Glossary
PLEASE NOTE:
The Terms & Definitions provided herein are for informational purposes
ONLY and is not intended to serve as legal advice and is no substitute
for consulting legal counsel.
ADMINISTRATOR (ADMINISTRATRIX)
One appointed to handle the affairs of a person who has died
intestate; one who manages the estate of a deceased person
who left no executor; "an instrumentality established
by law for performing the acts necessary for the transfer
of the effects left by the deceased to those who succeed to
their ownership." If decedent dies with a will, an executor
carries it out.
ADMINISTRATION BOND
A bond which is furnished by the administrator
of an estate. It guarantees that the estate will be settled
in accordance with the law. It guarantees the fidelity
of the executor or administrator.
ADMINISTRATOR CUM TESTAMENTO ANNEXO (C.T.A.)
Appointed by the court when there is a will and the named
executor, and alternate executors decline or are unable to
act. This individual acts as a substituted executor, and carries
the duties and responsibilities set forth in the will.
ADMIRALTY BOND
Admiralty refers to a body of law peculiar to United States
Admiralty Courts which have jurisdiction over maritime causes
or controversies arising out of acts done upon or relating
to the sea. The initial complaint in admiralty is known as
a libel, and the party filing same is called the libelant.
The action can be against a person - "in personam",
or against the vessel itself - "in rem". The libelant
may institute a proceeding that is basically the same as an
attachment proceeding and have the U.S. Marshall seize the
vessel as security for the claim. When a vessel is seized,
it is said to have been "libeled" by the libelant
who may be required to post a bond with essentially the same
guarantees as a standard attachment bond. The release of a
libeled vessel can be accomplished by the filing of a counter
bond by the vessel's owner.
ADVANCE PAYMENT OF COMMISSION BOND
A bond posted to guarantee that the administrator or executor of an estate
would repay or liquidate any money advanced to it in case
the court deems the monetary privileges provided to the executor
was improper.
ALCOHOL BOND
These bonds are required where alcohol is used for purposes
instead of alcoholic beverages for personal consumption. The
bonds basically guarantee compliance with governing regulations
and the filing of all necessary reports including proof of
use in accordance with the permit. The bonds also cover any
special tax levies and substantial penalties if the alcohol
is diverted for beverage purposes.
ALCOHOLIC BEVERAGES, BEER & LIQUOR BOND
There is great variation from one jurisdiction
to the next in the laws applicable to those dealing in alcoholic
or intoxicating beverages. In all states, except where beer
or liquor is sold by state stores, dealers are licensed. Bonds
may be required to simply guarantee compliance with the law
and can be written for reputable dealers. In other jurisdictions,
the bonds may also guarantee the payment of taxes on beverages
sold which makes the bond a good faith and credit guarantee.
In still other jurisdictions, the bond guarantees fines or
contains forfeiture provisions making the entire penal sum
payable if the dealer is convicted of any violations of the
law.
APPEAL BOND
When a judgment or decree has been rendered in one court and
the losing party wishes to take an appeal to a higher court,
he or she ordinarily must give an appeal bond. The giving
of this bond usually prevents the successful party in the
lower court from executing on the judgment. Therefore, the
appeal bond generally supersedes or takes the place of the
judgment. The bond guarantees that the appeal will be prosecuted
without unnecessary delay, and if the judgment is affirmed
by the Appellate Court, that the principal will satisfy the
judgment with interest and costs.
ASSIGNEE BOND
A bond appointing a person for the benefit of creditors by
an insolvent debtor to liquidate the debtor’s assets
and make distribution to creditors.
ATTACHMENT BOND - DEFENDANT'S BOND TO DISCHARGE OR RELEASE
When an attachment has been issued, a defendant may discharge
the attachment by giving the bond conditioned for the payment
of any judgment that may be rendered against him/her in the
action, with interest and costs.
ATTACHMENT BOND - PLAINTIFF'S
Attachment is taking a defendant's property into custody by
a summary process from the court in advance of the trial on
the merits of the case. It is taken as security for the payment
of any judgment that may be recovered by the plaintiff in
the action. Attachment is allowed only where the plaintiff
alleges a statutory ground for it (e.g. defendant is a nonresident
or is about to leave the jurisdiction or remove or conceal
his/her property). The bond, which the plaintiff is required
to furnish, provides for indemnity to the defendant against
loss or damage in case it is finally decided that a statutory
ground did not exist or the plaintiff fails to recover a judgment
against the defendant.
AUCTIONEER BOND
This bond guarantees that persons conducting auctions will
not make any misrepresentations and will faithfully account
for the goods and proceeds from the sale. The bonds can be
an ongoing or annual license bonds covering any and all auctions
during the license term or single permit bonds given in connection
with a specific auction. In either case, the risk is a good
faith and credit guarantee that can be written for reputable,
experienced and well-established dealers.
