The Law of Commercial Surety and Miscellaneous Bonds
Second Edition
BRUCE CHARLES KING RICHARD E.TOWLE
EDITORS
FIDELITY AND
SURETY LAW COMMITTEE
ASSOCIATION
Defending Liberty Pursuing Justice
CONTENTS
Preface To Second Edition iii Contributors v
CHAPTER 1 MEDICARE AND SURETY BONDS 1 Robert J. Duke and Richard H. Stanziale I. Introduction 1 II. Federal Medicare Bonds 2
A. Statutory and Regulatory Background 2 B. The HHA Bond Requirement 4 C. The DME Bond Requirement 5 D. Underwriting and Claims Considerations 10
III. State Bond Requirements 16 A. Florida 16 B. Alabama C. District of Columbia 20
IV. Looking Ahead - Bonds in Healthcare 20 A. State-Specific Paths to Medicaid Reform with Some
States Passing Sweeping Medicaid Managed Care Reforms While Other States Opt for Other Alternatives or Opting to Take it Slower 21
B. Dramatic Changes in Medicare and Medicaid Reimbursements including Outcome-Oriented Compensation (i.e., Incentives / Penalties Based on the Patient's Clinical Outcome) and the Rise of Accountable Care Organizations 22
C. Medicaid and Medicare-Sponsored Competitive Procurement (i.e., Competitive Bid Auctions) of Services and Equipment in Specific Geographic Territories 23
OF DEVELOPERS OR SUBDIVISION BONDS
Susan M. Moore Howard K Beth J. Rotenberg Shahinian
I. Introduction 33 II. The Statutory Scheme of Subdivision Bonds 35
The Law of Commercial Surety and Miscellaneous Bonds
A. Statutory Purpose 35 B. Subdivision Agreements and Subdivision Bond
Requirements 36 1. The Subdivision Agreement 36 2. The Subdivision Bond 38 3. The Subdivision Bond Amount 39 4. Reducing the Subdivision Bond Amount 39
III. The Differing Roles, Positions and Obligations of the Principal and Obligee on Subdivision Bonds as Compared with Public Works Bonds 40 A. The Differing Roles of the Principal 40 B. The Differing Roles of the Obligee 41
IV. Construction Costs and Funding Obligations 42 A. Estimated Costs of Completion 42 B. Funding of Subdivision Improvements 43 C. Proper Use of Set Aside Funds and Execution of
Set Aside Agreements 44 V. Differences in the Scope of Coverage on Subdivision
Bonds as Compared with Public Works Bonds 45 VI. Limitations and Expansion of Coverage 47 VII. Differences Between the Limitations Periods 49 VIII. Handling Procedures 51
A. Obtain Project Schedule and Monitor Work Progress 52 B. Monitor Financial Status 52 C. Communicate with Developer 52 D. Communicate with the Bank 52
IX. Defenses to Subdivision Bond Claims 53 A. Who is Making the Claim? 54
1. The Sweetheart Deal 55 2. Third-Party Beneficiaries 58
B. Has the Claim Been Timely Presented? 62 C. Has the Municipality Complied with the Applicable
Enabling Statute its Own Ordinances? 63 D. Has the Developer Commenced Any Subdivision
Improvements? 64 Liability After Commencement of Improvements .... 64
2. No Liability Until Commencement of Development 67
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E. Who Owns the Property on Which the Subdivision Improvements Are to be Completed? 70
F. What is the Surety's Measure of Damages as a Result of the Developer's Failure to Complete the
72 G. Has the Public Agency Impaired the Surety's Rights,
Such As by the Premature Issuance of Certificates of Occupancy? 76
H. Is the Surety Able to Limit its Liability in the Event the Principal Files for Bankruptcy? 79
X. Conclusion 83
CHAPTER 3 FINANCIAL GUARANTY INSURANCE AND SURETY BONDS 85 James D. Ferrucci and Rosemary I. Introduction 85 II. Financial Guaranty Insurance Model Act 87
A. Perceived Need for Separate Regulation 87 B. The Model Act 91
III. Financial Guaranty Insurance Legislation 94 A. York 94
Purpose of the New York Financial Guaranty Law 94
