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FIL 350 - Chapter 13
Surety Bonds
| Question | Answer |
|---|---|
| 3 parties in a surety bond | 1. Principal: the party who agrees to perform certain acts or fulfill obligations 2. Obligee is party who depends on principal's promise 3. Surety (insurer) guarantees performance of principal |
| Surety bond | A contract to guarantee the performance of someone else - Similar to insurance contracts - Principal pays premium for guarantee, but surety pays losses incurred by obligee |
| Surety bonds vs. insurance contracts | Surety bonds: 3 parties, not 2. - No losses expected - Surety has legal right to recover loss pmt - Principal pays premium, but doesn't receive any pmt - Indefinite period of coverage - Performance may be in control of principal |
| Bid bonds | - If principal doesn't perform, pmt from bond is diff between principal's bid & next lowest bid - Purpose is to provide assurance that (sub)contractors will be available if bid accepted |
| Performance bonds | - Make surety responsible for completing a project upon default of principal - If default: can complete contract w/ existing or new contractor, or pay owner any diff in cost for completing work - Surety will seek repmt from principal |
| Payment bonds | Ensure suppliers/workers of principal get paid - Protects obligee since liens may be placed on prop |
| Maintenance bonds | - Guarantees workmanship for a specific period after completion of work (typically 1 yr) - May be part of performance bond for short term guarantees |
| License and permit bonds | Guarantee that principal will comply w/ all laws and regulations that govern his or her activities - Obligee = gov't entity - Often 1 yr guarantees - Provides extra confidence for public |
| Compliance bonds | - Principal will comply with laws and regulations (like a plumber) |
| Tax bonds | - Guarantees businesses will remit collected taxes (gas station) - means they will give that $ to gov't |
| Public official bonds | - Appointed or elected officials have duty to protect public interest - These bonds guarantee honesty and faithful compliance of public officials - Help hold them financially responsible for their actions |
| 3 types of public officials | 1. Administrative (don't handle $) 2. Officials who handle $ (riskiest types of bonds) 3. Officials w/ direct public involvement (police), also risky. |
| Attachment bonds | - Required if property is attached in a legal proceeding |
| Bail bonds | - Bail is prop or $ posted to allow accused person to be released prior to trial - Bail bond is a guarantee defendant will show up to court - If no-show, bail bond pays court full amt of bail - Fee is typically 10% of bail amount |
| Fiduciary bonds | Hold principal and surety jointly liable to obligees for faithful performance of specified duties - Guarantees full accting of all prop received (to bond limit) - Remain in force until all court obligations are complete |
| Principal | The party who has the obligation to perform for the obligee's benefit. |
| Obligee | Party that receives guarantee that the principal will fulfill the obligation promised. |
| Surety | Guarantees performance of principal (usually an insurer). |
| Suretyship | The obligation of an entity to answer for the default of performance of duties by another. |
| Contract Bond | Guarantees the fulfillment of obligations under construction or other contracts. |
| Subdivision Bond | Contract bond guaranteeing a local government authority that a subdivision developer will complete the project in accordance with approved proposals. |
| Supply Contract Bond | Contract bond guaranteeing a supplier will perform supply contract according to specifications. |
| Court Bond | Guarantee that an individual/organization will perform duties prescribed by law/court or will demonstrate financial responsibility for the benefit of another until a court reaches a final decision. |
| Release of Attachment Bond | Guarantees that the defendant will pay any damages and court costs if the court should decide in the claimant's favor. |
| Defendant's Appeal Bond (supersedeas bond) | Guarantees a defendant will pay all court costs when appealing to a higher court, should the higher court sustain the initial judgment. |
| Appeal Bond | Guarantees the plaintiff will pay all court costs should they appeal an adverse decision to a higher court. |
| Miscellaneous Bond | Any bond that does not fit well under other categories of surety bonds. |
| Judicial Bond | Guarantees the principal (plaintiff or defendant) will fulfill certain obligations specified by law. |
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FIL350
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