Professional Documents
Culture Documents
Assignment No. 1
Date: 23rd June 2011.
Submitted to:
Prof. HARI PARMESHWAR
Submitted By
Definition of Contract:
According to Halsbury, A contract is an agreement between two or more persons which is intended to be enforceable at law and is constituted by the acceptance by one party of an offer made to him by the other party to do or abstain from doing some act. Section 2(h) of the Indian Contract Act, 1872 defines a contract as follows : An agreement by law is a contract.
In simple words, an contract is an agreement between two or more parties which is intended to have legal consequences. Thus a contract consists of the following two elements: 1) An agreement, and 2) Legal obligation i.e. duty enforceable by law.
(1) Agreement:
Every promise and every set of promises, forming consideration for each other, is an agreement. In other words, it means that there must be a proposal or offer by one party and that proposal or offer must be accepted by the other party, Thus an agreement consists of a proposal or offer from a party and its acceptance by the other.
Example: Mr.A makes an offer to sell his car for Rs.1,25,000 to Mr.B . Mr.B accepts the offer. Y and Mr.B.
THUS ALL CONTRACTS ARE AGREEMENTS BUT ALL AGREEMENTS ARE NOT CONTRACTS. ONLY THOSE AGREEMENTS ARE CONTACTS WHICH GIVE RISE TO LEGAL OBLIGATIONS.
BAILMENT
Introduction:
Bailment describes a legal relationship in common law where the physical possession of personal property, or chattel, is transferred from one person (the 'bailor') to another person (the 'bailee') who subsequently has possession of the property. It arises when a person gives property to someone else for safekeeping.
Definition:
A delivery of goods in trust upon a contract, express or implied, that the trust shall be faithfully executed on the part of the bailee. ..As defined by BLACKSTONE.
Bailment in General:
Bailment is distinguished from a contract of sale or a gift of property, as it only involves the transfer of possession and not its ownership. To create a bailment, the bailee must both intend to possess, and actually physically possess, the bailable chattel. Bailment is a typical common law concept although similar concepts exist in civil law. In addition, unlike a lease or rental, where ownership remains with the lessor but the lessee is allowed to use the property, the bailee is generally not entitled to the use of the property while it is in his possession. Moreover, unlike a security agreement or pawn at a pawnbroker, where the secured party is entitled to the possession and use of the property only on default of payment, a bailor can demand the return of the property at any reasonable time, without prior notice.
EXAMPLE: A common example of bailment is leaving your car with a valet. Leaving your car in a parking garage is typically a license, as the car park's intent to possess your car cannot be
shown. However, it arises in many other situations, including terminated leases of property, warehousing (including store-it-yourself) or in carriage of goods.
Kinds of Bailment:
Bailment may be classified from the point of view of a) Benefit b) Reward A. Calssification of bailment from benfit point of view: 1. For the benefit of the bailor and bailee 2. For the sole benefit of the bailor and 3. For the sole benefit of the bailee. (1) For the benefit of the bailor and bailee : A bailment for the mutual benefit of the parties is created when there is an exchange of performances between the parties (e.g. a bailment for the repair of an item). (2) For the sole benefit of the bailor : A bailor receives the sole benefit from a bailment when a bailee acts gratuitously (e.g. a restaurant, a bailee, provides an attended coatroom free of charge to its customers, the bailors). (3) For the sole benefit of the bailee: A bailment is created for the sole benefit of the bailee when a bailor acts gratuitously (e.g., the loan of a book from a library) B. Calssification of bailment from reward point of view: 1. Gratuitous bailment 2. Non-gratuitous bailment or bailment for reward (1) Gratuitous bailment: In case of a gratuitous bailment no compensation passes between the bailer and the bailee, i.e., neither the bailor nor the bailee gets any remuneration. (2) Non- Gratuitous bailment:
Non-gratuitous bailment is for reward or for valuable consideration. In this case either the bailor or the bailee is entitled to remuneration.
Sub-Bailment:
A sub-bailee is a person to whom the actual possession of goods is transferred by someone who is not himself the owner of the goods, but has a present right to possession of them as a bailee of the owner.
