Punitive damages are unavailable for breach of the UCC implied covenant of good faith; unobjected Rule 50(b) motion preserves new legal grounds

Introduction

In Goldenview Ready-Mix, LLC v. Grangaard Construction, Inc., 2025 S.D. 43, the Supreme Court of South Dakota addressed whether a jury may award punitive damages based solely on a breach of the implied covenant of good faith and fair dealing under the Uniform Commercial Code (UCC), SDCL 57A-1-304. The Court squarely held that punitive damages are not available for such a breach because the implied covenant arises from contract, and SDCL 21-3-2 limits punitive damages to breaches of obligations not arising from contract.

The case arose from a highway bridge reconstruction project led by the South Dakota Department of Transportation (DOT). Grangaard Construction, the general contractor, procured ready-mix concrete from Goldenview. After DOT testing led to deductions for substandard compressive strength in some pours, Grangaard withheld payment, prompting Goldenview to sue for the контракт price and to add claims for fraud and breach of the implied covenant of good faith, seeking punitive damages. A jury awarded Goldenview the full unpaid balance and $50,000 in punitive damages after finding Grangaard breached the duty of good faith (but not fraud). On appeal, Grangaard challenged the punitive award and the submission of fraud. Goldenview countered that Grangaard failed to preserve the specific punitive damages issue.

The Supreme Court reversed in part and affirmed in part: it vacated the punitive damages award because punitive damages are not available for a breach of the UCC implied covenant; it otherwise affirmed, including the contract damages and the denial of a new trial. In doing so, the Court clarified preservation rules: although Grangaard did not distinctly object to the verdict form defect at trial, its post-trial Rule 50(b) motion raised the punitive damages error, and because Goldenview did not object that the Rule 50(b) motion exceeded the Rule 50(a) grounds, the issue was preserved for review.

Summary of the Opinion

• Punitive damages holding: SDCL 21-3-2 authorizes punitive damages only for the breach of an obligation not arising from contract. The implied covenant of good faith and fair dealing under SDCL 57A-1-304 arises from contract and, per UCC Comment 1, is not an independent cause of action; a breach of it is simply a breach of contract. Thus, punitive damages are unavailable.
• Preservation: Although Grangaard did not specifically object to the verdict form’s flaw that allowed punitive damages based on a “good faith” breach alone, its post-trial Rule 50(b) motion raised that legal error. Because Goldenview did not object that the Rule 50(b) motion raised new grounds beyond its Rule 50(a) motion, the preservation bar was waived. The issue was properly before the trial court and preserved for appeal.
• Fraud submission: The jury found no fraud. Any claimed error in submitting fraud was therefore moot with respect to liability for punitive damages. The Court nonetheless addressed the request for a new trial claiming prejudice from punitive-damages evidence and rejected it.
• No new trial: The Court found no reasonable probability the result would have been different but for admission of financial evidence tied to punitive damages. Liability and damages for the contract claim were supported by the record and UCC instructions; issues were not so interwoven as to require a retrial.
• Disposition: Punitive damages award vacated; judgment otherwise affirmed.

Factual and Procedural Background

Grangaard, a long-time DOT contractor, won a 2021 emergency bridge rebuild on Highway 38 near Salem. Goldenview, a nearby ready-mix supplier, quoted $130 per cubic yard for the DOT-specified A45 concrete (4,500 PSI at 28 days) and had a $10,000 credit limit with monthly payment expectations. The parties did not reduce their agreement to writing; however, Grangaard’s written contract with DOT incorporated detailed Standard Specifications including sampling, acceptance, deductions, and dispute procedures—terms never conveyed to Goldenview.

