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CHAPTER 53-9

UNLAWFUL CONTRACTS

53-9-1      Contract provisions contrary to law, unlawful.
53-9-2      Gambling contracts void.
53-9-3      Contracts against public policy.
53-9-4      Penalties for nonperformance of contract void, exceptions.
53-9-5      Contracts fixing damages void, exception.
53-9-6      Restraints on legal proceedings void--Arbitration agreements and certain surety contract limitations enforceable.
53-9-6.1      Validation of contract limiting time for enforcement of rights under surety contracts.
53-9-7      Contract in restraint of marriage void.
53-9-8      Contracts in restraint of trade void--Exceptions.
53-9-9      Sale of good will--Seller's agreement with buyer to refrain from carrying on similar business, validity.
53-9-10      Dissolution of partnership--Agreement of partners to refrain from carrying on similar business, validity.
53-9-11      Employment contract--Covenants not to compete.
53-9-12      Contracts of independent contractor who is captive insurance agent--Covenants not to compete.


     53-9-1.   Contract provisions contrary to law, unlawful. A contract provision contrary to an express provision of law or to the policy of express law, though not expressly prohibited or otherwise contrary to good morals, is unlawful.

Source: CivC 1877, § 953; CL 1887, § 3577; RCivC 1903, § 1271; RC 1919, § 892; SDC 1939, § 10.0701.


     53-9-2.   Gambling contracts void. Any contract:
             (1)      In which the whole or any part of the contractual consideration is money or other valuable consideration, won or lost as a result of the outcome of any game of any kind, under any name or by any means; or
             (2)      In which the contract is for the repayment of money or other valuable consideration, lent or advanced, for the purpose of gambling in connection with any game, play, bet, or wager;
is void to the extent that the consideration constitutes a gambling win or loss or is a loan or advance for the purpose of gambling. However, any contract where the creditor is a regulated lender as defined in § 54-3-14, or any other good faith lender, is not subject to this section.

Source: SL 1907, ch 155, § 3; RC 1919, § 3929; SDC 1939, § 24.0102; SL 2010, ch 230, § 1.


     53-9-3.   Contracts against public policy. All contracts which have for their object, directly or indirectly, to exempt anyone from responsibility for his own fraud or willful injury to the person or property of another or from violation of law whether willful or negligent, are against the policy of the law.

Source: CivC 1877, § 954; CL 1887, § 3578; RCivC 1903, § 1272; RC 1919, § 893; SDC 1939, § 10.0702.


     53-9-4.   Penalties for nonperformance of contract void, exceptions. Penalties imposed by contract for any nonperformance thereof are void. This section does not void obligations penal in form such as heretofore have been commonly used, but it voids their penal clauses.

Source: CivC 1877, § 955; CL 1887, § 3579; RCivC 1903, § 1273; RC 1919, § 894; SDC 1939, § 10.0703.


     53-9-5.   Contracts fixing damages void, exception. Every contract in which amount of damage or compensation for breach of an obligation is determined in anticipation thereof is void to that extent except the parties may agree therein upon an amount presumed to be the damage for breach in cases where it would be impracticable or extremely difficult to fix actual damage.

Source: CivC 1877, §§ 956, 957; CL 1887, §§ 3580, 3581; RCivC 1903, §§ 1274, 1275; RC 1919, §§ 895, 896; SDC 1939, § 10.0704.


     53-9-6.   Restraints on legal proceedings void--Arbitration agreements and certain surety contract limitations enforceable. Every provision in a contract restricting a party from enforcing his rights under it by usual legal proceedings in ordinary tribunals, or limiting his time to do so, is void. However, agreements to submit controversies to arbitration, as authorized by the Uniform Arbitration Act, are valid and enforceable, and any provision in a surety contract which limits the time for enforcement is valid and enforceable if the limitation of time is not less than two years after the cause of action has accrued.

Source: CivC 1877, § 958; CL 1887, § 3582; RCivC 1903, § 1276; RC 1919, § 897; SDC 1939, § 10.0705; SL 1971, ch 157, § 27; SL 1988, ch 382, § 1.


     53-9-6.1.   Validation of contract limiting time for enforcement of rights under surety contracts. Any contract provision which limits a party's time for enforcing his rights under a surety contract entered into prior to July 1, 1988, is hereby cured, legalized and validated as fully as if such contract provision had been entered into pursuant to § 53-9-6.

Source: SL 1988, ch 382, § 2.


     53-9-7.   Contract in restraint of marriage void. Every contract in restraint of marriage of any person other than a minor is void.

Source: CivC 1877, § 962; CL 1887, § 3586; RCivC 1903, § 1280; RC 1919, § 901; SDC 1939, § 10.0707.


     53-9-8.   Contracts in restraint of trade void--Exceptions. Any contract restraining exercise of a lawful profession, trade, or business is void to that extent, except as provided by §§ 53-9-9 to 53-9-12, inclusive.

Source: CivC 1877, § 959; CL 1887, § 3583; RCivC 1903, § 1277; RC 1919, § 898; SDC 1939, § 10.0706; SL 2005, ch 254, § 1.


     53-9-9.   Sale of good will--Seller's agreement with buyer to refrain from carrying on similar business, validity. Any person who sells the good will of a business may agree with the buyer to refrain from carrying on a similar business within a specified county, city, or other specified area, as long as the buyer or person deriving title to the good will from the seller carries on a like business within the specified geographical area.

Source: SDC 1939, § 10.0706 (1); SL 1992, ch 60, § 2; SL 1997, ch 274, § 1.


     53-9-10.   Dissolution of partnership--Agreement of partners to refrain from carrying on similar business, validity. Partners may, upon or in anticipation of a dissolution of the partnership, agree that none of them will carry on a similar business within the same municipality where the partnership business has been transacted or within a specified part thereof.

Source: CivC 1877, § 961; CL 1887, § 3585; RCivC 1903, § 1279; RC 1919, § 900; SL 1929, ch 88; SDC 1939, § 10.0706 (2).


     53-9-11.   Employment contract--Covenants not to compete. An employee may agree with an employer at the time of employment or at any time during his employment not to engage directly or indirectly in the same business or profession as that of his employer for any period not exceeding two years from the date of termination of the agreement and not to solicit existing customers of the employer within a specified county, first or second class municipality, or other specified area for any period not exceeding two years from the date of termination of the agreement, if the employer continues to carry on a like business therein.

Source: SL 1929, ch 88; SDC 1939, § 10.0706 (3); SL 1984, ch 318.


     53-9-12.   Contracts of independent contractor who is captive insurance agent--Covenants not to compete. Any independent contractor who is an insurance producer as defined in subdivision 58-1-2(16) and is a captive agent who is not an independent agent and who works exclusively for a single insurance company or an affiliated group of insurance companies, even if the single insurance company allows its captive agents to market the products of another insurance company pursuant to contract, may agree with an insurer at the time of contracting or at any time during the term of the contract:
             (1)      Not to engage directly or indirectly in the same business or profession as that of the insurer for any period not exceeding two years from the date of termination of the independent contractor's agreement with the insurer; and
             (2)      Not to solicit existing customers of the insurer within a specified county, first or second class municipality, or other specified area for any period not exceeding two years from the date of termination of the agreement, if the insurer continues to carry on a like business within the specified area.

Source: SL 2005, ch 254, § 2.


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