Summary: Some bonds cannot be classified into any other particular group. These bonds are commonly referred to as miscellaneous surety bonds. Falling into three categories, these bonds are:
1. required by law, with the provisions dictated by law;
2. required by law, but with the provisions discretionary;
3. voluntary with provisions prescribed by the obligee.
The obligee on these bonds may be the Federal government, state or local government, or other legal entities. Although their form is not standard, when provided to meet the terms of a statute, they carry the liability required by the law.
Assigned Accounts Bonds
WHEREAS, under the terms of an assignment dated ____, 20__, which assignment by reference is made a part of this bond, for value received or to be received, and as collateral security for the payment of any and all indebtedness, obligation or liability of any kind whatsoever, due or to become due, now existing or hereafter contracted, the undersigned Principal has sold, assigned, transferred and set over to the Obligee _____ any and all accounts, accounts receivable and moneys now due or which may become due, as shown by the accompanying schedule, and
WHEREAS, the undersigned Principal has warranted and represented: (1) that the accounts receivable so scheduled are genuine and enforceable, (2) that there is due and owning from the parties listed on said schedule at least the amounts set opposite their names respectively, (3) that there are no offsets or counterclaims with respect to said accounts receivable, (4) that the goods, services or advances represented by said accounts receivable have been delivered, rendered or made and adopted, (5) that the undersigned Principal has not heretofore and will not hereafter assign said accounts receivable or any part thereof to any other party, and
WHEREAS, the undersigned Principal has authorized and empowered the Obligee _____, its successors and assigns, at its or their election but without any duty or obligation so to do, in the name of the undersigned or otherwise, to demand, aquittance for, and to prosecute or discontinue any suits or proceedings in respect of, any and all said accounts receivable or any part thereof.
NOW, THEREFORE, the condition of this obligation is such that, if the undersigned Principal, his successors and assigns, shall carry out and faithfully keep all the terms, conditions, covenants, and agreements of the said assignment, then. . .
Analysis
When accounts receivable are assigned to a collector, the collector wants assurance that he or she will be paid if the debtor does not pay. Ranging in price from $10 to $30 per thousand, the principal makes five different guarantees regarding the accounts in question:
1. that the accounts assigned are valid—”genuine and enforceable;”
2. that the amounts shown as due to the principal are correct;
3. that no one else has made a claim to these amounts;
4. that the principal did, indeed, perform the services or deliver the goods represented by the amounts due; and
5. that the principal will not assign these accounts to anyone else.
The collector needs to know that if the previous holder of the debts is paid anything toward those debts that money will be turned over to the collector. A bond may be written for this purpose.
Finally, in many such situations the money collected is deposited with an independent agency. A bond may be obtained guaranteeing the honesty of such an agency.
Auctioneers' Bonds
KNOW ALL MEN BY THESE PRESENTS: That _____, of _____, as Principal, and _____, a corporation duly licensed to do business in the state of _____, as Surety, are held and firmly bound unto the State of _____ in the penal sum of $_____, for the payment of which, well and truly to be made, we bind ourselves and our legal representatives, jointly and severally by these presents.
THE CONDITION OF THE ABOVE OBLIGATION IS SUCH, That whereas, the said Principal is being licensed as an Auction Clerk [Auctioneer] by the Public Service Commission of the State of _____ as provided by Section _____ of the _____ Code, as amended, and all laws supplementary and amendatory thereto for the calendar year 20__.
NOW, THEREFORE, if the said Principal shall, during the license period beginning on the _____ day of _____, 20__, and each successive license year until cancelled as provided herein, auction sales in the State of _____ under his license fairly and legally, and shall injure no person by improper clerking of such auction sales, then this obligation to be void, otherwise to remain in full force and effect.
The liability of the Surety hereunder shall in no event exceed the penalty of the bond and no liability shall accumulate from year to year.
This bond may be cancelled by the Surety upon thirty days' notice to the Public Service Commission, said cancellation not, however, affecting the liability of the Surety as to any liability which shall accrue prior to such cancellation, unless sooner cancelled by order of the Public Service Commission.