DOT cylinder tests later showed four successive strength failures for footings. Grangaard cored the concrete, which averaged 3,890 PSI; DOT accepted the work as structurally adequate but imposed a deduction (ultimately $23,000 for that element). Goldenview’s receivable repeatedly exceeded its credit limit, and after the piers/footings phase, Grangaard owed $16,154.58. On October 21, 2021, during a pre-deck-pour inspection, Grangaard’s principal told Goldenview things were “all good.” Goldenview demanded payment of the past-due amount and new terms for the deck pour: half the next day and half in 30 days. Grangaard paid the arrearage and agreed, claiming it was conditioned on there being no DOT deductions.

The next day the deck was poured. On-site, it became apparent deductions would be assessed for nonconforming concrete—initially estimated at $27,000 for the deck (later reduced to $10,140). Goldenview invoiced on November 9, 2021, for $89,343.32. Grangaard deferred payment pending DOT final deductions, which totaled $35,678.92 (deck and other nonconforming pours), while independently receiving $223,800 in early-completion incentives. When talks stalled, Goldenview sued for breach of contract (price plus interest) and added claims for fraud/deceit and breach of the implied covenant of good faith under SDCL 57A-1-304, seeking punitive damages.

Grangaard moved for summary judgment on fraud, invoking the independent tort doctrine and arguing Goldenview could not establish the elements. The circuit court denied the motion, expressing hesitance about “converting a contract case into a tort” but allowing a jury to assess whether Goldenview was fraudulently induced to “continue with the second half.”

On the eve of trial, Goldenview sought punitive damages discovery and submission. Grangaard argued SDCL 21-3-2 bars punitive damages for obligations arising from contract, focusing on the fraud claim. The court ultimately allowed punitive damages discovery and evidence. Critically, the special verdict form permitted the jury to award punitive damages if it found either (a) Grangaard breached its duty of good faith or (b) committed fraud. Grangaard made general objections and other specific objections but did not distinctly object to allowing punitive damages to flow from a mere breach of the “good faith” duty. The jury found for Goldenview on the contract claim, found a breach of the duty of good faith, rejected fraud, and still awarded $50,000 punitive damages based on the verdict form’s conditional logic. The court denied Grangaard’s post-trial motion. Grangaard appealed.

