E. Miscellaneous Bonds

• Library: SC Construction Law Desk Book (SCBar) (2013 Ed.)

E. Miscellaneous Bonds

In addition to the more familiar payment and performance bonds, several other types of bonds are used in construction. These bonds are typically statutory creations, and the requirements of those bonds are largely dictated by or included in the statute itself.

1. Residential Home Builders

Residential builders licensed under the laws of South Carolina may be required by the South Carolina Residential Home Builders Commission ("Commission") to obtain a surety bond in the amount of $15,000.⁹⁸ The purpose of the license bond is to ensure compliance with South Carolina rules and regulations regarding health and safety requirements and construction standards. Another purpose is to "protect the home-buying public from . . . financially irresponsible builders."⁹⁹ The courts have indicated that members of the public, and more specifically, homeowners, who are injured by homebuilders licensed by the Commission may maintain a claim directly against the surety providing the license bond.¹⁰⁰

When interpreting these license bonds, South Carolina courts have applied standard rules of statutory construction. Although a bond is ordinarily purely a contract that is to be strictly construed and not extended beyond the scope of its express terms, a statutory bond is to be read, construed, and enforced in connection with, and according to, the purpose and meaning of the legislative enactment. "When a bond is given in compliance with the provisions of a statute, the Court will hold liberally the wording and terms of the bond to carry out the statutory purpose."¹⁰¹ If doubt exists as to the meaning of the bond, the language is to be liberally construed in favor of the parties whom they are designed to protect.

South Carolina courts have evaluated what is covered by these license bonds. The courts have held that the bonds will cover claims that relate to the actual construction of the homes, and the courts have declined to extend coverage further. In Kennedy v. Henderson, the Kennedys hired Henderson to build a nursery.¹⁰² The Kennedys placed money in a trust to be used for the construction of the nursery, but the nursery was never built and the monies in the trust were not returned to the Kennedys.

The builder had obtained a surety bond as a condition to his licensing, and the bond provided, in relevant part, that the "bonded principal shall in all respects comply with the rules and regulations pertaining to construction standards and health and safety requirements promulgated by the South Carolina Residential Home Builders Commission."¹⁰³ The Kennedys sued to recover damages from the surety, Sentry Insurance Company, when Sentry refused to pay the bond claim.

The issue before the Court was whether Henderson's wrongful action fell within the scope of the surety bond. The Court determined that the purpose of the bond was to require compliance with certain rules and regulations regarding health and safety requirements and construction standards. The Court stated that the surety bond at issue was not a performance bond issued for the purpose of guaranteeing the completion of work by the contractor. Instead, the purpose of the bond was to protect the public interest as to violations falling within the coverage of the bond provisions. ¹⁰⁴

No violation of construction standards was alleged in the Complaint, and "the complaint on its face shows that a violation of any of [the building or construction standards] would be virtually impossible because construction of...