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.

BREAKING DOWN '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. Surety

    The guarantee of the debts of one party by another. A surety ...
  2. Construction Bond

    A type of surety bond used by investors in construction projects ...
  3. Maintenance Bond

    A type of surety bond purchased by a contractor that protects ...
  4. Associate In Fidelity And Surety ...

    A designation earned by bond producers, bond underwriters, and ...
  5. Performance Bond

    A bond issued to one party of a contract as a guarantee against ...
  6. Contractors Professional Liability ...

    Liability insurance that provides coverage to contractors and ...
Related Articles
  1. Small Business

    Should You Hire Contractors or Employees for Your Small Business?

    Learn the pros and cons of hiring independent contractors instead of regular full-time employees. Find out about a potential risk for severe tax penalties.
  2. Investing

    Top 6 Home Renovation Scams To Avoid

    Renovations are stressful, but if you rush through important details you could fall prey to one of these scams.
  3. Taxes

    The Purpose Of The W-9 Form

    Businesses use IRS form W-9 to gather information from vendors they hire as independent contractors.
  4. Taxes

    10 Things You Should Know About 1099s

    Independent contractors receive 1099 forms, rather than W-2s, as a record of income earned. Here are 10 important things to know about 1099 forms.
  5. Taxes

    The Purpose Of The W-9 Form

    The W-9 form provides key data your clients need if you're an independent contractor. Just be sure you're not really an employee who should fill out a W-4.
  6. Investing

    Corporate Bond Basics: Learn to Invest

    Understand the basics of corporate bonds to increase your chances of positive returns.
  7. Investing

    How To Choose The Right Bond For You

    Bond investing is a stable and low-risk way to diversify a portfolio. However, knowing which types of bonds are right for you is not always easy.
  8. Investing

    The Basics Of Bonds

    Bonds play an important part in your portfolio as you age; learning about them makes good financial sense.
  9. Investing

    Investing in Bonds: 5 Mistakes to Avoid in Today's Market

    Investors need to understand the five mistakes involving interest rate risk, credit risk, complex bonds, markups and inflation to avoid in the bond market.
  10. Investing

    5 Fixed Income Plays After the Fed Rate Increase

    Learn about various ways that you can adjust a fixed income investment portfolio to mitigate the potential negative effect of rising interest rates.
RELATED FAQS
  1. Under the Uniform Securities Act, a broker-dealer is generally required to obtain ...

    The correct answer is c. The correct answer is $10,000. While the Act states that the Administrator may set the amount, the ... Read Answer >>
  2. Under the Uniform Securities Act, registration requirements for an investment adviser ...

    The correct answer is a) Investment advisor representatives do not need to include a minimum amount of net capital since ... Read Answer >>
  3. Under the USA, registration as an IAR includes all of the following EXCEPT:

    Under the USA, registration as an IAR includes all of the following EXCEPT: A. Minimum net capitalB. Passing a qualification ... Read Answer >>
  4. How is a bank guarantee different from a traditional loan?

    Read about the differences between a traditional bank loan and a bank guarantee, and why a third party might require a guarantee ... Read Answer >>
Hot Definitions
  1. Smart Home

    A convenient home setup where appliances and devices can be automatically controlled remotely from anywhere in the world ...
  2. Efficient Frontier

    A set of optimal portfolios that offers the highest expected return for a defined level of risk or the lowest risk for a ...
  3. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  4. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs are often issued by smaller, younger companies seeking the ...
  5. Border Adjustment Tax

    A tax levied on goods based on where they are sold – exported goods are exempt from tax; those imported and sold in the ...
  6. Profit and Loss Statement (P&L)

    A financial statement that summarizes the revenues, costs and expenses incurred during a specified period of time, usually ...
Trading Center