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California Surety Bonds are a three-party agreement between a principal, obligee and surety. The principal is the party responsible for fulfilling the bond's obligation. This is usually a California individual or business. This is also the party that purchases the bond. The obligee is the party that receives the benefit of the bond. Often this is the state of California or another party. The Surety is the bond company providing a financial guarantee. The guarantee is usually that the principal will perform the obligations.
Should a claim occur on a California surety bond, the surety has a responsibility to investigate the claim. If a valid claim exists, the surety must pay the claim. They can then seek reimbursement from the principal under the indemnity agreement. This differentiates surety bonds from insurance. California surety bonds provide a great benefit to the state. Someone with a claim can collect directly from the surety instead of having to try and collect directly with the principal. This can save time and money.
Below is a list of some of the important laws pertaining to surety bonds in the state of California.
California is a community property state. However, the law requires that both spouses sign when “Community real property or any interest therein is leased for a longer period than one year, or is sold, conveyed, or encumbered.” Therefore, both spouses must generally sign the indemnity agreement.
On public work, an owner may hold 150% of disputed amounts. California retainage is addressed under California Public Contract Code section 7201. Retainage may not exceed 5% of the amount owed and shall not exceed 5% of the contract price.
Pay-if-Paid clauses in California have been ruled as unenforceable and against public policy via case Wm. R. Clarke Corp. v. Safeco Ins. Co. (1997) 15 Cal.4th 882, 885.
Pay-When-Paid clauses have been ruled as unenforceable as well in California. In the case of Crosno Construction, Inc. v. Travelers Casualty & Surety Company of America, an appeals court reaffirmed that these clauses force subcontractors to wait an “infinite amount of time” while the general contractor and owner work out the payment dispute.
The state of California allows for mechanic’s liens against property. Under California Civil Code section 8424 the owner of real property may file a bond to release the lien if they dispute the validity of the lien. The bond shall be one hundred twenty five percent (1.25 times) of the claimed lien amount.
Axcess Surety is the premier provider of surety bonds nationally. We work individuals and businesses across the country to provide the best surety bond programs at the best price.