BENEFICIARY
One receiving (or designated to receive) benefit or advantage,
or one who is in receipt of benefits, profits or advantage.
The person named in a will to receive certain property is
a beneficiary under the will.
BID BOND
Bid bonds are a financial guarantee by the surety to the obligee, usually the project
owner, that the contrator will honor his bid price, enter into contract and supply the
required performance and payment bonds. The bid bond is usually 5 to 20% of the bid amount.
If the contractor fails to honor his bid or can not furnish the peformance or payment bonds, the
surety is liable for the difference between the first and second bidder up to the face amount of
the bond.
BOND
A written instrument with sureties guaranteeing faithful performance
of acts or duties contemplated.
BOND BACK
Occasionally the surety will as part of the underwriting
requirements require a contractor/bond principal to have one or more
of their sub-contractors provide performance and payment bonds to its
bond principal. Doing so can help the contrator quality for larger
jobs because having the sub bonded reduces the risk of financial hardship
if that sub fails to complete or pay its suppliers or crew. We call this "bonding
back the sub".
Bond Line
An indication based on current underwriting as to the single job size and
aggregate work load for which a contractor qualifies.
BROKER BOND
These bonds are generally good faith and credit obligations
guaranteeing the broker will not deceive or make any misrepresentations
to the customer and faithfully account for any funds deposited
with them by the customer. In some jurisdictions the bonds
also guarantee payment of premium taxes and money due insurance
companies. The bonds are for the most part regulatory/good
faith and credit obligations and there is no rule of thumb
regarding net worth. Broker bonds can be written for reputable
and experienced applicants with reasonable income and a comfortable
financial worth.
BUSINESS Financial Statement
The annual and semi-annual presentation prepared by a certified public accountant according
to specific accounting guidelines and in a specific format, which provides a snapshot of the financial
results of the contractor's company for the year then ending. This is the primary tool for underwriting and evaluating
the financial strength of the contractor and should be carefully prepared and include all the required information and schedules which tie into the
balance sheet and profit and loss statements.
CIGARETTE OR CIGAR TAX BOND
These bonds guarantee the payment of taxes collected by the
seller of cigarettes and cigars. This is a good faith and
credit guarantee. The taxes are collected on behalf of the
taxing authority by the seller at the point of sale to the
customer. As a general rule, tax money is not segregated by
the principal, but commingled with other cash belonging to
or in the hands of the principal. In addition, these bonds
often involve cumulative liability and audit/collection procedures
vary from state to state which increases the risk to sureties
providing bond coverage for several license periods or terms.
CLAIMANT
One who has asserted a claim under the bond.
COLLECTION AGENT BOND
These bonds fall within the category of both good faith as
well as credit and financial guarantees. Collection agents
handle money on behalf of others, and the bonds usually guarantee
faithful accounting for it. However, in many jurisdictions
the bonds also protect the public from undue harassment and
threats.
COMMERCIAL
CRIME POLICY
The Commercial Crime Policy can be purchased with a variety
of coverages, all protecting the business from criminal acts.
Examples include Employee Dishonesty, Forgery or Alteration,
Theft, Disappearance and Destruction, Robbery and Safe Burglary,
Premises Burglary, Computer Fraud, and Extortion.
Completion Bond
A simplified definition of a completion bond is that the surety guarantees that no matter what
happens to the bond principal the project will be completed by the surety even if the owner
runs out of money.
Contractor's License Bond
In some municipalities, contractors must post a bond to keep their licenses in force.
The bond is for the benefit of the public to compensate them for actual damage if the
contractor does not adhere to the Contractor’s License Laws.
CO-SURETYSHIP
This is a procedure or arrangement whereby two or more companies
jointly become sureties on a bond. Two or more sureties instead
of a single surety execute the bond, and the obligee has a
direct right of action against each surety. Co-suretyship
may be either limited or unlimited. It is unlimited if each
company signs the bond without any limitation upon the amount
of its liability, other than the penalty of the bond. In that
case, the sureties are jointly and severally liable and any
one of the co-sureties can be required to pay the total loss
so that if one or more companies should become insolvent,
the others would be liable for the entire loss. Co-surety
is limited when each of the sureties, by the term of the bond,
limits its liability to a specified amount. The aggregate
of the amounts to which the several companies bind themselves
make up the total suretyship required. Limited co-suretyship
is generally accepted on all bonds required by law and the
limited form is decidedly preferable to the sureties and is
more generally used.
CORPORATE SURETY
Usually an insurance company that has been qualified by the
state to issue surety bonds and undertakings.
