Legal Definitions - statutory bond

A statutory bond is a type of financial guarantee that is explicitly required by a specific law or regulation. These laws can be enacted at the federal, state, or local level. The primary purpose of a statutory bond is to ensure that an individual, business, or organization will comply with legal requirements, perform certain duties, or fulfill contractual obligations. If the bonded party fails to meet these obligations, the bond provides a financial safeguard to compensate the party that has been harmed.

• Example 1: Contractor's License Bond

  A state law mandates that all licensed general contractors must obtain a contractor's bond before they can legally perform work on residential projects exceeding a certain value. This bond ensures that if a contractor abandons a project, performs substandard work, or fails to pay subcontractors, the homeowner or subcontractors can make a claim against the bond to recover their losses.

  This illustrates a statutory bond because the requirement for the contractor to obtain this specific financial guarantee comes directly from a state statute designed to protect consumers and ensure compliance within the construction industry.

• Example 2: Public Official Bond

  A county ordinance requires that anyone elected to the position of County Treasurer must secure an official bond before taking office. This bond serves as a financial assurance that the Treasurer will faithfully and honestly perform their duties, such as managing public funds, and will not misuse or misappropriate taxpayer money.

  This is a statutory bond because its requirement is established by a specific local law (an ordinance) for public accountability, ensuring that public officials handle funds responsibly and providing a mechanism for recovery if they fail to do so.

• Example 3: Executor's Bond for an Estate

  A state probate court, following state law, orders an individual appointed as the executor of a deceased person's estate to post an executor's bond before they can begin distributing assets to heirs. This bond guarantees that the executor will properly manage the estate's assets, pay legitimate debts, and distribute the remaining inheritance according to the will and state law.

  This example demonstrates a statutory bond because the requirement for the executor to obtain this financial protection is stipulated by state probate law, which aims to safeguard the interests of the beneficiaries and creditors of the estate.