The surety is a type of guarantee that tries to ensure the fulfillment of an obligation (debt).

That is, the bonds are a kind of insurance in case there are defaults or damages, for example, when paying a rent, deposit or credit.

Through this modality, a person (guarantor) agrees to pay a debt in favor of a third party, who may make use of the guarantee in the event of failure or breach of the obligation by the debtor.

Bonds are used in economic operations as a tool of trust between the parties to a transaction. In this way, it is possible to delegate reliability in payments and reduce risks.

There may be more than two agents on a bond. This, because the guarantor can delegate said guarantee to a third person, who will respond as guarantor.

Types of bond

Two types of bond can be observed:

  • Surety with real guarantee: A good or asset is deposited to give confidence in the payment of an obligation that, in the case of not fulfilling such, will be executed. This is the case of a guarantee on a mortgage.
  • Personal bonds: They can be advances, partial payments and the like, as an advance on a future obligation. A good example of this is a rental deposit or a proforma payment.

A characteristic feature of bonds is that they are usually revocable, so that, once the transaction is concluded, the person who has held the bond will return the real guarantee to the debtor.

Bail Example

Imagine that you are going to rent an apartment. You are a student and you need a flat to go to a city to study at the university.

After looking at many floors, you finally decide on one. Depending on whether who rents it is private or professional, the deposit may change. It also depends on the area and legal certainty. However, the normal thing is that once you decide that you are going to rent that apartment and reach an agreement, you have to pay a month or two months of rent as a deposit.

What does the person who rents it (the landlord) get out of this? Get to reduce the risk of default. Since if there is non-payment, he keeps the deposit. And, in addition, if there are damages, you may not return the deposit. For example, if we break a door due to improper use of it, the landlord may deduct the cost of repair from the deposit.

The above, since the deposit is returned once the contract ends.

Tags:  culture markets accounting 

Interesting Articles