COURT BOND
These bonds protect the opposing party from any loss he/she
might sustain in the event the final decision is not in favor
of the one filing the bond. Court bonds are subdivided into
those for plaintiffs and those for defendants.
COUNTER REPLEVIN BOND
These bonds may be employed by defendants to retain or regain
possession of property that has been replevied. They guarantee
that the property will be surrendered, to satisfy the final
judgment of the court, in the same condition as when recovered.
There is a real exposure under these bonds for safekeeping.
The property, in essence, becomes the property of the defendant
to deal with in any way it sees fit. Both the defendant and
the surety would be liable for any deterioration or outright
destruction of the property during the time of the court action.
CUM TESTAMENTO ANNEXO (C.T.A.)
It means that the testator made an incomplete Will, i.e.,
failed to name an executor/executrix; or the named executor/executrix
has waived the right to appointment; or for any reason the
named executor/executrix is unwilling or unable to serve in
such capacity.
DEFAULT
The failure of a principal to meet his/her obligations when due,
which gives rise immediately to the surety's obligation to
the obligee, provided there are no conditions precedent to
the surety's liability.
DEFENDANT BOND
These bonds are generally filed as counter bonds to release
property seized by plaintiffs; or in some cases, to postpone
enforcement of a court order pending further judicial proceedings
such as appeals. The former includes release or discharge
attachment or garnishment and counter replevin bonds, and
the latter includes appeal, supersedeas and stay of execution
bonds. In either case, defendant bonds guarantee the payment
of any final judgment entered by the trial or appellate court
in favor of the plaintiff and against the defendant.
DERIVATIVE SUIT
A civil lawsuit filed by shareholders on behalf of a corporation
asserting rights of the corporation in the absence of corporate
action to protect such rights; a suit by shareholders to enforce
corporate rights against directors or other insiders. The
standing of shareholders to sue is derived from the rights
of the corporation. This differs from a class action (or representative
suit), where a large group of plaintiffs (shareholders or
otherwise) bring suit in their own right.
DISBURSING AGENT BOND
A Bond posted by the disbursing agent appointed solely to
marshal the assets, liquidate and distribute to creditors
guaranteeing faithful execution.
DUAL OBLIGEE BOND
The surety's promise that the principal will faithfully perform
the contract; runs both to the owner and another, usually
a lending institution that is financing the construction.
EMPLOYMENT AGENCY BOND
These bonds generally guarantee compliance with rules governing
the conduct of this type of business, adherence to proper
commission schedules and refund of fees as required by law.
This is another good faith and credit guarantee where honesty,
integrity, experience, and modest worth relative to the amount
of bond coverage are the key underwriting criteria.
ENDORSEMENT
A form attached to the bond to add to, alter, or vary its
provisions. Sometimes called a rider.
ERISA
The Employee Retirement Income Security Act of 1974 requires
employers that have a pension or profit sharing plan to maintain
a bond equal to ten percent of the amount of the plan’s
asset. The bond insures that the trustees of the plan will
properly manage the assets.
ERRORS AND OMISSIONS COVERAGE / E&O
A professional liability policy covering the policyholder
for negligent acts and omissions that may harm his or her
clients.
ESCROW AGENT BOND
These bonds are often associated with the sale of real property
or timeshares. They generally provide protection to the general
public for damages resulting from fraud or misrepresentation,
and guarantee refund of any money held for safekeeping by
the escrow agent should the depositor be entitled to same.
Escrow agent bonds are good faith and credit guarantees and
the principal must be reputable, experienced and financially
responsible.
ESTATE
Interest, right, or ownership in land; technically, the degree,
quantity, nature and extent of a person's interest or ownership
of land. In its broad sense, "estate" applies to
all that a person owns, whether real or personal property.
EXCISE OR INTERNAL REVENUE BOND
Excise or internal revenue bonds guarantee that manufacturers
and handlers of these commodities will pay the taxes and comply
with all federal regulations related to their operation, including
full, adequate and timely reporting of statistical data to
the appropriate government agencies.
EXECUTOR (EXECUTRIX)
A person who either expressly or by implication is appointed
by a testator to carry out the testator's directions concerning
the dispositions he makes under his will. The person who is
named in a will to handle the estate of the deceased as set
forth in the will.
EXECUTOR BOND
Bond posted by the one named in a Will to administer the estate
of the testator guaranteeing faithful execution.
FIDELITY BOND
These bonds are purchased by employers (the insureds) to indemnify
or protect against the dishonest acts of an employee. The
employer is the equivalent of the obligee.
FIDUCIARY BOND
This type of bond guarantees the person appointed to a position
of trust will faithfully perform all duties associated therewith
and account for the property being handled on behalf of others.
