Bond Violation

AAA

DEFINITION of 'Bond Violation'

A breach of the terms of a surety agreement. A bond violation occurs when a surety bond, which protects one party against a financial loss caused by the other party's failure to perform, fails to meet the conditions of the agreement. For example, the owner of a shopping center who hires a contractor to perform a seismic retrofit of the building might require the contractor to purchase a surety bond. If the contractor's work fails to bring the building into compliance with current earthquake construction codes as stipulated in the surety bond, the contractor has failed to perform and thus committed a bond violation.

INVESTOPEDIA EXPLAINS 'Bond Violation'

In the event of the bond violation in this example, the surety company would pay the shopping center owner for this loss and the surety company would then collect that sum from the contractor. The surety bond guarantees that the shopping center owner gets his or her money even if the contractor can't pay. The surety arrangement reduces the shopping center owner's risk and makes him or her more willing to hire the contractor.

RELATED TERMS
  1. Continuous Bond

    A financial guarantee commonly used in international trade that ...
  2. Bond Purchase Agreement

    A legally binding document between a bond issuer and an underwriter ...
  3. Dim Sum Bond

    A bond denominated in Chinese yuan and issued in Hong Kong. Dim ...
  4. Convertible Bond

    A bond that can be converted into a predetermined amount of the ...
  5. Corporate Bond

    A debt security issued by a corporation and sold to investors. ...
  6. Bond

    A debt investment in which an investor loans money to an entity ...
Related Articles
  1. Why Did ETFs Become So Popular?
    Markets

    Why Did ETFs Become So Popular?

  2. Seasonal Factors Ready To Turn Positive
    Stock Analysis

    Seasonal Factors Ready To Turn Positive

  3. 3 Money Moves To Make Before A Career ...
    Credit & Loans

    3 Money Moves To Make Before A Career ...

  4. Capital Structure
    Investing

    Capital Structure

comments powered by Disqus
Hot Definitions
  1. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  2. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  3. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  4. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  5. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  6. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
Trading Center