Anderson Industries v. Thermal Intelligence: Clarifying UCC Installment-Contract Breach and Flexible Contract Formation Under § 2-204

Anderson Industries v. Thermal Intelligence: Clarifying UCC Installment-Contract Breach and Flexible Contract Formation Under § 2-204

Court: Supreme Court of South Dakota

Citation: 2025 S.D. 47

Date: August 13, 2025

Author: Salter, J.

Introduction

In Anderson Industries, LLC v. Thermal Intelligence, Inc., the South Dakota Supreme Court addressed two pivotal issues under Article 2 of the Uniform Commercial Code (UCC) as adopted in South Dakota:

  • Contract formation in sales of goods when parties are simultaneously negotiating broader, future transactions; and
  • The proper framework for evaluating breach in an installment contract when the buyer has accepted earlier installments but alleges recurring defects.

Anderson, a South Dakota manufacturer of industrial heaters, sued Thermal Intelligence (TI), a Canadian reseller, to recover the unpaid balance of the purchase price for 30 custom “V1.5” K2 heaters. TI admitted paying a 20% downpayment for all 30 units and additional sums under a payment plan, and it accepted 17 heaters. TI later ceased payments after Anderson refused to release the eighteenth unit due to credit limits and unpaid balances. TI claimed no enforceable contract existed or, alternatively, that Anderson’s quality and support failures excused TI’s performance.

The circuit court granted summary judgment for Anderson. On appeal, the Supreme Court affirmed in part and reversed in part. The decision establishes two clear guideposts for South Dakota sales-law practice: (1) mixed writings and conduct can form a binding UCC contract even amid broader, unconsummated negotiations; and (2) in installment contracts, acceptance of prior installments does not foreclose the buyer’s right to cancel remaining installments if alleged defects may “substantially impair the value of the whole contract”—a fact-intensive inquiry that typically defeats summary judgment.

Summary of the Opinion

  • Contract formation affirmed. The Court held there was no genuine dispute that the parties formed a contract for 30 V1.5 heaters at $69,500 per unit, with a 20% downpayment, under SDCL 57A-2-204(1)-(3). TI’s emails, downpayments for all 30 units, and Anderson’s commencement of production and deliveries were dispositive.
  • Breach reversed and remanded. Although TI accepted 17 heaters and did not effectively reject them, the Court held there are genuine issues of material fact whether the alleged defects across accepted units “substantially impair[ed] the value of the whole contract” (SDCL 57A-2-612(3)), potentially justifying TI’s cancellation of the remaining thirteen installments if its notice was seasonable.
  • Damages not reached. Because breach questions must be tried, the Court did not reach damages (including mitigation, secondary market, or “action for the price”).
  • Governing law applied. Even though TI framed arguments largely in common-law terms, the Court applied the UCC because the transaction undisputedly involved goods (SDCL ch. 57A-2). See Scotlynn Transp., LLC v. Plains Towing & Recovery, LLC, 2024 S.D. 24, ¶ 17, 6 N.W.3d 671, 676.

Detailed Analysis

1) Precedents and Authorities Cited

The Court anchored its analysis in both UCC text and a suite of decisions clarifying summary judgment standards and UCC doctrines:

  • Summary judgment standards:
    • Healy Ranch, Inc. v. Healy, 2022 S.D. 43, ¶ 17, 978 N.W.2d 786, 793; Davies v. GPHC, LLC, 2022 S.D. 55, ¶ 17, 980 N.W.2d 251, 258; Ridley v. Sioux Empire Pit Bull Rescue, Inc., 2019 S.D. 48, ¶ 11, 932 N.W.2d 576, 580; Burgi v. East Winds Ct., Inc., 2022 S.D. 6, ¶ 15, 969 N.W.2d 919, 923; Niesche v. Wilkinson, 2013 S.D. 90, ¶ 9, 841 N.W.2d 250, 253–54; A‑G‑E Corp. v. State, 2006 S.D. 66, ¶ 14, 719 N.W.2d 780, 785.
    • Stern Oil Co. v. Brown, 2012 S.D. 56, ¶ 8, 817 N.W.2d 395, 398 (factual issues can be decided at summary judgment where undisputed and material). The Court again treated official UCC comments as persuasive aids (id. ¶ 18 n.7).
    • Celotex Corp. v. Catrett, 477 U.S. 317, 323–24 (1986): summary judgment “isolate[s] and dispose[s] of factually unsupported claims.”
  • Fact questions under the UCC:
    • Pomerantz Paper Corp. v. New Community Corp., 25 A.3d 221, 233–34 (delivery, acceptance, rejection are fact questions); Moe v. John Deere Co., 516 N.W.2d 332, 335 (S.D. 1994) (existence of breach under the UCC is a question of fact).
  • Installment contracts and “substantial impairment” (SDCL 57A‑2‑612):
    • Design Plus Store Fixtures, Inc. v. Citro Corp., 508 S.E.2d 825, 829–30 (N.C. Ct. App. 1998) (substantial impairment considers quality, quantity, assortment, and timing; buyer may cancel once whole contract is impaired).
    • Bill’s Coal Co. v. Board of Public Utilities, 887 F.2d 242, 247 (10th Cir. 1989); Integrity Bio-Fuels, LLC v. Musket Corp., No. 13-cv-00768, 2015 WL 1417849, at *12 (S.D. Ind. Mar. 27, 2015); Asi Indus. GmbH v. MEMC Elec. Materials, Inc., No. 06CV951, 2008 WL 413819, at *3 (E.D. Mo. Feb. 13, 2008); Extrusion Painting, Inc. v. Awnings Unlimited, Inc., 37 F. Supp. 2d 985, 997 (E.D. Mich. 1999) (whether defects “substantially impair” the whole is generally a question of fact and thus ill-suited to summary judgment).
  • Applying the correct law on appeal: Scotlynn Transp., LLC v. Plains Towing & Recovery, LLC, 2024 S.D. 24, ¶ 17, 6 N.W.3d 671, 676 (appellate court applies the governing law to preserved issues even if a party framed them imperfectly).

