Under Article 2 of the UCC, a "sale" is the passing of title to goods from seller to buyer at a price. "Goods" are all things movable at the time of identification to the sales contract.
Certain implied warranties can arise from a contract for sale of goods, including a warranty of merchantability (fitness for ordinary purposes for which such goods are used) and a warranty of fitness for a particular purpose.
Over the years, several courts have wrestled with the question whether water utility service is a "sale" of "goods" under the UCC that can give rise to a breach of an implied warranty. The rulings have been quite diverse. For example, an Oregon court held that water service was not a sale of goods. On the other hand, a Georgia court held that it was. In between these opposites, are a South Dakota court that held water service is a sale of goods, but no implied warranties arise; and a Pennsylvania court that held water service is a sale of goods but only an implied warranty of merchantability is created.
Finally, a Massachusetts court held that water utility service is both a sale of goods within the UCC and a provision of service, which is not within the UCC.** The court stated that "where a contract is for both sales ad services as here," to determine whether the UCC governs, the test is whether the predominate factor, thrust or purpose of the contract is the provision of service, with goods only incidental. In the case of water service, the court concluded that the provision of service was the primary factor and held that the UCC did not apply. It stated: "water is a unique product and is essential to human health and well-being. Here, the city did not create or manufacture the water. Rather, the city, by a system of reservoirs, captured the water from brooks,streams and rainfall. It treated the water and then distributed it to its citizens. Although the city charged a sum for the water, the rate reflected the cost of storage, treatment and distribution. Thus, it is clear that the predominate factor, thrust or purpose of the activity was the rendition of services and not the sale of goods.
Interestingly, these decisions generally have focused upon the issues of "goods" and "warranties." Unresolved, perhaps, is whether water utility service involves a "sale" of goods within the UCC. That is, is there a transfer of title to water from the water utility to the water user? Further,if so, when water then is used and becomes wastewater, does the user pass title in the water to the wastewater utility?
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* Vanguard Energy Services v. Shihadeh,
2017 IL.App.(2d)160909
** Mattoon v. City of Pittsfield,
775 N.E.2d 770 (2002)
© Daniel J. Kucera 2017