Essentials of Bailment:
The following are the essential features of bailment: (1) Specific movable property: A bailer-bailee realtion can arise only in case of a specific movable property. There cannot be bailment of immovable property. A pledge might be created by delivery of documents of title goods. (2) Delivery of goods for change of possession: In order to constitute a bailment, a change of possession is essential. A person who is in de facto control of property, would normally be treated as the person who is in possession of the property. Thus there cant be any bailment unless goods are delivered by the bailer and the bailee accepts them. Delivery should involve change of possession in the legal sense of the term. Mere custody doesnt involve change of possession. One who has custody without possession, like a servant, or a guest using his hosts goods is not a bailee. (3) Delivery should be for some purpose and usually upon a contract: Delivery of goods should be for some purpose. The goods may be lend or hired or deposited for safe custody as security for a debt. Section 148 of the act contemplates delivery based upon a contract. However, the question arises whether there is a need for a contract at all. (4) Obligation to return the goods or deal according to directions: The essence of bailment is the obligation of the bailee to return the goods or to deal with them according to the directions of the bailer. The direction for return or disposal of the goods may be given even after the accomplishment of the purpose of bailment. Even where the contract is silent about the return of goods, there is an implied term in a bailement to return the goods within a reasonable time after the accomplishment of the purpose. Its not bailment if there is no obligation to return the same subject matter either in its original or in altered form.
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Characteristics of Bailment:
The characteristics of bailment are: 1. Delivery of goods 2. Bailment is based on a contract 3. Return of goods in specie 4. Ownership of a goods
Types of Bailment:
Sir William Jones in 1781;in his work An Essay on The Law of Bailments, divided bailments into five sorts, namely:
Deposit. Man datum, or commission without recompense. Commodatum, or loan for use, without pay. Pawn or pledge. Locatum, or hiring, which is always with reward.
Duties of Bailee:
The duties of bailee are as follows: 1. Duty to Take Reasonable Care of the Goods Delivered to Him: Section 151 has laid down a uniform standard care for all kinds of bailment. According to this section, In all cases of bailment the bailee is bound to take as much care of the goods bailed to him as a man of ordinary prudence would, under similar circumstances, take off his own goods of the same bulk, quality and value as the goods bailed. 2. Duty not to Deviate from the Terms of the Contract: According to section 153 of the act, A contract of bailment is voidable at the option of the bailor, if the bailee does any act with regard to the goods bailed, inconsistent with the conditions of the bailment.
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Thus, any wrongful act committed by the bailee with regards to the goods bailed, will entitle the bailer to avoid the bailer and insist on the return of the goods bailed. 3. Duty not to make Unauthorized Use of the Goods: Section 154 to the act has laid down that, If the bailee makes any use of the goods bailed, which is not according to the conditions of the bailment, he is liable to make compensation to the bailer for any damage arising to the goods from or during such use of them. 4. Not to mix the Goods Bailed with his Own Goods: In accordance to the Section 156 of the Act, If the bailee, without the consent of the bailor, mixes the goods of the bailor with his own goods, and goods can be separated or divided, the property in the goods remains in the parties respectively, but the bailee is bound to bear the expenses of separation or division and damage arising from the mixture. 5. Duty to Return the Goods: This duty is imposed upon the bailee by Section 160 of the Act which lays down that, Its the duty of the bailee to return, or deliver according to the bailors directions, the goods bailed, without demand, as soon as the time which they were bailed has expired, or the purpose for which they were bailed has been accomplished. If the bailee fails to return the goods bailed at proper time, he becomes liable for any loss or damage to the goods, inspite of the fact that he exercise reasonable care. 6. Duty to Return Increase or Profit from Goods Bailed: Its also the duty of the bailee to return to the bailor, any increase or profit from the goods bailed in accordance with the provisions of Section 163 of the Act. 7. Not to Setup an Adverse Title: According to Section 117 of The Indian Evidence Act, the bailee is estopped from denying the bailors authority to make the bailment and receive the goods back as such the bailee cannot say that the bailor had no right to make the bailment, and setup an adverse title against the bailor and in favour of a third party.