Analysis
When an auctioneer is hired to liquidate an estate (whether due to death or bankruptcy), the principal in the arrangement will require evidence of the auctioneer's honesty. Bonds covering the faithful accounting of proceeds from sales are divided into two types: those covering sales of bankruptcy estates and bonds covering all other sales.
In addition, the principal may wish to guarantee the amount of money to be obtained from a sale. A bond is available to guarantee that the net proceeds of the sale will not be less than the amount stipulated.
Dependent Children
NON-RESIDENT DEPENDENT CHILDREN (Massachusetts)
WHEREAS, the above bounden _____, Principal, has made application to the Department of Public Welfare of the Commonwealth of Massachusetts for a permit to bring _____, a non-resident minor child into the Commonwealth for the purpose of _____, and
WHEREAS, said principal has made such written application for the forms supplied by said Department of Welfare and accompanied same by this bond (or blanket bond if required for more than one child) in the penal sum of $_____.
NOW, THEREFORE, if all statements contained in such application are true, in substantial particulars, and if such child becomes a public charge during (his or her) minority and shall be removed from the state not later than thirty days after notice from the Department, and if such child shall be removed from the state immediately upon his or her) release from any penal or reformatory institution or training school to which he has been committed, within three years of (his or her) arrival within the state, for juvenile delinquency or crime, and if such child shall be placed or boarded under such agreement as will secure (to him or her) a proper home and surroundings, and as will render (his or her) custodian responsible for (his or her) proper care, education and training, under adequate supervision and subject to annual visit by agent, and if such reports relative to the child shall be made to the Department as it may request, then. . .
Analysis
Often the placement of orphans, foster children, or other wards of the state is handled by a private organization. A bond may be purchased to guarantee compliance with all laws regulating the placing of such children.
Divorce Proceedings
In a divorce, the children are often the subject of much argument and infighting. Many times one parent may have temporary custody and the other parent is awarded custody in the divorce decree. A bond is available to assure that the children are returned to the parent who is given custody.
Feeding of Stock in Transit
Railroads and other common carriers transport cattle and other stock. As these are sometimes long trips, the cattle will need food and water during the course of the trip. This bond guarantees that the carrier will perform this operation.
Indemnity Bonds
Several types of bonds are available:
1. Contractors' indemnity bond.
2. Repossession by lienholder of property.
3. Transfer agents—indemnity to.
4. Lease Bonds.
Contractors Indemnity Bond
CONTRACTOR'S INDEMNITY TO LENDER
WHEREAS, the above bounden Principal has been awarded a contract by the municipality of _____, in the State of _____, to construct a _____ within the corporate limits of said city, and
WHEREAS, because of the inability of said municipality to supply funds from time to time for the payment of such work as has been completed, due to its regulation prohibiting issuance of warrants or bonds to pay for such improvements until their completion and acceptance by its governing body, it has been necessary to look elsewhere for such funds, and
WHEREAS, the said Obligee has entered into an agreement with the Principal, among other things, to advance such monies, from time to time, totaling in all the aggregate sum of $____ for the purpose of constructing and completing such project, and has agreed to accept in reimbursement of its loan the warrants or bonds, when issued, of said municipality at the price agreed upon in said agreement, a copy of which agreement is by reference made a part hereof, and
WHEREAS, the said Obligee has agreed to accept as security for said loan and advance of funds, and for other obligations of said Principal to said Obligee thereunder, an assignment of said contract, which assignment has been made, including all proceeds therefrom to which said Principal, as contractor may now or hereafter be entitled by virtue of work done thereunder, together with all liens and evidences thereof, the giving of this indemnity bond, and the consideration of the full and complete performance of said work and construction by the Principal as contractor.
NOW, THEREFORE, the above conditions of this obligation are such that, if the said Principal shall indemnify and save harmless the said Obligee from any and every pecuniary loss or damage which it may sustain through having entered into said loan agreement, exclusive of that incurred as a result of the acceptance, redemption, or disposal of said warrants or bonds taken at discounted figures as reimbursement for said loan, and which loss arises by reason of or in consequence of the failure of the Principal fully to perform and complete the said work or improvement, according to plans and specifications and in compliance with the terms of his contract therefore, or his failure to pay in full for all labor, materials and other claims which, under the State of _____ or any County or Municipal ordinance or regulation, may or might constitute a charge or claim against the monies, or other evidences of indebtedness or liens to be paid or issued in payment for the performance of said work or improvement or a prior right thereto, then this obligation shall be null and void; otherwise to remain in full force and effect.
