317 S.C. 520, 455 S.E.2d 183, 28 U.C.C.2d 190 (1995)
Bishop Logging Company, a family-owned logging contractor formed in 1980 in South Carolina, traditionally harvested pine timber.1 In 1988, after its main customer Stone Container Corporation decided to expand hardwood production, Bishop Logging began investigating the feasibility of a fully mechanized hardwood swamp logging operation to meet increased demand while minimizing labor and accident risks.2 The planned system included a feller-buncher to cut timber, a mobile stroke delimber to process felled trees, and grapple skidders to remove logs from the swamp.3
Bishop Logging approached John Deere Industrial Equipment Company, Construction Equipment Sales, Inc., and Denharco, formerly known as Hurricana, to determine if existing equipment could be modified for swamp conditions.4 Adrian Bishop, the company's president, investigated equipment from several manufacturers and observed demonstrations of a Hurricana delimber in Maine and grapple skidders in the Salkehatchee swamp.5 No fully mechanized swamp logging package was available for purchase at the time.6
Bishop Logging ultimately purchased a Model 693D excavator equipped with a Koehring feller-buncher, a Model 690D excavator with an attached Hurricana stroke delimber, and three Model 548D grapple skidders with oversized tires.7 The gross sales price of the machinery totaled $608,899.8 John Deere provided its standard New Equipment Warranty, which limited remedies to repair or replacement of defective parts and disclaimed warranties of suitability, but agreed to extend the warranties despite the modifications and unusual swamp use.9
The equipment experienced numerous mechanical problems shortly after being placed in operation in the swamp. John Deere, through CES, performed over $110,000 in warranty repairs.10 Bishop Logging filed suit against John Deere, CES, and Denharco alleging fraud, negligent misrepresentation, and breach of express warranty. Denharco was dismissed after filing for bankruptcy.11 The jury returned a verdict for Bishop Logging on all claims against John Deere, awarding $1,000,000 in actual damages and $1,200,000 in punitive damages.12 The trial court denied John Deere's motions for judgment notwithstanding the verdict, new trial, and new trial nisi.13
John Deere appealed the judgment to the Court of Appeals of South Carolina. The appeal was heard on December 7, 1994, and decided on February 13, 1995, with rehearing denied on March 31, 1995.14
Whether John Deere made misrepresentations of present fact sufficient to support the fraud claim?15
To establish actionable fraud there must first be a false representation of present or pre-existing fact rather than an expression of opinion or promise of future performance. The fraudulent representation must relate to a present or pre-existing fact. It cannot ordinarily be based upon an unfulfilled promise to perform in the future or statements as to future events. A future promise is not fraudulent unless such a future promise was part of a general design or plan existing at the time. The promise must be made as part of a general scheme to induce action to the injury of the other party.16
No. Bishop Logging knew the fully mechanized swamp logging operation was a pioneering effort never before attempted. Adrian Bishop was informed that no such package had ever been tried. The statements by the John Deere representative that the operation would work and that Bishop Logging had one hundred percent support and backing concerned future performance of an untried system in swamp conditions.17
Those statements therefore constituted opinions or promises of future performance rather than false statements of present fact. The evidence viewed in the light most favorable to Bishop Logging showed the equipment experienced problems but supplied no clear, cogent, and convincing proof of fraud.18
The fraud claim fails for lack of a misrepresentation of present fact.19
Whether the economic loss rule precludes recovery on the negligent misrepresentation claim in this commercial transaction?20
Where a purchaser's expectations in a sale are frustrated because the product bought is not working properly, the remedy lies in contract alone for economic losses only. A tort cause of action based upon negligent conduct is not applicable in a product liability case between commercial entities where only economic loss is involved and the product injures only itself.21
Yes. Bishop Logging, a commercial entity, purchased equipment for a swamp logging operation and suffered only lost anticipated profits with no personal injury and no injury to other property. The losses were principally economic and arose from the equipment failing to meet expectations created by representations about suitability for the swamp application.22
The economic loss rule therefore bars the negligent misrepresentation claim in this purely commercial setting governed by contract. The claim also fails independently because the statements were opinions as to future performance rather than false representations of present fact.23
The economic loss rule precludes recovery on the negligent misrepresentation claim.24
Whether the exclusive repair-or-replace remedy failed of its essential purpose so as to permit recovery of consequential damages under the Uniform Commercial Code?25
When circumstances cause an exclusive remedy to fail of its essential purpose, remedy may be had as provided in the Uniform Commercial Code. The purpose of a limited repair or replacement remedy is to give the seller an opportunity to make the equipment conform while limiting risk. It is also to insure the buyer that defects will be cured within a reasonable time. Where the seller is given a reasonable chance to correct defects and the equipment still fails to function properly, the buyer is deprived of the benefits of the limited remedy.26
Yes. After delivery the equipment experienced numerous mechanical problems. John Deere performed over one hundred ten thousand dollars in warranty repairs, yet the equipment continued to malfunction with substantial breakdowns and was never repaired to work on a long term basis in the swamp application. The jury could reasonably find that John Deere did not effectively perform its obligation to repair within a reasonable time, thereby depriving Bishop Logging of the substantial value of the bargain.27
Because the limited remedy failed of its essential purpose, Bishop Logging was entitled to pursue other remedies under the Code, including consequential damages. The exclusion of consequential damages does not retain independent significance here because the parties contemplated that regular repair was promised and expected within a reasonable time in order that all of the equipment could be used for its purpose, and the failure of that premise materially altered the balance of risk.28
The exclusive repair-or-replace remedy failed of its essential purpose permitting recovery of consequential damages.29
Whether the jury's award of one million dollars in actual damages and one million two hundred thousand dollars in punitive damages should be sustained?30
The normal measure of direct damages for breach of warranty is the value of the goods as warranted less the value of the goods as accepted, together with incidental and consequential damages including lost profits. Punitive damages require a breach of contract accompanied by a fraudulent act or gross negligence. An appellate court may modify a judgment to reduce an award of damages where damages improperly allowed can be segregated from the record.31
No. Bishop Logging's own expert calculated maximum economic loss at either five hundred forty thousand nine hundred twenty one dollars or seven hundred twenty three thousand three hundred twenty three dollars depending on wood price. The one million dollar actual award lacked relation to the testimony and apparently included impermissible noneconomic damages. The award is therefore reduced to the maximum total of economic damages claimed, seven hundred twenty three thousand three hundred twenty three dollars.32
Punitive damages cannot be sustained because there is no evidence that John Deere deliberately intended to furnish defective equipment and the fraud and negligent misrepresentation claims both failed. The judgment is affirmed in part as modified and reversed in part.33
The actual damage award is reduced and the punitive damage award is reversed.34