October 2024

Constructive Thoughts Newsletter October 2024 – 5 min read The Guarantee Company of North America v. Raeside highlights the enforceability of surety rights under a General Indemnity Agreement (GIA). For a party to advance defences such as non est factum or relief from forfeiture, substantial proof to substantiate these defences is needed. Otherwise, a court will seek to uphold the terms of the GIA, however onerous those may seem. When surety bonds are issued, underlying indemnity agreements provided to the surety are required. These indemnity agreements ensure that obligations—whether in construction, commercial contracts, or other ventures—are met, and they provide security to the party relying on that performance. The Guarantee Company of North America v. Raeside offers valuable insight into how surety rights work, and what can happen when the obligations under an indemnity agreement are not fulfilled. Case Overview This case revolves around the estate of Vernon S. Bates, who died without a will (intestate) in Michigan. Mr. Raeside, a cousin of Mr. Bates, sought to manage the estate as the personal representative. To do so, the Michigan court required him to post a bond of $4,000,000. A bond like this acts as a safeguard, ensuring that the estate’s assets are properly handled. GCNA issued the bond to Mr. Raeside, who signed a General Indemnity Agreement (GIA) with GCNA. Mr. Raeside distributed around $7,000,000 to maternal heirs, keeping $500,000 for himself. Later, paternal heirs came forward, claiming part of the estate. The Michigan Probate Court found that Mr. Raeside had improperly distributed funds and ordered him to return the money (a process called disgorgement). When Mr. Raeside failed to comply with this order, GCNA sought collateral under the terms of the GIA. GCNA applied for summary judgment, asking the court to compel Mr. Raeside to post collateral amounting to $3,585,000 to cover potential liabilities. Mr. Raeside argued that he didn’t understand the indemnity provisions in the GIA, and relief from forfeiture (arguing the financial demand was unfair). The court rejected these defenses and upheld GCNA’s right to enforce the GIA. The Court’s Decision The court found that GCNA had fully complied with its obligations under the GIA for two reasons: Unsuccessful Defenses: Non Est Factum + Relief from Forfeiture Non Est Factum Mr. Raeside claimed he did not fully understand the GIA when he signed it, invoking non est factum, which allows a person to escape liability if they were fundamentally mistaken about the nature of the contract. However, the court dismissed this defense for two main reasons: Relief from Forfeiture Mr. Raeside also sought relief from forfeiture, arguing that enforcing the collateral demand would impose a severe financial burden on him and his spouse. The court denied this defense for the following reasons: Takeaways This case highlights the importance of understanding and complying with indemnity agreements. When such an agreement is in place, the surety’s rights are strongly protected, and defenses like non est factum or relief from forfeiture require substantial proof to succeed. It serves as a clear reminder that negligence or failure to meet contractual obligations can result in significant financial liabilities for those involved in any industry where indemnity agreements are required. If you’re dealing with complex surety and/or indemnity agreements, it’s critical to seek legal advice. Contact Anthony Burden orJordan Lalonde in Calgary, Ryan Krushelnitzky in Edmonton, or any member of Field Law’s Construction Group for guidance and assistance in this area. https://www.fieldlaw.com/news-views-events/239902/behind-the-bond-understanding-surety-rights-indemnity-agreements?utm_source=mondaq&utm_medium=syndication&utm_content=articleoriginal&utm_campaign=article

Insurance Regulatory and Development Authority of India (IRDAI) has set up a task force to solve the bottlenecks and drive the growth of surety bond insurance in the Indian market. The task force comprises representatives from insurance companies, banks and reinsurers. https://www.asiainsurancereview.com/News/View-NewsLetter-Article/id/89324/Type/AIRPlus#

MANKATO — A couple suing Mankato Township for approving the proposed Blue Earth County shop project has posted a $1.2 million surety bond sought by the county to cover cost increases if the project is needlessly delayed by the suit. In late April, homeowners Patrick Lease and Lynn Koosman-Lease filed a lawsuit against the township, alleging the board’s granting of a conditional-use permit for the facility was “directly contrary” to the township’s land-use ordinance. In March the Mankato Township Board voted 2-1 to approve Blue Earth County’s plans for the facility, which would serve as a base for county snow and road crews, on the corner of County Roads 90 and 16 just south of Mankato. Residents near the site threatened to file a lawsuit if the Township Board gave the go-ahead. The Leases live next to the proposed shop site. Although the suit is against the township, the county asked the court to require a surety bond so that if the township prevails and the county’s project is delayed the court could order that part or all of the bond be paid to the county to cover increased costs because of the delay. In a recent order, District Court Judge Kristine Weeks said the county estimated that because of inflation and other issues, the cost of the project could increase by $1.2 million if the start date was delayed until May 2025. The county already has been sending out and accepting various bids on building the shop. Weeks ordered the surety bond but also noted there’s no way of knowing if the price might increase or even decrease if the project is delayed. While the heart of the case hasn’t been presented in court, Weeks in her order for the bond noted: “Townships have wide latitude in making decisions about special use permits. “A township’s decision to approve a (conditional-use permit) will be independently reviewed to determine whether there was a reasonable basis for the decision, or whether the township acted unreasonably, arbitrarily, or capriciously.” The judge wrote that even if the township’s “decision is debatable, so long as there is a rational basis for what it does, the courts will not interfere.” The lawsuit seeks a nullification of the permit and a permanent injunction on the project. Mankato Township earlier answered in court that the complaint should be dismissed. The project needed a conditional-use permit because the proposed site is within an area zoned as an agricultural district. The suit alleges the permit is illegal because it didn’t meet a range of requirements needed to allow an industrial use in an agricultural zone. https://www.mankatofreepress.com/news/local_news/couple-suing-over-blue-earth-county-shop-posts-1m-bond-as-suit-proceeds/article_dea25184-7a74-11ef-9fa9-57fcaeaa857e.html