What is a Bond

A surety bond or surety is a promise to pay one party (the obligee) a certain amount if a second party (the principal) fails to meet some obligation, such as fulfilling the terms of a contract.  The surety bond protects the obligee against losses resulting from the principal's failure to meet the obligation

A surety bond is defined as a contract among at least three parties:

• the obligee - the party who is the recipient of an obligation

• the principal - the primary party who will perform the contractual obligation

• the surety - who assures the obligee that the principal can perform the task

• Contract surety bonds

  Contract bonds, used heavily in the construction industry by general contractors as a part of construction law, are a guaranty from a Surety to a project's owner (Obligee) that a general contractor (Principal) will adhere to the provisions of a contract.[9] The Associated General Contractors of America, a United States trade association, provides some information for their members on these bonds. Contract bonds are not the same thing as contractor's license bonds, which may be required as part of a license.

• Commercial surety bonds

  Commercial bonds represent the broad range of bond types that do not fit the classification of contract. They are generally divided into four sub-types: license and permit, court, public official, and miscellaneous

• License and permit bonds

  License and permit bonds are required by certain federal, state, or municipal governments as prerequisites to receiving a license or permit to engage in certain business activities. These bonds function as a guaranty from a Surety to a government and its constituents (Obligee) that a company (Principal) will comply with an underlying statute, state law, municipal ordinance, or regulation

• Court bonds

  Court bonds are those bonds prescribed by statute and relate to the courts. They are further broken down into judicial bonds and fiduciary bonds. Judicial bonds arise out of litigation and are posted by parties seeking court remedies or defending against legal actions seeking court remedies. Fiduciary, or probate, bonds are filed in probate courts and courts that exercise equitable jurisdiction; they guaranty that persons whom such courts have entrusted with the care of others’ property will perform their specified duties faithfully.

• Public official bonds

  Public official bonds guaranty the honesty and faithful performance of those people who are elected or appointed to positions of public trust. Examples of officials sometimes requiring bonds include: notaries public, treasurers, commissioners, judges, town clerks, law enforcement officers, and Credit Union volunteers.

• Miscellaneous bonds

  Miscellaneous bonds are those that do not fit well under the other commercial surety bond classifications. They often support private relationships and unique business needs. Examples of significant miscellaneous bonds include: lost securities bonds, hazardous waste removal bonds, credit enhancement financial guaranty bonds, self–insured workers compensation guaranty bonds, and wage and welfare/fringe benefit (Union) bonds.

• Fidelity bonds

  Fidelity bonds, also known as employee dishonesty coverage, cover theft of an employer's property by its own employees. Though referred to as bonds, fidelity coverage functions as a traditional insurance policy rather than a surety bond.