Analysis

Precedents cited and how they shaped the decision

• SDCL 21-3-2: Authorizes punitive damages only “for the breach of an obligation not arising from contract.” This statute anchored the Court’s holding that punitive damages cannot be predicated on a contractual obligation such as the UCC’s implied covenant of good faith.
• SDCL 57A-1-304 and Comment 1: The UCC imposes an obligation of good faith in the performance and enforcement of every contract for the sale of goods. Comment 1 clarifies it is not a separate cause of action; failure to act in good faith in performing or enforcing a specific contract duty is itself a breach of that contract. The Court relied on this to foreclose punitive damages.
• Schipporeit v. Khan, 2009 S.D. 96, 775 N.W.2d 503: Reaffirmed the independent tort doctrine—punitive damages require a tort duty independent of contractual obligations. Also recognized South Dakota does not recognize an independent tort for breach of the implied covenant outside insurance.
• Farm Credit Services of America v. Dougan, 2005 S.D. 94, 704 N.W.2d 24: Confirmed the absence of an independent tort for breach of the implied covenant of good faith and fair dealing in non-insurance settings.
• Zochert v. Protective Life Ins. Co., 2018 S.D. 84, 921 N.W.2d 479: Recognized the tort of bad faith in the insurance context—an intentional tort distinct from breach of contract—and that punitive damages can be available in that limited arena. The Court distinguished that unique insurance-tort context from ordinary UCC sales contracts.
• Grynberg v. Citation Oil & Gas Corp., 1997 S.D. 121, 573 N.W.2d 493: Directed courts to focus on whether a legal duty exists independent of the contract and recognized that instruction and verdict-form errors must be preserved with specificity.
• Osdoba v. Kelley-Osdoba, 2018 S.D. 43, 913 N.W.2d 496; Halbersma v. Halbersma, 2009 S.D. 98, 775 N.W.2d 210; Hogg v. First Nat. Bank of Aberdeen, 386 N.W.2d 921 (S.D. 1986); Huether v. Mihm Transp. Co., 2014 S.D. 93, 857 N.W.2d 854; Isaac v. State Farm, 522 N.W.2d 752 (S.D. 1994); Alvine Fam. Ltd. P’ship v. Hagemann, 2010 S.D. 28, 780 N.W.2d 507; Duda v. Phatty McGees, Inc., 2008 S.D. 115, 758 N.W.2d 754: Together emphasize the need for specific, on-the-record objections to jury instructions and verdict forms, so trial courts can correct errors.
• In re Estate of Tank, 2023 S.D. 59, 998 N.W.2d 109: Clarified that while a Rule 50(b) motion generally cannot expand beyond Rule 50(a) grounds, the nonmovant can waive that procedural objection by not raising it; if unobjected, new grounds in a Rule 50(b) motion are properly before the court.
• Conseco Fin. Servicing Corp. v. North American Mortgage Co., 381 F.3d 811 (8th Cir. 2004); Wallace v. McGlothan, 606 F.3d 410 (7th Cir. 2010); Howard v. Walgreen Co., 605 F.3d 1239 (11th Cir. 2010): Federal authorities underpinning the Tank waiver principle applied here.
• Hewitt v. Felderman, 2013 S.D. 91, 841 N.W.2d 258: An error tied to an issue the jury rejects (e.g., finding no fraud) is moot as to that claim.
• Wright v. Temple, 2021 S.D. 15, 956 N.W.2d 436; Morrison v. Mineral Palace Ltd. P’ship, 1999 S.D. 145, 603 N.W.2d 193; Braun v. Wollman, 2024 S.D. 83, 16 N.W.3d 237; State v. Carter, 2023 S.D. 67, 1 N.W.3d 674; Reinfeld v. Hutcheson, 2010 S.D. 42, 783 N.W.2d 284; Maybee v. Jacobs Motor Co., 519 N.W.2d 341 (S.D. 1994); State v. Belt, 2024 S.D. 82, 15 N.W.3d 732: Framed the harmless-error standard and the “interwoven issues” test for new trials; supported declining a retrial where the verdict can be explained by evidence rather than passion/prejudice.
• Stern Oil Co. v. Brown, 2012 S.D. 56, 817 N.W.2d 395: UCC comments, though not enacted, are persuasive interpretive aids—cited for reliance on Comment 1 to SDCL 57A-1-304.

Legal reasoning

The Court’s analysis unfolded in three steps: preservation, merits of punitive damages, and whether a new trial was warranted.

1) Preservation

• The defense did not distinctly object to the verdict form’s flaw that invited punitive damages upon a finding of a breach of the implied “good faith” duty, even absent fraud. General objections do not preserve specific instructional errors under SDCL 15-6-51(c)(1) and related caselaw.
• However, the defense filed a post-trial Rule 50(b) motion explicitly arguing the legal error—that punitive damages cannot be awarded for breach of the implied covenant under the UCC. Under Tank, when the nonmovant fails to object that a Rule 50(b) motion raises new grounds beyond Rule 50(a), the nonmovant waives that procedural defect. Goldenview did not object to scope. Thus, the punitive-damages issue was properly before the trial court and preserved for appeal.

2) Punitive damages are unavailable for breach of the UCC implied covenant

• SDCL 21-3-2 limits punitive damages to obligations “not arising from contract.” The implied covenant of good faith in SDCL 57A-1-304 is a contractual obligation inherent in every UCC contract; UCC Comment 1 confirms that a breach of this covenant is simply a breach of the contract, not a standalone tort.
• South Dakota recognizes “bad faith” as a tort only in the insurance context. Outside insurance, South Dakota “does not recognize an independent [tort] for breach of the implied covenant of good faith and fair dealing.” Schipporeit; Dougan.
• Because the verdict form allowed punitive damages if the jury answered “yes” to either “breach of good faith” or “fraud,” and the jury expressly rejected fraud, the punitive award necessarily rested on a purely contractual breach—impermissible under SDCL 21-3-2. The Court vacated the $50,000 punitive damages award.

