Dear all

This is to answer the following questions/issues raised ,as follows:

1. What are the respective purposes of Fidelity and Surety Bond?;

A. A Surety Bond or surety is a promise by a surety or guarantor to pay one party (the obligee)
a certain amount if a second party (the principal) fails to meet some obligation, such as fulfilling
the terms of a contract. The surety bond protects the obligee against losses resulting from the
principal's failure to meet the obligation. (https://en.wikipedia.org/wiki/Surety_bond)

In the Philippines, Surety Bond is covered under the Contract of Suretyship within the meaning
of R.A. 10607, otherwise known as the Insurance Code of the Philippines. Section 177
thereof provides:

"Section 177. A contract of suretyship is an agreement whereby a party called the surety
guarantees the performance by another party called the principal or obligor of an obligation or
undertaking in favor of a third party called the obligee. It includes official recognizances,
stipulations, bonds or undertakings issued by any company by virtue of and under the provisions
of Act No. 536, as amended by Act No. 2206."

It is considered as insurance contract within the meaning of the Insurance Code of the
Philippines if made by a Surety who or which, as such, is “doing an insurance business.”

On the other hand, a Fidelity Bond is a form of insurance protection that covers policyholders
for losses that they incur as a result of fraudulent acts by specified individuals. It usually insures
a business for losses caused by the dishonest acts of its
employees. https://en.wikipedia.org/wiki/Fidelity_bond

2. Difference between the two?;

Aside from the differences culled from their definition and nature of transaction, technically
speaking, a Surety Bond is the policy issued by the Surety in a Contract of Suretyship, while a
Fidelity Bond is only one of the categories of the Contract of Suretyship as classified by the
Insurance Commission.

The Insurance Commission classifies contracts of Suretyship into six (6) categories, namely:

1. Contractors Bonds;
2. Judicial Bonds;
3. Fidelity Bond - It guarantees the honest and fidelity of an employee. It shall answers for the
loss incurred by employer by reason of its employees’ dishonest acts. Those who are required to
post this are cashier, collectors and any person involved in handling money.
4. Guarantee Payment Bond;
5. Customs Bonds; and
6. License and Permit Bonds.
For detailed discussions of each kind of categories of bonds you may
see https://webcache.googleusercontent.com/search?q=cache:mdwsuv_gyZQJ:https://christopher
jaysacluti.weebly.com/surety-bonds.html+&cd=12&hl=fil&ct=clnk&gl=ph.

3. Legal Basis why it is mandatory provision in some contracts or engagement?;

A. Being engaged in banking business, reposed with trust and confidence with the money and
property of the public, it is incumbent upon the banks to treat the accounts of its clients with

4. Basis of the amount or how computed?

A. Per discussion with an Insurance Practicioner, the following are sample computation for the
two kinds of bonds:

Surety Bond- For 1 Million insurable risk:

Premium - PHP7,375.00 per principal or obligor per annum.
Collateral- 25% cash deposit or PHP250,000.00 OR property valued at 1Million.
Recoverable upon favorable Court Decision.
More expensive because of industry experience against "runaway shop".

Fidelity Bond- For 1 Million insurable risk:

Premium- PHP5,120 per employee per annum.
Collateral- None.
Recoverable upon proof of loss.
Relatively expensive as recovery is immediate.
Highly recommended.

For your information.

Thank you.

Thanks

On Tue, Oct 1, 2019 at 8:18 AM Roberto Quizeo <quizeo.roberto@wealthbank.com.ph> wrote:

Atty. Zzar and Angel,

Foe guidance, kndly render legal opinion on this matter. The issues are:

1. What are the respective purposes of Fidelity and Surety Bond;

2. Difference between the two;

3. Legal Basis why it is mandatory provision in some contracts or engagement;

4. Basis of the amount or how computed.

Thanks

Atty. Roberto D. Quizeo "bong"

(sent from my phone)

On Mon, Sep 30, 2019, 10:38 PM Luvimin Tago, <tago.luvimin@wealthbank.com.ph> wrote:

Good evening Sir Jojo,

This is regarding the requirement of our Security and Armored Car Service
providers to provide and endorsed to us Fidelity and Surety Bonds.
This has caused confusion because there was no definite amount for the
Bonds. If we take on the required Bonds of Password Security which is
P5.0MM for Fidelity and P3.0MM for Surety, to be applied to all our Security
and Armored Car Service providers, I am afraid that all of them could not
submit this & would try to request for a lower bond. We already have several
contracts that are pending signatures. This is one of the reasons that the
renewal is delayed because the provider/s is not signing the contract due to
the provision pertaining to these bonds already incorporated in the contract.

It is for the above reason that BBG is requesting for the Memo or Policy
(Internal or Government) that they can use as the basis or reference to
require our Security and Armored Car service providers to submit and to set
the amount of the bonds per provider per branch.

Hoping for your assistance and clarification on this matter.

Thank you.

Best Regards,

Luvie R. Signey-Tago
Logistics
Mobile # : 0917-8077406
G-Mail : tago.luvimin@wealthbank.com.ph
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ATTY. BELTESHAZZAR L. CABACANG “Zzar”

Acting Head - Legal and Acquired Assets Department
2F Unit 104, Marijoy Bldg., F. Ramos St.
Cebu City, Philippines
(032) 412-3287 | 0917-325-0416