2. The Statutory Scheme 97 3. Financial Guaranty Insurance or Surety Insurance
(Statutory Ping-Pong)? 101 4. The 2005 Amendment to Section 105 5. Interpretation of Statutory Provisions 109 6. Reinsurance - Multiline Insurers and Financial
Guaranty Insurance 130 B. Florida 133
1. The Statutory Scheme 133 2. Interpretation of Statutory Provisions 138 3. Reinsurance 141
C. California 141 1. The Statutory Scheme 141 2. Overlap of Statutory Definitions 145 3. Reinsurance 146
The Law of Commercial Surety and Miscellaneous Bonds
D. Connecticut 146 The Statutory Scheme 146
2. Interpretation of Overlapping Definitions 149 3. Reinsurance 150
E. Other States 151 F. Surety Bonds Guaranteeing Payments of Premiums,
Deductibles, and Self-Insured Retentions New York and Connecticut
2. Florida and California 153 IV. Extraterritoriality - The New York "Appleton Rule"
A. New York Domestic Insurers 154 B. Foreign and Alien Insurers - Application of the
"Appleton Rule" 157 C. Penalties for Violating the "Appleton Rule" 160
V. Conclusion 161
CHAPTER 4 PROBATE BONDS 163 Matthew M. Horowitz, Michelle and Fred Rettig 163 I. Introduction 163 II. The Fiduciary 164
A. Types of Fiduciaries 164 Executors and Administrators
2. Trustees 165 3. Conservators 165 4. Guardians for Minors
B. Scope of the Fiduciary Duty 166 C. Duty of Prudence 167 D. Duty of Loyalty 168 E. Duty to Keep Records and Furnish Information F. to Segregate Estate Property 171 G. Duties as to the Investment of the Estate's Assets 171 H. Duty to Comply with Statutory Directions
III. The Probate Bond 174 A. Terms and Conditions 174 B. Construction C. Scope of Coverage
Parties with Standing to Assert Claims
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2. Coverage for Losses That Predate the Bond 179
3. Coverage for Losses Occurring After the Bond Has Been Terminated or Discharged
4. Co-Suretyship 5. Coverage Issues Where a Principal Serves in
Multiple Fiduciary Capacities 6. Coverage Where the Fiduciary's Actions Were
Approved by the Probate Court 185 7. Liability of Co-Fiduciaries 185 8. Non-Estate Property Obtained While Acting
Under Color of Office 185 9. Special Coverage Issues 186
D. Procedural Issues 190 1. Life of a Typical Probate Bond Claim 190 2. Ripeness 3. Extent to Which the Surety is Bound by
Decisions Against Principal 193 4. Notice to the Surety 194 5. Timing Issues Regarding the Claim: Statutes of
Limitations and Laches 194 6. Equitable Defenses: Estoppel and Waiver 7. Surety's Standing to File Accounting 196 8. Set-Offs 197
E. Damages 198 1. Compensatory Damage Components 198 2. Interest 200 3. Attorneys' Fees and Costs of Bond Recovery 4. Punitive, Statutory and Treble Damages 202
F. The Surety's Rights to Recovery of Claim Payments and Other Expenses 204 1. Equitable Subrogation 204 2. Recovery Rights Derived by State Law 206 3. Indemnity Agreements 206 4. Principal's Defenses to Indemnity 207
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The Law of Commercial Surety and Miscellaneous Bonds
CHAPTER 5 BANKRUPTCY BONDS 209 Ellen M. Cavallaro Chad L. Schexnayder 209 I. Introduction 209 II. Bankruptcy Trustee Bond 209
A. The Bankruptcy Trustee 210 B. Standard of Liability for the Trustee 213 C. Statute of Limitations 215
III. Receivership Bonds IV. Special Rights of Subrogation Available to the Surety 219 V. Conclusion 220
CHAPTER 6 PUBLIC OFFICIAL BONDS 221 James A. Knox, Jr., Carozza, Jr. and RalphJ.Kooy 221 I. Introduction 221 II. A Public Official Bond is Statutory 222 III. Standing 224 IV. The Surety is Not Liable Unless the Principal is Liable 226
A. The Principal's Defenses 226 B. Suretyship Defenses 229
