A Bond is an agreement to make a payment of money by a certain date or upon request.
Surety Bonds - Are used in situations when an individual or organization wants a guarantee
of indemnity, if a second party fails to perform a specified act or fulfil an obligation.
There are three parties to a surety bond.
- The Principal is the party who buys the bond and who agrees to perform certain obligations.
- The Obligee is the party who is reimbursed for damages because of the failure of the Principal to uphold the agreement.
- The Surety is the party who agrees to indemnify the Obligee for damages because of the Principal's failure to uphold the agreement.
The indemnity can be in the form of cash or the fulfillment of the Principal's obligation.
- A Principal who defaults on a Bond is liable to the Surety to the extent of any expenditures the Surety incurs. The Surety can require the Principal to post collateral to repay the Surety if the Principal defaults.
- Surety underwriters in strict manner - to determine whether the Principal is capable of meeting obligations - scrutinize - financial resources, of Principal and Principal's character and ability to perform.
- The coverage period under most Surety Bonds is indefinite.
- A Surety Bond is written for a dollar-limit and that is the maximum amount of the Surety's obligation to the Obligee.
Types of Surety Bonds:-
Contract Bonds:- Guarantees that Principal will fulfil a commitment according to the provisions of a contract.
Bid Bonds:- (Tender Bonds) Guarantees that the party who makes a bid will enter into a contract to perform if the Bid is accepted. They will also furnish any other Bonds that are under the contract.
Performance Bonds:- (Contractors/Construction Bond) (Suppliers/Supply Contract Bond). These Bonds guarantee that the Principal will perform work or deliver goods and material according to contract provisions.
Custom Bonds:- Bonded Goods - Goods on which duty has not been paid, held in bnd either by Customs or in a bonded warehouse.
- Temporary Importation Bonds
- Exportation Bonds
- Security of Duty on Goods Warehoused
- Provisional Entry Bond
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