guarantees a specific obligation will be fulfilled. 3 party contract involving a principal, obligee, and surety
Principal or Obligor
Person who is supposed to do something by obligation. Must apply and pay for the bond.
Person for whom work is to be done. Protected by the bond for actual loss or damages up to the bond limit.
Bond limit. Monetary amount the surety is liable for in a bond agreement. Surety is liable for payment up to the penalty amount
The insurance company issuing the bond. Guarantees work will be done or the obligee will be indemnified for their loss.
Used in construction to guarantee the principal (contractor) will perform on the contract.
License and Permit Bonds
Occupational Bonds. Guarantee the licensee (obligor) will be able to pay the government body or a third party suffering loss (obligee) for a violation of terms of a license or permit. Required by Electricians, plumbers, loan companies, etc.
Used in court proceedings. Guarantees payment of a verdict while an appeal is considered.