V. Faithful Performance 229 A. Accounting for Public Funds B. Overpayment of Salary 234 C. Collection of Funds 236 D. Other Duties 236
VI. Special Issues 237 A. Multiple Offices 237 B. Vicarious Liability 238 C. Immunity 240 D. Color Office 244
VII. Damages 248 A. Actual Damages 248 B. Interest 249 C. Fines and Punitive Damages 250 D. Attorney and Audit Fees 250 E. The Penal Sum 250 F. Stacking 252
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VIII. Duration of Exposure 255 A. Defaults Before and After the Bonded Term 255 B. Statutes of Limitations 256
IX. Rescission 257 X. Subrogation and Indemnity 258 XI. Conclusion 259
CHAPTER 7 RECLAMATION BONDS 261 William T. Gorton III George W. Thompson and W. Blaine Early, III I. Introduction to Reclamation Bonds 261
A. The Nature of the Industry 261 B. Underwriting Reclamation Bonds 264
II. Mining Program Financial Assurances Requirements 266 A. Coal Industry - The Surface Control and
Reclamation Act 267 B. Hardrock Industry (Federal Land) - Federal Land
Policy and Management Act 269 C. National Forest Lands 270
III. Suretyship in an Environmental and Administrative Law Framework 272 A. Suretyship is a Three-Party Relationship 273 B. Parties the Relationship 274
IV. Bond Releases 275 V. Principal Default: Bond Forfeiture 277 VI. Appeals of Administrative Actions 278 VII. Surety Performance 278 VIII. Traditional Financial Assurances Did Not Contemplate
Long Term Pollution 280 A. Bonding Water Quality 280 B. Long Term Water Pollution Treatment Trusts 282
CHAPTER 8 COMMERCIAL BAIL BONDS 285 L. Jay Labe and Jerry Watson I. Introduction 285 II. Background 287
A. Bail's Purpose 287
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B. How Bail Works 289 III. Agreements Critical to the Process 289
A. The Bail Bond 289 B. The Power of Attorney 290 C. The General Qualifying Power of Attorney 290 D. The Bail Application 290 E. The Indemnity Agreement 291 F. The Surety and Agent Agreement 291
IV. The Regulatory Framework 292 V. Nuts & Bolts 294
A. Setting Bail 294 B. Underwriting 296
1. Risk Analysis 297 2. Risk Control 298
C. Forfeiture 299 D. Revocation 302 E. Exoneration and Discharge 304 F. Remission 306 G. Recovery 309
VI. The Administration of Justice and Economic Benefits of Commercial Bail A. The Impact of Secured Release on the Administration
of Justice B. Positive Economic Impact
1. Insurance Premium Taxes 316 2. Forfeitures 316 3. Savings from Higher Appearance Rates 316 4. The "Uncalculated Cost" of Recidivism 316
VII. Conclusion 317
CHAPTER 9 LICENSE AND PERMIT BONDS 321 Patrick Q. Hustead and Matthew L. I. Motor Vehicle Dealers, Slaughterhouses and Shooting
Gallery Operators 321 II. Bond Coverage 323 III. Not as Simple as They Seem 324
A. The Extent of Recovery on a Bond 324 B. The "Loss Suffered" May Know No Bounds 327
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C. Extra-Territorial Application of License and Permit Bonds33 IV. Conclusion 333
CHAPTER 10 LIEN DISCHARGE BONDS 335
Jonathan J. Dunn and Gregory L. Daily I. Introduction 335 II. Nature and Purpose of Mechanics' Lien Discharge
Bonds 337 A. Bond Serves as Substitute Security for Property B. Any Interested Person May Provide the Lien
Discharge Bond 343 C. Unless Owner Is Principal on Bond or Privity Exists,
Owner Is to Be Dismissed 344 D. Effect of Posting Bond Prior to or Post Litigation 344
III. Scope of the Surety's Liability 345 IV. The Surety's Defenses 346
A. Defects in Lien Claim 346 Failure to Meet Standing Requirements of Lien
Statute 348 2. Failure to Meet Notice Requirements of Lien
Statute 349 3. Failure to Perfect the Lien Claim 351 4. Failure to Maintain Licensing Requirements 352
B. Substantive Defenses 353 C. Statute of Limitations 354
