Suretyship

SURITYSHIPSec 175-178, Insurance Code of the Philippines

By: Paul I. Pili,

PAYMENT OF PREMIUMS

RULES ARE AS FOLLOWS:

• 1. The premiums becomes a debt as soon as the contract of suretyship or bonds is perfected and delivered to the obligor (sec. 77)

PAYMENT OF PREMIUMS

• SECOND RULE

• 2. The contract of suretyship or bonding shall not be valid and binding unless and until the premium therefore has been paid.

PAYMENT OF PREMIUMS

THIRD RULE

• 3. Where the obligee has accepted the bond, it shall be valid and enforceable notwithstanding that the premium has not been paid.

(Philippine Pryce Assurance Corp vs. Court of Appeals, 230 SCRA 164 [1994].);

PAYMENT OF PREMIUMS

• 4TH RULE

• If the contract of suretyship or bond is not accepted by or filed with the obligee , the surety shall collect only a reasonable amount;

PAYMENT OF PREMIUMS

• 5TH RULE

• If the non-acceptance of the bond be due to the fault or negligence of the surety, no service fee, stamps, or taxes imposed shall be collected by the surety; and

PAYMENT OF PREMIUMS

• 6TH RULE

• In the case of continuing bond (for a term longer than one year or with no fixed expiration date), the obligor shall pay the subsequent annual premium as it falls due until the contract is cancelled. (sec 177)

TYPES OF BONDS

KINDS OF BONDS

• 1. Fidelity Bonds • 2. Surety Bonds

Fidelity Bond• Bond that answers for the

loss of an employer who is the obligee for the dishonesty of the employee.

Surety Bond

• surety bond

A bond given to protect the recipient against loss in case the terms of a contract are not filled; a surety company assumes liability for non-performance

• [syn: performance bond]

TYPES OF SURETY BONDS

•  

• 1. Contract Bonds • 2. Fidelity Bonds• 3. Judicial Bonds

1. CONTRACT BONDS

KINDS OF BONDS

TYPES OF SURETY BONDS

Contract bond

• Guarantees contractual obligations. Connected with construction and supply contracts. They are for the protection of the owner against a possible default by the contractor to comply with his contract or his possible failure to pay material men, laborers and sub contractors.

1. Performance bond

• Secures, that the contractor will faithfully comply with the requirements of the contract awarded to the contractor and make good damages sustained by the project owner incase of contractor’s failure to do so.

2. Payment bond

• Secures that the payments of bills for the labor and materials used in building a project.

2. FIDELITY BONDS

TYPES OF SURETY BONDSTYPES OF SURETY BONDS

FIDELITY BONDS

• Bond that answers for the loss of an employer who is the obligee for the dishonesty of the employee.

CLASSIFICATION OF FIDELITY BOND

• A. Industrial Bond

• B. Public Official Bond

Industrial Bond

• One required by private employers to cover loss through dishonesty of employees.

Public Official Bond

• One required of public officers for the faithful performances of their duties.

3. JUDICIAL BONDSTYPES OF SURETY BONDS

KINDS OF BONDS

JUDICIAL BONDS

• They are those which are required in connection with the judicial proceedings.

Most common kinds of JUDICIAL BONDS

• a. Replevin bonds• b. Injunction bonds• c. Attachment bonds bond• d. Bail bond • e. Appeal Bonds

PERTINENT CIVIL CODE PROVISIONS APPLICABLE IN A SUPPLETORY CHARACTER

Sec. 178, Insurance Code

• Pertinent provisions of the Civil Code of the Philippines shall be applied in a suppletory character whenever necessary in interpreting the provisions of a contract of suretyship.

PERTINENT CIVIL CODE PROVISIONS APPLICABLE IN A SUPPLETORY CHARACTER

CONTINUING SURETY 

• By executing such agreement, the principal places itself in a position to enter into the projected series of transaction with its creditor with such suretyship agreement, there would be no need to execute a separate surety contract or bond for each financing or credit accommodation extended to the principal debtor

• .“In the case of a continuing bond, the obligor shall pay the subsequent annual premium as it falls due until the contract of suretyship is cancelled by the obligee or by the Commissioner or by a court of competent jurisdiction, as the case may be.” Sec. 177.

REIMBURSEMENT.

• A surety to who paid the obligee can recover what he paid from the principal. Usually covered by a separate INDEMNITY AGREEMENT signed by the principal in favor of the surety whereby the principal expressly agrees to reimburse the surety whatever amount that it will be required to pay the obligee.

Extinguishment.

• Obligation of surety is extinguished at the same time as that of the principal and for some causes as all other obligations.

• Suretyship is extinguished if there is material alteration of the principal obligation. For example an extension granted to the debtor by the credit or without the consent of the surety extinguishes the surety.

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