Fiduciary Bonds are instruments written on behalf of persons
appointed by courts or designated in Wills or Deeds of Trust
to take possession of an estate or property, manage and control
it, and finally to account for, transfer or distribute it
as required by law. Fiduciaries are agents of the courts and
merely a conduit through which courts exercises its custody.
Fiduciary Bonds are required by law, and in many instances
the specific bond form is set forth by statute. While these
bonds may differ in detail among various states, the basic
guarantees are that principals will faithfully and properly
perform their duties as required by law.
FIDUCIARIES
These are entities (individuals, corporations, etc.) appointed
to handle the affairs of others who are legally incapable
or unable to handle their own affairs; and generally operate
under the jurisdiction and supervision of courts and hold
the property of others in trust.
FINANCIAL GUARANTY COVERAGE
This is a versatile surety product. It is most often used
in guaranteeing a performance of a specific agreement or in
default thereof to pay a sum of money. This product may be
written to guarantee obligations when traditional surety products
fail to meet the needs of the interested parties.
GAMES OF CHANCE BOND
Currently, two states; (Florida and New York) have laws requiring
operators of game promotions offered in connection with the
sale of consumer products or services to either establish
a trust account or post a surety bond guaranteeing that the
prizes will, in fact, be awarded to the winners. In Florida
there is an element of adverse selection because the security
provisions can be waived for operators who have run successful
promotions for five years without any civil, administrative
or criminal actions. In as much as the bonds guarantee that
the promoter will abide by its promises and award the prizes
being offered in the promotion, the bonds must be treated
as financial guarantees.
GARNISHMENT BOND
This type of bond is used by plaintiffs to obtain security
for an alleged claim for debt by attaching property or credits
of defendants that are in the hands of a third party. Third
party garnishees, when properly notified, are obligated to
hold the property pending the outcome of the suit. This action
is frequently used to attach either bank accounts or accounts
payable by a business concern.
GUARDIAN
One who legally has care and management of the person and/or
estate of a minor or incapacitated person. Some essential features of the relationship
of guardian and ward include the fact that a fiduciary relationship
exists between them, and that the guardian does not hold legal
title to the ward's/minor's property. It is to be preserved
and maintained for the ward/minor.
GUARDIANSHIP
The court actions and proceedings that govern the determinations
and appointments in regards to a guardian and ward/minor.
General Indemnity Agreement
The general indemnity agreement is required to be signed by all bond
principals before a bond is issued. The bond principals will include
all owners (and their spouses) of the construction company, the company
itself will sign the indemnity agreement and potentially other related persons or
entities. This document, in very simple terms, states that if the surety
incurs any losses on the bonded job then the indemnitors will reimburse
the surety for all costs. The reason for this agreement is that a bond
is not an insurance policy and the bond principal is responsible for
reimbursing the surety for any costs it incurs to finish the job or
pay subs, suppliers or crew.
HEIRS
Strictly, those whom statutory law would appoint to inherit
an estate should the ancestor die without a will (intestate).
INDEMNITOR
As commonly used in suretyship, an individual, firm, or corporation
who agrees to hold the surety free of loss and expense if
it will execute a bond or bonds for a principal who is not
qualified on his own for the bond or bonds. The agreement
is usually, but not necessarily, a continuing agreement effective
until cancellation.
INDEMNITY
" A collateral contract or assurance, by which one person
engages to secure another person against an anticipated loss
or to prevent a loss by the legal consequences of an act or
forbearance on the part of one of the parties..."
INDEMNITY BOND
This type of obligation guarantees that the principal will
pay any damages or losses suffered by the governing body or
public while engaging in a potentially hazardous activity
that requires a specific license or permit. Differs from compliance
type bonds in that the particular activity requires a special
permit or license. Examples include various street obstruction
and house moving bonds. These bonds can be written for well-established
and reputable applicants who have adequate public liability
and property damage insurance.
INDEMNITY TO SHERIFF BOND
This type of bond may be required of law officers who are
called upon to execute writs. Generally, the officers will
rely on the plaintiff's attorney as to what property is subject
to seizure. The officers are liable for damages for seizing
the wrong property or acting on invalid writs. The bond is
for the protection of officers of the court from such damages.
If there is a fully adjudged claim that has been reduced to
a judgment, the potential liability under such a bond is quite
limited. However, if the claim is questionable or the property
not clearly identified as to ownership, substantial damages
can occur. Sometimes adjoining or other property not belonging
to the plaintiff is damaged when the plaintiff's property
is removed. For example, damages may occur on the premises
where the plaintiff's property is located.