Bond Provided Prior to Suit 355 2. Bond Provided After Suit Commenced 356
D. Waiver or Release of Lien Claim 357 E. Suretyship Defenses 358 F. Penal Sum as Limit of Surety's Liability 359
V. Subrogation, Contribution, and the Competing Obligations of Lien Discharge and Payment Bond Sureties 359 A. Subrogation 360 B. Contribution and Sub-Suretyship 361 C. Lien Discharge Bond vs. Payment Bond 362
VI. Conclusion 365
The Law of Commercial Surety and Miscellaneous Bonds
CHAPTER 11 FRINGE BENEFIT BONDS 367 David C. Olson, Amanda J. Albrecht and Paul F. Haffner I. Introduction 367 II. Fringe Benefit Bonds - Generally 367
A. Overview 367 B. Typical Provisions 368
III. Payment Bonds as Fringe Benefit Bonds 370 A. Federal Public Works Projects - Miller Act
Payment Bonds 370 B. State Public Works Projects - "Little Miller Act"
Payment Bonds 372 C. Private Payment Bonds 374
IV. Issues Affecting the Surety's Liability 376 A. Bond Claimant's Standing 376 B. Scope of Bond Coverage 379 C. Cancellation and Expiration of the Bond 382 D. Notice to the Surety 384
V. When Both a Fringe Benefit Bond and a General Payment Bond May Provide Coverage 385 A. Cosuretyship 386 B. Subsuretyship 387 C. Which Doctrine (Cosuretyship or Subsuretyship)
Applies to the Co-Existing Fringe Benefit Bond-Payment Bond Situation? 388
VI. The ERISA Preemption Defense 392 VII. Conclusion 400
CHAPTER 12 CUSTOMS BONDS, CLAIMS AND LITIGATION 401 James A. Carpenter, T. Scott and Ann T. Hester I. Introduction 401 II. Customs Bonds 403
A. Liquidation of Entries and Filing of a Protest 404 B. The Court of International Trade and Jurisdiction 406 C. Customs Bonds and the Shrimp, Crawfish and
Honey Wars 407
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D. The CDSOA and Customs Bond Sureties E. Surety Defenses and Customs Bonds
III. Liquidated Damage Claims 414 A. Mitigation of Amount Demanded in Form A B. Billing Notices the Surety C. Offer in Compromise or Untimely Petition of
Amount Demanded in Form 6084 419 D. Pre-Show Cause Letters 420 E. Show Cause Letters 420
IV. Increased Duty Claims 421 A. Protests of Duty Claims 422 B. Delinquent Duty Claims 424
V. Conclusion 425
CHAPTER 13 ALCOHOL, TOBACCO AND BONDS, AN UNLIKELY COCKTAIL: FEDERAL EXCISE BONDS 427 Robert A. McCall and Timothy M. Pomarole I. Introduction 427 II. Taxable Goods and Types of Excise Bonds 428 III. Features of Internal Revenue Excise Bonds 430
A. Bond Provisions 430 B. Who Can Issue Bonds? 430 C. Approval of the TTB 430 D. Satisfaction of Bond Requirement by Deposit of
Securities E. Changes the Surety Bond Terms 431 F. Single Bonds for Multiple Premises or Tax
Liabilities 432 G. Increase in Bond Coverage 432 H. Superseding Bond 432 I. Surety's Relief from Bond Liability 433 J. Termination of Bonds 433 K. Subrogation 434
IV. Conclusion 434
The Law of Commercial Surety and Miscellaneous Bonds
CHAPTER 14 WORKER COMPENSATION BONDS 451 Greta A. McMorris and Lawrence Lerner I. Introduction 451 II. Self-Insurance Generally 451 III. Self-Insurance Surety Bonds 452
A. Parties 453 B. Penal Sum of the Bond 454 C. Tail Exposure Under the Bond 454 D. Claims Administration Under the Bond 456 E. Discharge or Termination of Liability Under the
Bond 457 F. Effect of Multiple Sureties 458 G. Effect of Other Forms of Replacement Security 459 H. Liability for Multiple Claims That Exceed the
Penal Sum of the Bond 459 I. Alleged Cumulative or Stacking Liability 460 J. Alleged Liability for Attorneys' Fees 461 K. The Surety's Subrogation Rights 461
IV. Conclusion 462
CHAPTER JUDICIAL BONDS 473
Edward J. Reilly and Jeffrey S. Price I. Introduction 473 II. Types of Judicial Bonds and the Federal Rules That |
