Question

A contractor has been given a Performance Bond, but is now unable to complete the contract because of bankruptcy. Therefore the Surety will do which of the following?

a) Sue the contractor for breach of contract.
b) Indemnify the principal for any losses suffered.
c) Make arrangements with the obligee to complete the job.
d) Take over the contractors business as trustee.

Answer 1

When a contractor is unable to complete a contract due to bankruptcy, the surety can take legal action, compensate the principal for losses, or work with the obligee to find an alternative solution.

Step-by-step explanation:

When a contractor who has been given a Performance Bond is unable to complete the contract due to bankruptcy, the surety will typically do the following:

1. Sue the contractor for breach of contract: The surety may take legal action against the contractor to hold them accountable for failing to fulfill their obligations under the bond.
2. Indemnify the principal for any losses suffered: The surety may compensate the principal, who is the party that issued the bond, for any financial losses they incur as a result of the contractor's inability to complete the contract.
3. Make arrangements with the obligee to complete the job: The surety may work with the obligee, who is the party that required the contractor to obtain the bond, to find an alternative solution for completing the job.