Colorado Carpet Installation, Inc. v. Palermo, 82SC168

• Decision Date: 12 September 1983
• Docket Number: No. 82SC168,82SC168
• Parties: , 36 UCC Rep.Serv. 1516 COLORADO CARPET INSTALLATION, INC., d/b/a Sierra Range Carpets, Inc., a Colorado corporation, Petitioner, v. Fred PALERMO and Zuma Palermo, Respondents.
• Court: Colorado Supreme Court

Page 1384

668 P.2d 1384

45 A.L.R.4th 1113, 36 UCC Rep.Serv. 1516

COLORADO CARPET INSTALLATION, INC., d/b/a Sierra Range Carpets, Inc., a Colorado corporation, Petitioner, v. Fred PALERMO and Zuma Palermo, Respondents.

No. 82SC168.

Supreme Court of Colorado.

Sept. 12, 1983.

Louis A. Weltzer, Denver, for petitioner.

Joseph P. Constantine, Denver, for respondents.

EN BANC.

QUINN, Justice.

We granted certiorari to review the decision of the court of appeals in Colorado Carpet Installation, Inc. v. Palermo, 647 P.2d 686 (Colo.App.1982). The court of appeals, in reversing the trial court, held that an oral agreement involving the purchase and installation of carpeting and other flooring materials was a contract for the sale of goods within the meaning of section 4-2-201(1), C.R.S.1973, of the Uniform Commercial Code, rather than a service contract, and that the contract was unenforceable because the goods did not qualify under section 4-2-201(3)(a), C.R.S.1973, for the "specially manufactured goods" exception to the "writing" requirement of section 4-2-201(1), C.R.S.1973. We affirm the judgment of the court of appeals.

I.

In July 1980 Colorado Carpet Installation, Inc., doing business as Sierra Range Carpets, Inc. (Colorado Carpet), commenced an action in the District Court of Adams County against Fred and Zuma Palermo for breach of contract. The claim was based on an alleged oral agreement in which the Palermos agreed to pay $4,775.75 to Colorado Carpet for the purchase and installation of carpeting, other flooring materials, and bathroom tile for the Palermo home in Thornton, Colorado. The Palermos in their answer denied the existence of a contract and affirmatively asserted that the statute of frauds, section 4-2-201(1), C.R.S.1973, rendered any such agreement unenforceable.

The controversy was tried to the court and arose as follows. Colorado Carpet is a Colorado corporation engaged in the business of selling and installing carpeting, tile and other flooring materials. In April 1980 Jack Duran, the president of Colorado Carpet, began negotiations with the Palermos for the sale and installation of carpeting, carpet padding, tile and vinyl floor covering in the downstairs and upstairs areas of their home. Colorado Carpet did not maintain an actual retail store or warehouse for these materials, but arranged to purchase them from other distributors. In the course of his negotiations with the Palermos, Duran delivered carpet samples to the Palermo home, measured the home, and assisted Mrs. Palermo in locating at local retail outlets the type and brand of flooring materials that she wanted. Further negotiations ensued, including a written proposal from Duran.

This written proposal, which referred to Colorado Carpet as "the seller" and to the Palermos as "the customer," stated that Colorado Carpet offered for the Palermos' acceptance the following items: a total of 195 square yards of Seduction and Amaretto carpeting, along with padding, at $15.95 per square yard, for a total price of $3110.45; 48 square yards of kitchen carpeting at $8.50 per square yard, for a total price of $399.50; ¹ 55 square yards of deck carpeting at $7.50 per square yard, for a total price of $412.50; approximately 220 square feet of ceramic tile at $3.50 per square foot, for a total price of $770; and 9 square yards of vinyl floor covering at $9.50 per square yard, for a total price of $85.50. The proposal expressly included all labor. According to Duran, the source of Colorado Carpet's profit from such a transaction would be the markup on the sale of the materials and not their installation, the latter being provided at cost. He estimated the labor cost at $2.00 per square yard for installing the upstairs, downstairs and kitchen carpeting, and $1.50 per square foot for installing the tile.

Although the Palermos never made a written acceptance of Colorado Carpet's proposal, Duran testified that Mrs. Palermo orally accepted the proposal on or about April 25, 1980, shortly after he submitted it to her. Mrs. Palermo, in contrast, denied accepting the written proposal. It was her testimony that neither she nor her husband ever agreed to purchase any carpeting from Colorado Carpet and that she had contacted Duran only about a tiling job for the upstairs and downstairs bathrooms.