Govern Them 473 A. Appeal Bonds 473
Cost Bond 474 2. Supersedeas Bond 479
B. Injunction Bond 485 C. Bonds for Remedies Provided by Fed. R. Civ.
64 490 1. Attachment 490 2. Replevin 492
State Law Most Often Governs Attachment and Replevin Bonds Requirements 492
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Enforcement of Judicial Bonds 493 A. Enforcement by Motion in the Underlying
Proceeding 495 B. Enforcement by an Independent Action 495
Scope of Liability 496 A. Terms of the Bond 496 B. Damages 497
1. Bond 498 2. Supersedeas Bond 498 3. Bond 499 4. Attachment Bonds and Replevin Bonds 500
V. Discharge of Judicial Bonds 501 A. Injunction, Attachment, and Replevin Bonds B. Supersedeas Bonds 502
Where Judgment Is Vacated, and the Appellee Must Again Prove Entitlement to Damages 502
2. Where Appellee Has Proven that Some Damages Are Due, and Remand Is to Determine Proper Quantum of Injury 504
3. Hybrid Situation 505 VI. Conclusion 507
CHAPTER 16 IN DOMESTIC LAW 509
Maura Z. Pelleteri and Robert G. Lavitt I. Introduction 509 II. Admiralty and Maritime Jurisdiction 510
A. In Rem Rights 512 1. Ranking of Liens
B. Quasi in Rem Attachment III. Suretyship in Admiralty
A. General Forms of Security 1. Special Bonds 2. Stipulations for Value and Letters of
Undertaking 3. General Bonds 520 4. Conventional Suretyship 520
B. Amount of 520 C. 522
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D. Arbitration Security 523 IV. The Application of Suretyship to the Admiralty Arena 523
A. Conventional Performance Guarantees Under Admiralty Law 523
B. Statutory Suretyship: Federal Suretyship Standards 524 C. The Limitation Act 524 D. Additional Statutory Passenger-Related Protections 526 E. Pollution Statutes 527 F. Other Federal Statutes 528
V. Conclusion 528
CHAPTER 17 LOST INSTRUMENT BONDS 529 Mark Pessolano, David C. Veis and Julia V. Lee I. Introduction 529 II. Lost Instrument Bonds Under the Uniform Commercial
Code and Other Statutory Bonds 530 III. The Roles of Principal, Surety and Obligee Under a Lost
Instrument Bond 532 A. Traditional Tripartite Bonds 532 B. Bonds Without a Principal 533
IV. The Amount of the Bond Penalty 535 A. Fixed Penalty Bonds 535 B. Open Penalty Bonds 535 C. "Fixing" the Bond Penalty 536
V. Notable Aspects of Lost Instrument Bond Underwriting 537 A. The Principal's Integrity and Financial
Responsibility and the Surety's Ability to Recoup Its Potential Bond Loss Pursuant to an Agreement of Indemnity 537
B. The Nature and Negotiability of the Instrument 538 C. Circumstances Surrounding the Loss 539 D. The Duration of the Surety's Exposure Under
Bond 539
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VI. Liability of a Surety in the Event of a Claim 540 A. Forgery or Fraud Relating to the Lost Instrument
Does Not Relieve the Surety of Liability 540 B. The Surety May Be Liable on a Lost
Bond Notwithstanding the Obligee's Mistake or Neglect 542
C. A Lost Bond Surety Is Not Liable to Third Parties * 545
VII. Conclusion 548
CHAPTER 18 NOTARY BONDS 549 Jay H. Kern and Douglass F. Wynne, Jr. I. What Is a Notary Bond? 549 II. What Bond Is Required? 549 III. How Are the Notary's Powers and Duties Known? 550 IV. What Is the Liability of the Notary and Surety? 552 V. Negligent Misconduct 553 VI. Willful Misconduct 557 VII. the Surety's Defenses? 559 VIII. What Damages Are Recoverable? 561 IX. Conclusion 562
CHAPTER 19 WAREHOUSE BONDS 565 Lindsay Erin Levin and William P. Pearce I. Introduction 565 II. United States Warehouse Act 566
A. Bond Requirements Under the United States Warehouse Act 567
B. Obligations of the Federally Licensed Warehouse Operator 568 1. Inspect, Grade and Weigh the Grain 568 2. Issue Warehouse Receipts 568 3. Commingling Products 569 4. Transferring of Agricultural Products 569 5. Provide Insurance 569 6. Reasonable Charges and Tariffs 570 7. Promptly Deliver Agricultural Products 570
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8. Exercise Reasonable Care 570 C. Federal Law Governs Bonds Issued Under the
United States Warehouse Act 570 D. The Liability of the Warehouse Bond Surety 573 E. Failure to Issue Warehouse Receipts 574
Conversion by Warehouse Operator; Breach of Quality and Quantity Obligations 574
