Generations Ranch, LLC v. Zarbock

• Decision Date: 19 January 2012
• Docket Number: 1 CA-CV 10-0771
• Parties: GENERATIONS RANCH, LLC, a limited liability company, Plaintiff/Appellant, v. RICHARD ZARBOCK and ELIZABETH ZARBOCK, individually and doing business as ARIZONZA MD BARN COMPANY, Defendants/Appellees.
• Court: Arizona Court of Appeals

GENERATIONS RANCH, LLC, a limited liability company, Plaintiff/Appellant, v. RICHARD ZARBOCK and ELIZABETH ZARBOCK, individually and doing

business as ARIZONZA MD BARN COMPANY, Defendants/Appellees.

1 CA-CV 10-0771

COURT OF APPEALS STATE OF ARIZONA DIVISION ONE DEPARTMENT A

Date: January 19, 2012

NOTICE: THIS DECISION DOES NOT CREATE LEGAL PRECEDENT AND MAY NOT BE CITED EXCEPT AS AUTHORIZED BY APPLICABLE RULES. See Ariz. R. Supreme Court 111(c); ARCAP 28(c); Ariz. R. Crim. P. 31.24

MEMORANDUM DECISION

(Not for Publication - Rule 28, Arizona Rules of Civil Appellate Procedure)

Appeal from the Superior Court in Maricopa County

Cause No. CV2007-011463

The Honorable Jeanne Garcia, Judge

AFFIRMED

Walker & Harper, P.C.

By Michael J. Harper

Attorneys for Plaintiff/Appellant

Payson

Titus Brueckner & Levine PLC

By John R. Tellier

Attorneys for Defendants/Appellees

Scottsdale

TIMMER, Presiding Judge ¶1 In this breach-of-contract case, plaintiff Generations Ranch, LLC, ("Generations") appeals the trial court's judgment in favor of defendants Richard and Elizabeth Zarbock and their business, Arizona MD Barn Company (collectively, "MD Barn"). Generations argues the court improperly relied on and applied the Uniform Commercial Code, as adopted in Arizona ("UCC"), and erroneously interpreted the parties' contract in ruling that MD Barn did not breach its agreement to construct a horse barn on Generations' property. For the reasons that follow, we disagree and therefore affirm.

BACKGROUND ¹

¶2 MD Barn is a dealer of modular pre-engineered steel barns manufactured by MD Enterprises, Inc. (the "Manufacturer"). On November 19, 2004, MD Barn and Generations entered into a written proposal/contract ("Contract") whereby Generations would purchase, and MD Barn would deliver and erect, modular components for an eleven-stall horse barn on Generations' ranch property outside Casa Grande. The Contract required Generations to pay MD Barn a total of $149,437, payable in essentially three stages: pre-delivery, construction progress payments, and a final payment upon completion.

¶3 Contrary to MD Barn's recommendations and normal business practice, it acquiesced to Generations' demand that the barn components be delivered before the concrete pad upon which the barn would be erected was laid.² Although it appears from the record that MD Barn typically pours the concrete as part of its normal services for customers, Generations "took the concrete work out of [the] [C]ontract[,]" and made arrangements with another party for the concrete work.

¶4 Generations paid MD Barn the requisite pre-delivery payment of $124,675, and "[a]ll the barn component parts[]" were delivered on July 11, 2005, directly from the Manufacturer. The components consisted of "two truckloads worth of materials" that, when unloaded, comprised a pile approximately one hundred yards long. Later that day, MD Barn delivered bundle-wrapped, one-inch thick sheets of foam insulation.

¶5 Around July 23, a wind storm passed through the area and "relocate[d] some [of the] insulation." A day or two later, Zarbock visited the site and drove around the property with Donald Paunil, a member of Generations who was responsible forconstruction projects on the ranch. They discovered "miles" of insulation "crumbs" that looked like "snow[.]"

¶6 Also during this visit, a dispute arose between Zarbock and Paunil regarding a purportedly missing box of fasteners needed to construct the barn. According to Generations, MD Barn accused Generations of misappropriating it while Generations maintained the Manufacturer never delivered the fasteners.

¶7 Relying on a provision in the Contract that placed any risk of loss on Generations after the barn components were delivered, on September 8 Zarbock recommended that Generations provide its insurance company with a quote to purchase and ship replacement fasteners and insulation. Generations refused to accept responsibility for the missing/destroyed materials and instead demanded MD Barn bear the replacement costs.

