Washington Appeals Court Holds Contract to Furnish and Install Dehumidification System for Pool Subject to the Uniform Commercial Code

Tacoma Athletic Club, Inc. v. Indoor Comfort Systems, Inc.,
79 Wash. App. 250, 902 P.2d 175, 1995 Wash. App. LEXIS 406 (Sept. 14, 1995).

In breach of warranty action brought by owner against contractor, contract to furnish and install a “dehumidification system” was considered to be a “sale of goods” governed by Article 2 of the U.C.C. pursuant to “predominant factor test.” Evidence was insufficient to establish that owner was entitled to be reimbursed entire amount of original contract plus cost to insulate walls as a result of contractor’s breach of warranty related to dehumidification system. 

The Tacoma Athletic Club (“Owner”) hired Indoor Comfort Systems (“Contractor”) to furnish and install a dehumidification system for an indoor pool. The humidity in the pool area was so high that water dripped from the ceilings and down the walls causing damage to the walls. The system provided by the Contractor failed to reduce the humidity in the pool area. After the Contractor attempted unsuccessfully to solve the moisture problem, the Owner eventually hired a new contractor to attempt to fix the problem. The Owner then sued the Contractor for breach of warranty under Article 2 of the Uniform Commercial Code and obtained a favorable judgment.

The appellate court affirmed the trial court’s holding that this transaction was a “transaction in goods” subject to the U.C.C. even though it recognized that prior Washington cases held that “construction contracts” were not subject to the U.C.C. The court found that a majority of other jurisdictions follow the “predominant factor test” to analyze contracts which involve both the sale of goods and services. The court ultimately held that the transaction at issue in this case was a sale of goods and noted that: (1) the negotiations leading up to the contract focused on the goods as opposed to the services to be provided; (2) the contract stated that the “system includes labor,” indicating to the court that the transaction was the sale of a “system” and that the labor was incidental to that system; and (3) the owner received a one year warranty from the manufacturer of the goods that the Contractor supplied.

The appellate court, however, remanded to the trial court the issue of damages. The trial court ordered to the Owner the total contract price paid by Owner as “replacement costs” plus $4,000.00 to insulate the walls. The appellate court analyzed U.C.C. [[section]] 2- 714 and found that the award of these damages could not be sustained under subsection (1) as a “loss resulting in the ordinary course of events at the Seller’s breach” because no evidence suggests that the Owner lost this amount as a result of the breach of warranties. Likewise, the court found that the damages could not be sustained under subsection (3) because there was no evidence of any incidental or consequential damages. The appellate court then analyzed subsection (2) of [[section]] 2- 714, which allows damages which are the difference between the value of the goods as accepted and the value of the goods as warranted. The court noted that the purchase price can, in certain circumstances, be the appropriate measure of damages if the evidence shows that the value of the goods supplied is zero. The court also noted that the cost of replacement or repair is a common measure of the difference between the value as is and the value as warranted. The appellate court however could not affirm the trial court’s awarded damages for fear that the damage award might over-compensate the Owner. The court noted that the Owner did not choose to insulate the walls when the job was bid by the Contractor and that the Contractor did not do so. The court therefore remanded to the trial court the issue of damages for replacement costs. The appellate court, however, affirmed the trial court’s findings regarding the reasonableness of the repair costs and mitigation of damages.

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