THE FOREGOING, HOWEVER, IS SUBJECT TO THESE FURTHER CONDITIONS:
1. The Surety consents to the said assignment by the Principal to the Obligee and recognizes the right of the Obligee to receive all payments, whether in money or other evidences of indebtedness or lines accruing upon said contract of said Principal for such work of improvement. The Surety also agrees that the Obligee's right to receive such proceeds shall have priority, up to the amount of said loans and advances, interest, discounts, costs, damages and liabilities, over its lien or to such proceeds by reasons of its being surety upon any bond of the Principal in connection with his contract for said work of improvement.
2. The Principal agrees to complete said work of improvement within the time fixed in his contract therefore, or legal extension thereof.
3. Upon completion of said work of improvement pursuant to the terms of the contract of Principal, as contractor, and the delivery to the Obligee of the money or other proceeds of said contract, the obligee shall first pay to itself, from the amount or amounts due under said written agreement the total amount of loans or advances made to the Principal under such written agreement, with interest thereon and costs and expenses. The balance of the amount due the Principal under said contract shall be paid to or on the order of the Surety.
4. All advances made to the Principal under said contract shall be made by said Obligee only upon written authorization on behalf of the Surety signed by _____.
5. The Surety shall not be liable under this bond to the Obligee, unless said Obligee shall make payments to the Principal strictly in accordance with the terms of its agreement with the Principal, and shall perform all the other obligations to be performed under said agreement at the time and in the manner set forth.
IN WITNESS WHEREOF, the Principal and the Surety have caused this bond to be executed at _____, this _____ day of _____, 20__.
Analysis
A contractor's indemnity bond is written with a performance bond when an additional indemnity bond is required of the contractor on the same project. Many times a city cannot raise money for a project until that project is actually completed. Therefore, the city cannot advance funds to the contractor for the project, and the contractor must look elsewhere for funding. After the contractor secures funding, he or she obtains the above bond to guarantee repayment to the lender, upon completion of the project.
Indemnity to Transfer Agents
INDEMNITY TO TRANSFER AGENT
Know all men by these presents; that _____ (Surety), hereby agrees to indemnify _____ (Obligee), and hold said Obligee harmless to an amount not exceeding $_____ from and against any and all loss, damage, liability, cost and expense, sustained and incurred and discovered subsequent to noon of the date hereof and prior to the termination of this indemnity agreement as hereinafter provided, caused by or arising from the cancellation of any stock certificate and the issuing of another therefore in a different name, or caused by or arising form the transfer of stock to a name other than that filled in the assignment, at the request of (a) a firm having membership in the New York Stock Exchange, (b) a firm having membership in the New York curb Exchange and in its New York Clearing House, (c) any bank or trust company or (d) any private banker or investment banker for the cancellation of said certificate and issue of a new one, or change in the name of the assignee named in the assignment, is based upon an alleged error or mistake in the registration or in the assignment, and the endorsement of the party appearing on the face of the certificate, or an assignment by the assignee named in the assignment, is not obtained.
PROVIDED, ALWAYS, Liability of the surety shall not attach hereunder,
1. Unless as a condition precedent to the cancellation and reissue of a stock certificate, or change in the assignment, as aforesaid, the Obligee shall have taken and shall hold an agreement of indemnity from the party making such request, and the party making such agreement fails to indemnity the obligee on demand. Such agreement of indemnity where the alleged error or mistake is in the registration, may be in the form of a letter, and where the alleged error or mistake is in the name of the assignee, such agreement of indemnity may be in the form of an endorsement on the assignment guaranteeing the change or the assignment as changed.
2. Unless the Obligee within thirty days after any claim is made against the Obligee, which may result in a loss within the terms of this indemnity agreement, shall have given notice to the Surety in writing of such claim. The occurrence of any loss or losses hereunder and subsequent payment of such loss or losses shall not reduce the amount of the indemnity as to any other loss or losses hereunder whether occurring before or after the loss or losses is paid; provided, that in no event shall the Surety be liable on account of any loss or series of losses caused by the same error or event, for a greater sum than $_____; and provided further, that upon every sum so paid as a loss hereunder, the Obligee shall pay to the Surety, upon demand, an additional premium computed pro-rata from the date of notice of loss as aforesaid to the end of the current premium year.
