Milau Associates, Inc. v. North Avenue Development Corp.

Several textile companies (the companies) (plaintiffs) rented a warehouse built by Milau Associates, Inc. (Milau) (defendant). Higgins Fire Protection, Inc. (Higgins) (defendant), was the subcontractor that had designed and installed the sprinkler system in the building. Higgins’s subcontract outlined the materials that would be used, indicated the performance obligations for installing the sprinkler system, and warranted that the work would be of good quality and free from faults and defects. The companies suffered substantial water damage when a burst underground pipe caused the sprinkler system’s pipes to fracture. The companies sued Milau and Higgins for negligence and breach of the implied warranty of fitness for a particular purpose, claiming that the sprinkler pipes tore along a notch created by a dull tool that Higgins had used to cut sections of the pipe. The trial court refused to allow the implied-warranty claim to go to the jury. The jury returned a verdict on the negligence claim in favor of Milau and Higgins. The companies appealed the trial court’s decision on the implied-warranty claim, arguing that the notch in the pipe was sufficient to show that the goods furnished under the hybrid sales-services contract were defective and that the defect had made the pipe unfit for the pipe’s intended purpose under Uniform Commercial Code (UCC) § 2-315. The appellate division found no evidence that the pipe was unfit for its intended purpose. The companies appealed.