantly ultimately an issue of law. one for goods or services is See Hall Family Props., Ltd. v. Gosnell Dev. Corp., 185 Ariz. 382, 388, 916 P.2d 1098, 1104 (App. 1995) (holding contract 7 interpretation generally a question of law); MBH, Inc. v. John Otte Oil & Propane, Inc., 727 N.W.2d 238, 245-46 (Neb. Ct. App. 2007) (following other jurisdictions holdings that whether sale of goods predominate a contract is generally a question of law). ¶14 The court in this case did not make specific findings regarding the predominant purpose of the Contract. Because it applied found the UCC, however, we assume the court predominant purpose was for the sale of goods. 4 the See John C. Lincoln Hosp. & Health Corp. v. Maricopa County, 208 Ariz. 532, 540, ¶ 23, 96 P.3d 530, 538 (App. 2004) ( [i]mplied in every judgment, in addition to express findings made by the court, is any additional finding that is necessary to sustain the judgment, if reasonably supported by the evidence, and not in conflict with the express findings. ) (citation and internal quotation marks omitted). ¶15 Applying the predominant-purpose test, we conclude the record sufficiently supports the trial court s implicit finding that the Contract was predominantly one for the sale of a good (the barn) with services (assembly) attendant thereto: 4 Generations asserts in its reply brief that we cannot assume the trial court decided the predominant purpose of the Contract because the court failed to make any findings on the topic. Generations has waived this argument, however, because it failed to point out the alleged insufficiency of the findings to the trial court, thereby depriving that court of the ability to correct any error. Elliott v. Elliott, 165 Ariz. 128, 134, 796 P.2d 930, 936 (App. 1990). 8 (1) MD Barn s proposal, reflected in the initial lines of the Contract, was for the sale . . . of MD designed modular freestanding accessory or barns, other items. MD See corrals, products Tivoli shelters, and optional Enters., Inc. v. Brunswick Bowling & Billiards Corp., 646 N.E.2d 943, 948 (Ill. language App. in Ct. sales 1995) contract (holding stating introductory buyer ordering bowling lane components and equipment suggests thrust of contract is one for goods). one of Generations members, Additionally, Paunil, really wanted an MD Barn. (2) MD Barn explicitly limited its proposal to the sale and delivery of specific materials and excluded installation and installation-related tasks unless otherwise noted in the Contract; the parties checked a provision in the Contract indicating MD Barn would install the barn components, but Generations remained responsible for erecting a concrete slab on which the barn would rest. This provision suggests that while the goods identified for purchase and delivery were unique and installation required of the to fulfill components the Contract could have terms, been accomplished by third parties and was therefore a less 9 important component of the deal struck between the parties. Indeed, a third party ultimately installed the barn components. (3) The Contract provided Manufacturer s Warranties that applied to the barn s walls and roof but did not provide warranties regarding labor. existence of warranties for See id. (deciding goods but not labor supported conclusion that contract was primarily for goods). (4) The Contract price applies only to goods. included sales tax, which See Qwest Dex, Inc. v. Ariz. Dep t of Revenue, 210 Ariz. 223, 226, ¶ 17, 109 P.3d 118, 121 (App. 2005) (holding that if dominant purpose of transaction is service, the transaction taxable); Tivoli Enters., 646 N.E.2d at 948 sales tax included in contract price is not (noting indicates contract primarily for goods). (5) Finally, finding that the the evidence majority reasonably of the supports Contract a price, $149,347, compensated MD Barn for goods rather than services. Specifically, Generations was required to pay the majority of that price, $124,675, prior to installation, leaving $24,762 owing after commencement of installation. And the third party which eventually 10 assembled the barn charged $30,321, which included provision of $11,771 in replacement insulation. See MBH, 727 N.W.2d at 247 (deciding fact that majority of purchase price of ongoing business was allocated to non-goods supports finding that UCC inapplicable). ¶16 Although, as Generations emphasizes, the Contract also provides for accomplished