INJUNCTION BOND
Plaintiff’s bond to secure – An injunction is
a judicial process generally issuing out of a court of equity,
whereby the defendant is required to do or refrain from doing
a particular thing. An order granting an injunction may be
conditioned upon the furnishing by the plaintiff of a bond
to indemnify the defendant against loss in case it be finally
decided that the injunction should not have been granted.
Defendant’s bond to dissolve – When an injunction
has been issued, the court may order the injunction dissolved
upon the giving of a bond conditioned, in effect, to pay such
damages as the plaintiff may sustain as a result of the performance
of the act or acts originally enjoined, it being then the
privilege of the defendant to proceed as if the injunction
had never been issued.
INSURANCE POLICY
This is a two party contract under which one party (the insurer)
agrees to indemnify the second party (the insured) for a monetary
loss upon the happening of an event described in the policy.
INTER VIVOS TRUST
A trust created during the grantor's life.
INTESTATE (INTESTACY)
To die without leaving a valid will.
INTESTATE PROPERTY
That which a testator has failed to dispose of (devise) by
will. There can be partial intestacy if a will does not provide
for distribution of all of the decedent's property or if a
clause in the will is invalid.
JUDICIAL BOND
A bond required or used in judicial proceedings such as attachment,
appeal, or probate. Sometimes called a litigation bond.
LAUNDROMAT/LAUNDRY JOBBER BOND
See License & Permit Bond
LETTER OF CREDIT
A document issued by a bank that guarantees the payment of
a customer's draft; substitutes the bank's credit for the
customer's credit.
LICENCE & PERMIT BOND
A bond required by a public body as a condition of issuing
a business license or a permit for some activity. It is a
guaranty that laws, ordinances, regulations, etc., will be
complied with and that the public body or members of the public
will be compensated, within the bond's limits, for damage
resulting from violations.
General Indemnity Agreement
Liquidated damages (LD’s), by definition are not a penalty for not
completing the job on time, but an estimate of the costs the
obligee/owner will incur because the contract is not completed
on time. The LD’s can range from a relatively low amount of one hundred
dollars to many thousands of dollars for every day the contractor is
late. High LD’s can severely affect the contractor’s profitability;
therefore the surety looks closely at this item.
LIVING TRUST
An inter vivos trust; a trust established and in operation
during the settler’s life.
LOST INSTRUMENT BOND
Lost instrument bonds are required by the issuers of securities
or their agents to protect them against any loss they might
sustain by reason of issuing duplicate securities. Whenever
someone loses, through theft, destruction or misplacement,
a valuable instrument such as check, draft, certificate of
deposit, stock certificate, municipal or government bond,
bill, note, warehouse receipt, life insurance policy, deed,
mortgage note or other similar instrument of ownership, the
issuer or originator of the instrument will normally require
a bond to protect it against loss, costs, damages, or expenses
if the missing original is presented for payment at a future
date by a third party claiming ownership thereto. The original
may be paid through error or a bona fide holder may present
it who acquired it legitimately and whose ownership must be
recognized. The most common types of lost instrument bonds
cover corporate stock certificates and the obligee can be
the issuing corporation itself and/or its transfer agent,
redemption agent or registrar. There are two Categories within
this classification, fixed penalty bonds and open penalty
bonds. Fixed penalty bonds are needed when items are lost
such as certified checks, certificates of deposit, co-op certificates
and any items with a fixed value. Open penalty bonds are needed
when items are lost such as stock certificates or any item
whose market value can fluctuate.
MAIL COVERAGE
This coverage protects the insured against the loss of both
negotiable and non-negotiable securities in transit by: First
Class Mail, Certified Mail, Registered Mail, Post Office Express
Mail and Approved Courier. Security shipments made by the
insured are automatically covered if they are reported to
the surety on a regular basis.
Maintenance Bond
The maintenance (or warrantee) bond is a financial guarantee that the
contractor will maintain a project for a specified time after completion.
Usually the bond, when required, is written at the same time as the
Performance and payment pond. The bond is usually written as a
smaller percentage of the contract amount, typically 10%.
MECHANICS’ LIEN – BOND TO DISCHARGE
A lien against real estate may be filed for the amount claimed
to be due for labor or materials furnished for the construction
of a building or other improvement upon real property. While
the owner's liability is being determined, the owner may discharge
the lien by giving a bond which guarantees the payment of
any amount that may be found to be due to the claimant together
with interest and costs. It is often to the owner's advantage
to give the bond to clear the "title" to the real
estate. Depending upon the circumstances of the case the owner
may ultimately have to pay the claim and seek recourse against
a contractor who may be in serious financial difficulty and
unable to respond.
MISCELLANEOUS BOND
As the name implies, miscellaneous bonds cover a wide variety
of bonds that are unique in purpose and cannot be categorized
by classification or description. Some are required by law
and must be strictly conditioned in accordance with the appropriate
statutes or regulations. However, the majority of these types
of obligations are purely voluntary bonds arising out of contractual
obligations negotiated between private parties.
