July 10, 1978

Ms. Jane Nelson 
Division of Consumer Protection 
Department of Commerce and Consumer Affairs 
Pierre, South Dakota 57501

Official Opinion No. 78-30

Liability of sureties under SDCL 37-13-9

Dear Ms. Nelson:

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

FACTS: 

Pursuant to SDCL 37-13-9, a peddler or solicitor must file a $1,000 bond with the Division of Consumer Protection before he or she receives a peddler's and solicitor's license.  The purpose of the bond is to ensure faithful performance, payment of obligations arising from his or her business, and payment of claims arising through fraud, deceit or otherwise. The license must be renewed annually and the bonds are written to expire on December 31st of the year for which the license is issued.

Based on the above factual situation you have asked the following questions:

QUESTIONS: 

1.  Does the bonding company's liability on a peddler's and solicitor's bond end when the bond expires? 
    
2.  If not, which statute of limitations applies to the bond of peddlers and solicitors?

IN RE QUESTION NO. 1:

A bond company is liable after the expiration of a bond for any breach of the bond during the term the bond was in effect.  The Supreme Court of South Dakota, in the case of First National Bank & Trust Co. in Sioux Falls v. Monserud, 61 S.D. 460, 249 N.W. 813 (1923), held that a bonding company is liable for actions committed by the principal during the time the bond covered him.  Also, in Lyman v. Siebert, 65 N.Y.S. 367 (1900), the Supreme Court held that a complaint must set forth specifically that the violations occurred during the period of time the principal was covered by the bond.  It is my view that South Dakota law provides that any actionable breach of the bond by the principal while the bond is in effect, creates a cause of action under South Dakota law.  Any person may bring this cause of action to a court of law so long as the statute of limitations has not run.  The answer to your first question, therefore, is no.

IN RE QUESTION NO. 2:

In response to your second question, the applicable statute of limitations depends on whether the statutory bond is a sealed instrument.  SDCL 15-2- 6(2) provides that an action upon a sealed instrument, other than for the recovery of real property, can be commenced only within twenty years after the cause of action shall have accrued.  In Clark County v. Berstresser, 63 S.D. 121, 257 N.W. 44 (1934), a statute required officials be bonded and the bonding company attached seals to the bonds.  The Supreme Court of South Dakota held that the applicable statute of limitations was the twenty-year statute, and not the six-year statute of limitations applicable for actions on a liability created by statute. Therefore, if the bonds be sealed instruments, the applicable statute of limitations is SDCL 15-6-2(2).

Where the bonds are not sealed instruments, the applicable statute of limitations is SDCL 15-2-13(1) and (2).  SDCL 15-2-13(1) and (2) provide that other than for the recovery of real property (1) an action upon a contract, obligation, or liability, express or implied; or (2) an action upon a liability created by statute other than a penalty or forfeiture; can be commenced only within six years after the cause of action shall have accrued.

It is my view that bonds such as you refer to are “contracts” and thus within the scope of SDCL 15-2-13.  In Ruthton Co-op Creamery Co. v. Ruthton State Bank, 217 N.W. 133 (1927), the Supreme Court of Minnesota held that “A bond is a contract.”  11 C.J.S. Bonds, p. 339, states that “A bond is clearly a contract.” 51 Am.Jur.2d Limitations of Actions, p. 671, also notes that bonds are contracts.  Since a bond is a contract, SDCL 15-2-13(1) is an applicable statute of limitations.

A bond, however, is not only a contract, but it creates a liability as well.  The Supreme Court of Michigan in Ellis v. Phillips, 363 Mich. 587, 110 N.W.2d 772 (1961), held that “suretyship is a contractual relationship resulting from an agreement whereby one person, the surety, engages to be answerable for the debt, default, or miscarriage of another.”  Here, the liability is not only created by contract, but imposed on the bonding company by SDCL 37-13-9.  Thus, a bond also fits under the “liability” language of SDCL 15-2-13.

In summary, where the bond is a sealed instrument, the applicable statute of limitations is SDCL 15-2-6(2).  In the absence of a sealed instrument, the applicable statute of limitations is 15-2-13.  The plaintiff has six years from the time the action accrues to bring the matter before the court.

Respectfully submitted,

William J. Janklow
Attorney General

WJJ:JF:jo