installation to secure a (services), finished barn which and had provide to be value to Generations, this fact alone does not mandate a conclusion that the predominate purpose of the Contract was the provision of services. If that was so, all contracts for the sale and installation of goods likely would be considered services, which is not the case. See, e.g., Tivoli Enters., 646 N.E.2d at 948 (concluding contract for sale and installation of bowling lanes predominantly one for goods); Pittsburgh-Des Moines Steel Co. v. Brookhaven Manor Water Co., 532 F.2d 572, 580 (7th Cir. 1976) (holding contract for construction and erection of one milliongallon water tank predominantly one for sale of goods); Cleveland Lumber Co. v. Proctor & Schwartz, Inc., 397 F. Supp. 1088, 1092 (N.D. Ga. 1975) (concluding transaction involving sale and installation of wood drying kiln predominantly involved goods). ¶17 Generations reliance on Double AA Builders does not persuade us to reach a different conclusion. 11 In that case, a subcontractor, which was the successful bidder to install exterior insulation on a commercial building project, refused to sign a contract or perform because it could not accommodate the general contractor s building schedule due to staffing issues. 210 Ariz. at 505, ¶ 6, 114 P.3d at 837. In the ensuing lawsuit, this court addressed the applicability of the statute of frauds, which does not apply to a contract for services, to a subcontract that contemplates both the provision of goods and services. Id. at 509, ¶ 32, 114 P.3d at 841. predominant-purpose test, we held that Applying the sufficient facts supported a determination that the predominant purpose of the contemplated contract subcontractor s subcontractor Registrar agreement. of bid was was for included required Contractors labor to in be order services and because materials, licensed to by perform Id. at 510, ¶ 36, 114 P.3d at 842. the and the the Arizona under the In the present case, although MD Barn was required to be licensed to assemble the barn, a fact that favors Generations position, other factors exist showing that sale of goods was the predominant purpose of the Contract. See supra ¶ 15. Moreover, MD Barn contracted to supply a unique product a MD Barn-designed barn while the subcontractor in Double AA Builders competed with other subcontractors to supply and install the same product. 210 Ariz. at 505, ¶¶ 2-3, 114 P.3d at 837. 12 The uniqueness of the goods underlying the Contract further supports a conclusion that its predominant purpose was to supply goods. ¶18 Generations cites several cases from other jurisdictions to support its position that the service portion predominates in a contract for sale and installation of goods. These cases do not persuade us to reach a different result. Two of the cases involve a contract for the provision of services only, so they do not shed light on the situation before us. See Hunter s Rune Stables, Inc. v. Triple H Constr. Co., Inc., 938 F. Supp. 166, 168 (W.D.N.Y. 1996) (stating that contract for construction of horse barn not governed by UCC because it did not involve a sale of any goods); Al & Zack Brown, Inc. v. Bullock, 518 S.E.2d 458, 462 (Ga. Ct. App. 1999) (deciding UCC inapplicable because contract not for sale of steel but for fabrication of steel supplied by others and for installation services). The remaining cases do not employ a bright-line rule that contracts involving construction are always exempted from the UCC, as Generations contends; rather, unique facts of the particular cases. they turn on the See Wehr Constructors, Inc. v. Steel Fabricators, Inc., 769 S.W.2d 51, 54 (Ky. Ct. App. 1988) (deciding incorporated sale real of estate goods construction not covered by contract UCC); Art that Metal Products Co. of Chicago v. Royal Equip. Co., 670 S.W.2d 152, 155-56 (Mo. Ct. App. 1984) (holding 13 that subcontract for installation of lockers delivered to school by third party, as arranged by subcontractor, not governed by UCC as subcontractor predominantly provided installation service); N. Farm Supply, Inc. v. Sprecher, 307 N.W.2d 870, 874 (S.D. 1981) (concluding contract to build a hog confinement building that did not provide for sale of raw materials a construction contract not subject to UCC); Ames Contracting Co. v. City Univ. of N.Y., 466 N.Y.S.2d 182, 185 (N.Y. Ct. Cl. 1983) (noting construction contracts generally exempted from UCC and holding