Will South Dakota honor this contract's governing-law clause, and what law applies if the contract is silent?
Yes, a party-chosen governing-law clause controls; South Dakota's statutory default rule fills the gap only when the contract has none. Culhane v. Thovson states the first half as the court's own law, noting that parties "may agree to be bound by the law of a particular state" and that they do so "through a choice of law provision in a contract", citing "See also Restatement (Second) Conflict of L. § 187 (1971) (generally '[t]he law of the state chosen by the parties to govern their contractual rights and duties will be applied')." Northland Capital Financial Services, LLC v. Robinson then does it: finding a Minnesota choice-of-law provision in the lease, the court held that "For this substantive contractual issue, we apply Minnesota law consistent with the choice of law provision in the Lease." Where the contract has no such clause, SDCL 53-1-4 supplies the default: "A contract is to be interpreted according to the law and usage of the place where it is to be performed or, if it does not indicate a place of performance, according to the law and usage of the place where it is made." Culhane itself had no such clause: "Here, neither LSA 1 nor LSA 2 contain such a choice of law provision manifesting the parties' intent to be bound by the laws of a particular jurisdiction, nor do the agreements indicate the place of performance. Accordingly, we must apply choice of law principles to determine which state's law applies," and the answer it reached was that "whether we apply SDCL 53-1-4 or sections 188 and 196 of the Restatement, the circuit court correctly determined that this matter is governed by South Dakota law." Culhane confirms that SDCL 53-1-4 is a gap-filler for contract interpretation, not the general choice-of-law rule for every contract question: "SDCL 53-1-4 expressly relates to the law to be applied in interpreting a contract, and here, we are tasked with determining the enforceability or validity of the LSAs as written."
The trap
The express clause comes first in the framework Culhane sets out: "Issues in contract are determined by the law chosen by the parties in accordance with the rule of § 187 and otherwise by the law selected in accordance with the rule of § 188," and § 188's contacts apply only "[i]n the absence of an effective choice of law by the parties (see § 187)". Note where that phrase comes from: it is the opening of Restatement § 188(2) as Culhane quotes it, NOT a sentence about SDCL 53-1-4's own scope. The answer to the underlying question is in the cases rather than in the text of § 53-1-4: the older authority Culhane quotes is that "[a] contract must be construed in accordance with the law of the place where made unless it is shown that it was the intention of the parties to be bound by the law of some other place," and Northland Capital applied a chosen law to a substantive contract question without reaching § 53-1-4 at all. So a drafter cannot assume the statute's place-of-performance-then-place-of-contracting sequence overrides an express governing-law clause the parties actually wrote into the contract; it is the reverse: the express clause controls, and § 53-1-4 only fills a genuine silence. Culhane also flags that SDCL 53-1-4 is limited to CONTRACT INTERPRETATION questions on its own words, while a different Restatement framework (§§ 186-207, including § 196 for the validity of a services contract) may govern a question about a contract's ENFORCEABILITY OR VALIDITY rather than its meaning: the two inquiries are not automatically the same body of law, though Culhane itself concluded the two approaches reached the same result on its facts. Separately, South Dakota's most-significant-relationship test from Chambers v. Dakotah Charter, Inc. (Restatement (Second) of Conflict of Laws § 145) is, by its own terms, a TORT choice-of-law test, not a contract one: citing Chambers for a contract choice-of-law question, rather than the contract-specific Restatement sections, is citing the wrong body of law even though both arise under the same Restatement.
14 authorities
- statuteSDCL § 53-1-4enactment date not established
The words that state the rule
A contract is to be interpreted according to the law and usage of the place where it is to be performed or, if it does not indicate a place of performance, according to the law and usage of the place where it is made.
The words that state the rule
See also Restatement (Second) Conflict of L. § 187 (1971) (generally “[t]he law of the state chosen by the parties to govern their contractual rights and duties will be applied”).
The words that state the rule
SDCL 53-1-4 expressly relates to the law to be applied in interpreting a contract, and here, we are tasked with determining the enforceability or validity of the LSAs as written.
The words that state the rule
Issues in contract are determined by the law chosen by the parties in accordance with the rule of § 187 and otherwise by the law selected in accordance with the rule of § 188.
The words that state the rule
In the absence of an effective choice of law by the parties (see § 187), the contacts to be taken into account . . . to determine the law applicable to an issue include: (a) the place of contracting, (b) the place of negotiation of the contract, (c) the place of performance, (d) the location of the subject matter of the contract, and (e) the domicil, residence, nationality, place of incorporation and place of business of the parties.
The words that state the rule
Further, the most significant relationship test of the Restatement (Second) of Conflict of Laws § 145 that we applied in Chambers expressly applies in tort cases.
The words that state the rule
While neither party cites to it, choice of law questions regarding contracts, including the validity thereof, are addressed in the Restatement (Second) of Conflict of Laws, §§ 186–207.
The words that state the rule
Further, section 196 of the Restatement addresses the specific question of the validity of a contract and provides that the “validity of a contract for the rendition of services and the rights created thereby” are determined by “the local law of the state where the contract requires that the services, or a major portion of the services, be rendered, unless, with respect to the particular issue, some other state has a more significant relationship.”
The words that state the rule
We conclude that whether SDCL 53-1-4 or sections 188 and 196 of the Restatement applies, the result is the same.
The words that state the rule
As an initial matter, we note that “parties may agree to be bound by the law of a particular state” through a choice of law provision in a contract.
The words that state the rule
Here, neither LSA 1 nor LSA 2 contain such a choice of law provision manifesting the parties’ intent to be bound by the laws of a particular jurisdiction, nor do the agreements indicate the place of performance. Accordingly, we must apply choice of law principles to determine which state’s law applies.
The words that state the rule
In Briggs, we stated that “[a] contract must be construed in accordance with the law of the place where made unless it is shown that it was the intention of the parties to be bound by the law of some other place.”
The words that state the rule
For all these reasons, we conclude that whether we apply SDCL 53-1-4 or sections 188 and 196 of the Restatement, the circuit court correctly determined that this matter is governed by South Dakota law.
The words that state the rule
We conclude this issue presents a matter of procedure and South Dakota law should be applied. However, Northland’s alternative argument requires us to interpret the language of the Lease to determine whether the forum selection clause permits Northland to waive the clause because it was included solely for Northland’s benefit. For this substantive contractual issue, we apply Minnesota law consistent with the choice of law provision in the Lease.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.