Tuesday, July 2, 2013

What is a Bond Party?

Well, let me first tell you what is NOT a bond party.  Or at least what is NOT a bond party in the surety bond industry.  It’s not a gathering of people who dress up like a famous English spy, such as those found here: www.bondparties.com and here: http://pinterest.com/agoonie/james-bond-party/ and here: http://www.beenviedentertaining.com/james-bond-party.


Although sometimes I wish we were more like that.


Instead, our stealthiness is limited to a contract.  You see, a surety bond is a contract among at least three parties:


  1. The obligee - the party who is the recipient of an obligation,

  2. The principal - the primary party who will be performing the contractual obligation, and

  3. The surety - who assures the obligee that the principal can perform the task

So, there are typically three entities that are considered a Bond Party: the Obligee, the Principal, and the Surety.


The surety pays out compensation to the limit of its guarantee in the event of the default of the Principal to uphold his obligations to the Obligee.


Through a surety bond, the surety agrees to uphold — for the benefit of the obligee — the contractual promises (obligations) made by the principal if the principal fails to uphold its promises to the obligee. The surety bond contract is formed so as to induce the obligee to contract with the principal.  That is, it reduces the risk of the Obligee in case the Principal is unable to perform per the terms of the agreement.


The principal pays a premium (usually annually) in exchange for the bonding company’s financial strength to extend credit in the form of a surety bond. In the event of a claim, the surety investigates and, if it turns out to be a valid claim, the surety pays it and then turns to the principal for reimbursement of the amount paid on the claim and any legal fees incurred.


What is a Bond Party?

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