contract at issue exempted because it was predominantly for services), rev d on other grounds, 108 A.D.2d 609 (N.Y. App. Div. 1985). ¶19 In sum, we hold the trial court did not err by implicitly finding the UCC applicable to the Contract because the sale of goods predominated. II. ¶20 Acceptance of goods Generations next argues the court misapplied A.R.S. § 47-2601 (2005), which provides that a buyer may accept, reject, or reject in part any goods or delivery that does not conform to the sales contract. To reject all or part of the goods, a buyer must do so within a reasonable time after their delivery and must seasonably notify the seller. A buyer rejected. is relieved Id. at of all A.R.S. § 47-2602(A) (2005). obligations 47-2602(B)(3). for goods Conversely, by rightfully accepting delivered goods, a buyer waives any claim that those goods did 14 not conform to the contract. Pac. Am. Leasing Corp. v. S.P.E. Bldg. Sys., Inc., 152 Ariz. 96, 100-01, 730 P.2d 273, 277-78 (App. 1986). ¶21 The trial court concluded Generations failed to reject the barn components after a reasonable opportunity to inspect had passed. As a result, relying on A.R.S. §§ 47-2602(A), and 47-2606(A)(2) (2005), the court ruled that Generations accepted the components and, under the terms of the Contract, assumed responsibility to safeguard them. The court decided that Generations therefore bore the risk of missing or damaged barn components. ¶22 Generations argues the court erred in its ruling because (1) the UCC does not apply to the Contract, and (2) assuming the UCC applies, Generations did not waive its right to contest Contract that MD because Barn (a) delivered goods that MD never tendered Barn conformed to the delivery or, alternatively, (b) a reasonable time to inspect the goods did not occur until erection of the barn. As previously explained, the trial court did not err by ruling that the UCC applies to the Contract; we therefore reject Generations initial argument. Generations did not argue to the trial court that MD Barn failed to tender delivery of the barn until the barn was erected, so it has waived this issue on appeal. Airfreight Express Ltd. v. Evergreen Air Ctr., Inc., 215 Ariz. 103, 109-10, ¶ 17, 158 P.3d 15 232, 238-39 (App. 2007) (noting party waives argument raised for first time on appeal address the issue). as trial court had no opportunity to Because Generations argued to the trial court it never accepted the barn components, it preserved that issue for appeal, and we therefore address it. ¶23 Generations asserts it was impossible for it to inspect the delivered barn components because no one conducted a formal inventory with Generations, and it had no way of knowing whether the components conformed to the Contract until the third party eventually erected the barn. As Generations points out, the components would have stretched one hundred yards when laid end to end, and Zarbock (MD Barn) admitted that customers would neither understand nor recognize the components. Generations argues reject components, the it was never and the in a trial position court As a result, to erred accept by or ruling otherwise. ¶24 What constitutes a reasonable opportunity for inspection depends on the circumstances of the particular case, A.R.S. § 47-1205(A) (Supp. 2010), and is generally a question of fact. See G&H Land & Cattle Co. v. Heitzman & Nelson, Inc., 102 Idaho 204, 208, 628 P.2d 1038, 1042 (Idaho 1981) (collecting cases). finding The evidence in the record supports the trial court s that a reasonable opportunity without action by Generations. 16 for inspection passed ¶25 The Contract did not provide any terms for inspection and did not obligate MD Barn to participate in conducting a formal inventory with Generations or provide an itemization of the goods. Generations, desired Once it was the barn components incumbent inspection. See on were Generations generally A.R.S. delivered to arrange any to § 47-2513(B) (providing that [e]xpenses of inspection must be borne by the buyer but may be recovered from the seller if goods do not conform and are rejected ); Heil-Quaker v. Swindler, 255 F. Supp. 445, 449 (D.S.C. 1966) (holding that duty on buyer to inspect goods after given a reasonable opportunity to do so). Although we agree with Generations that the reasonable time to inspect the barn components was lengthened by MD Barn s refusal of Generations request to assist in inventorying the multitude of components, we disagree this time stretched until the third party erected the barn (March 2007). 