On April 30 and May 1, 1980, Colorado Carpet placed orders with Georgia and California manufacturers for the Seduction (downstairs) and the Amaretto (upstairs) carpeting. These orders called for both carpets to be cut into segments measuring 12 feet by 73 feet in order to permit effective installation in the upstairs and downstairs sections of the Palermo home. ² The orders were filled in due course, and the carpets were eventually delivered to a Denver warehouse. Colorado Carpet deferred ordering the carpet padding and kitchen carpet at this time because these were stock items and could be purchased immediately before the installation was to commence.

Colorado Carpet purchased and delivered the ceramic tile to the Palermo home for eventual installation in the upstairs and downstairs bathrooms. Mrs. Palermo, however, had a disagreement with Colorado Carpet's tile man over some repair work in connection with the tile installation and arranged with some other contractor to supply and install other tile. Duran, on behalf of Colorado Carpet, attempted unsuccessfully to renegotiate with the Palermos but to no avail. Colorado Carpet removed its tile from the home, returned half of it to the supplier for a refund and sold the other half. It also shipped the Seduction carpeting back to the California manufacturer in exchange for some credit and was able to sell the Amaretto carpeting to a local purchaser.

The trial court found that Colorado Carpet's proposal for the sale and installation of the carpeting and other materials had been orally accepted by the Palermos, thereby resulting in a contract, and determined that the contract was enforceable for two reasons: first, the agreement constituted a service contract for the performance of labor, rather than a contract for the sale of goods, and thus was not subject to the "writing" requirement of the statute of frauds section of the Uniform Commercial Code, section 4-2-201(1), C.R.S.1973; and second, even if the entire agreement was construed as a contract for the sale of goods, that part of the agreement relating to the purchase and installation of carpeting fell within the "specially manufactured goods" exception to the statute of frauds, section 4-2-201(3)(a), C.R.S.1973, and thus was enforceable on that basis. ³ The court awarded damages to Colorado Carpet in the amount of $1,356.50, based upon lost profits, labor, and stortage and shipping costs in connection with all the carpeting and padding ordered under the contract, not just the upstairs and downstairs carpeting. The court of appeals reversed the judgment, reasoning that although the agreement was a contract for the sale of goods, it did not satisfy the "specially manufactured goods" exception to the statute of frauds. We granted certiorari to consider whether the oral agreement in question constituted a contract for the sale of goods within the meaning of section 4-2-201(1) of the Uniform Commercial Code, and, if so, whether it qualified for the "specially manufactured goods" exception of section 4-2-201(3)(a).

II.

We first address the court of appeals' determination that the contract was one for the sale of goods, rather than for the performance of labor or services. We conclude that the agreement in question involved a contract for the sale of goods as contemplated by section 4-2-201(1), C.R.S.1973.

This section prohibits the enforcement of contracts "for the sale of goods for the price of $500 or more ... unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought ...." By its terms, the statute applies only to contracts for the sale of goods, and not to contracts for labor or services. E.g., Robertson v. Ceola, 225 Ark. 703, 501 S.W.2d 764 (1973); George F. Mueller & Sons, Inc. v. Northern Illinois Gas Co., 12 Ill.App.3d 362, 299 N.E.2d 601 (1973); 3 R. Duesenberg & L. King, Bender's Uniform Commercial Code Service § 2.02 at 2-24 (1982); cf. Samuelson v. Chutich, 187 Colo. 155, 529 P.2d 631 (1974) (statutory warranties imposed by Uniform Sales Act not applicable to service contracts). The Uniform Commercial Code defines "goods" to mean "all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities ... and things in action." Section 4-2-105(1), C.R.S.1973. A "sale," by statutory definition, "consists in the passing of title from the seller to the buyer for a price," and a "contract for sale" includes a present sale of goods as well as a contract to sell goods at a future time. Id. 4-2-106(1).

In this case the subject of the contract involved "goods" because the carpeting and other materials were movable at the time that Colorado Carpet procured them for installation pursuant to the agreement. Since the agreement contemplated that title to the carpeting and other materials would pass to the Palermos, it constituted a "contract for sale." The scope of the contract, however, included not only the sale of goods but also the performance of labor or service. Thus, we must determine whether such a mixed contract qualified as a contract for the sale of goods or, instead, constituted a contract for labor or service outside the scope of section 4-2-201(1), C.R.S.1973.

The performance of some labor or service frequently plays a role in sales transactions. "Goods," however, are not the less "goods" merely because labor or service may be essential to their ultimate use by the purchaser. The mere furnishing of...