A Court Bond is filed in connection with litigation by the Principal and is specified by the Court. The Principal can be the Appellant, Plaintiff, Defendant, or anyone who seeks Court intervention. A Court Bond is a guarantee required by Statute or Court Order for the benefit of another, otherwise known as the Obligee.
The most common Court bonds are:
• Appeal or Supersedeas
• Attachment or Replevin
• Discharge Attachment, etc.
• Discharge Mechanic's Lien
• Injunction or Temporary Restraining Order
In short, a Court Bond enables the Principal to seek a remedy in Court to which s/he believes him/herself entitled, while at the same time protecting the Obligee from loss as a result of the ensuing litigation.
Once a Court Bond is filed, a vested interest is established of which the obligee cannot be deprived without his/her consent. There is, consequently, no cancellation clause permitted in Court Bonds and no statutory provision for a release of a Surety. It is irrevocably binding until all parties agree to its termination or until the case has been settled with Court approval.
Underwriting and Collateral: Since Court Bonds offer financial protection to the Obligee, they are written very carefully. The Principal’s ability to secure the bond is determined by the underwriter’s evaluation of his/her financial status and ability. Attention is given to the Principal’s liquid assets and stockholders equity, and often, collateral is required to obtain these bonds. Presently, only Letters of Credit and sometimes wire transfers are accepted forms of collateral by the Surety. Collateral is always held for the entire amount of the bond, except in the case of Appeal and Supersedes Bonds, where the collateral must include interest as well. Letters of Credit and the issuing bank must be approved by the Surety prior to issuance.