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. Bond

    A debt investment in which an investor loans money to an entity ...
  5. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with ...
  6. Convertible Bond

    A bond that can be converted into a predetermined amount of the ...
Related Articles
  1. Three Reasons Why Interest Rates Could ...
    Investing

    Three Reasons Why Interest Rates Could ...

  2. Munis, Midterms And What To Watch
    Investing News

    Munis, Midterms And What To Watch

  3. How Carlos Slim Built His Fortune
    Investing News

    How Carlos Slim Built His Fortune

  4. (Un)Mapping the Trend
    Charts & Patterns

    (Un)Mapping the Trend

Hot Definitions
  1. Halloween Strategy

    An investment technique in which an investor sells stocks before May 1 and refrains from reinvesting in the stock market ...
  2. Halloween Massacre

    Canada's decision to tax all income trusts domiciled in Canada. In October 2006, Canada's minister of finance, Jim Flaherty, ...
  3. Zombies

    Companies that continue to operate even though they are insolvent or near bankruptcy. Zombies often become casualties to ...
  4. Witching Hour

    The last hour of stock trading between 3pm (when the bond market closes) and 4pm EST. Witching hour is typically controlled ...
  5. October Effect

    The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological ...
  6. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities.
Trading Center