What Is a Surety Bond in California?

Surety bonds help to keep business dealings ethical and mutually satisfactory.
Surety bonds help to keep business dealings ethical and mutually satisfactory. (Image: Michael Blann/Digital Vision/Getty Images)

In California, as elsewhere, surety bonds are legally binding agreements that provide a secure means of ensuring that commitments are honored. Surety bonds involve three parties. The obligor is the party who agrees to honor either a financial, contractual or performance agreement. The obligor is also sometimes referred to as the principal. The obligee is the person or legal entity protected by the bond. The third party is the surety or insurer of the bond.

Surety Bonds for Businesses

Businesses in California purchase surety bonds to show consumers that they are reputable. Surety bonds reassure consumers that if the business they are working with does not live up to its responsibilities, behaves unethically, or causes the consumer to suffer damage of any sort, the business will be held liable. Surety bonds seek to work prohibitively against illegal, unethical or unprofessional types of behaviors on the part of businesses in California.

If you are starting a business in California, you will want to familiarize yourself with bid bonds, performance bonds and payment bonds. These are all different types of surety bonds for businesses. Bid bonds are used by businesses bidding on contracts. These bonds assure the person awarding the contract that the business will honor the contract it bids on and will obtain any other surety bonds necessary upon being awarded that contract. These additional surety bonds may include a performance bond or a payment bond. A performance bond assures that the work will be performed as agreed upon by both parties. A payment bond in commerce assures that subcontractors will be paid by the contractor.

Surety Bonds and the Court of Law

Payment bonds required for court litigants are enforced to hold individuals accountable for financial responsibilities they may incur due to lawsuits or other legal proceedings. A bail bond is a form of bond commonly used in criminal legal actions. This type of surety bond insures that a defendant released from jail pending other legal action will return to court for his scheduled appearances after being released from jail. Bail bonds may be perfomance or payment bonds.

Costs Associated with Surety Bonds

The costs associated with obtaining a surety bond vary. Your credit rating can have a major effect on the cost of your bond. The cost also depends on what type of surety bond you need. A surety bond should cost you approximately 1 to 3 percent of the amount for which it is issued.

California Surety Bond Agencies and You

California has a number of surety bond agencies. Check with the California Better Business Bureau before enlisting the services of any California surety bond provider. You will want to be certain that you are dealing with a reputable surety agent or agency that will protect your interests.

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