3) No new trial despite admission of punitive-damages-related financial evidence

• Grangaard argued that evidence of its bid, revenue, and income (admitted to support punitive damages) tainted the jury’s contract verdict and its rejection of Grangaard’s setoff counterclaim, requiring a new trial.
• The Court assumed, without deciding, that certain financial evidence might have been admitted solely due to the punitive claim, but found no “reasonable probability” of a different result absent the error. Evidence relevant to pricing and offsets—including the substantial gap between DOT pay rates and the supplier price—was independently relevant to the setoff theory and was properly before the jury.
• The early completion bonus was admitted without objection through the DOT engineer and was the centerpiece of Goldenview’s closing on punitive damages, not a driver of contract liability. The jury found no fraud, indicating that it hewed to the instructions and was not inflamed by passion or prejudice.
• Given robust UCC instructions on acceptance, nonconformity, and damages, the jury’s rejection of setoff and award of contract damages were supported by the record and separable from any punitive-damages evidence. No retrial was warranted.

Impact and significance

Clarification of punitive damages in UCC/government-contract supply disputes

• This decision cements that punitive damages are not available for breaches of the UCC implied covenant of good faith (SDCL 57A-1-304). Plaintiffs must identify a genuinely independent tort duty (e.g., actionable fraud or deceit) to open the door to punitive damages.
• By distinguishing the insurance bad-faith tort from ordinary commercial disputes, the Court limits the creep of “bad faith” language into non-insurance contract litigation. Labeling a claim “bad faith” does not convert it to a tort.

Trial practice: verdict forms and instructions

• Practitioners must vigilantly gate punitive damages to a qualifying tort. Special verdict forms should not permit punitive damages based on “breach of good faith” alone. A clean structure is:
• • First, secure a “yes” finding on a tort claim that supports punitive damages.
  • Second, pose a distinct, statutory malice/oppression/fraud finding before any punitive amount is considered.
  • Third, only upon satisfying both, allow the jury to assess punitive damages.
• Defense counsel should object with specificity to any verdict form or instruction that permits punitive damages for contractual breaches. General objections are insufficient.

Appellate preservation: Rule 50(b) waiver principle

• Goldenview illustrates the Tank doctrine: if the nonmovant does not object that a Rule 50(b) motion raises new grounds beyond Rule 50(a), the nonmovant waives that procedural challenge. The trial court may then address the new grounds, and the issue is preserved for appeal.
• Practically, parties must promptly object to a Rule 50(b) motion that exceeds the scope of the prior Rule 50(a) motion to avoid waiver. Conversely, movants may preserve critical legal issues post-verdict if the nonmovant does not object to scope.

Independent tort doctrine reaffirmed

• South Dakota continues to enforce a clear boundary: tort remedies—including punitive damages—require a legal duty independent of contract. Attempts to “convert a contract case into a tort” will be closely scrutinized. This limits overpleading fraud where the gravamen is nonpayment or poor performance under a contract.