Duties of Bailor:
Duty to disclose faults in the goods bailed. Duty to repay necessary expenses if the bailee is to receive no remuneration.
Duty to bear extra ordinary expenses in case of gratuitous as well as non gratuitous bailment. Duty to indemnify the bailee Duty to receive back the goods.
Bailees Lien:
Lien is the right of a person to retain the property or goods which is rightfully and continuously in his possession belonging to another until the present and accrued claims of the person in possession are satisfied. It arises when the bailee has a right of continuing possession of the goods. The right of lien is lost when possession is lost. Therefore, bailees lien is known as possessory lien. A lien is of two types: 1. Particular Lien 2. General Lien
1. Particuar Lien:
According to Section 170, Where the bailee has, inaccordance with the purpose of bailment, rendered any service involving the excersise of labour or skill in respect of goods bailed, he has, in the absence of a contact to the contrary, a right to retain such goods until he receives due remuneration for the services he has rendered in respect of them.
2. General Lien:
According to the Section 171 of the Act, Bankers, Factors, Wharfingers, Attorneys of high court and policy brokers may, in the absence of a contract in the contrary retain as a security for a general balance of account, any goods bailed to them; but no other persons have a right to retain, as a security for such balance goods bailed to them, unless there is an express contract to that effect.
The bailment contract embodying general principles of the law of bailments governs the rights and duties of the bailor and bailee. The duty of care that must be exercised by a bailee varies, depending on the type of bailment.
In a bailment for mutual benefit, the bailee must take reasonable care of the bailed property. A bailee who fails to do so may be held liable for any damages incurred from his or her negligence. When a bailor receives the sole benefit from the bailment, the bailee has a lesser duty to care for the property and is financially responsible only if he or she has been grossly negligent or has acted in bad faith in taking care of the property. In contrast, a bailee for whose sole benefit property has been bailed must exercise extraordinary care for the property. The bailee can use the property only in the manner authorized by the terms of the bailment. The bailee is liable for any injuries to the property from failure to properly care for or use it.
Once the purpose of the bailment has been completed, the bailee usually must return the property to the bailor, or account for it, depending upon the terms of the contract. If, through no fault of his or her own, the return of the property is delayed or becomes impossible for example, when it is lost during the course of the bailment the bailee will not be held liable for nondelivery on demand. In all other situations, however, the bailee will be responsible for the tort of conversion for unjustifiable failure to redeliver the property as well as its unauthorized use.
The provisions of the bailment contract may restrict the liability of a bailee for negligent care or unauthorized use of the property. Such terms may not, however, absolve the bailee from all liability for the consequences of his or her own fraud or negligence. The bailor must have notice of all such limitations on liability. The restrictions will be enforced in any action brought for damages as long as the contract does not violate the law or public policy. Similarly, a bailee may extend his or her liability to the bailor by contract provision.
Termination of Bailment:
A bailment is ended when its purpose has been achieved, when the parties agree that it is terminated, or when the bailed property is destroyed. A bailment created for an indefinite period is terminable at will by either party, as long as the other party receives due notice of the intended termination. Once a bailment ends, the bailee must return the property to the bailor or possibly be liable for conversion.
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PLEDGE OR PAWN
Introduction:
Pledge is special kind of bailment, where delivery of goods is for purpose of security for payment of a debt or performance of a promise. Pledge is bailment for security. Common example is keeping gold with bank/money lender to obtain loan. Since pledge is bailment, all provisions applicable to bailment apply to pledge also. In addition, some specific provisions apply to pledge. The bailment of goods as security for payment of a debt or performance of a promise is called pledge. The bailor is in this case called the pawnor. The bailee is called the pawnee. [section 172].
Definition:
The bailment of goods as security of payment of a debt or performance of a profit is called Pledge According to Section 172 of the Act.
