SURETY BONDS AND GENERAL BOND CONCEPTS

Chapter: Surety Bonds and General Bond Concepts Which bond is required by a court before allowing one to take the assets of another to satisfy a legal obligation? A Attachment bond B Bail bond C Cost bond D Injunction bond

A Attachment bond correct! An attachment bond is used to guarantee that if the action to attach property was wrong, any damage suffered will be paid.

A person who is responsible for the administration of a decedent's estate would have a need for a(n) A Fiduciary bond. B Attachment bond. C Decedent bond. D Bid bond

A Fiduciary bond. Correct! A fiduciary bond covers those in a position of trust who handles money or property of others.

Chapter: Surety Bonds and General Bond Concepts Bonds for administrators and trustees are examples of A Fiduciary bonds. B Contract bonds. C Judicial bonds. D Public official bonds.

A Fiduciary bonds. Correct! Fiduciary Bonds cover those in a position of trust.

A business owner needs to purchase additional inventory in order to meet a customer's order. He contracts with a competitor, obtains the additional inventory, and satisfies his customer. Unfortunately, he does not have the money to repay his competitor. What type of guaranty should he have purchased? A Financial B Credit C Good faith D Indemnity

A Financial Correct! The financial guaranty will pay a certain amount of money if the business owner (principal) fails to meet his contractual obligation with the competitor (obligee).

Which bonds are required by courts whenever someone seeks a court order stating that another person must or must not do something? A Attachment bonds B Injunction bonds C Appeal bonds D Bail bonds

B Injunction bonds Correct! An injunction is a court order stating that someone must or must not do something. Injunction bonds are required by courts whenever someone seeks an injunction against another. They guarantee that if the injunction should not have been issued, damages will be paid to the injured party.

A public official bond guarantees which of the following? A Officers and directors of publicly held corporations will perform their duties honestly and faithfully. B The government entity will be able to collect its revenues. C Elected officials will perform their duties honestly. D Public safety and protection against code violations

C Elected officials will perform their duties honestly. Correct! Public officials may be held liable for misuse of public funds and damage to the public may result if the official fails to fulfill obligations. Public official bonds, which are often a condition of being eligible to hold public office, guarantee any damages to the public will be paid. Public Official Bonds A public official holds office through election, selection, appointment, or employment, and is held accountable to the public to faithfully perform his or her duties according to the respective governing laws and regulations. A public official can be a government manager, a judge or court clerk, a mayor or sheriff, or even a tax collector. The public official is most often required to obtain a public official bond. These bonds are issued so as to comply with a statute requiring the bond, cover whatever liability the statute impose, and are written for the term the public official is elected.

The primary purpose of a surety bond is to A Eliminate the possibility of loss. B Secure a line of credit of a contractor. C Pay employer losses. D Make sure obligations are fulfilled.

D Make sure obligations are fulfilled. Correct! A surety bond guarantees the performance of the principal.

A business owner needs to purchase additional inventory in order to meet a customer's order. He contracts with a competitor, obtains the additional inventory, and satisfies his customer. Unfortunately, he does not have the money to repay his competitor. What type of guaranty should he have purchased? A Financial B Credit C Good faith D Indemnity

A Financial correct! The financial guaranty will pay a certain amount of money if the business owner (principal) fails to meet his contractual obligation with the competitor (obligee).

Chapter: Surety Bonds and General Bond Concepts A business owner needs to purchase additional inventory in order to meet a customer's order. He contracts with a competitor, obtains the additional inventory, and satisfies his customer. Unfortunately, he does not have the money to repay his competitor. What type of guaranty should he have purchased? A Financial B Credit C Good faith D Indemnity

A Financial correct! The financial guaranty will pay a certain amount of money if the business owner (principal) fails to meet his contractual obligation with the competitor (obligee).

Chapter: Surety Bonds and General Bond Concepts Bob's neighbor will not stop parking his motorcycle in Bob's rose garden no matter how many times he has been asked to quit parking there. Bob finally gets a court order requiring the neighbor to refrain from parking there. It turns out it was his neighbor's property all along. What bond was Bob required to post guaranteeing his neighbor's damages in this wrongful action will be paid? A Injunction B Attachment C Bail D Cost

A Injunction Correct! An injunction bond is a guarantee that if the injunction should not have been issued, damages will be paid to the injured party.

