The earliest form of suretyship was personal suretyship whereby persons (usually friends or relatives) in their individual capacities acted as sureties for the other party to the contract. Personal suretyship was adequate until business transactions grew to such magnitude requiring guarantees beyond the capability and integrity of individual sureties.
Therefore, it became necessary that in order to serve public interest best, organizations with large and adequate capital act as sureties for others and charge a fee or premium for their services.
Types of Surety Bonds:
- Bidder’s Bond - is given by the contractor when they respond to invitation to bid, as guarantee that, if the contractor is the successful bidder, he will enter into a contract and provide the necessary performance and payment bonds.
- Performance Bond - guarantees that the contractor will comply with all the obligations set forth in the contract within the period provided or any extension thereof.
- Payment Bond (Bond to Guarantee Payment of Labor and Materials) - this bond undertakes to pay the contractor’s bills for labor and materials.
- Bond to Guarantee Workmanship - this bond provides that the contractor shall guarantee to repair any defects that may be found in his workmanship and in the materials used in the construction for a period of one year.
- Supply Contract Bond - a supply contract bond is an agreement whereby the supplier binds himself, for an agreed price, to furnish and deliver supplies, materials and commodities to another party.
- Credit Guarantee Bonds (Guarantee Payment) - these bonds are in their very nature financial guarantees. The bond may either guarantee payment of a loan, credit line, purchases on credit or an installment basis.
- Heir’s Bond - an heir under the law is a person entitled to inherit from a deceased person either by virtue of a will and testament or by operation of law or both. Heir’s bond guarantees the payment of just claims of the heir, creditor or any person who has been unduly deprived of his participation in the estate of the decedent.