Honeywell develops and sells computer systems. In January 1970, Honeywell's New York office approached Triangle Underwriters to sell or lease to it Honeywell's new H-110 computer system to replace the IBM 360/20 computer then used by Triangle. The H-110 system is a package consisting of both computer hardware and software. On March 19, 1970, Honeywell submitted a written proposal to Triangle for the H-110 system. The written proposal set forth an implementation plan, reciting the steps to be taken to make the system fully operational within 105 days of approval of the proposal.
In early December 1970, Honeywell advised Triangle that the system was fully operational. On December 5, 1970, Triangle elected to purchase the computer system and entered into a sales agreement with Honeywell Information Systems, Inc. ("H.I.S."), a separately incorporated division of Honeywell. The system was installed in January 1971, at which time Triangle discontinued use of its IBM system.
Triangle contended that from the time the system was installed in January 1970 it failed to function effectively, and that various supplied programs had numerous errors in them and did not function as Honeywell had represented. Triangle further contended that Honeywell did not "run a proper parallel system during the changeover period.”
After the installation, Honeywell personnel attempted to correct the deficiencies in the programs. They made some modifications in the programs and worked on them at Triangle's premises until sometime in 1972.
Trial Court Proceedings
Triangle brought this action against Honeywell and H.I.S. on August 14, 1975, for damages for loss of its business as a going concern, loss of profits, and expenses and special damages arising from the purchase of the computer system. Triangle's complaint contained nine counts alleging, in various forms, negligent or fraudulent inducement to enter into the contract, breach of a contemporaneous oral agreement to prepare custom application software, breach of express and implied warranties, negligence and fraud.
Since jurisdiction was based on diversity of citizenship, the forum's (New York) substantive state laws were applied, including the applicable statute of limitations. Honeywell's affirmative defenses urged, inter alia, that the claims were all barred by the Uniform Commercial Code §2-725(1), which provides, in pertinent part, that "[a]n action for breach of any contract for sale must be commenced within four years after the cause of action has accrued." This section applies to "transactions in goods" and states that a "cause of action accrues when the breach occurs."
Triangle moved for an order striking both affirmative defenses, raising the statute of limitations, on the ground that the system did not consist solely of "goods" within the meaning of the Uniform Commercial Code, but was predominantly "services." In such a case, a six-year statute of limitations would apply. Honeywell and H.I.S. then cross moved for summary judgment.
The district court concluded that the computer system did not consist primarily of "services." The court reasoned that the agreement with Honeywell "did not contemplate that it [Honeywell] would run a data processing service for Triangle but rather that Honeywell would develop a completed system and deliver it 'turnkey' to Triangle to operate.” Since the agreement between the parties was that Honeywell and H.I.S. would deliver a complete computer system on a specific date, breach of contract for sale of the system occurred when they delivered a defective system. In dismissing the complaint, the court ruled that the counts alleging breach of contract and the counts alleging negligence were barred by a four-year and three-year statute of limitations, respectively.
Triangle argued not only that Honeywell had been neg11gent in failing to design and deliver a workable system, but also that the wrong continued during the period in which Honeywell employees attempted to repair the malfunctioning system. Triangle argued that Honeywell had engaged in professional malpractice, and that the cont1nuous treatment theory should apply so that the statute of limitations would not begin to run until the professional relationship had ended.
The District court noted that the continuous treatment theory had been applied by New York courts to non-medical professionals such as lawyers, accountants, and architects, but it declined to apply the theory to Honeywell. "In the case at bar the necessary continuing professional relationship did not exist. Honeywell was not responsible for the cont1nuous running of a data processing system for Triangle."
- 457 F. Supp. at 767.
- U.C.C. §2-102.
- U.C.C. §2-725(2).
- Civ. Prac. §213(2).
- 457 F. Supp. at 769.