2) Legal Reasoning

a) Contract Formation under SDCL 57A-2-204

The Court found a binding contract for 30 V1.5 heaters at $69,500 each with a 20% downpayment, despite ongoing negotiations about future models and a potential IP acquisition. Two principles were decisive:

  • Agreement by any manner indicating assent. SDCL 57A‑2‑204(1) permits a sales contract to be formed “in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.”
  • Open terms do not defeat formation. SDCL 57A‑2‑204(3) allows enforcement even if “one or more terms are left open,” provided the parties intended to contract and there is a reasonably certain basis for a remedy. Official comments emphasize commercial standards and the sufficiency of conduct. The Court relied on emails and payments confirming TI’s commitment to 21 units (with retail customers already lined up) and TI’s subsequent email explicitly ordering “the remaining 1.5’s.” TI then wired a 20% downpayment on those nine additional units.

The Court rejected TI’s “all-or-nothing” thesis that unfinalized, broader negotiations (V1.7, V2.0, and IP acquisition) rendered the V1.5 deal unenforceable. Those were separate, prospective items; they did not negate the distinct V1.5 sales agreement.

b) Acceptance, Rejection, and Installment Contracts

The parties’ arrangement was an “installment contract” because the heaters were to be delivered in separate lots to be separately accepted. SDCL 57A‑2‑612(1).

  • Acceptance of delivered units. TI accepted 17 heaters, triggering SDCL 57A-2-606(1), because it did not effectively reject within a reasonable time and in seasonable fashion (SDCL 57A‑2‑602(1)), and it took acts inconsistent with Anderson’s ownership (resale). The record showed TI continued to accept, sell, and seek more units.
  • But acceptance does not “wash out” defects in an installment contract. The UCC permits a buyer to cancel the whole installment contract if nonconformities in one or more installments “substantially impair[] the value of the whole contract.” SDCL 57A‑2‑612(3) and cmt. 6. The cumulative effect of nonconforming installments matters; acceptance of earlier units does not waive defects as to cancelation of future installments.
  • Fact questions precluding summary judgment. The Court held that, construed in TI’s favor, the record of mid‑September to late‑October complaints (non‑starting units, support delays, TI self-performing repairs) raised genuine disputes about nonconformity, cure, timeliness of notice, and whether the alleged defects “substantially impaired” the value of the whole contract, thereby potentially justifying TI’s cancelation of the remaining thirteen units if its notice was seasonable. See SDCL 57A‑2‑612(3); Design Plus, 508 S.E.2d at 830.

Importantly, although TI argued in common-law terms, the Court applied the UCC because it governs transactions in goods. See SDCL 57A‑2‑102; Scotlynn Transp., 2024 S.D. 24, ¶ 17, 6 N.W.3d at 676.

c) Issues Deferred

With breach and cancelation questions going to trial, the Court did not address damages (including mitigation, existence of a secondary market for custom units, or whether an “action for the price” might be available for identified, non-resalable goods). The Court also noted TI did not pursue on appeal a UCC implied warranty of merchantability theory raised below but unpleaded.