This indemnity agreement shall terminate as to subsequent transactions (a) thirty days after the receipt by the Obligee of a written notice from the Surety of its desire to terminate this agreement, or (b) immediately upon the receipt by the Surety of a written request from the Obligee to terminate this agreement; but the Obligee shall have twelve months after the date of cancellation during which time losses prior to cancellation may be discovered and claims therefore filed.
Analysis
In a stock transfer, often the stock is transferred to the wrong person or the certificates are cancelled and new ones issued. In either case, the person or organization acting as transfer agent may be held liable. Such a bond indemnifies transfer agents for these losses.
Lease Bonds
LEASE BOND—GUARANTEEING PAYMENT OF RENT
WHEREAS, the said Obligee, by indenture of lease dated _____, 20__, and in consideration of the rents, convenants, and agreements contained therein, to be paid and performed by the said Principal, has leased unto said Principal the certain premises located at _____, and more fully described in said lease, for a term of _____ years from the _____ day of _____, 20__.
NOW, THEREFORE, the condition of this obligation is such that, if the said _____ and his (their) executors, administrators, successors, and assigns, during the currency of the said lease, shall well and truly pay, or cause to be paid, the rents, upon the respective days specified therein for the payment thereof, and shall duly perform and observe all and singular covenants and conditions therein to be performed and observed on the part of said lessee principal, his heirs, executors, administrators, successors and assigns, including the return of the property in the condition in which it was at the time of the said principal taking possession. . .
Analysis
The above bond guarantees the payment of rent. Other such bonds guarantee the performance of other requirements in a lease, except requirements to build.
Lost Instrument Bonds
LOST SECURITIES BOND AND AFFIDAVIT
WHEREAS, the said _____ (bank) _____ did on the _____ day of 20__, issue _____ (cashier's check, check, etc.) #_____, in the sum of _____ Dollars ($__) to _____, which said _____ alleges has been lost, mislaid, or destroyed, and…
WHEREAS, the said _____ is desirous of having the _____ (bank) _____ issue a duplicate cashier's check _____ in lieu thereof and desires to indemnify the said _____ (bank) _____ therefore.
NOW, THE CONDITION OF THIS OBLIGATION IS SUCH that, if the above bounden _____, his heirs, executors, administrators, successors or assigns, shall and do, from time to time and at all times hereafter, well and sufficiently indemnify and save harmless the said _____ (bank) _____ its executors, administrators, successors, or assigns, of and from and against the said lost cashier's check _____ and of and from all costs, damages, and expenses that shall or may arise therefrom, including attorney's fees and court costs incurred in defending any suit based thereon, and also deliver or cause to be delivered up said lost instrument, and when found, to be cancelled.
AFFIDAVIT
KNOW ALL MEN BY THESE PRESENTS: That I _____, of _____ County of _____, being duly sworn on oath, depose and say that I am the sole owner of a certain _____ numbered _____ of the _____ standing in my name on books of said _____.
That on or about the _____ day of _____, 20__, said _____ was lost, mislaid or destroyed in the following manner, to wit:_____
That I have made due and diligent search for said _____, but have not found same; that I have not sold, assigned, transferred, hypothecated, endorsed, or in any way disposed of the same, or any part thereof, in any manner whatsoever.
That I have requested the _____ to issue to me a duplicate of said _____ which the _____ is willing to do if I will give it a good and sufficient bond of indemnity; that I have requested the _____ Surety Company to become my surety on said bond, and in order to induce the said _____ to become my surety on said bond, I have made these representations, and intend that the said _____ Company _____ shall rely solely thereon in becoming surety on said bond.
Analysis
Lost instrument or securities bonds are usually required when any person or corporation has lost, mislaid or destroyed a valuable paper and wishes to secure a duplicate or to collect on it or to enforce some right without it. Common examples are stock certificates, life insurance policies, certificates of membership in organizations with insurance value, bills of lading, warehouse receipts bonds, building and loan association shares, etc. In most cases, the organization issuing the instrument will not pay or issue a duplicate or surrender the property secured without receiving a lost instrument bond.