Chapter: Surety Bonds and General Bond Concepts Which surety bond guarantees that bills for labor and materials will be paid by the contractor as they are due? A Payment bond B Performance bond C Supply bond D Bid bond

A Payment bond correct! Sometimes called labor and materials bonds, payment bonds are frequently included as part of a performance bond.

Which surety bond guarantees that bills for labor and materials will be paid by the contractor as they are due? A Payment bond B Performance bond C Supply bond D Bid bond

A Payment bond correct! Sometimes called labor and materials bonds, payment bonds are frequently included as part of a performance bond.

Chapter: Surety Bonds and General Bond Concepts Who are the parties to a bond? A Principal - obligee - surety B Obligee - surety - obligation C Principal - obligor D Principal - obligee - surety - obligation

A Principal - obligee - surety correct! The principal makes a promise to perform for the obligee; the surety pays loss to obligee if the promise is not kept.

Chapter: Surety Bonds and General Bond Concepts The party to a surety or fidelity bond who promises to fulfill the obligation is the A Principal. B Custodian. C Surety. D Obligee.

A Principal. Correct! The principal purchases the bond and promises to perform.

The party to a surety or fidelity bond who promises to fulfill the obligation is the A Principal. B Custodian. C Surety. D Obligee.

A Principal. correct! The principal purchases the bond and promises to perform.

Chapter: Surety Bonds and General Bond Concepts Surety bonds are written for a definite limit called A The bond penalty. B Indemnity limit. C The limit of liability. D Loss costs.

A The bond penalty. Correct! If the specific obligation guaranteed by the bond is not fulfilled, a sum of money, known as a penalty, becomes payable as damages.

Surety bonds are written for a definite limit called A The bond penalty. B Indemnity limit. C The limit of liability. D Loss costs.

A The bond penalty. correct! If the specific obligation guaranteed by the bond is not fulfilled, a sum of money, known as a penalty, becomes payable as damages.

Question 7 of 12 Chapter: Surety Bonds and General Bond Concepts Which of the following statements is true concerning a bonded contractor who defaults on a construction performance contract? A The obligee may engage another contractor and then seek reimbursement from the surety. B The surety may cancel the bond and avoid paying any losses or expenses. C The contractor will lose his license to operate in the state. D The principal has no obligation to complete any remaining work or to pay for the expenses.

A The obligee may engage another contractor and then seek reimbursement from the surety. Correct! The bonding company would have to see that the job was completed and then seek recovery for its expenses from the bonded contractor (principal).

Chapter: Surety Bonds and General Bond Concepts For what term is a public officials bond normally written? A For the term the principal is elected to serve B Annual C Biannual D Continuous

AFor the term the principal is elected to serve correct! Public officials bond is normally written for the term of office that the principal is elected to serve.

When Mary decided to sue her neighbor for damages to her yard, she was told to get a bond that would guarantee she would be able to pay court costs and resulting damages if she loses the case. What kind of bond is this? A A bail bond B A cost bond C An appeal bond D A license and permit bond

B A cost bond correct! Cost bonds guarantee that the person (plaintiff) who brings legal action against another (defendant) will be able to pay court costs and any resulting damages in the event he or she loses the case.

Which bonds are issued to secure the release of a person from jail pending a courtroom appearance? A Fiduciary bonds B Bail bonds C Cost bonds D Appeal bonds

B Bail bonds Correct! Bail bonds are issued to secure the release of a person from jail pending a courtroom appearance. They guarantee that the person will appear when so specified.

Chapter: Surety Bonds and General Bond Concepts What type of bond guarantees that a construction contractor will enter into a contract at a set price? A Maintenance bond B Bid bond C Performance bond D Payment bond

B Bid bond Correct! When construction projects are awarded based on the lowest bid, the obligee usually requires a bid bond. The bid bond promises that if the contractor is awarded the contract, the contractor actually will accept the contract.

Chapter: Surety Bonds and General Bond Concepts A public official bond guarantees which of the following? A The government entity will be able to collect its revenues. B Elected officials will perform their duties honestly. C Public safety and protection against code violations D Officers and directors of publicly held corporations will perform their duties honestly and faithfully.

