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THE giving of surety for the fidelity of others seems to date from very ancient times; but, until about the middle of the nineteenth century, the practice was confined exclusively to individuals as distinguished from corporations. Just as individual underwriting in fire and marine insurance proved inadequate for the modern business community, so personal surety was found to have many shortcomings. Persons of means, although reluctant to impair their financial credit by assuming the contingent liability connected with the giving of a bond, found it difficult to refuse to qualify on the bond of a friend who asked for the favor. Those who were required to furnish bonds, and had to secure the same from personal friends, thereby placed themselves in a position where they felt bound to return the favor. In many instances worthy persons, for no other reason than that they had no wealthy friends to go surety for them, could not accept positions of trust and responsibility. In other instances again, the giving of surety was made the excuse for exercising undue influence over officers, officials, and employees. But, above all, the greatest drawback of personal surety was its lack of supervision over the conduct of the person bonded, and its unreliability when it came to the collection of the bond. Such bonds were frequently granted by friends in a haphazard way, largely on the supposition that it was, of course, nothing more than a mere form. When the unexpected happened, and the bond could not be paid, it became apparent that the giver of the bond had assumed a big risk when he became surety for a person over whose conduct he had little or no control, and that the person requiring the bond was foolish in placing his dependence upon an individual guarantor, whose financial resources were changeable and difficult to estimate.1
When the disastrous results of these various drawbacks of personal surety became widespread, business men began to demand, just as they did in fire and marine insurance, that corporations with large capital and efficient organization should enter this field. The business man desires certainty in insurance above all else, and this can be had only if the underwriter is financially strong, and enables the insured to
1 The advantages of corporate suretyship have been succinctly stated by Mr. Edwin Warfield, President of the Fidelity and Deposit Company, of Baltimore, Md. He groups the advantages under seven heads. "(1) It relieves business men and persons possessing property from the necessity of saying 'no' to friends and relatives who may ask them to qualify on bonds of various kinds, which, if they did, would create a contingent liability, impair their financial credit, and involve a possible loss. (2) It enables heirs and next of kin to become trustees, executors, and administrators of the estates of their deceased relatives, and to keep the management thereof in the hands of those most interested in a speedy, cheap, and proper settlement. (3) It relieves those required to give bonds from incurring obligations by asking friends to become surety for them, and which they would feel bound to reciprocate when the opportunity offered. (4) It removes all liability or excuse for undue influence being exercised over bank officers, railroad employees, contractors, and public officials, by those becoming surety for such officials. (5) It insures a supervision over a person bonded, or the estate or interest involved, that will be an incentive to right-doing and a proper accounting. (6) It guarantees prompt payment of losses, avoids litigation, and enables the official or employer to know the responsibility of the security furnished them. (7) It often enables persons who have no property or friends of financial standing, to obtain positions of trust and emolument."
ascertain this fact from a regularly published financial report. The value of corporate surety seems first to have been recognized in England. Here, in 1840, the “Guaranty Society of London” began to guarantee the fidelity of persons who held responsible positions in business. It is a noteworthy fact that corporate bonding became an important business in England long before its introduction in the United States. The first company to write surety bonds in the United States was the Guarantee Company of North America, a Canadian corporation. This company began business in this country in 1872, but limited its bonds to the officers of banks, railroads, and corporations generally. The state of New York had passed an act in 1858 authorizing the incorporation of such companies, but it was not until 1875 that the first company was incorporated. In 1884, the American Surety Company of New York was formed, and went a step further than the Guarantee Company of North America by guaranteeing bonds required for court undertakings and for contractors and fiduciaries. Next, in 1890, the Fidelity and Deposit Company of Maryland was organized; which, in addition to issuing all the bonds of its predecessors, made a new departure in bonding public officials of all kinds— whether national, state, county, or municipal. The method by which this company sought to obtain a foothold is well explained by its president, Mr. Edwin Warfield, and shows how little the advantages of corporate suretyship were understood, even at this late date. “There were many business men,” declares Mr. Warfield, “who said: ‘You can’t make a company like that go; the business is risky, and there is no future to it.” . . . I found that the public did not appreciate the advantages of the character of suretyship we offered, and that we had a campaign of education before us. We had to educate public officials, we had to educate commissioners, we had to educate judges and men who approve bonds, up to the advantages of corporate suretyship. At that time the government of the United States was limited in this matter to the approval of individuals as surety upon bonds, and we had to secure legislation in that direction. Finally, in 1894, we succeeded in having passed by Congress an act that authorized the approval of corporations as sole surety upon bonds given by public officers and in all judicial proceedings in the United States courts. Then it was necessary to get into the various states; and we found few states had laws that authorized the acceptance of corporations as sureties upon the bonds of public officers or in court proceedings.''
Present Extent of the Corporate Bonding Business.—Owing to the campaign of education which several of the companies waged and the readiness with which business men acknowledged its many advantages, corporate suretyship has enjoyed a most remarkable growth. Although its beginning in this country dates back only to 1872, corporate bonding was represented, in 1909, by over thirty companies, one of which had total assets of nearly $10,000,000, five over $5,000,000 each, and eleven in excess of $1,000,000. According to the following table, eighteen leading companies doing a bonding business, possessed in 1909 total assets of $52,975,490, and a surplus of $14,861,161. The fidelity and surety risks of these companies in force showed a total of $3,512,808,820, and the premium income amounted to $12,826,693, as compared with losses of $3,347,239. The ratio of losses paid and claim expenses to the premium income was 29.7 per cent, and the average rate for risks as based on the penalty of the bond was .361 cents per hundred.
Not only has the corporate bonding business attained large proportions financially, but it has constantly extended its field of usefulness by increasing the variety of bonds issued. The almost unlimited sphere of usefulness of this