Security Bond by a Surety

What is Security Bond by a Surety?

A surety bond is a contract between three parties—the principal (one executing the bond), the surety (guarantor) and the obligee (the entity requiring the bond)—in which the surety financially guarantees to an obligee that the principal will act in accordance with the terms established by the bond.

Why is Security Bond by a Surety required?

When you are required to get a surety bond, you are expected to abide by the terms of the bond. If you fail to do so, a bond claim is made. This can be a costly endeavor for a few reasons. When it comes to surety bond claims, you are expected to pay every expense of the claim, including legal costs.

The surety providing your bond is saying you are in a strong enough financial position to cover any claims that may arise. If the surety is wrong and payment cannot be collected from you directly or through the courts, they are ultimately responsible for the costs. For this reason, bonds are underwritten based on the potential of a principal causing a claim, as well as the ability of the principal to repay a claim in the future.

What should a Security Bond by a Surety cover?

 

A surety bond must contain the following:

1. Name of the principal, surety and the obligee.

2. Address of principal, surety and the obligee.

3. The amount being lent/borrowed.

4. The purpose for which the amount is being borrowed.

5. The time period for which the amount is being lent.

6. The interest to be levied on the amount.

7. Condition of payment or the required obligation to be fulfilled by surety in case the obligee fails to do so.

Format for Security Bond by a Surety

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DRAFT OF SECURITY BOND BY  A SURETY





By this Bond Mr………….. residing at …………………………….... hereinafter referred to as the 'Surety' acknowledges himself to be bound to Mr. B hereinafter referred to as the 'Creditor' in the sum of Rs………………….. lent and advanced by the Creditor to Mr. C residing at ... the Debtor, with interest thereon at the rate of Rs... percent per annum from the date hereof till payment.

Whereas the Creditor has lent and advanced to Mr. C the Debtor above named a sum of Rs... repayable by him with interest thereon at the rate of Rs... per cent per annum.

And Whereas the said amount has been advanced against the surety giving a guarantee for repayment of the said amount by the said Debtor and against the said guarantee being secured by a mortgage of the property of the Surety described in the Schedule hereunder written and which the Surety has at the request of the Debtor agreed to do.

Now This Deed Witnesseth that in pursuance of there request made by the Debtor to the Surety the Surety doth hereby guarantor and covenants with the Creditor that in default of payment of the amount of Rs... with interest as aforesaid by the Debtor to the Creditor within the lime stipulated by him in the separate writing executed by the Debtor-for evidencing the said Debt, in favour of the Creditor, the surety shall pay to the Creditor the said amount of Rs... or any part thereof remaining unpaid with Interest at the rate of ... aforesaid till payment on demand made to the Creditor in writing

And This Deed Further Witnesseth that pursuant to the said agreement, the Surety as a security for payment of the said amount by the Surety, doth hereby grant and transfer by way of mortgage the said property described in the Schedule hereunder written TO HAVE and TO HOLD the same unto the Creditor subject to the covenant for redemption hereinafter contained And it is agreed and declared that in the event of the Surety being required to pay the said amount on default by the Debtor and on the surety so paying the said amount or any part thereof due and payable to the Creditor the Creditor shall release and recovery the said property to the Surety but at the costs of the Surety And it is further agreed that in the event of the Surety becoming liable and failing to pay the said amount or any part thereof as aforesaid, the Creditor will be entitled to sell the said property through a Court of law and to appropriate or apply the net sale proceeds thereof towards payment of the amount to the Creditor by the Surety and/ or the Debtor including costs of the suit and sale proceedings and to pay the balance if any to the Surety. And the Surety covenants with the Creditor that he has full right to mortgage the said property as aforesaid. And the condition of the Bond is that it will be void if the Debtor pays the said amount to the Creditor with interest as aforesaid, within the time stipulated otherwise, and failing which this Bond will remain in full force and effect.

The Schedule Above Referred To

Signed and delivered by the

withinnamed Surety Mr. A

WITNESSES;

1

2.

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Documents Required for Security Bond by a Surety

No specific documents are required in order to draft and execute a surety bond. However, ID proofs of the parties in order to confirm the names and permanent addresses of the principal, surety and the obligee must be scrutinized.

Procedure for Security Bond by a Surety

There is no specific procedure applicable in the making of the Surety bond. However, it is always recommended to consult a lawyer before drafting a surety bond with all the necessary details as stated above. Once the bond is drafted it should be thoroughly analyzed by the principal and should be executed as per the guidance received from the lawyer. The rules related to registration of the bond must also be followed while executing, as may be applicable as per the prevalent law.

Legal Considerations for Security Bond by a Surety

A person executing a security bond must make sure that all parties have the legal authority to enter into the bond. All the parties executing the bond must be of legal age to sign the bond and must do so without coercion or any undue influence. The parties signing the bond must be sane at the time of execution and should do so in the presence of witnesses.

How can a lawyer help to draft Security Bond by a Surety?

While drafting bonds, it is important to know as to what terminology should be used while drafting the same as a small ambiguity in the terms can also jeopardize the claim of the parties. This is why it is crucial to have a documentation lawyer to assist you with the drafting of the bond. Being an expert in the area of documentation law, a documentation lawyer knows the nitty-gritty of the legal procedures and the requirements involved in drafting a bond. With the experience attained in the field, he/she can guide you with the right advice while entering into a bond and can make sure that such mistakes are eliminated that cannot be resolved even through further legal procedures.

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