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Encyclopedia > Surety bond

A surety bond is a contract among at least three parties: Image File history File links Gnome-globe. ... A contract is a legally binding exchange of promises or agreement between parties that the law will enforce. ...

  • The principal - the primary party who will be performing a contractual obligation
  • The obligee - the party who is the recipient of the obligation, and
  • The surety - who ensures that the principal's obligations will be performed.

Through this agreement, the surety agrees to uphold - for the benefit of the obligee - the contractual promises (obligations) made by the principal if the principal fails to uphold its promises to the obligee. The contract is formed so as to induce the obligee to contract with the principal, i.e., to demonstrate the credibility of the principal and guarantee performance and completion per the terms of the agreement. A surety is a person who agrees to be responsible for the debt or obligation of another. ...


There are two main categories of bond types: contract bonds and commercial bonds. Contract bonds guarantee a specific contract. Examples include performance, bid, supply, maintenance and subdivision bonds. Commercial bonds guarantee per the terms of the bond form. Examples include license & permit, union bonds, etc.


Suretyship bonds originated hundreds of years ago as a mechanism through which trade over long distance could be encouraged. They are frequently used in the construction industry: in order to obtain a contract to build the project, the general contractor (and often the sub-contractors as well) must provide the owner a bond for its performance of the terms of the contract. Conversely, owners and contractors may also provide payment bonds to ensure that subcontractors and suppliers are paid for work done. Under the Miller Act, payment and performance bonds are required for general contractors on all U.S. federal government construction projects where the contract price exceeds $100,000.00. This article does not cite any references or sources. ...


Surety bonds are also used in other situations, for example, to secure the proper performance of fiduciary duties by persons in positions of private or public trust. The court of chancery, which governed fiduciary relations prior to the Judicature Acts The fiduciary duty is a legal relationship between two or more parties, most commonly a fiduciary or trustee and a principal or beneficiary, that in English common law is arguably the most important concept within the portion...


A key term in nearly every surety bond is the penal sum. This is a specified amount of money which is the maximum amount that the surety will be required to pay in the event of the principal's default. This allows the surety to assess the risk involved in giving the bond; the premium charged is determined accordingly. Look up premium in Wiktionary, the free dictionary A Premium may refer to: Premium rate telephone number, the UK Premium Bond Premium outlet Risk premium, in finance, the monetary difference between the guaranteed return and the possible return on an investment This is a disambiguation page — a navigational aid which...


If the principal defaults and the surety turns out to be insolvent, the purpose of the bond is rendered nugatory. Thus, the surety on a bond is usually an insurance company whose solvency is verified by private audit, governmental regulation, or both. Insolvency is a financial condition experienced by a person or business entity when their assets no longer exceed their liabilities (commonly referred to as balance-sheet insolvency) or when the person or entity can no longer meet its debt obligations when they come due (commonly referred to as cash-flow... Insurance is a system to alleviate financial losses by transferring risk of loss from one entity to another. ...


The principal will pay a premium (usually annually) in exchange for the bonding company's financial strength to extend surety credit. In the event of a claim, the surety will investigate it. If it turns out to be a valid claim, the surety will pay it and then turn to the principal for reimbursement of the amount paid on the claim and any legal fees incurred.


A bail bond is a type of surety bond used to secure the release from custody of a person charged with a criminal offense. Under such a contract, the principal is the accused, the obligee is the government, and the surety is the bail bondsman. This article or section does not cite its references or sources. ...

Contents

Examples

Examples of Surety Bonds:

Examples of fidelity bonds: A performance bond is a surety bond issued by an insurance company to guarantee satisfactory completion of a project by a contractor. ... A trial at the Old Bailey in London as drawn by Thomas Rowlandson and Augustus Pugin for Ackermanns Microcosm of London (1808-11). ... Customs is an authority or agency in a country responsible for collecting customs duties and for controlling the flow of animals and goods (including personal effects and hazardous items) in and out of a country. ... For security (collateral), the legal right given to a creditor by a borrower, see security interest A security is a fungible, negotiable instrument representing financial value. ... A mortgage broker acts as an intermediary who sources mortgage loans on behalf of individuals or businesses. ... Probate is the legal process of settling the estate of a deceased person; specifically, resolving all claims and distributing the decedents property. ... An official is, in the primary sense, someone who holds an office in an organisation, of any kind. ... Telemarketing office Telemarketing is a method of direct marketing in which a salesperson uses the telephone to solicit prospective customers to buy products or services. ... A trade union or labor union is an organization of workers. ... Workers compensation programs and laws exist to protect employees who are injured while on the job. ... Land reclamation is either of two distinct practices. ... A fidelity bond is a form of protection that covers policyholders for losses that they incur as a result of fraudulent acts by specified individuals. ...

