Three Tips Every South Dakota Business Owner Needs to Know About Contracts

Certain contract provisions can create "lawsuit chaos" for a South Dakota business.  Many times, these provisions are buried in the "fine print" in an exceedingly long (and boring!) business contract. 

Tip # 1 - Force Majeure

This provision is also known as an "Act of God" clause and can suspend another party's performance of a contract when unforeseen disasters, such as blizzards and floods, occur. To fit within the meaning of force majeure, the unforeseeable event must be the actual cause of the delay, as opposed to other business considerations existing at the same time. 

Tip # 2 - Choice of Law

This provision designates which law is used to resolve any dispute. Most of the time, parties are free to choose which state's laws will apply to their business relationship (as long as that state has a “substantial relationship” to either the transaction or the parties). The reason this provision is important is that laws are often different from state to state. This can be particularly important in non-compete agreements or lawsuits in which a South Dakota business may seek damages. 

Tip # 3 - Limiting Liability and Indemnification

As a general rule, breach of contract damages are measured by the amount of money needed to put the non-breaching party back in the position it would have been if the breach hadn't occurred. Of course, each state can define "damages" differently, so a South Dakota business owner must pay attention to what constitutes "allowable damages." For instance, a liquidated damages provision anticipates the amount of any loss ahead of time and sets a cap on any potential recovery. 

These three provisions are just a few examples of what may be "hidden" in a contract. And although these provisions may appear harmless, they can have a significant impact on a South Dakota business owner's legal rights.