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Surety Bond Definitions


Advance payment bond: Guarantees repayment by the principal of moneys advanced in connection with a construction or supply bond or other type of contract.

Bid bond: A bond given by a bidder on a contract; it guarantees that the bidder, should they be selected, will enter into the contract and furnish the prescribed performance bond.

Blue sky bonds: Bonds required of securities dealers to prohibit the sale of worthless securities.

Concessionaire bond: Bond required by principals operating a business venture on publicly owned or controlled property.

Court bonds: All bonds and undertakings required of participants in a lawsuit permitting them to pursue certain remedies in the courts.

Depository bonds: Bond that guarantees that the principal (a bank) will be able to repay amounts deposited by the obligee.

Fidelity bonds: A form of "honesty insurance" which protects an employer from the dishonest acts of its bonded employees. Although called a 'bond,' a fidelity bond is really an insurance policy and not a three party agreement like a surety bond.

Game of chance bond: Bond required by the states of New York and Florida which guarantees that an entity sponsoring a contest will award the related cash/prizes to the legitimate contest winners.

Indemnity agreement: Agreement required by the surety stating that, should a loss occur under a bond, the principal will hold the surety harmless from any loss or expense it may sustain as a result of the loss.

Labor and material bond: A bond given by a contractor to guarantee payment for the labor and material used in the work, which he or she is obligated to perform under the contract.

License and permit bonds: Bonds required to ensure the licensee will conform to the laws or ordinances related to the business in which they are engaged.

Lost instrument bond: Bond that guarantees against damages caused by reissuing a lost instrument or security.

Maintenance bond: Provides a guarantee against defective workmanship or materials.

Mechanics lien — bond to discharge: A lien against real estate may be filed for an amount claimed to be due for labor or materials furnished for the construction of a building or other improvement upon property. Pending final determination of the owner's liability, the owner may discharge the lien by giving this bond conditioned for the payment of any amount that may be found due to claimant with interest and costs.

Obligee: The obligee is the entity (person, firm, corporation, government) protected by the surety bond against loss. The surety bond 'runs to' the obligee and the obligee has the ability to set the language of the surety bond.

Performance bond: A three party agreement, which guarantees faithful performance of the terms of a written contract. (Performance bonds frequently incorporate Labor and Material and Maintenance liability.)

Public official bonds: Bonds that guarantee the faithful performance of a wide variety of public officials. (Notary bonds, for example.)

Principal: The principal is the entity obligated, with the surety, to the obligee.

Probate bond: Bond that guarantees an honest accounting and faithful performance of duties by administrators, trustees, guardians, executors, and other fiduciaries.

Reclamation bond: Bond that guarantees that the principal will reclaim land disturbed by mining operations.

Street opening/encroachment bonds: Bond required of a principal that has a permit to cut into a public sidewalk or road. The bond guarantees that the principal will comply with the conditions of the permit.

Subcontract bond: Bond required by a general contractor of a subcontractor, guaranteeing that the subcontractor will faithfully perform the subcontract in accordance with its terms and will pay for labor and material incurred in the prosecution of the subcontracted work.

Subdivision/site bonds: Many municipalities provide by ordinance that a developer who undertakes to develop a housing or industrial subdivision shall give bond with surety to guarantee that, within a specified time, improvements on the property, such as streets, sidewalks, curbs, gutters, and sewers will be constructed.

Supply bond: Bond that guarantees faithful performance of a contract to furnish supplies or materials.

Surety: The surety is the entity obligated, with the principal, to the obligee. In the event of a default on the part of the principal, the surety is required to perform the terms of the contract between the principal and obligee.

Tax bond: Bond that guarantees that the principal will pay taxes (fuel, sales tax, etc.).

Utility bond: Bond that guarantees that the principal will pay utility bills as they come due.