Introduction to

Suretyship

BASIC NON-LIFE COURSE

Participant’s
Version 2017
Workbook

Distribution Learning & Development

Project Pride
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 Basic Non-Life Course
Introduction to Suretyship

SURETYSHIP
A contract whereby one party (Surety), agrees to guarantee the performance or
non-performance of an obligation imposed upon another party
(Obligor/Principal) in favor of a third party (Obligee). (Insurance Code)
If a person binds himself solidarily with the principal debtor, the contract shall
be called a suretyship. (New Civil Code)
It is “Triangular Transaction” because involves 3 parties:

1. Surety o The insurance company that issues the bond.

o The party who agrees to guarantee the performance or
nonperformance of an obligation imposed upon the Principal by the
Obligee.

2. Obligee o The party who requires the Principal to perform an

obligation. o The ultimate beneficiary of the bond.
o It may be any of the following entities:
 Owner or General Contractor in a Contractor’s Bond
 Plaintiff or Defendant in a Judicial Bond
 Employer in a Fidelity Bond

3. Principal o The one who secures the Surety Bond and also known
as the Obligor.
o The party in whose behalf the bond is issued.
o May be any of the following entities:
 Contractor or Sub-contractor in a Contractor’s Bond
 Plaintiff or Defendant in a Judicial Bond
 Employee in a Fidelity Bond

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SURETY – TRIANGULAR TRANSACTION

SURETY VERSUS INSURANCE

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POPULAR KINDS OF BONDS

1. Contractor’s Bond
 to guarantee the performance of an obligation by the PRINCIPAL
 normally related to the construction business.
 Co-terminus with the undertaking and generally, not renewable.
But in practice, may be extended because of delay in schedule.

2. Bidder’s Bond
 to guarantee that the successful bidder, within a specified period,
from the date of receipt of the Notice of Award, shall:
 Enter into contract with the Obligee;
 Furnish a Performance Bond for the faithful and complete
execution of the work specified in the contract.
 to guarantee other terms and conditions specified in the Notice or
Invitation to Bid especially in Government projects.

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3. Surety (Downpayment) Bond

 Guarantees the recoupment/repayment of the downpayment or
advance payment given by the Obligee to the contractor through
deductions from the progress billings submitted by the latter
and conformed by the Obligee.
 Considered riskier than Performance Bond
 Purpose: For mobilization of works

4. Payment Bond
 Guarantees the payment of the following but not limited to:
 Salaries and wages of the laborers
 Materials of the suppliers

5. Performance Bond
 Generally, to guarantee the full and faithful compliance with the
terms and conditions of the contract or agreement.
 Guarantees the construction and completion of a project in
accordance with the approved plans, specifications, and terms and
conditions of the contract.
 It may also guarantee the principal’s obligations under a Ssupply
and delivery and/or Iinstallations Ccontract with respect to
equipment, material, supplies and similar items.

6. Warranty/Guarantee Bond
 Guarantees the correction and repair of hidden defects in the
materials and workmanship used by the contractor in the
project found or becoming evident within one year from – the
date of final acceptance of the project, or
 from the date of final and substantial completion or provisional
acceptance of the project.
 “not risky”

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7. Heir’s Bond
 Guarantees the protection of any compulsory Heir who has been
deprived of his lawful participation in the estate and/ or any
creditor who has a claim against the estate which has not been
paid.
 excluded heir or unpaid creditor  Types:
o Bank Deposits of the Deceased (SU- JCL6) - Involves
personal property
o Loan Related Account (SU-G28) - Where the property
offered as collateral for a loan came from inheritance
(TCT with an annotation of Rule 74, Section 1), Involves
real property.
 3. Transfer of Certificate of Title with the Register of Deeds
(SUG28)

8. Reconstituted Title Bond - undertakes to indemnify the mortgagee

against any loss or damage which it may suffer arising from claims
presented by any person against the property whose rights might have
been prejudiced, pursuant to Sections 7 & 8 of RA 26 – “An Act
Providing for the Reconstitution of Torrens Certificates of Title Lost or
Destroyed.

OTHER TYPES OF NON-JUDICIAL BONDS

1. Fidelity Bond
 Guarantees the honesty of an employee in the performance of
his/her job.
 Normally required from employees who handle money like
cashiers, tellers and collectors.

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 With “conviction clause”

 (The bond principal must have been convicted by final judgment
first before the bond may be called upon)

2. INDEMNITY BOND
 Answer for damages that the Obligee (bank/issuing corporation) may
sustain by reason of the replacement of the lost check or lost stock
certificate.
 If it involves lost check, bond amount required is double the value of the
amount of the check lost per BSP Rules

JUDICIAL BONDS
 Class of bonds that is required by law/Rules of Court to be posted or filed
in court or any government agency exercising quasi-judicial functions like
National Labor Relations Commission (NLRC) and Housing and Land Use
Regulatory Board (HLURB)
 “continuing bond” (Administrative Matter No. 03-03-19-SC)

SUPERSEDEAS BOND
 This bond, basically, seeks to stop or stay the execution of the decision
and hence, guarantees the performance of the judgment or order
appealed from in case it is affirmed wholly or in part.
 Answers for the damages suffered by the complainant by reason of
advance execution of the judgment of the lower court.

ATTACHMENT BOND
 A provisional remedy by which the property of the adverse party in a case
is taken into custody of the law, or attached, as a security for the
satisfaction of any judgment. It implies that there is a pending case or

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an action has been instituted against a defendant usually in a collection

suit.
 to guarantee the payment of all costs which may be adjudged to the
adverse party and all damages which he may sustain by reason of
attachment if the court shall finally adjudge that the plaintiff was not
entitled to such provisional remedy.

REPLEVIN BOND
 Replevin is an action whereby the owner is entitled to repossession of
goods or chattels from one who has wrongfully detained such goods or
chattels.
 Executed to indemnify the person from whose custody the property was
taken for such damages he may sustain.

EXECUTOR’S BOND
 An executor is a person appointed by the court to administer the estate
of a person who died with a will.
 The following are the duties and responsibilities of the administrator the
bond seeks to guarantee:
o To make and return, within 3 months, a true and complete
inventory of all goods, chattels, rights, credits, and the estate of the
deceased which shall come to his possession or knowledge.
o To render a true and just account of his administration to the court
within 1 year, and at the other time prescribed by law.

ADMINISTRATORS BOND

 An administrator is a person appointed by the court to administer the

estate of a person who died without a will or if there was a will, the one
designated were disqualified.
 Its duties and responsibilities are the same as that of the executor.

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GUARDIAN’SBOND - a guardian is a person lawfully vested with the power, and

charged with the duty, of taking care of the person and/or managing the
property and rights of another person, who by reason of minority, or for defect
of age, understanding or self-control, is considered incapable of administering
his own affairs.

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