MORTGAGE BROKER BOND
These bonds are good faith and credit guarantees protecting
the public against fraud, misrepresentation and the wrongful
withholding of earnest money deposits. The bonds guarantee
compliance with the state and local laws governing the conduct
of mortgage brokers and also the payment of any judgment that
may be rendered against the broker for violating the law.
The broker must be reputable, experienced, and possess adequate
income and financial worth so as to alleviate any concerns
about fraud, theft, embezzlement or incompetence.
MOTOR VEHICLE DEALER BOND
These bonds are required of dealers in motor vehicles and
basically protect the buying public from fraud and misrepresentation
on the part of the dealers/sales persons; guarantee the refund
of deposit money if obligated to do so; and, also delivery
of good title to the buyer. In some jurisdictions, the bond
also guarantees the dealer will pay the seller from whom it
purchases vehicles, and in still others, the bond may also
guarantee some of the warranties given in connection with
the sale of the vehicle. There can be different forms or guarantees
in the same jurisdiction for new car dealers and used or new
and used care dealers. The bonds can range from pure good
faith and credit obligations to a combination good faith and
credit and financial guarantee.
OBLIGEE
The obligee is the first party that makes up the three party contract that is a bond.
The obligee is the entity that is requiring the bond and the one that benefits from
it if there is a problem on the job. The obligee is usually your customer, whether
it be a public agency or a general contractor. Sometimes a bank or lending institution
can be the obligee when they are trying to protect their investment. Occasionally,
there will be two or more obligees on a bond when multiple entities have a vested
interest in a project. We call this dual obligees and there will sometimes be an
additional charge when there are two or more obligees.
OBLIGOR
Sometimes called the principal, or one bound by the obligation.
Under a surety bond, both principal and surety are in a sense,
obligors, since the surety must answer if the principal defaults.
OPEN DEFAULT JUDGEMENT BOND
Where a judgment has been entered by default, the defendant
may, under certain circumstances, have the case reopened and
tried on its merits, upon giving a bond conditioned for the
payment of any judgment that may be rendered in the action.
Payment Bond / Labor and Material Bond
The payment bond/ labor and material bond guarantees that the contractor
will pay all workers, sub-contractors, suppliers and other vendors that
have supplied labor, materials or equipment to the bonded project. This
bond is usually written with the performance bond at no additional charge.
On occasion the payment bond is written on its own.
PERFORMANCE BOND
The coverage provided by a performance bond is that principal
will faithfully perform the terms and conditions of a written
contract. In many cases performance bonds incorporate payment
bond and maintenance bond liability.
PLAINTIFF BOND
These bonds are generally given in connection with the prejudgment
seizure of property belonging to or in the hands of the defendant.
Since this action involves the prejudgment seizure of property,
the plaintiff must adhere to the letter of the law so the
defendant is not deprived of property without due process
of law. The bonds guarantee return of the seized property
and/or payment of any damages sustained by the defendant if
the court ultimately determines the seizure was wrongful and
decides in favor of the defendant. Examples include attachment,
garnishment, replevin and claim and delivery bonds.
PRELIMINARY EXECUTOR BOND
Person appointed as fiduciary prior to a will being admitted
to probate or administration of an estate, with no power to
make distribution of estate assets pursuant to the will until
such time as the will has been admitted to probate.
PRELIMINARY INJUNCTION BOND
A court order preventing one or more specific parties from
taking some action. A preliminary injunction often is issued
to allow fact-finding so a judge can determine whether a permanent
injunction is justified.
Premium
The premium is the cost of the bond, paid to the surety for providing the financial
guarantee and for performing the underwriting on the contractor. For contractor
license bonds the premium is fixed amount. For contract surety bonds the premium
charged is always a percentage of the contract amount.
Premium Adjustment
If there is a change order issued on a contract the surety will issue a premium
adjustment notice to charge additional premium if the contract goes up.
Prevailing Wage
Almost all public works construction projects are required by the Davis Bacon Act to pay all
workers who work on the public works project the prevailing wage in the local area. By
definition established a long time ago this wage approximates the local union scale for
the particular trade. This rate is usually much higher than the wages paid for private
work and the contractor has to adjust their bid accordingly or face serious consequences.
Certified Payroll: The certified payroll is one means to verify compliance. All contractors
working on public work project are required to provide on a weekly basis a certified copy
of the weekly payroll on a specific project naming all workers and showing all wages,
deductions and benefits paid including the check number.
DLSE (Division of Labor Standards Enforcement): If you don’t comply with the
prevailing wage rules the DLSE can come after you and the penalties are steep.