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As in bailment, the delivery of possession is essential in a pledge. Thus, in Revenue Authority vs Sudarsanam Pictures, AIR 1968, a film producer borrowed a sum of money from a financier and agreed to deliver the final prints of the film when ready. This was held not to be a pledge because there was no delivery of possession at the time of the agreement. It is possible to do delivery by atonement in which case a third person who has the possession of the property agrees to hold it on behalf of the pledgee upon direction of the pledger. Hypothecation: It is also possible to let the pawner keep the physical goods even though the legal possession is transfered to the pawner. Thus, in Bank of Chittor vs Narsimbulu AIR 1966, a cinema hall equipment was pledged to the bank but the bank allowed the hall owner to keep the equipment to show the movies. The hall owner then sold the equipment to another party. It was held that the sale was subject to the pledge. In Bank of India vs Binod Steel AIR 1977, MP HC held that in such cases where goods are hypothecated, other creditors cannot claim right on them until the claim of the pledgee is satisfied.
2. In Return of A Loan or A Promise : The delivery must be in return of a loan or of acceptance of a promise to perform something. Thus, if A gives his bicycle to B in friendship, it is not a pledge but a simple bailment. However, if A gives his bicycle to B as a security for a debt of 100Rs it will be a pledge. 3. In Pursuance of A Contract : The delivery must be done under a contract though it is not necessary that the delivery and the payment of loan be at the same time. Delivery can be made even after the loan is received.
RIGHTS OF A PAWNEE:
1. Right of Retainer (Section 173- 174):
As per section 173, the pawnee may retain the goods pledged, not only for a payment of a debt or the performance of the promise, but also for the interest of the debt, and all necessary expenses incurred by him in respect of the possession or for the preservation of the goods pledged. Further, as per section 174, in absence of any contract to the contrary, the pawner shall not retain the goods pledged for debt or promise other than the debt or promise for which they have been pledged. However, such contract shall be presumed in absence of any contract to the contrary with respect to any subsequent advances made by the pawnee.
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This means that if A pledges his gold watch with B for 1000 Rs and later on he promises to teach B's son for a month and takes for 500Rs for this promise , and if he does not teach B's son, B cannot retain A's gold watch after A pays 1000Rs. Thus, the right of retainer is a sort of particular lien. The difference was pointed out in Bank of Bihar vs State of Bihar 1972 by SC. It observed that a Pawnee obtains a special interest in the pledged goods in the sense that he can transfer or pledge that special interest to somebody else. The lien only gives the right to detain the goods but not transfer. Thus, a pledgee get the first right to claim the goods before any other creditor can get them. The pledgee's loan is secured by the goods.
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When a mercantile agent is in possession of the goods with consent of the owner, any pledge made by him in ordinary course of business will be valid, provided that the pawnee acts in good faith and that he has no notice of the fact that the pawnor is not authorized to pawn the goods. The essential conditions of this rule are - he must be a mercantile agent, he must have possession of the goods by consent of the owner, and it must be done in ordinary course of business. Further, the pawnee should act in good faith and he must not have notice that the pawnor has no authority to pledge.
4. Pledge by a Co-Owner:
Where there are several joint owners of goods and one of them is in possession of goods with the consent of the others, he can make the valid pledge of the same.
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title to the goods, the pledge will be valid provided the pledge acted in good faith and had no notice of pledgers defect in the title to the goods pledged.
The bailee is not responsible for the loss, The pawnee is absolutely liable for the upkeep destruction, or deterioration if he uses the goods of the goods. with reasonable care.
AGENCY
Introduction:
The law of agency is an area of commercial law dealing with a contractual or non-contractual set of relationships when a person, called the agent, is authorized to act on behalf of another (called the principal) to create a legal relationship with a third party. The agent is, thus, required to negotiate on behalf of the principal or bring him and third parties into contractual relationship. This branch of law separates and regulates the relationships between:
Agents and principals; Agents and the third parties with whom they deal on their principals' behalf; and Principals and the third parties when the agents purport to deal on their behalf.
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In India, section 182 of the Contract Act 1872 defines Agent as a person employed to do any act for another or to represent another in dealings with third persons.
