Legal Definitions - collateral act

A collateral act refers to a specific action or performance that a person or entity promises to undertake (or refrain from undertaking), and for which a financial guarantee, such as a bond or recognizance, is provided as security. This guarantee ensures that if the promised act is not completed as agreed, the security can be forfeited. It typically involves the performance of an action rather than a direct payment of money.

Here are some examples to illustrate this concept:

• Construction Project Completion: Imagine a city government hires a construction company to build a new public park. The contract specifies that the park must be completed and ready for use by a certain date. To ensure this, the construction company provides a performance bond to the city.

  • How it illustrates the term: The act of completing the park by the deadline and to the agreed-upon specifications is the collateral act. The performance bond serves as the security. If the company fails to complete the park on time or to the required standard, the city can claim the bond to cover the costs of hiring another contractor or remedying the defects.

• Environmental Restoration: A mining company receives a permit to extract minerals from a site, but a condition of the permit is that they must restore the land to its original ecological state after mining operations cease. The environmental regulatory agency requires the company to post a reclamation bond.

  • How it illustrates the term: The future act of reclaiming and restoring the mined land is the collateral act. The reclamation bond acts as the security. If the company abandons the site without proper restoration, the regulatory agency can use the bond money to fund the necessary cleanup and restoration efforts itself.

• Court Appearance: When a person is released from custody pending trial, they might be required to sign a recognizance, which is a formal promise made to the court. This promise often includes appearing at all future court dates until their case is resolved.

  • How it illustrates the term: The act of appearing in court on all scheduled dates is the collateral act. The signed recognizance serves as the security. If the person fails to appear, they breach their recognizance, which can lead to the forfeiture of any associated bail money or property, and a warrant for their arrest.