Surety Bond

Is a three-party agreement in which a Surety Company guarantees the performance of an obligation or undertaking by an individual (referred to as the “Principal”) in favor of a third party (referred to as the “Obligee”) (accdg. to Insurance Code).

A collateral document that ensures the principal’s fulfilment of the conditions of another agreement, with the bond remaining in full force and effect until the other agreement’s terms are met.

A suretyship contract is one in which a person commits himself solidarily with the principal debtor. (In accordance with the New Civil Code).

Parties To A Bond

Principal or Obligor

The party who enters into a contract with the obligee or is legally compelled to do so.

Obligee

The bond’s recipient.

Surety

The party who assures that the principal will follow through on his or her obligations.

Three Contracts

Primary Agreement

  • Describes the principal’s commitment to do or not do something.
  • The parties are the principal and the obligee, and they are in favor of the obligee.
  • This contract’s signatories.

Bond

  • The surety firm ensures that the principal will follow the contract to the letter.
  • In accordance with the principal contract’s terms and conditions; in the case of its termination.
  • If the surety defaults, the principal and the surety are equally and severally liable for the debt.
  • A monetary payment to the obligee.

Indemnity Agreement

  • If there are any, the principal and his indemnitors are jointly and severally liable.
  • In the event that the surety company is sued, the parties commit to indemnify the surety business jointly.
  • As a result of issuing the bond, it experiences a loss.

Three Terms Of Bonds

  • Bonds of a continuing type
  • Bonds written for a specific term
  • Bonds written for a specified term but a new bond is required at its expiration

Three C’s Of Bond Underwriting

  • Character
  • Capacity
  • Capital

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Non Judicial Bonds

Construction Bonds

Required in connection with the submission of tenders for contracts with public authorities and private owners to guarantee that the bidder (contractor), if awarded the contract, will enter into the contract and furnish the prescribed performance bonds.

The bond is responsible only for the difference between the bid of its principal and that of the contractor who is finally awarded the contract.

  1. Bidder’s Bond
  2. Performance Bond
  3. Advance Payment Bond
  4. Labor and Materials Payment Bond
  5. Warranty Bond

Fidelity Bond

Fidelity bond assumes that in case of loss due to an employee’s dishonesty, the employer is duly indemnified.

A fidelity bond undertakes to indemnify the employer against loss of money, securities and other property, resulting from any fraudulent or dishonest act committed by any of his employees.

Guarantee Payment Bond

Credit – guarantee the payment of purchase price or balance within the stipulated period and according to the agreement.
Financial – guarantee the payment of money in accordance with law or contract.

License And Permit Bond

Licenses or permits are required when public interest demands that certain types of business be regulated by the government.

Acceptable Collateral

Cash or Manager's Check

Assignment of Savings or Time Deposit

(BDO, MBTC, CBC)

Real Estate Mortgage

Amount is 2x the amount of the bond

Located within Metro Manila

Amount is based on Assessed

Value

Clean and free from any encumbrances

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