Colorado § 35-36-304 - Bonds or irrevocable letters of credit - exemptions.

§ 35-36-304. Bonds or irrevocable letters of credit - exemptions.

(1) (a) Before the commissioner may issue a license to a dealer, the applicant shall file with the commissioner in the sum of not less than two thousand dollars nor more than one million dollars, at the discretion of the commissioner:

(I) A bond executed by the applicant as principal and by a surety company qualified and authorized to do business in this state as a surety; or

(II) An irrevocable letter of credit meeting the requirements of section 11-35-101.5.

(b) The bond or irrevocable letter of credit must be conditioned upon compliance with this part 3 and section 35-36-104 and upon the faithful and honest handling of farm products in accordance with this part 3 and shall cover any fees due the department by the dealer and all costs and reasonable attorney fees incident to any suit upon the bond or irrevocable letter of credit. The bond or irrevocable letter of credit must be to the department in favor of every producer, dealer, small-volume dealer, or owner and, in the instance of a bond, must remain in full force and effect until canceled by the surety upon thirty days' prior written notice to the commissioner.

(c) (I) A producer, owner, small-volume dealer, or other dealer within the state of Colorado claiming to be injured by the fraud, deceit, or willful negligence of, or failure to comply with this part 3 or section 35-36-104 by, a dealer may request the department, as beneficiary, to demand payment on the irrevocable letter of credit or surety bond to recover the damages caused by the fraud, deceit, willful negligence, or failure to comply.

(II) The surety on the bond or the issuer of the letter of credit is not liable to pay a claim pursuant to an action brought under this part 3 if the action is not commenced within five hundred forty-eight days, which is approximately eighteen months, after the date of the transaction, as that term is described in section 35-36-305 (12), on which the claim is based, or the date of the loss, as that term is defined in section 35-36-102 (20), whichever is later.

(III) A producer, owner, small-volume dealer, or other dealer is not eligible for reimbursement from the bond or the irrevocable letter of credit for a claim submitted pursuant to this section if, at the time the claim is submitted, the producer, owner, small-volume dealer, or other dealer is:

(A) The owner of at least five percent of the voting shares, excluding patronage interests, membership interests, partnership interests, or publicly traded shares of the licensee whose failure is the basis of the claim; or

(B) The owner of at least five percent of the voting shares, excluding patronage interests, membership interests, partnership interests, or publicly traded shares of the parent corporation of the licensee whose failure is the basis of the claim.

(d) When an action is commenced on the bond or irrevocable letter of credit, the commissioner may require the licensee to file a new bond or irrevocable letter of credit, and failure of the licensee to file the new bond or irrevocable letter of credit within ten days after the commencement of the action constitutes grounds for the suspension or revocation of the licensee's license.

(e) The commissioner shall not require a bond or irrevocable letter of credit from a dealer who pays for farm products in cash or with a bank-certified check, a bank cashier's check, an irrevocable electronic funds transfer, or a money order at the time the dealer obtains from the owner of the farm products possession or control of the farm products, or of an applicant for a license or a licensee operating under a bond required by the United States to secure the performance of the applicant's or licensee's obligations; except that the bond must include all obligations pertaining to Colorado farm products, and the dealer shall furnish documentary evidence to the commissioner that the bond required by the United States is in full force and effect.

(f) The bond or irrevocable letter of credit required by section 35-36-216 must apply to the activities as a dealer of a person licensed pursuant to part 2 of this article 36. The persons are also subject to this section and section 35-36-305.

(2) Whenever the commissioner determines that a previously approved bond or irrevocable letter of credit is, or for any cause has become, insufficient, the commissioner may require a dealer to furnish an additional bond or irrevocable letter of credit or other evidence of financial responsibility to conform to the requirements of this part 3 or any rule promulgated pursuant to this article 36. The failure of the dealer to comply with the commissioner's requirement within thirty days after written demand for compliance constitutes grounds for the suspension or revocation of the dealer's license.

Source: L. 2020: Entire article amended with relocations, (HB 20-1213), ch. 160, p. 743, § 2, effective June 29. L. 2025: (1)(c)(III) added, (SB 25-176), ch. 218, p. 1004, § 10, effective August 6.

Editor's note: This section is similar to former § 35-37-106 as it existed prior to 2020.

ANNOTATION

Liability continues after cancellation for preexisting rights. A surety remains liable upon cancellation of a bond for any rights acquired by the obligee prior to cancellation. Home Indem. Co. v. Famularo, 530 F. Supp. 797 (D. Colo. 1982) (decided under former law).

The Farm Products Act creates a private right of action where the plaintiffs are producers and the defendants are dealers; plaintiffs' claims arise from defendants' alleged failure to comply with the provisions of the act; and plaintiffs received the written consent of the commissioner of agriculture to bring an action and they seek to recover the damages caused by defendants' fraud, deceit, and willful negligence. Gorsich v. Double B Trading Co., Inc., 893 P.2d 1357 (Colo. App. 1994) (decided under former law).