The Concepts:
The reciprocal rights and liabilities between a principal and an agent reflect commercial and legal realities. A business owner often relies on an employee or another person to conduct a business. In the case of a corporation, since a corporation is a fictitious legal person, it can only act through human agents. The principal is bound by the contract entered into by the agent, so long as the agent performs within the scope of the agency. A third party may rely in good faith on the representation by a person who identifies himself as an agent for another. It is not always cost effective to check whether someone who is represented as having the authority to act for another actually has such authority. If it is subsequently found that the alleged agent was acting without necessary authority, the agent will generally be held liable.
a power of attorney (also known as a mandate in civil law jurisdictions) or have a professional relationship, say, as lawyer and client. 2. General agents hold a more limited authority to conduct a series of transactions over a continuous period of time; and 3. Special agents are authorized to conduct either only a single transaction or a specified series of transactions over a limited period of time.
Authority:
An agent who acts within the scope of authority conferred by her principal binds the principal in the obligations she creates against third parties. There are essentially two kinds of authority recognized in the law: actual authority (whether express or implied) and apparent authority.
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Actual Authority:
Actual authority can be of two kinds. Either the principal may have expressly conferred authority on the agent, or authority may be implied. Authority arises by consensual agreement, and whether it exists is a question of fact. An agent, as a general rule, is only entitled to indemnity from the principal if she has acted within the scope of her actual authority, and may be in breach of contract, and liable to a third party for breach of the implied warranty of authority.
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The Raffaella or Egyptian International Foreign Trade Co v Soplex Wholesale Supplies Ltd and PS Refson & Co Ltd [1985] 2 Lloyd's Rep 36
Watteau v Fenwick
In the case of Watteau v Fenwick, Lord Coleridge CJ on the Queen's Bench concurred with an opinion by Wills J that a third party could hold personally liable a principal who he did know about when he sold cigars to an agent that was acting outside of its authority. Wills J held that "the principal is liable for all the acts of the agent which are within the authority usually confided to an agent of that character, notwithstanding limitations, as between the principal and the agent, put upon that authority." This decision is heavily criticized and doubted, though not entirely overruled in the UK. It is sometimes referred to as "usual authority" (though not in the sense used by Lord Denning MR in Hely-Hutchinson, where it is synonymous with "implied actual authority"). It has been explained as a form of apparent authority, or "inherent agency power.
Even if the agent does act without authority, the principal may ratify the transaction and accept liability on the transactions as negotiated. This may be express or implied from the principal's behavior, e.g. if the agent has purported to act in a number of situations and the principal has knowingly acquiesced, the failure to notify all concerned of the agent's lack of authority is an implied ratification to those transactions and an implied grant of authority for future transactions of a similar nature.
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Classification of Agents:
1. Special and general agents 2. Mercantile commercial agents 3. Non-mercantile or non-commercial agents 4. Sub-agents and substituted agents
Duties:
An agent owes the principal a number of duties. These include:
A duty to undertake the task or tasks specified by the terms of the agency (that is, the agent must not do things that he has not been authorized by the principal to do); A duty to discharge his duties with care and due diligence; and A duty to avoid conflict of interest between the interests of the principal and his own (that is, the agent cannot engage in conduct where stands to gain a benefit for himself to the detriment of the principal).
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An agent must not accept any new obligations that are inconsistent with the duties owed to the principal. An agent can represent the interests of more than one principal, conflicting or potentially conflicting, only after full disclosure and consent of the principal. An agent also must not engage in self-dealing, or otherwise unduly enrich himself from the agency. An agent must not usurp an opportunity from the principal by taking it for himself or passing it on to a third party. In return, the principal must make a full disclosure of all information relevant to the transactions that the agent is authorized to negotiate and pay the agent either a prearranged commission, or a reasonable fee established after the fact.