The following, taken from http://www. ... An official is, in the primary sense, someone who holds an office in an organisation, of any kind. ... In financial economics, a financial institution acts as an agent that provides financial services for its clients. ...

License and permit bond

License and permit bonds are a general class of surety bonds required of a person or entity to obtain a license or a permit in any city, county, or state. These bonds guarantee whatever the underlying statute, state law, municipal ordinance, or regulation requires. They may be required for a number of reasons, for example the payment of certain taxes and fees and providing consumer protection may be required as a condition to granting licenses related to selling real estate or motor vehicles and contracting services. To licence or grant licence is to give permission. ... Two ships of the United States Navy have borne the name USS Permit, named in honor of the permit, a food fish, often called round pompano, found in waters from North Carolina to Brazil. ... The Statute of Grand Duchy of Lithuania A statute is a formal, written law of a country or state, written and enacted by its legislative authority, perhaps to then be ratified by the highest executive in the government, and finally published. ... State law, in the United States, is the law of each separate U.S. state, as passed by the state legislature and signed into law by the state governor. ... “Taxes” redirects here. ... Real estate is a legal term that encompasses land along with anything permanently affixed to the land, such as buildings. ...


See also

The act of cosigning is to agree to pay another persons debts if they fail to do so. ... Fidelity Bond A form of protection that covers policyholders for losses that they incur as a result of fraudulent acts by specified individuals. ... The court of chancery, which governed fiduciary relations prior to the Judicature Acts The fiduciary duty is a legal relationship between two or more parties, most commonly a fiduciary or trustee and a principal or beneficiary, that in English common law is arguably the most important concept within the portion... Look up Indemnity in Wiktionary, the free dictionary. ... Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss. ... A performance bond is a surety bond issued by an insurance company to guarantee satisfactory completion of a project by a contractor. ... Submittals in Construction Management are shop drawings, material data, and samples. ... A shop drawing is a drawing or set of drawings produced by the contractor, supplier, manufacturer, subcontractor, or fabricator. ... A testator is a person who has made a legally binding will or testament, which specifies what is to be done with that persons penis family and/or property after death. ...

External links

  • Circular T-570 - List of federally licensed bonding companies approved by the US Treasury.
  • Bonds, And I'm Not Talking Barry - An article highlighting general suretyship types and categories for surety bond novices.
  • Understanding Surety Bonds - An in depth look at what surety bonds do and how they work.

  Results from FactBites:
 
How Surety Bonds Work (3574 words)
Thus if the surety asserts a defense based on representations by the indemnitors or the principals, and the defense ultimately is found to have been frivolous, the indemnitors would be required to reimburse the surety for any damages or sanctions sustained by the surety.
When the surety is advised of a claim or possible claim, the surety may establish a “reserve”-which is an account or fund with a sum sufficient to pay the estimated extent of the possible claim.
A surety has the right to defend itself by asserting all the defenses of its principal (e.g., the principal was actually not in default; was prevented from performing by defective specifications; or was not given contractually required cure notices, etc.), as well as asserting any defenses the surety may have under its performance bond.
Construction Surety Bonds in Plain English (3430 words)
A surety bond is a guarantee, in which the surety guarantees that the contractor, called the “principal” in the bond, will perform the “obligation” stated in the bond.
Bonds frequently state, as a “condition,” that if the principal fully performs the stated obligation, then the bond is void; otherwise the bond remains in full force and effect.
The owner is the obligee of a performance bond, and may sue the principal and the surety on the bond.
  More results at FactBites »

 
 

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