April 15, 1986

Dennis Eisnach, Commissioner 
Public Utilities Commission 
State of South Dakota 
500 East Capitol 
Pierre, South Dakota 57501

OFFICIAL OPINION NO. 86-12

Public grain warehouse bonds

Dear Commissioner Eisnach:

You have requested an official opinion from this office based upon the  following facts:

FACTS: 

The corporate bonding institution that has written a substantial majority of public grain warehouse bonds in the state which are submitted to the Commission to meet statutory licensing requirements (SDCL 49-42 and 49- 43) has announced a rate increase that has the effect of quadrupling the bond premiums.  To ease the financial burden this places on elevators and ultimately on individual farmers, the bonding company's representative has suggested that the Commission require bonding only on the amount of new grain stored each year.  In other words, previously accepted storage would be fully protected by prior bonds.  The Commission practice has been to require full bonding on all grain stored in a warehouse regardless of the bonding purchased for grain in storage during prior years.

Based upon the above facts you have asked the following questions:

QUESTIONS: 

(1)  Whether grain warehouse bonding requirements established in SDCL Chapters 49-42 and 49-43 and ARSD 20:10:11 could be met by approving  annual bonds for new storage only. 

(2)  Whether prior bonds would protect grain continuing to be stored within a public grain warehouse after termination of the storage period provided in SDCL 49-43-13.

IN RE QUESTION NO. 1:

SDCL 49-42-5.1 provides in part: 

. . . 

Before any license is granted to a public warehouseman, he shall file with the commission a bond conditioned to secure the faithful performance of his obligations as a public warehouseman and full and unreserved compliance with the laws of this state and the rules of the commission, relating to the storage of property for hire by the public warehouseman.  Such bond shall be in the amount specified by § §  49-42A-4 and 49-43-5.3.  Operation as a public warehouseman without such bond is a Class 2 misdemeanor.  Each day a person conducts the business of a public warehouseman without a bond is a separate offense. 

Upon receipt of an application and sufficient bond, the commission may grant the license applied for or may, for good cause shown, deny the issuance of the license.

SDCL 49-42-6 provides in part: 

Every license issued pursuant to § 49-42-5.1 expires on the next June thirtieth following the issuance of the license.  . . .

SDCL 49-43-5.3 provides: 

The bond required by § 49-42-5.1 for public grain warehousemen is for the specific purpose of protecting persons storing grain in seed with such warehousemen.  The amount of the bond shall be determined on the following basis: 

If the capacity of the main warehouse building including all connected structures used for the storage of grain, does not exceed ten thousand bushels, the amount of the bond shall be five thousand dollars, and for each additional ten thousand bushel capacity or fraction thereof, the additional amount of three thousand dollars of bond is required. 

However, if the value of the grain held in storage exceeds the amount of bond as determined by the capacity of the warehouse, the warehouseman shall immediately furnish an additional bond so that his total bond is in an amount equal to the value of the grain in storage. 

If a warehouseman has more than one public grain warehouse in the same city or town, only one bond is required.  If the same warehouseman operates more than one public grain warehouse in more than one city, a single bond may be filed covering warehouses at all locations and shall describe with  particularity the exact locations of the warehouses to be covered.  In such a case, the capacity used to determine the bond requirement is the bond requirement is the combined capacity of each main warehouse building, including connecting structures, used for storage of grain.

SDCL 49-43-13 provides: 

The storage period for grain and seed deposited in a public grain warehouse shall terminate on June thirtieth of each year.  In the absence of a demand for delivery, order to sell, or request by the holder of an outstanding storage receipt, accompanied by the payment of all accrued storage and handling charges as prescribed by law, the warehouseman may, upon the expiration of the storage contract, sell such stored grain or seed at the local market price, on the close of business of that day, deduct from the proceeds thereof all legal accrued charges and cash advances which may have been made upon such stored grain or seed by the warehouseman and pay the balance of such proceeds to the owner upon surrender of the storage receipt.

SDCL 49-43-14 provides: 

Upon the payment of all the accrued charges and the return of the storage receipt, a public warehouseman shall, if requested by the holder of an outstanding storage receipt, issue a new storage receipt to such holder and cancel the former receipt by endorsing the words, 'Canceled by the issuance of storage receipt No. ___,' and inserting the number of the new storage  receipt. The canceled storage receipt shall be signed by the warehouseman and the holder.

It is readily apparent, based upon the above-stated statutes, the public grain warehouse bond is a statutory bond given for the annual term for which the warehouseman is licensed to accept grain for storage.  In order to conform with the statutory requirements, the bond must be issued to comport with the statutory requirements which are in this case, SDCL 49-43-5.3.  Under this statutory section, bonds issued during the annual storage term are initially computed based upon the capacity of the warehouse.  There is nothing within this statutory provision or any other provision in the chapter that would allow bonds to be issued for only new grain that was stored within the warehouse during the storage term.  If the Commission determined that a bond based upon actual new storage receipts was preferable over the current time and capacity provisions, the Commission's only alternative would be to seek a legislative change.  Whether such a change in bonding requirement would achieve the benefits the Commission is seeking is something that this Office, as a matter of law, cannot determine.

IN RE QUESTION NO. 2:

I cannot answer your question, based upon the facts you've given,  whether a previous year's bond would protect the grain continuing to be stored after the termination of storage period of June 30, provided in SDCL 49-43-13.  In order to determine that issue, one would have to review the bond itself.  SDCL 56-2-12 provides 'That a surety cannot be held beyond the express terms of this contract . . ..'

General law in the area holds that a surety is only held liable for the acts of a principal for violations or defaults that occur during the bonding period.  See State v. Interstate Surety Co., 204 N.W. 650 (S.D. 1925); St. Paul Ins. v. Fireman's Fund An. Ins., 245 N.W.2d 209 (Minn. 1976). Based upon prior South Dakota cases, and prior Attorney General's Opinions, it appears that South Dakota public grain warehouse bonds are only issued for the annual licensed storage, and that successive bonds are issued for each storage.  Assuming this factual scenario still exists, only the surety that had the bond in force during which facts arose which caused the violation and default would be liable.  Assuming that these facts were true, the prior year's bond generally would not protect a person for violations or defaults that occurred outside the bonding period.  See State. V. Interstate Surety Co., supra; AGR 1927-28, p. 69 and AGR 1933-34, p. 792.

Respectfully submitted,

Mark V. Meierhenry
Attorney General