Audio Visual Artistry v. Tanzer
Filed December 26, 2012 (2012)
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Rule of Law:
When a contract involves both the sale of goods and the provision of services, the entire transaction is governed by Article 2 of the Uniform Commercial Code (UCC) if the predominant purpose of the contract is the sale of goods, with services being merely incidental.
Facts:
- Stephen Tanzer contracted with Audio Video Artistry (AVA) for the sale and installation of an integrated 'smart home' system in his new 15,000-square-foot house.
- The initial proposal, incorporated into the contract, priced equipment at $56,375.00 and labor/programming at $9,880.00.
- During the project, the scope of work changed and additional equipment was added, including a different music system and integration of the pool, alarm, and HVAC systems.
- Tanzer experienced significant and persistent problems with the system's functionality and stability for over a year after moving into the home.
- While AVA was still working on the system, the home was struck by lightning, damaging some components; AVA replaced these at no additional charge.
- Approximately fifteen months after moving in and frustrated with unresolved issues, Tanzer terminated his contract with AVA.
- AVA's final invoice showed a total project cost of $119,402.15, with equipment costs making up roughly 82% of the total price, and reflected an outstanding balance of $43,824.55.
- After firing AVA and after a second lightning strike, Tanzer hired another company, Marquis Home Solutions, for repairs and upgrades costing $67,587.
Procedural Posture:
- Audio Video Artistry (AVA) sued Stephen Tanzer in the state trial court for breach of contract to recover an unpaid balance.
- Tanzer filed a counter-complaint against AVA, alleging breach of contract and violations of the Tennessee Consumer Protection Act (TCPA).
- Following a bench trial, the trial court found that the contract was predominantly for the sale of goods, making it subject to the Uniform Commercial Code.
- The trial court also ruled that AVA had not violated the TCPA.
- The trial court entered judgment in favor of AVA for the outstanding balance of $43,824.55, but granted Tanzer offsets for certain rejected items and billing errors.
- On a motion to alter or amend, the trial court adjusted an offset amount, increasing the final judgment for AVA to $35,580.55.
- Tanzer, as the appellant, appealed the trial court's judgment to the Tennessee Court of Appeals; AVA is the appellee.
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Issue:
Does Article 2 of the Uniform Commercial Code govern a hybrid contract for the sale and installation of a home automation system where the cost of the equipment significantly outweighs the cost of the installation and programming services?
Opinions:
Majority - J. Steven Stafford
Yes. A hybrid contract for a home automation system is governed by Article 2 of the UCC when its predominant purpose is the sale of goods. The court applied the four-factor 'predominant purpose' test from Pass v. Shelby Aviation. First, the contract's language, using terms like 'purchaser,' 'equipment,' and 'delivery of goods,' points to a sale of goods. Second, AVA’s business is primarily the sale of home automation components, with installation being an incidental service. Third, the reason the parties entered the contract was for Tanzer to acquire a product—a functioning smart home system composed of movable goods. Finally, and most persuasively, the cost of the equipment constituted approximately 82% of the total contract price, heavily outweighing the cost of labor. Because the UCC governs the entire transaction, Tanzer’s remedies are limited. By retaining and using most of the equipment, he accepted the goods and is thus liable for the contract price, subject to offsets for any non-conforming goods he properly rejected or damages for breach of warranty, which he failed to prove with sufficient evidence.
Analysis:
This decision solidifies the application of the 'predominant purpose test' to modern, technology-focused hybrid contracts in Tennessee. It clarifies that even when complex, custom installation and programming services are involved, the transaction will be governed by the UCC if the tangible goods are the primary object and cost of the deal. This precedent is significant for disputes involving integrated electronic systems, as it dictates that remedies will be based on the UCC's framework for rejection, revocation, and breach of warranty, rather than common law principles of material breach. The ruling emphasizes the importance of cost allocation in hybrid contracts and provides a clear guide for how courts will classify such agreements in the future.
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