B Elected officials will perform their duties honestly. Correct! Public officials may be held liable for misuse of public funds and damage to the public may result if the official fails to fulfill obligations. Public official bonds, which are often a condition of being eligible to hold public office, guarantee any damages to the public will be paid.

A person who is responsible for the administration of a decedent's estate would have a need for a(n) A Bid bond B Fiduciary bond. C Attachment bond. D Decedent bond.

B Fiduciary bond. correct! A fiduciary bond covers those in a position of trust who handles money or property of others. Fiduciary Bonds, which may be issued for executors or administrators of an estate, guardians, or trustees, guarantee that the fiduciary will perform and act in the best interest of the party they represent. A fiduciary is someone that handles property or money for another, and has a duty to do so in a responsible manner.

Chapter: Surety Bonds and General Bond Concepts For what term is a public officials bond normally written? A Continuous B For the term the principal is elected to serve C Annual D Biannual

B For the term the principal is elected to serve Correct! Public officials bond is normally written for the term of office that the principal is elected to serve.

Bob's neighbor will not stop parking his motorcycle in Bob's rose garden no matter how many times he has been asked to quit parking there. Bob finally gets a court order requiring the neighbor to refrain from parking there. It turns out it was his neighbor's property all along. What bond was Bob required to post guaranteeing his neighbor's damages in this wrongful action will be paid? A Cost B Injunction C Attachment D Bail

B Injunction Correct! An injunction bond is a guarantee that if the injunction should not have been issued, damages will be paid to the injured party. The following judicial bonds are required because of legal or fiduciary obligations: Appeal bond - If a person appeals to a higher court after a judgment already has been entered, this bond may be required to guarantee that the judgment will be paid, as well as the cost of the appeal. Attachment bond - When a court order requires the attachment of assets of another party, this bond may be used to guarantee that if the action to attach property was wrong, any damages suffered will be paid for. Release of attachment bond - When a court order requires the attachment of assets of another party (the defendant), the defendant uses this type of bond to have the property returned by posting a release of attachment bond to serve in lieu of the property as security for the plaintiff's claim. Bail bond - This bond is issued to secure the release of a person from jail pending a courtroom appearance. It guarantees that the person will appear when specified. Cost bond - This bond guarantees that the person (plaintiff) who brings legal action against another (defendant) will be able to pay court costs and any resulting damages in the event the plaintiff loses the case. Injunction bond - This bond is required by courts whenever someone seeks an injunction against another. It guarantees that if the injunction should not have been issued, damages will be paid to the injured party.

The form of payment bond that protects an owner contracting for work against liens from subcontractors, suppliers, or laborers who are not paid for their services and materials by the general contractor is called A Completion bond. B Labor and material bond. C Performance bond. D Supply bond.

B Labor and material bond. correct! A labor and material bond would cover the cost of retiring any mechanic's lien placed on the property after the job was completed. Contract bonds are used to guarantee performance of a written contract. They are primarily used in construction contracts. The following are the most common types of contract bonds: Bid bonds - When construction projects are awarded based on the lowest bid, the obligee usually also requires a bid bond. The bid bond promises that if the contractor is awarded the contract, the contractor will actually accept the contract, and a performance bond will be issued. Completion bonds - If a contractor is required to borrow money to complete a construction project, the lender usually will require a completion bond. This bond guarantees that the money borrowed will be used to fund the construction project and that the project will be completed free of any other obligations. Labor and materials bond - These bonds guarantee that work and materials will be delivered free and clear of any liens or other burdens. These are sometimes called payment bonds. Performance bonds - These bonds guarantee that the principal will complete the contract as agreed upon. Supply bonds - These bonds guarantee that a supplier will furnish supplies, materials, products, and equipment as specified in the written contract.

