Bond (law)

Bond (law), a legal or credit instrument that promises to pay a sum of money at a designated time under certain conditions.

In law, the term bond refers to an agreement that guarantees payment if a specified action or event fails to take place; this is generally known as a conditional bond. A bail bond, for instance, is forfeited if the prisoner does not appear at the proper time.

Many businesses and service organizations make use of fidelity bonds; their employees are bonded against loss due to dishonesty during the performance of their jobs. Bank workers with access to funds, and messengers who deliver valuables are examples of bonded employees.

A performance bond is designed to make certain that an obligation will be carried out. It is frequently used in the construction industry. An example is a bond that provides for the payment of a penalty if a building contractor does not complete work on a structure by a stated date. In matters involving large sums of money it is customary not to rely on the personal bond of the obligated party but to require that individual to procure a bond issued by a surety company.

Bonds are often required when litigation takes place. The losing party in a civil suit, for instance, may be called upon to furnish a surety bond to guarantee a court-awarded payment.

Investment bonds, used in finance, are written instruments that state that the maker is indebted to the holder and will pay interest and principal at given times. Such bonds are issued by corporations and governmental bodies. They are sold to investors through banks or brokers, and the proceeds of the sale are made available to the debtor. The investor may hold the bond for the interest payments or may sell it freely. Bonds that are issued by a private company usually are secured by a mortgage on the company's property or by other substantial protections.

Bonds issued by a sovereign nation rely for their security entirely upon the buyer's confidence in the taxing power and stability of the issuing government. Municipal bonds include bonds of other political divisions, such as counties, cities, towns, and districts. These bonds are issued either as the direct obligation of the entire issuing body or as special assessment bonds, which are to be withdrawn from circulation by the levy of special taxes on the property to be improved.