877 N.W.2d 318
S.D.2016Background
- RCS hired BHE as subcontractor on three projects (University, LaCrosse, Toyota) for excavation and utility work; disputes on LaCrosse and Toyota were appealed.
- BHE fell behind schedules, failed to maintain certified payrolls, and lacked required water/sewer licensing; RCS issued cure notices and ultimately terminated BHE under subcontract §16 (for cause).
- Circuit court found BHE breached the LaCrosse and Toyota subcontracts, awarded RCS back charges ($387.32 on LaCrosse; $191,208.11 on Toyota) and attorney fees under subcontract §6.
- BHE argued termination was effectively under §17 (termination for convenience), scope-of-work was narrower than the court found, and §6 did not permit recovery of fees between contracting parties.
- RCS sought to hold Mitch Morris (BHE president) personally liable because BHE was administratively dissolved when contracts were signed; court declined to impose individual liability.
Issues
| Issue | Plaintiff's Argument (BHE) | Defendant's Argument (RCS) | Held |
|---|---|---|---|
| Whether RCS properly recovered damages under §16 (termination for cause) | RCS waived defective-work notices and termination became §17 (convenience), so damages under §16 were improper | BHE breached; notices and termination for cause under §16 were valid | Court affirmed: termination for cause under §16 was proper |
| Whether Toyota award included work outside BHE's subcontract scope | Scope did not include final grading/topsoil/landscaping; award exceeds subcontract | Bid, incorporated specs, and grading plan show those tasks were within scope | Court affirmed: contract unambiguous; scope included the challenged work |
| Whether subcontract §6 permits recovery of attorney fees between parties | §6 is an indemnity/"hold harmless" clause intended for third-party claims, not inter-party fee shifting | §6 (and related §7) clearly contemplates fees to enforce subcontract provisions between the parties | Court affirmed: §6 covers attorney fees for litigation between the contractor and subcontractor |
| Whether Morris is personally liable for contracts entered during administrative dissolution | Morris knowingly acted while corporation lacked capacity; agency rule makes him personally liable | SDCL 47-1A-1422 reinstatement relates back, making the corporation's existence "seamless" and insulating agents | Court affirmed: statute provides reinstatement relates back; no personal liability and no veil-piercing shown |
Key Cases Cited
- Vander Heide v. Boke Ranch, Inc., 736 N.W.2d 824 (S.D. 2007) (standard for reviewing factual findings and contract ambiguity).
- Ziegler Furniture & Funeral Home, Inc. v. Cicmanec, 709 N.W.2d 350 (S.D. 2006) (contract interpretation is a question of law reviewed de novo).
- Icehouse, Inc. v. Geissler, 636 N.W.2d 459 (S.D. 2001) (distinguishing indemnity clauses limited to third-party claims).
- Nelson v. Schellpfeffer, 656 N.W.2d 740 (S.D. 2003) (read contract as a whole; give effect to all provisions).
- Yankton Ethanol, Inc. v. Vironment, Inc., 592 N.W.2d 596 (S.D. 1999) (reinstatement statute makes corporate existence relate back as if dissolution never occurred).
- Mobridge Cmty. Indus., Inc. v. Toure, 273 N.W.2d 128 (S.D. 1978) (general rule treating corporation as separate legal entity absent reason to the contrary).