Which surety bond guarantees that bills for labor and materials will be paid by the contractor as they are due? A Bid bond B Payment bond C Performance bond D Supply bond

B Payment bond correct! Sometimes called labor and materials bonds, payment bonds are frequently included as part of a performance bond. Contract Bonds Contract bonds are used to guarantee performance of a written contract. They are primarily used in construction contracts. The following are the most common types of contract bonds: Bid bonds - When construction projects are awarded based on the lowest bid, the obligee usually also requires a bid bond. The bid bond promises that if the contractor is awarded the contract, the contractor will actually accept the contract, and a performance bond will be issued. Completion bonds - If a contractor is required to borrow money to complete a construction project, the lender usually will require a completion bond. This bond guarantees that the money borrowed will be used to fund the construction project and that the project will be completed free of any other obligations. Labor and materials bond - These bonds guarantee that work and materials will be delivered free and clear of any liens or other burdens. These are sometimes called payment bonds. Performance bonds - These bonds guarantee that the principal will complete the contract as agreed upon. Supply bonds - These bonds guarantee that a supplier will furnish supplies, materials, products, and equipment as specified in the written contract.

How are surety bonds different from insurance? A Surety bonds are issued by the government; insurance is issued by private companies. B Surety bonds guarantee specific duties or obligations will be fulfilled; insurance pays for losses. C Insurance guarantees specific duties or obligations will be fulfilled; surety bonds pay for losses. D Surety bonds guarantee that losses will be paid; insurance pays for obligations to be fulfilled.

B Surety bonds guarantee specific duties or obligations will be fulfilled; insurance pays for losses. Correct! Surety bonds are not insurance in the traditional sense. Unlike insurance, surety bonds do not expect to pay for losses. Instead, they guarantee specific duties or obligations will be fulfilled. Surety bonds may be issued by private companies.

All are true if a contractor defaults on a performance contract EXCEPT A The surety will attempt to seek reimbursement from the contractor for any amounts it pays. B The surety may cancel the bond so as to avoid having to pay losses and expenses. C The obligee may hire another contractor to complete the job and have the surety repay the obligee. D The principal's obligations end.

B The surety may cancel the bond so as to avoid having to pay losses and expenses. Correct! The performance bond is a guarantee by the surety that if the principal (contractor) does not perform as promised, the surety will pay the obligee any losses. The surety will then attempt to make the principal repay the surety.

When Mary decided to sue her neighbor for damages to her yard, she was told to get a bond that would guarantee she would be able to pay court costs and resulting damages if she loses the case. What kind of bond is this? A A license and permit bond B A bail bond C A cost bond D An appeal bond

C A cost bond Correct! Cost bonds guarantee that the person (plaintiff) who brings legal action against another (defendant) will be able to pay court costs and any resulting damages in the event he or she loses the case.

Which bond is required by a court before allowing one to take the assets of another to satisfy a legal obligation? A Cost bond B Injunction bond C Attachment bond D Bail bond

C Attachment bond Correct! An attachment bond is used to guarantee that if the action to attach property was wrong, any damage suffered will be paid.

Chapter: Surety Bonds and General Bond Concepts If you are called upon to handle the estate of a deceased, the court will require you to post which bond? A Administer B Executor C Fiduciary D Guardian

C Fiduciary correct! A fiduciary has a legal right to act as another's personal representative and are often appointed by the court. A fiduciary bond guarantees the fiduciary faithfully perform the duties ant act in the best interests of the person being represented.

Bonds for administrators and trustees are examples of A Judicial bonds. B Public official bonds. C Fiduciary bonds. D Contract bonds.

C Fiduciary bonds. Correct! Fiduciary Bonds cover those in a position of trust. Fiduciary Bonds, which may be issued for executors or administrators of an estate, guardians, or trustees, guarantee that the fiduciary will perform and act in the best interest of the party they represent. A fiduciary is someone that handles property or money for another, and has a duty to do so in a responsible manner.

For what term is a public officials bond normally written? A Biannual B Continuous C For the term the principal is elected to serve D Annual

C For the term the principal is elected to serve Correct! Public officials bond is normally written for the term of office that the principal is elected to serve. Public Official Bonds A public official holds office through election, selection, appointment, or employment, and is held accountable to the public to faithfully perform his or her duties according to the respective governing laws and regulations. A public official can be a government manager, a judge or court clerk, a mayor or sheriff, or even a tax collector. The public official is most often required to obtain a public official bond. These bonds are issued so as to comply with a statute requiring the bond, cover whatever liability the statute impose, and are written for the term the public official is elected.

