Opinion ID: 522962
Heading Depth: 2
Heading Rank: 1

Heading: Instruction on Consequential Damages

Text: 6 Instruction No. 14 2 provided that if the jury found a breach of warranty, it could award consequential damages. Monsanto argues that the instruction was improper since the limitation of remedy provision in Monsanto's warranty excluded liability for consequential damages. 7 Consequential damages may be limited or excluded [by the warrantor] unless the limitation or exclusion is unconscionable. S.D. Codified Laws Ann. Sec. 57A-2-719(3) (1980). Because the concept of unconscionability is not defined by the Uniform Commercial Code, we examine South Dakota case law to determine if a limitation of remedy provision has been held unconscionable under circumstances similar to this case. 8 In Durham v. Ciba Geigy Corp., 315 N.W.2d 696 (S.D.1982), Durham, a farmer, applied herbicide to control foxtail. Although the herbicide was warranted to control foxtail, the weed flourished and damaged Durham's milo crop. When Durham claimed consequential damages, the manufacturer argued that the limitation of consequential damages clause precluded such recovery. The South Dakota court held that the limitation of remedy clause was unconscionable. It reasoned that plaintiffs should not be left without an adequate remedy because crop loss would be inevitable when the herbicide was ineffective and that such purchasers are not in a position to bargain about or to test the product. Id. at 700. The court found it unacceptable for manufacturers to restrict and abolish warranty and damages to the point that there is, in effect, no actionable warranty for the consumer. Id. at 701. 9 Relying on Durham, we find the instant limitation of remedy provision unconscionable. And, once a determination is made that a limitation of remedy provision is unconscionable, consequential damages may be awarded. See id. at 701. However, Monsanto makes two arguments to avoid the strictures of Durham. 10 The South Dakota Legislature enacted Chapter 410 of the 1986 Session Laws which provides, The ruling in Decision II of Hanson v. Funk Seeds International, 373 N.W.2d 30 (S.D.1985) is hereby abrogated. In Decision II of Hanson, the South Dakota Supreme Court held that it was unconscionable for a manufacturer of seed to disclaim the warranty and limit the remedy to the purchase price of the seed. Monsanto asserts that the 1986 statute also implicitly abrogates Durham. We disagree, again relying on South Dakota precedent. 11 Schmaltz v. Nissen, 431 N.W.2d 657 (S.D.1988) involved a purchase of seed by a farmer, consequential damages, and a limitation of remedy provision under which a manufacturer claimed protection. Although the court ultimately held the limitation of remedy clause unconscionable, id. at 663, the court first addressed the effect of the 1986 statute. The court concluded that the statute did not apply to Schmaltz's cause of action which arose in 1981 because the statute, which had an effective date of July 1, 1986, had no retroactive intent. Id. at 662-63. Likewise, since the cause of action here arose in the spring of 1985 when Herrick applied the herbicide, the statute does not apply. 12 Monsanto next argues that since Section 57A-2-302 of the South Dakota Uniform Commercial Code requires that a formal hearing on unconscionability be held by the trial court and since a hearing was never conducted, a finding of unconscionability is improper. In addressing this contention, we conclude that limitation of remedy provisions, which are specifically addressed by section 57A-2-719(3), are subject to the general unconscionability requirements prescribed in section 57A-2-302. 3 See Schmaltz, 431 N.W.2d at 662; Hanson v. Funk Seeds Int'l, 373 N.W.2d 30, 34 (S.D.1985). See also 5 R. Anderson, Anderson on the Uniform Commercial Code Sec. 2-719:30, at 18 (3d ed.1984) (whether an exclusion of consequential damages is unconscionable is to be determined in the same manner as under UCC Sec. 2-302); 1 J. Wright & R. Summers, Uniform Commercial Code Sec. 12-11, at 608 n. 9 (3d ed.1988) (section 2-302(1) presumably applies to 2-719(3) by virtue of the cross reference in the comments). Having ascertained that, in South Dakota, limitation of remedy provisions are subject to section 57A-2-302, we must now determine who makes the determination of unconscionability and the procedure under which the determination is made. 13 Under SDCL 57A-2-302(1), the issue of unconscionability is a matter of law to be determined by the trial court. Durham, 315 N.W.2d at 701 n. (citing Johnson v. John Deere Co., 306 N.W.2d 231, 236 (S.D.1981). Although the determination of unconscionability is a question of law, the South Dakota Supreme Court has been unclear as to what procedures satisfy the requirements of section 57A-2-302. Compare Schmaltz, 431 N.W.2d at 662 (the trial court is required to receive evidence of the commercial setting, purpose, and effect prior to the commencement of the trial) with Hanson, 373 N.W.2d at 34 (section 57A-2-302 requirements fulfilled where the trial court accepts pretrial memoranda and offers of proof at trial). Therefore, we resolve this issue as we believe it will be decided by the South Dakota Supreme Court when again faced with the alternative approaches. 14 Although the trial court never held a formal hearing, we do not agree with Monsanto that reversible error was committed. First, section 57A-2-302 requires that the party be afforded only a reasonable opportunity to present evidence. Here, Monsanto had the opportunity to present such evidence when Herrick moved to exclude any reference to the limitation of remedy clause, when Monsanto moved for a directed verdict on the express warranty, and when the trial court presented the instructions to the parties. Second, sufficient evidence exists on the record concerning commercial setting, purpose, and effect of the clause to obviate the need for a hearing. See 2 R. Anderson, Anderson on the Uniform Commercial Code Sec. 2-302:95, at 476 (3d ed.1982) (when all possible evidence is already in the record, a further hearing on the issue of unconscionability is unnecessary). Based on the evidence in the record, we can discern no reason to conduct a hearing when the state's highest court, in Durham, found unconscionability in an almost identical situation. Therefore, we hold that it was proper to instruct the jury that it could award consequential damages. 15