PRINCIPAL
This entity is primarily liable for the underlying obligation.
Is sometimes also called the obligor or debtor. The person
whose debt or other obligation is secured or guaranteed by
the bond and who has the primary duty to pay the debt or discharge
the obligation. The individual or individuals whose fiduciary
performance is guaranteed by the surety.
PRIVATE INVESTIGATOR/DETECTIVE AGENCY BOND
These bonds usually protect the public from personal injury
and property damage caused by the detective or private investigator
during the course of business. In addition, libel, slander
and malicious prosecution are among the charges that could
result in fines or penalties covered by the bond. Only exceptionally
good applicants meeting the financial guarantee criteria are
considered for bonding.
PROFESSIONAL LIABILITY
Covers professionals for negligence and errors or omissions
that injure their clients.
PUBLIC ADJUSTER/INDEPENDENT ADJUSTER BOND
See License and permit bond.
PUBLIC OFFICIAL BOND
A bond that guarantees faithful performance of duty of a public
official in a position of trust; also provides for an honest
accounting of all public funds handled by him/her. Such bond
is given to comply with a statute and, therefore, carries
whatever liability the statute imposes.
QUALIFIED DOMESTIC TRUST (QDOT) BOND
A QDOT is a trust created upon the death of an individual
and qualifying for the federal estate tax marital deduction
where the decedent-s surviving spouse is not a United States
citizen. A qualified domestic trust is the only form of transfer
that will qualify for the marital deduction for a decedent
who leaves an alien spouse. In addition to satisfying the
normal marital deduction rules, the trust instrument must
require that at least one trustee be an individual who is
a citizen of the United States or a domestic corporation,
and that no trust distributions may be made without the consent
of that trustee. An appropriate election on the estate tax
return is also required. Thus a bond is placed guaranteeing
faithful execution.
RIDER
A printed form of special provision added to a bond. Sometimes
called an endorsement.
RECEIVER BOND
A bond appointing a person to take temporary or permanent
charge of the property of debtors or to operate, reorganize
and rehabilitate the debtors business for its continuance
as a going concern guaranteeing faithful execution.
REFUNDING BOND
This term is applicable to any bond conditioned for future
return, if ordered, of money which the principal was allowed
to charge and retain pending final determination or decision
in a contested matter.
REMOVAL BOND
Where a case originally brought in a state court is removed
to the federal court, the defendant is required to give bond
for the payment of costs in federal court if the case is found
to have been improperly removed. Similar bonds may be required
on removal of a case from one state court to another.
REPLEVIN BOND
A replevin bond is given by a plaintiff who is claiming either
ownership of property in the hands of the defendant, or at
least a legal right to possession. In a replevin action, the
plaintiffs claim title or ownership of the property, and that
they are entitled to immediate possession. This differs from
an attachment or garnishment proceeding where the property
being seized belongs to the defendant. Replevin bonds, also
known as claim & delivery, detinue or forthcoming bonds
in some jurisdictions, must be filed by the plaintiff to secure
possession of the property in question and it guarantees return
of the property and/or its value plus damages if the replevin
is deemed wrongful. This differs from attachment or garnishment
bond proceedings where property is held in the custody of
the sheriff or marshal or retained by the garnishee.
SECOND HAND DEALER BOND
See License & Permit Bond.
SECURITY FOR COSTS BOND
A statutory requirement of certain plaintiffs in a derivative
suit to post a surety bond from which defendants may be reimbursed
for their expenses if they prevail.
SEIZURE BOND
A drastic but legal preliminary remedy for certain kinds of
infringement. A Federal court may order the United States
Marshal to confiscate and impound allegedly infringing articles
pending trial. Since it may turn out later that the allegation
was incorrect, the party seeking seizure must post a bond
to protect the party whose items were seized. The remedy may
even be granted ex parte in certain circumstances (meaning
that the defendant has no chance to oppose the seizure in
advance).
Stay of Execution
An appellant may, at or prior to, the filing of the notice of appeal, file a supersedeas bond in an amount
determined under the Statute, which if approved and accepted by the court, shall have the effect of staying
execution on the judgment while the appeal is pending. The court may also, at or prior to the filing of
the notice of appeal, fix the amount of the supersedeas bond by order and allow appellant a reasonable
period of time not to exceed thirty (30) days to file the bond, subject to its approval. This means that
a bond may be filed in the court after the notice of appeal has been filed and if the court sets the
amount of the bond at or before the filing of the notice of appeal.
STREET OBSTRUCTION BOND
See License & Permit Bond.
SUBDIVISION
This bond guarantees that a developer will properly improve public property associated with a commercial
subdivision belonging to the obligee, in accordance with applicable building codes.
