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The Dreaded Surety Collateral Call

SURETY'S RIGHT TO MAKE A COLLATERAL CALL ON BONDED CONTRACTOR AND ITS PRINCIPALS

By: Robert S. Tanner, Esq.

It is pretty much a rule that a surety will not issue performance or payment bonds to a contractor unless the surety is assured that it has very little risk. This means that the contractor, i.e., the business entity, as well as its principals and often their spouses, must have excellent credit. Even when there is excellent credit, the surety generally requires the contractor, its principals, and their spouses to execute an indemnity agreement that gives the surety extensive rights to increase its chances of recovering payments it makes under a bond.  Read On . . .

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