The bond is a simple guaranty that the principal (person bonded) will reimburse the obligee (issuer of stock certificate or other instrument) for any loss it may suffer or expense it may be put to should the original instrument come to light and someone else claim a right under it. For example, a corporation might transfer or retire some stock for which the owner could not produce his certificate. Some time later, the certificate might appear in possession of another, to whom the original owner had sold or pledged the stock. Should he establish a valid claim and the corporation be compelled to pay him, the corporation could recover for this loss and any incidental expense from the surety on the lost instrument bond. The surety could recover from the original owner, if he were solvent and could be reached.
The securities or other instruments covered under lost securities bonds are grouped into eight categories.
Class A. Life insurance policies, certificates of membership in fraternal and beneficial orders, or mutual associations containing accident or death benefits, adjusted service certificates, certificates of membership in boards of trade, stock exchanges and other similar organizations.
Class B. United States Government checks and postal money orders including checks and warrants of a state, county or other public body in the United States, warehouse receipts, pawn tickets, steamship tickets or other similar record of title to or lien against personal property.
Class C. Lost common stocks or equivalent securities such as certificates of beneficial interest, trust certificates, stock in cooperative apartments, etc.
Class D. Lost interest coupons, non-interest bearing certificates or securities on which the right to interest or dividends has ceased such as drafts or certificates of indebtedness which do not bear interest; certified checks; cashiers checks; bank drafts after acceptance; and certificates of deposit on which interest has ceased or checks on which payment has stopped.
Class E. Lost interest-bearing government securities of the United States , any state or municipality.
Class F. Lost interest-bearing securities other than government obligations including mortgages, mortgage certificates, mortgage notes and trust deeds, whether or not current interest is in default.
Class G. Lost preferred stocks or building and savings and loan association shares.
Class H. Lost savings bank notes.
There are two types of lost securities bonds, for rating purposes: fixed penalty and open penalty.
Fixed penalty bonds are used when the penalty or limit is stated in the bond and is not in excess of two times the face value of the lost securities or instruments. When the instruments are without face value, the penalty must not exceed two times the last market quotation.
Open penalty bonds, on the other hand, are used when no penalty is stated on the bond or the penalty is in excess of that permitted under the fixed penalty bond—that is, when the penalty is over two times the face value, or if without face value, over two times the last market quotation.
Additionally, a bond giving the obligee the right to demand a new bond in a different or greater amount should the security of the first bond seem insufficient must be classified as an open penalty bond, whether or not it otherwise meets the requirements for a fixed penalty bond.
Rates are quoted on the basis of each $1,000 of penalty and apply for the term of the bond rather than on an annual basis.
Premiums for fixed penalty bonds range from $10 to $20 per $1,000 of penalty depending upon class A through H. However, in no event may the premium for a fixed penalty bond exceed the cost of an open penalty bond in the same case. The minimum premium is $10.
Open penalty bond premiums are computed on the face value of the lost securities, if there is such a value. If not, then the last market quotation is used and the maximum premium charge permitted is $60 per $1,000. Rates run from $10 to $40 per $1,000, depending upon the type of securities involved. Minimum premium for an open penalty bond is $10.
The manual provides that if the lost instrument is found, property surrendered and the bond cancelled within six months of issuance, half the premium will be refunded, subject to the premium.
Other Miscellaneous Bonds
Further categories of miscellaneous bonds include:
1. maritime administration: bonds required in connection with change of registry or flag, as well as those associated with the sale of vessels.
2. mortgages: bonds which will indemnify a bondholder trustee for satisfaction, cancellation, or destruction of a matured or paid mortgage.
3. patent infringement: guaranteeing against the infringement of a patent.
4. private patients: to support patients in asylums or hospitals.
5. school teachers: to indemnify a school and assure there will be a person to complete the school year, upon receipt by a teacher of vacation pay in advance.
6. students' bonds: issued to colleges or universities to indemnify against damage to property and to guarantee payment of tuition and other fees.
7. union bonds—wage and welfare: available to guarantee the payment of wages, maintenance of union wage scale, and continued contributions by the employer to welfare funds.