Complex concepts simplified

• Implied covenant of good faith and fair dealing (UCC): Every UCC contract contains an expectation that parties will act honestly and observe reasonable commercial standards. In South Dakota, breaching this covenant is a breach of the contract itself—not a separate tort. Remedies are contract/UCC remedies, not punitive damages.
• Punitive damages (SDCL 21-3-2): These are meant to punish and deter egregious conduct and are available only when the wrongdoer violated an obligation not arising from contract (i.e., an independent tort like fraud). They are not a tool to enhance contract damages.
• Independent tort doctrine: To recover tort remedies in a contract case, the plaintiff must prove violation of a duty that exists separate from the contract—such as a duty not to misrepresent present fact or to refrain from deceit. A mere failure to pay or to perform as promised is not tortious.
• Insurance “bad faith” vs. contract “good faith”: Insurance bad faith is a distinct tort in South Dakota due to the special insurer–insured relationship. Outside insurance, “bad faith” language often simply refers to the UCC/contract implied covenant, which does not support punitive damages.
• Rule 50(a)/(b) preservation: A party moves under Rule 50(a) for judgment as a matter of law at trial; after verdict, it may renew under Rule 50(b). Generally, 50(b) cannot add new grounds—but if the opponent does not object that new grounds were added, that objection is waived, and the court may decide the new ground. This case demonstrates that pathway to appellate preservation.
• Special verdict forms: A special verdict form breaks issues into questions. Precision matters: improperly linking punitive damages to contract-only findings can create reversible error. Courts and counsel should ensure punitive damages are conditioned exclusively on tort findings and the statutory mental state (oppression, fraud, or malice).
• DOT concrete acceptance and deductions: DOT specifications require cylinder tests at 28 days. Failures may be mitigated by “coring” in-place concrete to determine actual strength; DOT may accept structurally adequate concrete subject to price deductions. Those deductions can become the basis for setoff claims in disputes between contractor and supplier.

Practical guidance for litigants and trial courts

• When pleading punitive damages in commercial sales:
  • Identify a distinct tort (e.g., intentional misrepresentation of present fact) and a duty independent of the contract.
  • Avoid “bad faith” as a stand-in for tort. In UCC cases, breach of the implied covenant remains a contract claim.
• For defense counsel:
  • Object specifically to any instruction or verdict form that allows punitive damages based on contract-only findings (e.g., “good faith” breach).
  • If a verdict form error slips through, consider a Rule 50(b) motion raising the issue post-trial—and be alert to the opponent’s failure to object to the scope, which preserves the issue under Tank.
• For trial courts:
  • Keep tort and contract theories distinct in instructions and verdict forms.
  • Condition any punitive damages pathway on a tort finding and a separate mental-state finding consistent with SDCL 21-3-2.
• For commercial actors in DOT/UCC settings:
  • Reduce supplier terms to writing, including acceptance criteria, allocation of risk for nonconformity, testing protocols, and treatment of governmental deductions and setoffs.
  • Communicate specification risks and testing outcomes clearly to suppliers; failure to do so may complicate breach and setoff disputes even if it does not support punitive exposure.

Conclusion

Goldenview v. Grangaard delivers two important clarifications in South Dakota law. First, punitive damages cannot be awarded for breach of the UCC implied covenant of good faith and fair dealing because it is a contractual obligation, not an independent tort. South Dakota’s tort of “bad faith” remains confined to the insurance context. Second, the decision operationalizes the Tank waiver principle for preservation: a post-trial Rule 50(b) motion may validly present new legal grounds when the nonmovant does not object to the motion’s scope, thereby preserving the issue for appellate review.

On the trial management front, the opinion cautions against conflating “bad faith” rhetoric with the UCC’s implied covenant and underscores the necessity of carefully drafted verdict forms that gate punitive damages solely to tort findings. On the merits, the Court vacated the punitive award but affirmed the contract judgment and rejected the call for a new trial, finding the verdict supported by the evidence and instructions rather than by prejudice or passion.

Key takeaways:

• Punitive damages are not available for breach of SDCL 57A-1-304; plaintiffs must prove an independent tort.
• Insurance bad faith is the rare exception; its tort remedies do not extend to ordinary UCC contracts.
• Preservation matters—but an unobjected Rule 50(b) expansion can preserve a new issue.
• Verdict forms must ensure punitive damages are considered only if the jury finds a qualifying tort and the requisite mental state.

Goldenview thus strengthens doctrinal clarity at the intersection of contract and tort in commercial litigation and offers a practical roadmap for preserving and presenting punitive damages issues in South Dakota courts.