Is Delivery Included?
October 22, 2024
In this Surety Today: The Blog post we discuss the concept of delivery of the bond. It is hornbook law that every bond, in order that it may be a binding obligation, must be delivered to the obligee. In the normal course, the surety will execute the bond and give it to the principal. The principal then is supposed to execute the bonds and deliver them to the obligee. What if the principal fails to deliver the bonds to the obligee? The question is – what constitutes delivery?
There are many cases in various jurisdictions that have held that delivery to the obligee may occur when bonds are delivered to the principal for its signature. In Donaldson v. Hartford Accident & Indemnity Co., 269 Pa. 456, 112 A. 562 (1921), the court held that a bond was delivered by the surety when it was mailed to the principal for the principal’s signature, even though the bond never came into possession of the principal. This analysis was reiterated in Hanauer v. National Surety Co., 279 Pa. 345, 123 A. 863 (1924), in which the court held that when the surety’s agent deposited the bond in the office of the principal to await the signature of the principal’s president, delivery was completed and as to the surety’s liability, that action was equivalent to delivery to the obligee. See also Tanco, Inc. v. Houston Gen. Ins. Co., 38 Colo. App. 133, 135, 555 P.2d 1164, 1165–66 (1976).
These cases view delivery as a question of intent. Flora v. Aetna Casualty & Surety Company, 207 Cal.App.2d 376, 24 Cal.Rptr. 305 (1962); San Angelo Tank Car Line, Ltd. v. Lawyers Sur. Corp., 407 S.W. 2d 23, 24 (Tex. Civ. App. 1966). If the surety intended to part irrevocably and unconditionally with its dominion and control of the bonds at the point when they were delivered to the principal for its signature, then delivery to the obligee was accomplished at that time. Thus, the suretyship contract is formed at the time the surety’s offer is accepted by the principal. Trident Corp. v. Reliance Ins. Co., 350 Pa. Super. 142, 152, 504 A.2d 285 (1986); see also Turner Construction Co. v. First Indemnity of America Ins. Co., 829 F. Supp. 752, 760–761 (E.D. Pa. 1993); Deeter v. Dull, 420 Pa. Super. 576, 586, 617 A.2d 336 (1992), appeal denied, 535 Pa. 619, 629 A.2d 1380 (1993); Berry v. United States Fid. & Guar. Co., 249 Md. 150, 238 A.2d 907 (1968); Burstein v. Union Indem. Co., 110 N.J.L. 442, 166 A. 89 (1933).
In Berry, a case dealing with a real estate broker’s bond, the principal provided the statutorily required bond in order to obtain a license, but he also obtained two additional bonds. The additional bonds were issued by the surety on the official form and were delivered to the principal, but they were not filed with the Real Estate Commission, the obligee. The broker was alleged to have violated various aspects of the law and claims were made against all of the bonds. The surety of the additional bonds argued that because the additional bonds were not filed with the Commission they were not effective. The court disagreed and noted that the additional bonds were not “official” bonds, but were voluntary common law bonds. As such, they did not need to comply with the filing requirements of the statute. The court, quoting Stearns, The Law of Suretyship, observed:
A suretyship agreement ordinarily, as in the case of other written instruments, acquires no force until it is completed by delivery. It is not considered to be delivered until it has passed beyond the dominion, control and authority of the surety and is no longer subject to his recall. Delivery by an agent is satisfactory and the principal may act as the surety’s agent for such purpose. In fact, in the absence of any restriction in the instrument itself, the principal has implied authority to deliver the surety’s contract.
Berry v. U. S. Fid. & Guar. Co., 249 Md. 150, 154, 238 A.2d 907, 909 (1968).
The court continued, the bonds, as voluntary bonds, took on the aspect of contracts of indemnity. As such, no more proof of delivery to the obligee or of delivery to and acceptance by the creditor is required, only proof that the bonds were issued and were beyond the dominion, control and authority of the surety companies, which occurred when they were delivered to the principal.
For an excellent discussion of the delivery of bonds issue, I recommend the article on the topic by Denise C. Puente, Esq., DRI For The Defense, Is Actual Delivery of a Bond Required for Coverage? 49 No. 3 DRI For Def. 62 (2007). In her article, Ms. Puente observes that “the majority of jurisdictions do not require actual delivery if the surety otherwise evidences its intent to be bound. Moreover, formal delivery need not be proven by direct evidence, but may be inferred from the acts of the parties.” Citing Udick v. U.S. Fid. & Guar. Co., 37 Idaho 181, 186, 215 P. 838 (1923).
If you have questions regarding the issues discussed in this post, please do not hesitate to contact Michael A. Stover, Esq. (410-659-1321/mstover@wcslaw.com) or any member of the Surety and Fidelity Practice Group.