3) Impact and Practical Implications

  • Contract formation clarity. South Dakota law now emphatically recognizes that a discrete goods contract can be formed via emails and partial performance even as broader negotiations continue. Parties should assume that concrete interim commitments—especially coupled with payment and production—will be treated as enforceable contracts, notwithstanding unresolved terms for different, future projects.
  • Installment-contract rigor at summary judgment. Acceptance of earlier installments does not preclude a buyer’s later right to cancel the remainder if defects across installments may substantially impair the value of the whole contract. Because substantial impairment is a fact question, sellers should not expect to prevail on summary judgment merely by showing the buyer accepted prior shipments or failed to formally reject them.
  • Notice and timing matter. To cancel the whole contract under SDCL 57A‑2‑612(3), a buyer must give seasonable notice of cancelation. The trial court on remand must determine whether TI’s “termination” email and prior defect communications met these standards.
  • Seller credit holds and buyer cancelation risk. A seller’s refusal to release a subsequent installment for nonpayment may be contractually or statutorily justified. But if product nonconformities and support failures have accumulated, a buyer may contend that the value of the whole contract has been substantially impaired and cancel the remaining installments. Sellers should pair credit decisions with meticulous documentation of tender, cure efforts, and conformity, and consider requesting adequate assurances under UCC § 2‑609 where appropriate (though not addressed in this opinion).
  • Damages strategy on remand. Depending on how breach is resolved, damages may include resale damages, lost profits for custom goods, or potentially an action for the price for identified units that are not resalable (UCC § 2‑709), as well as mitigation offsets. The Supreme Court left those issues open.

Complex Concepts Simplified

  • Installment contract vs. single delivery: An installment contract provides for delivery in separate lots, each capable of separate acceptance (SDCL 57A‑2‑612(1)). Different rules apply than in a one‑time, single‑delivery sale.
  • Perfect tender vs. substantial impairment:
    • Single delivery: a buyer may reject goods that “fail in any respect” to conform (SDCL 57A‑2‑601).
    • Installments: a buyer may reject a particular installment only if its nonconformity “substantially impairs the value of that installment” and cannot be cured (SDCL 57A‑2‑612(2)); and may cancel the whole contract only if nonconformities across installments “substantially impair the value of the whole contract” (SDCL 57A‑2‑612(3)).
  • Acceptance (SDCL 57A‑2‑606): A buyer accepts goods if, after a reasonable opportunity to inspect, it signifies it will retain them, fails to effectively reject in time, or takes actions inconsistent with the seller’s ownership (e.g., reselling).
  • Rejection (SDCL 57A‑2‑602): To reject, a buyer must do so within a reasonable time after delivery and must seasonably notify the seller.
  • “Seasonable” and “reasonable time”: These flexible UCC standards depend on the nature of the goods, the parties’ course of dealing, and commercial context.
  • “Conduct recognizing a contract” (SDCL 57A‑2‑204): The UCC focuses on practical business conduct—payments, production, delivery, and correspondence—over formalized, single‑document contracts.

Key Portions of the Record, Distilled

  • July 19–20, 2019: Emails confirm agreement to 21 units at $69,500 with 20% down; TI wires $291,900 (20% of 21 units); Anderson begins production.
  • August 2, 2019: TI: “we will still order the remaining 1.5’s” despite lacking firm end-customer orders.
  • August 22, 2019: TI wires $125,100 (20% of 9 units); Anderson begins production of the remaining units.
  • October 3–24, 2019: TI proposes and makes payments under a $200,000/week plan, totaling $750,000; then payments cease.
  • Mid‑Sept.–Oct. 2019: TI emails report non‑starting units and service delays; TI self‑performs repairs in Canada; continued acceptance and resale of units.
  • November 15–18, 2019: Anderson withholds the eighteenth unit due to credit limits and unpaid amounts; TI declares termination and cancels remaining orders; Anderson notes custom‑built units in process and potential restocking protocols.

Conclusion

Anderson Industries v. Thermal Intelligence crystallizes two important UCC doctrines in South Dakota practice. First, the Court reinforces the UCC’s flexible approach to sales contract formation: mixed writings and performance can establish a binding agreement notwithstanding ongoing negotiations over broader, separate terms. Second, in the installment‑contract context, the Court makes clear that acceptance of earlier deliveries does not foreclose the buyer’s right to cancel remaining installments where alleged defects may have “substantially impaired” the value of the entire contract—a quintessential question of fact unsuitable for summary judgment on this record.

On remand, the trial court must determine whether the alleged nonconformities existed, whether they cumulatively and substantially impaired the value of the whole contract, whether TI’s cancelation notice was seasonable, and how those answers shape any damages. The decision thus provides a roadmap for litigants in complex goods transactions: document assent and performance meticulously; preserve and seasonably assert UCC rejection/cancelation rights; and expect fact‑intensive “substantial impairment” disputes to proceed to trial rather than be resolved at summary judgment.

Case Details

Year: 2025
Court: Supreme Court of South Dakota

Comments