5 First, Generations does not point to any evidence regarding efforts it made to inspect the components Manufacturer after later MD supplied Barn s refusal. replacements The for fact missing the parts indicates it was possible to determine what, if anything, was missing at the time of delivery. Second, Generations was placed on notice by October 2005 that MD Barn would not erect the barn 5 Neither party states whether Generations ever notified MD Barn of Generations rejection of the barn components after erection of the barn. 17 without assurances Generations fasteners and insulation. third party erecting to the pay for replacement Rather than immediately retaining a inspect barn, would the components thereby in discovering preparation any missing for or nonconforming components, Generations waited until June 2006 to ask MD Barn again to commence erection of the barn and then subsequently hire a third party to do the job. the components ability to sat outside, accurately assess condition in July 2005. potentially what was In the meantime, hindering delivered anyone s and in what Despite the difficulty of inspecting the barn components, Generations was required to do something to complete its desired inspection. The court acted within its discretion by finding Generations failed to take action within a reasonable timeframe to complete an inspection of the goods. ¶26 Additionally, components to erect as the MD Barn barn, contends, by the accepted Generations using the components. The Contract states that [a]ny use by customer constitutes complete barn/materials. would not and unconditional acceptance of More than one year after MD Barn stated it erect the barn without reasonable assurances Generations would pay for replacement fasteners and insulation, a third party components. erected the barn using the MD Barn-supplied At the latest, therefore, Generations accepted the barn components by that time. 18 III. Insurance ¶27 Generations concluding insure finally Generations the barn argues the the Contract breached components as the court by Contract erred by failing to only required Generations to insure the completed barn and materials against third party claims. But the court did not rule that Generations breached the Contract by failing to insure the barn components. Read in context, the court merely highlighted Contract provisions establishing that Generations was responsible for the barn components after delivery, thereby relieving MD Barn of any liability for the damaged insulation: Generations Ranch was responsible for the barn components upon delivery pursuant to the Paragraph 3 of the Contract. In addition, Paragraph 8 required Generations Ranch to insure the components. Therefore, Arizona MD Barn is not responsible for the damaged insulation. Even assuming the Court misstated the breadth of the insurance obligation, the court s error would not mandate reversal. The pertinence of the Contract provision is to establish the time that risk of loss transferred to Generations the date of delivery regardless of the extent of the insurance obligation. We therefore reject Generations argument. Attorney s fees on appeal ¶28 appeal Both parties pursuant to request A.R.S. § 19 attorney s 12-341.01 fees (2003). expended We on deny Generations request as it did not prevail. We grant MD Barn s request subject to its compliance with Arizona Rule of Civil Appellate Procedure 21. CONCLUSION ¶29 For the foregoing reasons, we affirm. ____________________________________ Ann A. Scott Timmer, Presiding Judge CONCURRING: ______________________________ Daniel A. Barker, Judge* ______________________________ Patrick Irvine, Judge* *Judge Daniel A. Barker and Judge Patrick Irvine were sitting members of this court when the matter was assigned to this panel of the court. Both judges retired effective December 31, 2011. In accordance with the authority granted by Article 4, Section 3 of the Arizona Constitution and pursuant to Arizona Revised Statutes section 12-145 (2003), the Chief Justice of the Arizona Supreme Court has designated Judges Barker and Irvine as judges pro tempore in the Court of Appeals, Division One, for the purpose of participating in the resolution of cases assigned to this panel during their terms in office. 20

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