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Home > Surety Bond - What is a Surety Bond?

Surety Bonds

 

What Is A Surety Bond?


A surety bond is a written promise to pay damages or to indemnify against losses caused by the party or parties named in the document through nonperformance or defalcation.

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

· The oblige – The entity or party who is the recipient of an obligation, entity who is requiring the bond.
· The principal – The applicant or primary party who will be performing the contractual obligation.
· The surety – Is the surety company who assures the oblige that the principal can perform the task.


Through as Surety bond, the surety agrees to uphold — for the benefit of the oblige — the contractual promises (obligations) made by the principal if the principal fails to uphold its promises to the oblige. The contract is formed so as to induce the oblige 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.

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.

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.

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.

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.

 

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History of a Surety Bond


Individual Surety Bonds are the original form of suretyship. The earliest known record of a contract of suretyship is a Mesopotamian tablet written around 2750 BC. There is evidence of Individual Surety Bonds in the Code of Hammurabi and in Babylon, Persia, Assyria, Rome, Carthage, the ancient Hebrews and later England.

The Code of Hammurabi, written around 1790 BC, was the first time suretyship was addressed in a written legal code. It wasn’t until 1837 that the first Corporate Surety was organized, The Guarantee Society of London.

In 1865, the Fidelity Insurance Company became the first US Corporate Surety company.

COMMERCIAL BONDS

Auto Dealer Bond
Auto Title Bond
Mixed Beverage Bond
Medicare DEMOS Bond
License & Permit Bond
Sales Tax Bond
Notary Public Bond
BMC-84 – Freight Broker Bond
All Commercial Bond

CONSTRUCTION BONDS

Bid Bond
Maintenance Bond
Payment Bond
Performance Bond
Subdivision Bond
All Construction Bond

COURT BONDS

Appeal Bond
Custodian Bond
Estate Bond
Executor Bond
Guardianship Bond
Probate Bond
Notary Public Bond
All Court Bond

FIDELITY BONDS

Fidelity Bond
Business Service Bond
Erisa
Conduct Bond
Tax Preparer Bond
Janitorial Bond

CONTACT US

ABC Bonding of Texas
8811 Westheimer Ste 207
Houston, TX 77063


Office Hours: 9:00 am to 5:00 pm
Phone: 800-374-9227
Local: 713-785-2138
Fax: 713-785-2711
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