Dave Gustafson & Co. v. State

156 N.W.2d 185 (1968)

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Dave Gustafson & Co. v. State

South Dakota Supreme Court
156 N.W.2d 185 (1968)

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Facts

In October 1963, Dave Gustafson & Company (Gustafson) (plaintiff) contracted with the South Dakota State Highway Commission (the commission) (defendant) for Gustafson to perform construction work on a new public highway. The contract stated that time was an essential element because of the costs and public inconvenience that could result from delays in completing the highway. The contract further provided that if Gustafson failed to complete the construction work by the agreed-upon date, the commission would deduct a specified amount from Gustafson’s payment as liquidated damages for each day of delay. The contract set forth a graduated scale of damages that increased as the dollar amount of the contract increased. For contracts between $500,001 and $1 million, the specified damages were $210 per day. Gustafson ultimately completed work on the highway 67 days after the agreed-upon date. The contractual amount owed Gustafson for the work was $530,742.14, but the commission deducted $14,070 from that amount, calculated as $210 per day multiplied by 67. Gustafson sued the commission and the State of South Dakota (defendant) in South Dakota state court, asserting that the damages provision in the contract should be construed as an impermissible penalty rather than an enforceable liquidated-damages provision. The trial court found that the provision was a liquidated-damages provision, and Gustafson appealed to the South Dakota Supreme Court.

Rule of Law

Issue

Holding and Reasoning (Hanson, J.)

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