## Facts

- A neurologist’s medical practice sought a computer system to replace manual billing and recordkeeping.
- The physician authorized the office manager, who lacked computer-buying experience, to select and acquire a suitable system.
- The office manager contacted several vendors and chose an office-equipment dealer that marketed itself as a microcomputer dealer and had previously sold the practice a photocopier.
- The dealer evaluated the practice’s existing manual billing process and then entered a lease/purchase-option arrangement covering computer hardware, software, and related customization.
- The financing was structured through a third-party lessor, but the dealer selected, supplied, and customized the system for the practice.
- After delivery and installation, the system did not perform properly for the practice’s needs, including inadequate patient-data functionality and inaccurate accounts-receivable balances.
- The practice notified the dealer, which attempted software modifications without success.
- The practice terminated the lease for cause; the dealer repossessed the system, made further changes, and returned it, but the practice did not resume using it.
- The practice sued the dealer for breach of the implied warranties of merchantability and fitness for a particular purpose.

## Issues

1. Whether a lease transaction for a computer system (hardware, customized software, and related technical services) is predominantly a transaction in “goods” governed by UCC Article 2.
2. Whether the evidence supported findings that the dealer breached the implied warranties of merchantability and fitness for a particular purpose.
3. Whether the trial court correctly computed damages for breach of warranty.

## Decision

- The Delaware Supreme Court held the agreement was predominantly for “goods,” so UCC Article 2 applied notwithstanding associated services and customization.
- The Court affirmed the finding that the dealer breached the implied warranties of merchantability and fitness for a particular purpose.
- The Court reversed the damages award because the parties conceded a computational error and remanded for recomputation of damages.

## Legal Principles

- UCC Article 2 applies to transactions in “goods,” generally movable items identified to the contract; mixed goods-and-services contracts are governed by Article 2 when the transaction’s predominant purpose is the provision of goods.
- A merchant-seller of goods of the kind gives an implied warranty of merchantability that the goods will be fit for their ordinary purposes.
- An implied warranty of fitness for a particular purpose arises when the seller has reason to know the buyer’s particular purpose and that the buyer is relying on the seller’s skill or judgment to furnish suitable goods.
- When breach of warranty liability is established but the damages calculation is erroneous, the proper remedy is remand for recalculation under the applicable UCC measure.

## Conclusion

The court treated an integrated computer system—including customized software—as “goods” under UCC Article 2, upheld liability for breach of the implied warranties of merchantability and fitness based on the system’s failure to meet ordinary and disclosed medical-practice needs, and remanded solely to correct the damages computation.


Neilson Bus. Equip. Ctr., Inc. v. Monteleone, 524 A.2d 1172 (Del. 1987)