## Facts

- A developer owned a warehouse leased to textile companies storing inventory on the premises.
- The warehouse’s sprinkler system was designed and installed by a subcontractor under a subcontract with the general contractor and connected to the city water main by an underground pipe run.
- Several months after installation, an underground section of the connecting pipe burst, flooding the warehouse and causing substantial water damage to the tenants’ textiles.
- The tenants claimed the failure resulted from a “water hammer” event that produced extreme internal pressure in the line.
- The tenants’ experts attributed the rupture to a V-shaped “stress-raising” notch in the pipe, allegedly created when the subcontractor cut the pipe with a hydraulic squeeze cutter with a dull tooth; they also asserted rusting at the notch reduced the pipe’s integrity.
- The subcontract included specifications for materials and performance and an express promise that the subcontractor’s work would be of good quality and free from defects.
- The tenants sued the general contractor and subcontractor on alternative theories of negligent installation and breach of an implied warranty of fitness for a particular purpose.

## Issues

1. Whether the sprinkler design-and-installation subcontract was predominantly a sale of goods such that UCC § 2-315 (implied warranty of fitness for a particular purpose) applied.
2. Whether the tenants could obtain a jury charge on UCC implied warranty where the alleged defect was tied to cutting/installation performance rather than an inherent defect in the goods supplied.

## Decision

- The Court of Appeals of New York affirmed the judgment for the general contractor and subcontractor.
- The trial court properly refused to submit an implied-warranty-of-fitness theory to the jury and properly limited the case to negligent installation.
- The transaction was predominantly a construction/service contract for a completed sprinkler system (an improvement to real property), not a UCC Article 2 sale of goods.
- Because UCC § 2-315 was inapplicable as a matter of law, the tenants were not entitled to an implied warranty charge; the jury’s defense verdict on negligence remained undisturbed.

## Legal Principles

- For mixed goods-and-services agreements, Article 2 applies only when the dominant purpose of the transaction is the sale of goods; when services/construction predominate, UCC implied warranties do not apply.
- A contract to design and install an integrated building system is generally treated as a service/construction agreement, even if materials are supplied as part of performance.
- UCC § 2-315 requires a qualifying sale by a “seller” of goods and a lack of fitness in the goods; allegations that failure resulted from the manner of cutting, installing, or otherwise performing services sound in negligence rather than Code-based implied warranty.
- Courts will not permit UCC warranty concepts to be used to convert service-performance claims into warranty-based liability where the governing transaction is principally for services.

## Conclusion

The court held that tenants damaged by a warehouse flood could not pursue UCC implied warranty of fitness against the contractor and sprinkler subcontractor because the underlying agreement was primarily for design and installation services; the case was properly tried solely on negligence, and the defense verdict stood.


Milau Assocs., Inc. v. N. Ave. Dev. Corp., 42 N.Y.2d 482, 368 N.E.2d 1247 (N.Y. 1977)