¶8 The dispute remained unresolved when, on September 28, the concrete was poured, and Generations requested MD Barn begin erecting the barn "as soon as possible." Generations made this request despite Paunil's concern that the concrete pad was cracking. MD Barn responded by letter dated October 11, informing Generations that its failure to pay for replacement of the insulation and fasteners constituted repudiation of the Contract. MD Barn therefore demanded reasonable and adequate assurances from Generations in the form of a certified check orpayment into escrow of an amount constituting the replacement costs plus the $24,762 balance of the Contract. Alternatively, MD Barn proposed to resolve the dispute by terminating the Contract through a mutual release so that Generations could "contract to have the barn constructed as [it] see[s] fit." Instead of providing the requested assurances that it would perform on the Contract, or agreeing to terminate the Contract, Generations demanded on October 31 that MD Barn "come out to the job site to pre-approve the concrete before beginning erection of the barn" and additionally noted, "[c]ommencing construction of the barn will indicate your acceptance and approval of the concrete and that the full barn warrantee period and warrantee coverage will be in effect." Based on Generations' refusal to provide adequate assurances, MD Barn did not commence work on the barn.

¶9 At some point, the concrete pad was ripped out and replaced, and on June 7, 2006, Generations informed MD Barn that Paunil had discovered the box of fasteners hidden in the pile of barn components. Generations stated it was "ready to move forward with the construction of the barn as soon as possible." MD Barn apparently ignored Generations, which in turn contractedwith another party to construct the barn with the assistance of the Manufacturer.³ The barn was completed in March 2007.

¶10 On July 2, Generations filed a complaint against MD Barn for breach of contract and breach of the covenant of good faith and fair dealing. Generations prevailed at arbitration, and MD Barn appealed to superior court. After a two-day bench trial, the court ruled in MD Barn's favor on both claims. Generations unsuccessfully moved for a new trial, and this timely appeal followed.

¶11 We will defer to the trial court's factual findings unless they are clearly erroneous, but "we draw our own legal conclusions from [the] facts found or implied in the judgment." In re Marriage of Gibbs, 227 Ariz. 403, 406, ¶ 6, 258 P.3d 221, 224 (App. 2011) (citations and internal quotation marks omitted). We review the court's denial of Generations' motion for new trial for an abuse of discretion. White v. Greater Ariz. Bicycling Ass'n, 216 Ariz. 133, 135, ¶ 6, 163 P.3d 1083, 1085 (App. 2007).

DISCUSSION

I. Applicability of UCC

¶12 Generations argues the court incorrectly relied on the UCC in reaching its decision. Specifically, Generations contends the Contract was predominantly one regarding services, not goods, thus rendering the UCC inapplicable to this case. MD Barn responds the court properly found that the Contract primarily concerned goods and therefore fell within the scope of the UCC.

¶13 The UCC applies only to transactions involving goods, not services. See Ariz. Rev. Stat. ("A.R.S.") § 47-2102 (2005). The Contract unquestionably concerns both goods (barn components) and services (installation). When deciding whether the UCC applies to such mixed contracts, Arizona courts first determine the predominate purpose of the contract and then apply the UCC only if the sale of goods predominates. Double AA Builders, Ltd. v. Grand State Constr. L.L.C., 210 Ariz. 503, 509-10, ¶ 33, 114 P.3d 835, 841-42 (App. 2005). Determining the predominant purpose of such a contract often involves resolving issues of fact, id. at 510, ¶ 34, 114 P.3d at 842, but whether a contract is predominantly one for goods or services is ultimately an issue of law. See Hall Family Props., Ltd. v. Gosnell Dev. Corp. , 185 Ariz. 382, 388, 916 P.2d 1098, 1104 (App. 1995) (holding contract interpretation generally aquestion of law); MBHr Inc. v. John Otte Oil & Propane, Inc., 727 N.W.2d 238, 245-46 (Neb. Ct. App. 2007) (following other jurisdictions' holdings that whether sale of goods predominate a contract is generally a question of law).

¶14 The court in this case did not make specific findings regarding the predominant purpose of the Contract. Because it applied the UCC, however, we assume the court found the predominant purpose was for the sale of goods.⁴ See John C. Lincoln Hosp. & Health Corp. v. Maricopa County, 208 Ariz. 532, 540, ¶ 23, 96 P.3d 530, 538 (App. 2004) ("[i]mplied in every judgment, in addition to express findings made by the court, is any additional finding that is necessary to sustain the judgment, if reasonably supported by the evidence, and not in conflict with the express findings.") (citation and internal quotation marks omitted).

¶15 Applying the predominant-purpose test, we conclude the record sufficiently supports the trial court's implicit finding that the Contract was predominantly one for the sale of a good (the barn) with services (assembly) attendant thereto:

(1) MD Barn's proposal, reflected in the initial lines of the Contract, was "for the sale . . . of MD designed modular barns, corrals, shelters, freestanding or other MD products and optional accessory items." See Tivoli Enters., Inc. v. Brunswick Bowling & Billiards Corp., 646 N.E.2d 943, 948 (Ill. App. Ct. 1995) (holding introductory language in sales contract stating buyer ordering bowling lane components and equipment suggests thrust of contract is one for goods). Additionally, Paunil, one of Generations' members, "really wanted an MD Barn."

(2) MD Barn explicitly limited its proposal to the sale and delivery of specific materials and excluded installation and installation-related tasks unless otherwise noted in the

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