Chapter: Surety Bonds and General Bond Concepts Which bonds are required by courts whenever someone seeks a court order stating that another person must or must not do something? A Bail bonds B Attachment bonds C Injunction bonds D Appeal bonds

C Injunction bonds Correct! An injunction is a court order stating that someone must or must not do something. Injunction bonds are required by courts whenever someone seeks an injunction against another. They guarantee that if the injunction should not have been issued, damages will be paid to the injured party.

Chapter: Surety Bonds and General Bond Concepts The form of payment bond that protects an owner contracting for work against liens from subcontractors, suppliers, or laborers who are not paid for their services and materials by the general contractor is called A Supply bond. B Completion bond. C Labor and material bond. D Performance bond.

C Labor and material bond. correct! A labor and material bond would cover the cost of retiring any mechanic's lien placed on the property after the job was completed.

Chapter: Surety Bonds and General Bond Concepts The primary purpose of a surety bond is to A Secure a line of credit of a contractor. B Pay employer losses. C Make sure obligations are fulfilled. D Eliminate the possibility of loss.

C Make sure obligations are fulfilled. Correct! A surety bond guarantees the performance of the principal.

Who are the parties to a bond? A Principal - obligor B Principal - obligee - surety - obligation C Principal - obligee - surety D Obligee - surety - obligation

C Principal - obligee - surety correct! The principal makes a promise to perform for the obligee; the surety pays loss to obligee if the promise is not kept. Parties of Surety Bonds There are generally 3 parties to a bond: principal, obligee, and surety. Principal or obligor is the person who promises to fulfill the obligation and who purchases the bond. This person or entity will go through the underwriting process. The underwriting for surety bonds takes into account the financial stability and credibility of the principal or obligor. The underwriting process can be as simple as an application or as involved as a complete review of financial statements. Obligee or insured is the person to whom the promise has been made and to whom the bond is payable in the event the principal defaults on its obligation. This is the party who requires a bond in return for entering into an agreement with the principal. For example, an entity that enters into a contract with a construction firm to build an office building may require the contractor to be bonded to the amount of the project to ensure it is completed. The owner of the building would be the obligee or insured. Guarantor or surety - The surety or bonding company provides the financial backing for the guarantee, known as a bond penalty. If the principal, or obligor, defaults on its obligation, the surety will pay the amount specified in the bond to the obligee, or insured, as damages. For example, a business owner (obligee) may require a contractor (principal) to complete a particular job by a specified date. The contractor would purchase a bond from a surety company (guarantor) for a specified amount, which would be payable to the business owner in the event the contractor is unable to meet the specified deadline. The bond guarantees that if the principal defaults on the contract, the surety bond will financially compensate the obligee. The surety bond itself is like an insurance policy between the insurance company and the insured, but the surety guarantees that an outcome will occur as contracted, and if it doesn't, the bond will pay the financial consequences to the claimant, or obligee. However, unlike in insurance, the principal or obligor is responsible for reimbursing the surety or guarantor the amount paid under the bond. End Quiz Chapter Quiz -Question 3 of 12 Chapter: Surety Bonds and General Bond Concepts Who are the parties to a bond? APrincipal - obligor BPrincipal - obligee - surety - obligation CPrincipal - obligee - surety DObligee - surety - obligation Incorrect! The principal makes a promise to perform for the obligee; the surety pays loss to obligee if the promise is not kept. Review ContentNext Question

Which of the following statements is true concerning a bonded contractor who defaults on a construction performance contract? A The contractor will lose his license to operate in the state. B The principal has no obligation to complete any remaining work or to pay for the expenses. C The obligee may engage another contractor and then seek reimbursement from the surety. D The surety may cancel the bond and avoid paying any losses or expenses.

C The obligee may engage another contractor and then seek reimbursement from the surety. Correct! The bonding company would have to see that the job was completed and then seek recovery for its expenses from the bonded contractor (principal). Review ContentNext Question

Which of the following statements is true concerning a bonded contractor who defaults on a construction performance contract? A The contractor will lose his license to operate in the state. B The principal has no obligation to complete any remaining work or to pay for the expenses. C The obligee may engage another contractor and then seek reimbursement from the surety. D The surety may cancel the bond and avoid paying any losses or expenses.

