• January 12, 2023
  • Posted By:hmvreeland
  • Category:Surety Bonds

For the majority of California residents, a Surety bond can be used to guarantee compliance, payment, or performance of an act or service. It is a legally binding contract between three parties:

  • The Principal: The party that is required to purchase a bond
  • The Surety: The party (usually a Surety company) that issues the bond
  • The Obligee: The party that requires the Principal to get bonded

How Does a Surety Bond Work?

When an Obligee makes a claim against a Surety bond, the Surety starts an investigation. If the Obligee’s claim is found to be valid, the Surety compensates the Obligee on the Principal’s behalf. After paying the Obligee, the Surety recovers the compensation amount plus any legal, administrative, or other expenses, from the Principal.

Surety Bond Benefits

Surety bonds provide benefits to Obligees as well as Principals. A Surety bond protects the Obligee from financial loss if the Principal fails to meet their contractual obligations. Since most project owners, particularly government bodies, only accept bids from bonded contractors, obtaining a Surety bond is a great way to ensure that you can bid for high-value contracts.

Different Types of Surety Bonds

Some commonly used Surety bonds include – contract Surety bonds, fiduciary bonds, lost note or deed bonds, and appeal bonds.

  • Contract Surety Bonds: A contract Surety bond guarantees that the Principal – in this case, the contractor – will perform the duties outlined in the construction contract. Contract Surety bonds are used by large construction companies with various projects, general contractors with one or more projects, subcontractors used by the federal government, and individual contractors.
  • Fiduciary Bonds: If a physically or mentally incapacitated person or a court appoints you to make important decisions on the individual’s behalf, you may be required to get a fiduciary bond. A fiduciary bond guarantees that the fiduciary will fulfill their duties and act with honesty and integrity.
  • Lost Note or Deed Bonds: If you have lost or misplaced a financial instrument such as a paper share certificate, bank draft or check, the financial institution that issued it may want you to obtain a lost note bond before providing a replacement. A lost note/instrument bond protects the financial institution from loss if the Principal finds the original document and tries to cash the instrument multiple times.
  • Appeal Bonds: Individuals who want to challenge a lower court’s judgment in a higher court may be required to get an appeal bond or supersedeas bond. An appeal bond guarantees that the judgment will be paid in full if the higher court rules against the defendant.

Is It Possible to Cancel a Surety Bond?

There are several reasons why a Principal may want to cancel their bond. They may no longer need a license for their business or they purchased the wrong bond type. The process to cancel a bond may vary by state. Sometimes, a bond can be canceled only after the Principal gets written confirmation from the Obligee. A court bond can be canceled after a judge signs a legal affidavit.

H.M. Vreeland was founded more than 100 years ago to meet the bonding needs of individuals and businesses. Over this time, we’ve become experts in our field of helping Californians secure Surety bonds. Our specialists help our customers make informed decisions when selecting the right type of Surety bond to fit their needs. To learn more, call (415) 566-3401.