If there is a public or private interest that needs protection, safeguards will be used. For example, a landlord may require a commercial tenant not only to post a deposit, but also to provide proof that he or she has a three-month rent guarantee if the tenant is insolvent. Often, a municipality wants its road contractor to show that it has a guarantee if, for whatever reason, the contractor is unable to complete the project. Many states require general contractors to have bonds purchased by insurance companies as a precondition for obtaining a contractor`s licence; insurance is security – it pays if the contractor does not do the work of the client`s house. These are types of collateral obligations that guarantee an owner (as a developer or municipality) the completion of a construction contract or the payment of actual damage equal to the loan if the contractor does not enter into it. A judge will often ask an delinquent accused to establish a loan that guarantees his appearance in court – it is a kind of guarantee in which the bond lease is a guarantee – or a complainant creates a loan that compensates the defendant for the costs of the delays caused by the appeal – a judicial loan filed in court as collateral. For example, a party to a court action may issue a judicial loan to guarantee payment of a judgment while an appeal is being considered. A bank will borrow from its employees if they steal money from the bank – the bank employee is the principal debtor in this case (a loyalty obligationA insurance usually purchased by an employer to cover employees in charge of a property or valuable money). However, as we shall see, guarantees do not expect financial losses such as insurance companies: the guarantee generally expects a refund when it is obliged to provide services. The principal debtor goes to an insurance company and buys the loan – the guarantee policy. The cost of the premium depends on the guarantee company, the nature of the loan requested and the applicant`s financial history. A solid estimate of the cost of the premium is 1 to 4 per cent, but if a guarantor considers a candidate a high risk, the premium falls between 5 and 20 per cent of the loan amount. If the buyer of real estate agrees to take over the seller`s mortgage (promises to pay the mortgage debt), the seller then becomes a guarantee: unless the mortgage lays off the seller (unlikely), the seller must pay if the buyer is late.
This contract model must be used as part of a distribution agreement when the distributor is asked to obtain a guarantee. When designing this proposal, we assumed that the contract would be concluded by three professionals, in principle companies: a supplier (the obligated), a distributor (the debtor) and a parent company of the distributor (the guarantee). This proposal is not intended for a bank, either as a commitment or as collateral. Bail contracts are, to some extent, covered by state rules. Under a 1985 Federal Trade Commission credit practice rule, creditors are prohibited from falsating liability for a guarantee. Creditors must also notify the surety company of a communication explaining the nature of the undertaking and the potential liability that may arise if one person writes the fault of another. Here is an example of the communication needed: Federal Trade Commission, Facts for Consumers: The Credit Practices Rule, www.ftc.gov/bcp/edu/pubs/consumer/credit/cre12.shtm.