Glossary
Surety & Guarantee Glossary
This glossary defines the key terms of surety bonds and contract guarantees — from the parties to a bond (principal, obligee, surety) to the instruments (performance bond, bank guarantee, SBLC). Accurate, senior-level definitions you can look up fast and cite with confidence.
A
- Advance payment bond
- A bond that protects an advance paid by the obligee to the principal at the start of a contract. The bonded amount usually amortises as the advance is recouped against progress payments.
- Appeal deposit (depósito recursal)
- A deposit required to admit an appeal in labour courts. A judicial (labour) surety bond can replace it, avoiding capital being locked up during the proceedings.
B
- Bid bond
- A bond guaranteeing that a bidder will honour its bid and sign the contract if awarded. It covers the obligee's loss if the winning bidder refuses the award.
- Bank letter of guarantee (carta fiança)
- A guarantee issued by a bank under which the bank undertakes to pay the beneficiary if the guaranteed party defaults. It consumes the party's bank credit line, unlike a surety bond.
- Bank guarantee
- A two-party instrument issued by a bank that pays the beneficiary on demand. It uses the principal's credit line, unlike a surety bond, which is underwritten and keeps credit lines free.
C
- Customs bond
- A bond guaranteeing payment of duties and compliance with obligations owed to the customs authority in import and export operations, replacing cash deposits.
- Cash security / deposit (caução)
- A deposit of cash, securities, or property pledged as security for an obligation. It ties up the guarantor's capital; surety bonds and bank guarantees are the alternatives that free that cash.
- Conditional bond
- A guarantee whose payment depends on proof of default and, often, of loss. The guarantor investigates the claim before paying, protecting the principal against an abusive call.
- Claim (sinistro)
- The occurrence of the covered event — the principal's default — that lets the obligee call the bond and the surety investigate and indemnify up to the bonded amount.
E
- Endorsement (endosso)
- An amendment to the policy that changes its terms — bonded amount, term, object, or parties — after issuance, formalising the change agreed among principal, obligee, and surety.
G
- Guarantor (fiador)
- A person or company that, under a guaranty contract, assumes responsibility for meeting the obligation if the primary debtor fails. It is a personal guarantor, distinct from a surety company.
I
- Indemnity (contragarantia)
- The principal's undertaking (and sometimes its owners') to reimburse the surety for anything it pays on a claim. It is what makes a surety bond cheaper than tying up cash.
J
- Judicial (court) guarantee
- A guarantee that replaces the cash deposit required in litigation — tax, civil, or labour — letting the principal keep the capital in hand while securing the court.
O
- Obligee (segurado / beneficiary)
- The party protected by the guarantee and creditor of the obligation — the public authority, court, customs, or private client. It is who files the claim if the principal defaults.
- On-demand bond
- A guarantee that obliges the guarantor to pay on the beneficiary's simple demand, without prior proof of default. It shifts the risk of an unfair call onto the principal.
P
- Performance bond
- A bond guaranteeing that the principal completes the contract on its terms. If the principal fails to perform, the surety pays the cost of completion or indemnifies the obligee, up to the bond amount.
- Payment bond
- A bond guaranteeing payment of subcontractors, suppliers, and labour on a project. It protects those who furnished goods or services against the principal's non-payment.
- Principal (tomador)
- The party whose obligation is guaranteed — the contractor, supplier, or company. It buys the bond, pays the premium, and signs the indemnity, agreeing to reimburse the surety for any claim paid.
- Premium (prêmio)
- The amount the principal pays the surety for issuing the guarantee. On a surety bond it usually ranges from 0.5% to 5% per year of the bonded amount, depending on risk and term.
- Policy (apólice)
- The document formalising the surety bond contract, defining the parties, object, bonded amount (the cap on indemnity), term, and conditions for calling the bond.
R
- Retention bond
- A bond that replaces the cash retention (typically 3–5%) held in construction to cover defects. The principal is paid in full while the surety guarantees the amount that would have been withheld.
S
- Surety bond (seguro garantia)
- A three-party agreement in which a surety guarantees to an obligee that a principal will meet an obligation. If the principal defaults, the surety compensates the obligee up to the bond amount and recovers from the principal under an indemnity.
- Surety (seguradora garantidora)
- The authorised company that issues the bond and stands behind the principal to the obligee. It underwrites the risk, prices the premium, and pays valid claims up to the bond amount.
- SBLC (Standby Letter of Credit)
- An irrevocable bank guarantee that pays the beneficiary on presentation of documents evidencing default. It is widely used in international trade.
- SKR (Safe Keeping Receipt)
- A custody receipt issued by a regulated custodian attesting that it holds an asset. It is not a bank guarantee, an SBLC, or a "monetizable" instrument — only proof of custody.
- Subrogation (sub-rogação)
- The surety's right, after paying a claim, to step into the obligee's position and recover the amounts paid from the principal and the indemnitors.
- Step-in clause (cláusula de retomada)
- A clause that lets the surety take over performance of the defaulted contract — directly or through a third party — instead of merely indemnifying, completing the bonded work or service.
T
- Tax enforcement (execução fiscal)
- An action in which the tax authority collects a registered tax debt. A judicial surety bond can replace a cash attachment, freeing the debtor's capital while it disputes the debt.
U
- Underwriting (subscrição)
- The risk-assessment process by which the surety evaluates the principal's financial health, track record, and obligation before issuing the bond and setting the premium and capacity.
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