## Facts

- Bishop Logging Company, a commercial logging contractor, pursued a fully mechanized hardwood swamp-logging operation to supply a major customer and reduce safety and labor costs.
- John Deere Industrial Equipment Company agreed to sell and warrant modified forestry equipment for this novel swamp-logging use, including a 693D excavator and three 548D grapple skidders, for a total sales price of $608,899.
- Each machine was sold with a standard “New Equipment Warranty” limiting the buyer’s remedy to repair or replacement of defective parts, disclaiming other warranties, and excluding incidental and consequential damages (including lost profits).
- After being placed in swamp operations, the equipment experienced recurring mechanical problems and did not perform as anticipated.
- John Deere (through its dealer) performed extensive warranty work totaling more than $110,000, but Bishop contended the system still failed commercially and caused substantial economic loss, including lost profits.
- Bishop sued for fraud, negligent misrepresentation, and breach of express warranty; the jury returned a verdict against John Deere awarding $1,000,000 actual damages and $1,200,000 punitive damages.
- The trial court denied John Deere’s post-trial motions; John Deere appealed.

## Issues

1. Whether the evidence was sufficient to support liability for fraud based on statements about the equipment’s expected swamp performance.
2. Whether a commercial buyer seeking only economic losses may recover for negligent misrepresentation, or whether the economic loss rule limits the buyer to contract remedies.
3. Whether the warranty’s exclusion of consequential damages was enforceable, or whether the limited “repair or replace” remedy failed of its essential purpose under U.C.C. § 2-719, permitting consequential damages.

## Decision

- The court affirmed liability for breach of express warranty and permitted consequential damages because the limited repair-or-replace remedy failed of its essential purpose.
- The court reversed the fraud verdict, finding no clear, cogent, and convincing evidence of a fraudulent misrepresentation of an existing material fact.
- The court reversed the negligent misrepresentation verdict, holding the economic loss rule barred tort recovery in a purely commercial transaction involving only economic losses.
- As a result, the tort-based damages (including punitive damages) were eliminated, and recovery was confined to contract/warranty remedies, with consequential damages available on the warranty theory.

## Legal Principles

- Fraud requires proof by clear, cogent, and convincing evidence, including a false representation of an existing material fact, scienter (or reckless disregard), intent to induce reliance, justifiable reliance, and resulting damages; predictions or optimistic statements about future performance generally are not actionable as fraud.
- In a commercial sale where the alleged harm is purely economic (e.g., lost profits), tort claims such as negligent misrepresentation are generally barred by the economic loss rule; contract and warranty law provide the proper remedies.
- Under U.C.C. § 2-719(2), when a limited remedy (such as repair or replacement) fails of its essential purpose because repeated repairs do not cure the nonconformity or provide the benefit of the bargain, the buyer may pursue U.C.C. remedies otherwise available.
- When the limited remedy fails of its essential purpose, a contractual exclusion of consequential damages may be unenforceable, allowing recovery of consequential losses proven with reasonable certainty.

## Conclusion

The court held that disappointed performance in an experimental commercial project did not, without heightened proof of a false statement of present fact, support fraud, and that negligent misrepresentation claims for purely economic loss were barred by the economic loss rule; however, because repeated repairs did not make the warranted equipment functional for its intended use, the limited warranty remedy failed of its essential purpose, permitting consequential damages under the breach of express warranty claim.


Bishop Logging Co. v. John Deere Indus. Equip. Co., 317 S.C. 520, 455 S.E.2d 183 (Ct. App. 1995)