C The obligee may engage another contractor and then seek reimbursement from the surety. correct! The bonding company would have to see that the job was completed and then seek recovery for its expenses from the bonded contractor (principal).

Chapter: Surety Bonds and General Bond Concepts Which of the following statements is true concerning a bonded contractor who defaults on a construction performance contract? A The contractor will lose his license to operate in the state. B The principal has no obligation to complete any remaining work or to pay for the expenses. C The obligee may engage another contractor and then seek reimbursement from the surety. D The surety may cancel the bond and avoid paying any losses or expenses.

Correct! The bonding company would have to see that the job was completed and then seek recovery for its expenses from the bonded contractor (principal).

Chapter: Surety Bonds and General Bond Concepts All are true if a contractor defaults on a performance contract EXCEPT A The surety will attempt to seek reimbursement from the contractor for any amounts it pays. B The surety may cancel the bond so as to avoid having to pay losses and expenses. C The obligee may hire another contractor to complete the job and have the surety repay the obligee. D The principal's obligations end.

Correct! The performance bond is a guarantee by the surety that if the principal (contractor) does not perform as promised, the surety will pay the obligee any losses. The surety will then attempt to make the principal repay the surety. B The surety may cancel the bond so as to avoid having to pay losses and expenses.

Chapter: Surety Bonds and General Bond Concepts When Mary decided to sue her neighbor for damages to her yard, she was told to get a bond that would guarantee she would be able to pay court costs and resulting damages if she loses the case. What kind of bond is this? A An appeal bond B A license and permit bond C A bail bond D A cost bond

D A cost bond Correct! Cost bonds guarantee that the person (plaintiff) who brings legal action against another (defendant) will be able to pay court costs and any resulting damages in the event he or she loses the case.

Chapter: Surety Bonds and General Bond Concepts What is the primary difference between a surety and a guaranty? A A surety bond is issued by an insurance company. B A guaranty bond is issued on behalf of the obligee to cover the performance of the principal. C A surety pays only if the principal's performance fails to comply contractually. D A guarantee pays only after the obligee tries to obtain restitution from the principal.

D A guarantee pays only after the obligee tries to obtain restitution from the principal. correct! If the principal defaults on the contract, the guarantor will compensate after the obligee has unsuccessfully attempted to collect from the principal. The surety bond will financially compensate the obligee without requiring that the obligee first attempt restitution from the principal.

Chapter: Surety Bonds and General Bond Concepts Which bonds are issued to secure the release of a person from jail pending a courtroom appearance? A Cost bonds B Appeal bonds C Fiduciary bonds D Bail bonds

D Bail bonds Correct! Bail bonds are issued to secure the release of a person from jail pending a courtroom appearance. They guarantee that the person will appear when so specified.

Chapter: Surety Bonds and General Bond Concepts Which of the following is NOT a contract bond? A Performance bond B Maintenance bond C Bid bond D Litigation bond

D Litigation bond Correct! A litigation bond is a court bond guaranteeing that someone involved in a court case gets money due after the case is decided.

Chapter: Surety Bonds and General Bond Concepts A bond is written for a set limit, and the surety will be liable only for this amount of the limit. This limit is known as the A Face value. B Stated amount. C Limit of liability. D Penalty.

D Penalty. correct! A bond is written for a set limit, sometimes called the penalty. If the principal's obligation exceeds the limit, the surety will be liable only for the amount of the limit.

Surety bonds are written for a definite limit called A Indemnity limit. B The limit of liability. C Loss costs. D The bond penalty.

D The bond penalty. Correct! If the specific obligation guaranteed by the bond is not fulfilled, a sum of money, known as a penalty, becomes payable as damages. Surety Bonds vs. Insurance A surety is someone who guarantees the performance of someone else. The surety issues a bond on one party who must perform or not perform as required and will financially compensate the other party in the event the contractual obligations are not met. Surety bonds are not insurance in the traditional sense. Unlike insurance, surety bonds do not expect to pay for losses. Instead, they guarantee specific duties or obligations will be fulfilled. In the event the duty is not performed as promised, the surety will pay the bond amount to the person to whom the promise had been made and broken. A bond is written for a set limit, and the surety will be liable only for this amount of the limit. This limit is referred to as the penalty.