Will South Dakota enforce this clause limiting our remedy or excluding consequential damages?
Yes, subject to two limits stated in SDCL 57A-2-719. First, failure of essential purpose: "Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this title." Johnson v. John Deere Co. gives that sentence its South Dakota content: "South Dakota Codified Laws 57A-2-719(2) does not permit the seller to be dilatory or negligent in its contract in failing to repair or replace defective goods," and whether a repair-or-replace remedy has failed is "a question of fact," not a question of law for the court. Second, unconscionability, stated asymmetrically: "Consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable. Limitation of consequential damages for injury to the person in the case of consumer goods is prima facie unconscionable but limitation of damages where the loss is commercial is not." SDCL 57A-2-302 supplies the procedural test a court uses to decide unconscionability, including for a remedy-limitation clause: "If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result." Schmaltz v. Nissen, quoting Durham v. Ciba-Geigy Corp. with approval, shows how South Dakota courts have applied that test against a one-sided remedy: "One sided agreements whereby one party is left without a remedy for another party's breach are oppressive and should be declared unconscionable."
The trap
Subsection (3)'s asymmetry means a drafter cannot assume South Dakota treats a consequential-damages exclusion the same regardless of context: a consumer-goods personal-injury exclusion starts PRESUMED unconscionable, while an identical clause limiting only commercial loss is not. Schmaltz and its predecessor Hanson v. Funk Seeds International both held a seed supplier's disclaimer-plus-remedy-limitation unconscionable in a commercial farming transaction, reasoning (through Durham) that leaving the buyer "without any substantial recourse for his loss" is oppressive, so "commercial" alone did not immunize a limitation clause the way it does the consumer/commercial line in subsection (3) itself. Do not carry that line forward unexamined. Schmaltz records that "In 1986 the South Dakota Legislature passed a legislative enactment found at Chapter 410 of the 1986 Session Laws" abrogating "The ruling in Decision II of Hanson v. Funk Seeds International," and Schmaltz reached the same result only because "The cause of action in the present case arose in 1981" and "there is no retroactive intent from the enactment." Hanson was also a three to two decision, unanimous only "as it related to the unconscionability of the disclaimer of warranty and limitation of damages provision." What a drafter can still take from the line is its reasoning about bargaining position, carried below in Hanson's own words; whether Chapter 410 reaches past the seed-warranty facts is not resolved here. SDCL 57A-2-302(2) also imposes its own procedural requirement independent of the clause's wording: once unconscionability is claimed or appears to the court, the parties must be given "a reasonable opportunity to present evidence as to its commercial setting, purpose and effect," so a court cannot rule on unconscionability from the contract's face alone without that opportunity. Nothing read for this rule states how South Dakota treats a clause that separates the exclusive-remedy provision from the consequential-damages exclusion into two distinct sentences; that drafting question is not resolved here.
15 authorities
- statuteSDCL § 57A-2-719enactment date not established
The words that state the rule
(1) Subject to the provisions of subsections (2) and (3) of this section and of § 57A-2-718 on liquidation and limitation of damages, (a) The agreement may provide for remedies in addition to or in substitution for those provided in this chapter and may limit or alter the measure of damages recoverable under this chapter, as by limiting the buyer's remedies to return of the goods and repayment of the price or to repair and replacement of nonconforming goods or parts; and (b) Resort to a remedy as provided is optional unless the remedy is expressly agreed to be exclusive, in which case it is the sole remedy.
- statuteSDCL § 57A-2-719enactment date not established
The words that state the rule
Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this title.
- statuteSDCL § 57A-2-719enactment date not established
The words that state the rule
Consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable. Limitation of consequential damages for injury to the person in the case of consumer goods is prima facie unconscionable but limitation of damages where the loss is commercial is not.
- statuteSDCL § 57A-2-302enactment date not established
The words that state the rule
If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.
The words that state the rule
To permit the manufacturer of the pesticide to escape all consequential responsibility for the breach of contract by inserting a disclaimer of warranty and limitation of consequential damages clause, such as was used herein, would leave the pesticide user without any substantial recourse for his loss. One sided agreements whereby one party is left without a remedy for another party's breach are oppressive and should be declared unconscionable.
- statuteSDCL § 57A-2-302enactment date not established
The words that state the rule
(2) When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination.
The words that state the rule
In that case a farmer brought a breach of warranty action against a seed corn supplier for the sale of defective seed. The delivery receipt contained a limitation of warranty and remedy similar to that contained on the seed bags in this case. This court unanimously [2] affirmed the trial court's determination that the disclaimer and limitation of damages were unconscionable.
The words that state the rule
The holdings in Durham, supra, and Hanson, supra, are equally applicable to this case. Nible and Schmaltz, like most farmers, were not in a position to bargain for more favorable contract terms, nor were they able to test the seed before their purchase. A loss of yield from an intended crop due to inferior seed is inevitable, and they should not be left without a remedy.
The words that state the rule
South Dakota Codified Laws 57A-2-719(2) does not permit the seller to be dilatory or negligent in its contract in failing to repair or replace defective goods.
The words that state the rule
In our opinion, this is the crucial question that separates the ordinary repair and replacement situation from the “lemon.” It is a question of fact.
The words that state the rule
Accordingly, we remand the case for a new trial on the issue of failure of a limited remedy under SDCL 57A-2-719(2), and for determination of such damages, if any, allowable in conformity with this opinion.
The words that state the rule
Appellee Hanson, like most farmers, was not in a position to bargain for more favorable contract terms, nor was he able to test the seed before the purchase. A crop failure is inevitable if the corn seed is ineffective and to enforce the provisions here in question, which would only allow the return of the purchase price, would leave appellee without any substantial recourse for his loss. In essence, appellee would be left without a remedy for another’s breach. Cf. Rozeboom v. Northwestern Bell Telephone Co., 358 N.W.2d 241, 242 (S.D.1984). The trial court’s determination that these provisions were unconscionable is therefore not in error and we uphold its decision in this regard.
The words that state the rule
Although Hanson was a three to two decision, the opinion as it related to the unconscionability of the disclaimer of warranty and limitation of damages provision was unanimous. The issue upon which the justices split was whether the plaintiff proved the existence of a defect.
The words that state the rule
In 1986 the South Dakota Legislature passed a legislative enactment found at Chapter 410 of the 1986 Session Laws. This legislative enactment states: "BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF SOUTH DAKOTA: The ruling in Decision II of Hanson v. Funk Seeds International, 373 N.W.2d 30 (S.D. *663 1985) is hereby abrogated."
The words that state the rule
The cause of action in the present case arose in 1981. Nowhere in the legislative enactment is there any statement that this act is retroactive or that it is intended to be curative or explanatory of prior legislation. SDCL 2-14-21 provides: "No part of the code of laws enacted by § 2-16-13 shall be construed as retroactive unless such intention plainly appears." Since there is no retroactive intent from the enactment, it has no application in this case. The decision of the trial court holding the disclaimer of warranties and limitation of damages unconscionable is affirmed.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.