2. Failure to Deliver 576 F. The Surety's Indemnity Rights 578
III. State Warehouse Statutes 579 A. Bonds Mandatory 580
Agricultural Products 580 B. Damage or Loss During Bond Period and Failure to
Deliver 583 C. Bond Insures Only the Faithful Performance of the
Warehouse Operator's Duties 585 Alcohol (Intoxicating Liquor) 587
2. Cotton 588 3. Oil 589 4. Personal Property 589 5. Tobacco 589
D. Bonds Optional 590 Agricultural Products 590
2. Alcohol (Intoxicating Liquor) 590 3. Personal Property 590
IV. U.S. Customs Bonded Warehouses 591 A. Classes of Customs Bonded Warehouses 592 B. Bond Requirements for Customs Bonded
Warehouses 594 C. The Liability of the Customs Bond Surety 596 D. The Customs Bond Surety's Indemnity Rights 599
V. Conclusion 599
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CHAPTER 20 THE COMMERCIAL SURETY'S COLLATERAL IN A
BANKRUPTCY CASE 601 George J. Bachrach, Michael A. Stover and Caryn I. Introduction 601 II. Underwriting the Principal and Obtaining the
Collateral 602 A. The Surety's Indemnity Agreement with Its
Principal 603 B. Acquiring the Collateral and the Collateral
Agreement 606 1. Letters of Credit as Collateral 606 2. Cash, Deposit Accounts Certificates of
Deposit as Collateral 3. Other Collateral (Real and Personal Property) 612
III. The Effect of the Principal's Bankruptcy Case on the Surety's Collateral 613 A. The Property of the Principal's (the Debtor's) Estate
(11 U.S.C. §541) 614 B. The Automatic U.S.C. § 362) 615 C. The Surety's Secured Claim U.S.C. § 506) 617 D. The Principal's (the Debtor's) Use of the Collateral
U.S.C. § 363) 618 E. The Principal's (the Debtor's) Plan of
Reorganization IV. The Surety's Right and Ability to Use the Surety's
Collateral After the Principal Files for Bankruptcy 622 A. Letters of Credit as the Surety's Collateral in
Bankruptcy 623 1. Nature and Purpose of Letters of Credit 623
Independence Principle - Letters of Credit and Their Proceeds Are Not Property of the Estate Under U.S.C. § 541 625
3. Letters of Credit and the Automatic Stay U.S.C. § 362) 627
B. The Principal's Property as the Surety's Collateral in Bankruptcy 630
C. The Surety's Use of the Surety's Collateral 630
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The Surety's Rights Under the Indemnity Agreement
2. The Surety's Rights Under the Collateral Agreement 631
3. What Happens If the Agreement is Silent? 632 V. Obligee and Third Party Claims Against the Commercial
Surety Bonds as They Affect the Surety's Use of the Collateral 632 A. The Nature of the Claimants and the Types of
Bonds 633 B. The Surety's Claims Handling 634
Investigation, Notice to the Principal and the Principal's Input on the Claim 635
2. The Surety's Right to Settle the Claim 635 3. The Effect on the Surety's Right to Use the
Collateral Upon Settlement of the Claim 636 C. The Principal's Attempts to Set a Surety Claims Bar
Date against the Commercial Surety's Bonds to Obtain a Release and Return of the Collateral 636
VI. Maintaining and Preserving the Surety's Collateral for Future Claims 641 A. The Surety's Actions to Avoid Future Claims
to Preserve the Surety's Rights against the Surety's Collateral 642 1. The Surety's Proof of Claim 642 2. The Surety's Cancellation of the Commercial
Surety Bonds 643 3. The Surety Claims Bar Date 645
B. The Actions Under the Bankruptcy Code to Obtain a Release and Return of the Surety's Collateral to the Bankruptcy Estate 645
Letters of Credit and Turnover Powers Under U.S.C. § 542 646
2. Letters of Credit and Preference Avoidance Powers Under U.S.C. § 547 648
3. Letters of Credit and Post-Petition Transfer Powers Under U.S.C. § 549 655
4. Post-Petition Effect of the Surety's Security Interest Under U.S.C. § 552 657
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C. What Else May Happen to the Surety's Collateral in the Principal's Bankruptcy Case? 658
The Surety's Collateral is Protected Under U.S.C. § 506(d) to the Extent of the Surety's
Lien Even the Surety's Claim Is Disallowed as a Contingent Claim for Reimbursement Under
U.S.C. § 502(e) 659 2. Excess Proceeds from a Letter of Credit 661
VII. Summary and Conclusions 663