Termination:
An agent's authority can be terminated at any time. If the trust between the agent and principal has broken down, it is not reasonable to allow the principal to remain at risk in any transactions that the agent might conclude during a period of notice. As per sections 201 to 210 of the Indian Contract Act 1872, an agency may come to an end in a variety of ways: 1. Withdrawal by the agent however, the principal cannot revoke an agency coupled with interest to the prejudice of such interest. An agency is coupled with interest when the agent himself has an interest in the subject-matter of the agency, e.g., where the goods are consigned by an upcountry constituent to a commission agent for sale, with poor to recoup himself from the sale proceeds, the advances made by him to the principal against the security of the goods; in such a case, the principal cannot revoke the agents authority till the goods are actually sold, nor is the agency terminated by death or insanity (illustrations to section 201); 2. By the agent renouncing the business of agency; 3. By the business of agency being completed; 4. By the principal being adjudicated insolvent (section 201). The principal also cannot revoke the agents authority after it has been partly exercised, so as to bind the principal (section 204), though he can always do so, before such authority has been so exercised (section 203). Further, as per section 205, if the agency is for a fixed period, the principal cannot terminate the agency before the time expired, except for sufficient cause. If he does, he is liable to compensate the agent for the loss caused to him thereby. The same rules apply where the agent, renounces an agency for a fixed period. Notice in this connection that want of skill, continuous disobedience of lawful orders, and rude or insulting behavior has been held to be sufficient cause for dismissal of an agent. Further, reasonable notice has to be given by one party to the other;
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otherwise, damage resulting from want of such notice, will have to be paid (section 206). As per section 207, the revocation or renunciation of an agency may be made expressly or impliedly by conduct. The termination does not take effect as regards the agent, till it becomes known to him and as regards third party, till the termination is known to them (section 208). When an agents authority is terminated, it operates as a termination of subagent also (section 210). This has become a more difficult area as states are not consistent on the nature of a partnership. Some states opt for the partnership as no more than an aggregate of the natural persons who have joined the firm. Others treat the partnership as a business entity and, like a corporation, vest the partnership with a separate legal personality. Hence, for example, in English law, a partner is the agent of the other partners whereas, in Scots law where there is a separate personality, a partner is the agent of the partnership. This form of agency is inherent in the status of a partner and does not arise out of a contract of agency with a principal. The English Partnership Act 1890 provides that a partner who acts within the scope of his actual authority (express or implied) will bind the partnership when he does anything in the ordinary course of carrying on partnership business. Even if that implied authority has been revoked or limited, the partner will have apparent authority unless the third party knows that the authority has been compromised. Hence, if the partnership wishes to limit any partner's authority, it must give express notice of the limitation to the world. However, there would be little substantive difference if English law was amended: partners will bind the partnership rather than their fellow partners individually. For these purposes, the knowledge of the partner acting will be imputed to the other partners or the firm if a separate personality. The other partners or the firm are the principal and third parties are entitled to assume that the principal has been informed of all relevant information. This causes problems when one partner acts fraudulently or negligently and causes loss to clients of the firm. In most states, a distinction is drawn between knowledge of the firm's general business activities and the confidential affairs as they affect one client. Thus, there is no imputation if the partner is acting against the interests of the firm as a fraud. There is more likely to be liability in tort if the partnership benefited by receiving fee income for the work negligently performed, even if only as an aspect of the standard provisions of vicarious liability. Whether the injured party wishes to sue the partnership or the individual partners are usually a matter for the plaintiff since, in most jurisdictions, their liability is joint and several.
Agency Relationships:
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Employment. Real transactions (real estate brokerage, mortgage brokerage). In real estate brokerage, the buyers or sellers are the principals themselves and the broker or his salesperson who represents each principal is his agent. Financial advice (insurance agency, stock brokerage, accountancy) Contract negotiation and promotion (business management) such as for publishing, fashion model, music, movies, theatre, show business, and sport.
An agent in commercial law (also referred to as a manager) is a person who is authorized to act on behalf of another (called the principal or client) to create a legal relationship with a third party.
