South Dakota Supreme Court Enforces Oral Employment Contract

In Knigge, v. B&L Food Stores, Inc., the South Dakota Supreme Court reversed and remanded a circuit court’s decision that an oral contract was unenforceable under the statute of frauds.

David Knigge entered into an oral employment contract with his brother, Robert Knigge, to manage a grocery store that was owned by Robert and his wife Lynette. David entered into the contract in part because Robert had cancer and a limited time to live. The contract allegedly included a severance payment to David if Lynette desired to end David’s employment after Robert's death. Robert died five months after the contract was negotiated, and Lynette terminated David's employment two months later. When Lynette refused to pay the severance, David sued to enforce the agreement. The circuit court granted summary judgment dismissing the suit. The circuit court ruled that the oral contract was unenforceable under the statute of frauds.

On appeal, the South Dakota Supreme Court found that SDCL 53-8-2 renders certain oral contracts unenforceable. The one-year provision of this statute forbids enforcement of an oral “agreement that by its terms is not to be performed within a year from the making thereof.” However, an oral contract that could be performed within one year is not within this statute. Specifically, the Supreme Court held: 

"According to David, he and Robert were concerned about David's employment after Robert's impending death. David testified that they had specifically considered that Lynette and David had a strained relationship, that she might not want David to manage the store after Robert's death, and that they contemplated that David would not continue to manage the store if that was Lynette's wish. Additionally, although the parties did not know for certain when Robert's death would occur, there is no dispute that Robert had a very limited time to live when he made the contract with David. Indeed, Robert was fifteen months into his eighteen-month prognosis and had been informed that no further treatment was available. Viewing this evidence in a light most favorable to David, David and Robert specifically contemplated David's termination occurring within one year. Under these facts, the contemplated early termination was a method of completing David's performance."