January 16, 1978

Mr. D. G. Syvertson 
Clark County State's Attorney 
Clark County Courthouse 
Clark South Dakota 57225 

Official Opinion No. 78-6

Performance bonds required under SDCL 5-21

You have requested an opinion from this office based upon the following factual situation:

FACTS: 

Recently, a contractor entered into a contract with a town for a public improvement.  The contractor desired to pledge a bank saving certificate of deposit as security for the faithful performance of the contract and for payment of all persons supplying labor and materials in lieu of furnishing a corporate security bond for performance and payment under SDCL 5-21.  The reason of the contractor wanting to pledge a savings certificate of deposit or cash was that he would then have enough bonding leeway left to bid upon another job in another city and he felt that since his bank would back him with a saving certificate or cash, he could then use the extent of his bond ability in another or other projects.

Based on the above facts you ask the following question:

QUESTION: 

Must a contractor, under the provisions of SDCL 5-12, furnish a corporate surety bond for payment and performance of his contractual obligations, or may a personal surety bond, executed only by the contractor, be used in meeting the requirements of SDCL 5-21?

SDCL 5-21-1 provides as follows: 

Whenever any contract is entered into for the construction of public improvement or the furnishing of any material or labor therefor, the contractor shall be required, before commencing such work, to furnish surety in an amount not less than the contract price, for the faithful performance of such contract, with the additional obligation that such contractor shall promptly pay all persons supplying him with labor or material in the prosecution of the work provided for in such contract.

SDCL 5-21-3 provides: 
    
Whenever any contract is entered into for the construction, alteration or repair of improvements, including public improvements, to be located in this state, and the contractor or subcontractor furnishes surety for the faithful performance of such contract, there is hereby imposed an additional obligation upon the surety to the state of South Dakota that said contractor or subcontractor shall promptly pay all taxes which may accure to the state of South Dakota under the provisions of chapter 10-46.  Such liability on the part of the surety shall be limited to two percent of the amount of the contract price.  For the purposes of this section and §  5-21-4 the term “surety” shall mean a bond or undertaking executed by a surety company authorized to do business in the state of South Dakota.

SDCL 5-21-4 provides: 

The surety within sixty days after entering into such performance bond shall send notice of the same to the secretary of revenue.  Six months after the completion of the contract and the acceptance of the improvement by the owner thereof, the additional obligation imposed upon said surety shall cease unless written notice, within such period of time, of unpaid use taxes, is given to the surety by the secretary of revenue.

Although the above-cited provisions of SDCL 5-21 do not clearly specify the requirement for providing a corporate surety bond in relation to the fact situation presented, it appears to me that the more logical conclusion on this matter would be that the Legislature did intend that a corporate surety bond be required.  Accordingly, I would agree with your position on this matter that the requirements imposed by SDCL 5-21-3 are tied in with the surety bond requirements of SDCL 5-21-1 and, therefore, the corporate bond requirement would be a requirement for the contractor under SDCL 5-23-1.

I am aware of the certified check or cashier's check provision applicable to the question you raise, and further, I believe that if the Legislature had intended such provisions to apply to Chapter 5-21 there would have been specific language dealing with that opportunity.

Respectfully submitted,

William J. Janklow
Attorney General

WJJ:DOC:rw