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SURETY
Introduction:
A surety bond is a promise to pay one party (the obligee) a certain amount if a second party (the principal) fails to meet some obligation, such as fulfilling the terms of a contract. The surety bond protects the obligee against losses resulting from the principal's failure to meet the obligation. A surety bond is a contract among at least three parties:
The obligee - the party who is the recipient of an obligation, The principal - the primary party who will be performing the contractual obligation, The surety - who assures the obligee that the principal can perform the task
European surety bonds are issued by banks and are called " Bank Guarantees" in English and "Caution" in French. They pay out cash to the limit of guarantee in the event of default of Principal to uphold his obligations to Obligee, without reference by Obligee to Principal and against obligee's sole verified statement of claim to the bank. Through a surety bond, the surety agrees to uphold for the benefit of the obligee the contractual promises (obligations) made by the principal if the principal fails to uphold its promises to the obligee. The contract is formed so as to induce the obligee to contract with the principal, i.e., to demonstrate the credibility of the principal and guarantee performance and completion per the terms of the agreement. The principal will pay a premium (usually annually) in exchange for the bonding company's financial strength to extend surety credit. In the event of a claim, the surety will investigate it. If it turns out to be a valid claim, the surety will pay it and then turn to the principal for reimbursement of the amount paid on the claim and any legal fees incurred. If the principal defaults and the surety turns out to be insolvent, the purpose of the bond is rendered nugatory. Thus, the surety on a bond is usually an insurance company whose solvency is verified by private audit, governmental regulation, or both. A key term in nearly every surety bond is the penal sum. This is a specified amount of money which is the maximum amount that the surety will be required to pay in the event of the principal's default. This allows the surety to assess the risk involved in giving the bond; the premium charged is determined accordingly. Surety bonds are also used in other situations, for example, to secure the proper performance of fiduciary duties by persons in positions of private or public trust.
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Annual US surety bond premiums are approximately $3.5 billion. State insurance commissioners are responsible for regulating corporate surety activities within their jurisdictions. The commissioners also license and regulate brokers or agents who sell the bonds.
History:
Individual Surety Bonds are the original form of surety ship. The earliest known record of a contract of suretyship is a Mesopotamian tablet written around 2750 BC. There is evidence of Individual Surety Bonds in the Code of Hammurabi and in Babylon, Persia, Assyria, Rome, Carthage, the ancient Hebrews and later England. The Code of Hammurabi, written around 1790 BC, was the first time suretyship was addressed in a written legal code. It wasn't until 1837 that the first Corporate Surety was organized, The Guarantee Society of London. In 1865, the Fidelity Insurance Company became the first US Corporate Surety company, but the venture soon failed.
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company (Principal) will comply with an underlying statute, state law, municipal ordinance, or regulation.
Contractors license bonds, which assure that a contractor (such as a plumber, electrician, or general contractor) complies with local laws relating to his field. Customs bonds, including importer entry bonds, which assure compliance with all relevant laws, as well as payment of import duties and taxes. Tax bonds, which assure that a business owner will comply with laws relating to the remittance of sales or other taxes. Reclamation and environmental protection bonds Brokers bonds, including Insurance, Mortgage, and Title Agency bonds ERISA (Employee Retirement Income Security Act) bonds Motor vehicle dealer bonds Money transmitter bonds Health spa bonds, which assure that a health spa will comply with local laws relating to their field, as well as refund dues for any prepaid services in the event the spa closes.
Court Bonds:
Court bonds are those bonds prescribed by statue and relate to the courts. They are further broken down into judicial bonds and fiduciary bonds. Judicial bonds arise out of litigation and are posted by parties seeking court remedies or defending against legal actions seeking court remedies. Fiduciary, or probate, bonds are filed in probate courts and courts that exercise equitable jurisdiction; they guarantee that persons whom such courts have entrusted with the care of others property will perform their specified duties faithfully. Examples of judicial bonds include appeal bonds, supersedeas bonds, attachment bonds, replevin bonds, injunction bonds, Mechanic's lien bonds, and bail bonds. Examples of fiduciary bonds include administrator, guardian, and trustee bonds.
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Miscellaneous Bonds:
Miscellaneous bonds are those that do not fit well under the other commercial surety bond classifications. They often support private relationships and unique business needs. Examples of significant miscellaneous bonds include: lost securities bonds, hazardous waste removal bonds, credit enhancement financial guarantee bonds, selfinsured workers compensation guarantee bonds, and wage and welfare/fringe benefit (Union) bonds..
Fidelity Bonds:
Fidelity bonds, also known as employee dishonesty coverage, cover theft of an employer's property by its own employees. Though referred to as bonds, fidelity coverage functions as a traditional insurance policy rather than a surety bond.
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