SUPERSEDEAS BOND
This is a form of bond given by a defendant to prevent an
officer of the law from executing on a judgment pending an
appeal to a higher court. It has been mentioned previously
under appeal bonds, but it "supersedes" or stands
in place of the judgment.
SURETY
"One who is legally liable for the debt, default or failure
of duty of another"; or, "one who undertakes to
pay money or do any other act that his principal fails therein
... and who is entitled to be indemnified by someone who ought
to have paid or performed".
SURETYSHIP
Stated in its simplest terms, suretyship embraces all forms
of obligation to pay debts or answer for the default of another.
SURETY BOND
A three party instrument by which one party (the surety) guarantees
that a second party (the principal) will perform an obligation
or duty owed to a third party (the obligee). The bond is generally
in a fixed amount or penal sum, a.k.a. penalty, which establishes
the monetary limit of liability for the surety.
SURPLUS LINES PRODUCER BOND
Surplus lines insurance pertains to business that is placed
by an agent or broker with a non-admitted insurer. A non-admitted
insurer, known as an excess and surplus lines insurer is not
licensed to transact business in a given state but may be
permitted to write certain business in accordance with the
surplus lines provisions of the state's insurance laws which
often permits greater freedom from rate, form and operational
regulation. See Broker Bond.
TEMPORARY RESTRAINING ORDER BOND
It is a judge's short-term order forbidding certain actions
until a full hearing can be conducted. Often referred to as
TRO. A TRO bond carries essentially the same guarantees and
liabilities as a preliminary injunction bond. In some jurisdictions,
a TRO bond is replaced by a subsequent preliminary injunction
bond.
TESTAMENT
Strictly, a testimonial or statement of a person's wishes
concerning the disposition of his or her personal property
after death, in contrast to a will, which is strictly a devise
of real estate. Commonly, however, a will and testament are
considered synonymous. The word is rarely used today except
in the formal heading of one's will, which reads: "This
is the last will and testament of…"
TESTAMENTARY TRUST
A trust created under a will and which comes into existence
after the grantor's death.
TESTAMENTARY TRUSTEE BOND
A bond posted by the trustee of an estate guaranteeing faithful
execution.
TRUST
Property, real or personal, held by one party for the benefit
of another.
TRUSTEE
One who holds legal title to property "in trust"
for the benefit of another person, and who is required to
carry out specific duties with regards to the property, or
who has been given power affecting the disposition of property
for another's benefit.
TRUSTEES IN BANKRUPTCY – LIQUIDATION
Trustees of this type are appointed by under the close supervision
of the court. The sole purpose of this fiduciary is to convert
the business assets into cash and make a pro-rata distribution
to creditors. The standing panel trustees appointed by the
United States Trustee in each district and/or attorneys and
other professionals usually handle these proceedings. They
are generally well qualified and thoroughly familiar with
the bankruptcy laws. In view of the close supervision of the
court, and the fact that the duties of the office are confined
to the liquidation and distribution of the assets, these bonds
are considered very desirable.
TRUSTEES IN BANKRUPTCY – REORGANIZATION
If Chapter 11 is granted, an automatic stay goes into effect
preventing creditors from enforcing claims pending reorganization.
A Creditors Committee consisting of the major creditors is
created to approve, modify or disapprove the plan. Often the
bankrupt is a fairly large corporation with operations that
are quite complex. The company may have many outstanding issues
of stock and bonds as well as numerous classes of creditors.
This would of course require a fiduciary be appointed with
ample experience and ability. By the very nature and complexity
of this type of activity, a bond of this type can be expected
to continue in force for many years.
UNION WAGE & WELFARE BOND
Union wage and welfare bonds are required of employers. The
bond guarantees the payment of wages and fringe benefits to
employees, or in some case, fringe benefits only. The bonds
are usually relatively small, but they are financial guarantees
and the principal should be well established, historically
profitable and in good financial condition.
WHOLESALE DISTRIBUTORS, FUEL TAX BOND
This bond is similar to the fuel tax bond for retailers. Basically,
it allows the wholesaler to defer payment of tax on the acquisition
of gasoline, aviation and/or diesel fuel to the supplier of
said fuels until the date the supplier must remit taxes to
the state taxing authority. This bond is more in the nature
of a financial guarantee because the wholesaler is liable
from its own assets for the payment of the taxes. Applicant
should be reputable, well established, possess a good credit
rating, historically profitable, have good cash flow, working
capital of three to five times and net worth five to ten times
the amount of coverage depending upon other risk factors and
characteristics.
PLEASE NOTE:
The Terms & Definitions provided herein are for informational
purposes ONLY and is not intended to serve as legal advice
and is no substitute for consulting legal counsel.