Bond contracts, premium, collateral, and indemnity
Domain 3: Bond contracts, premium, collateral, and indemnity
This domain tests the money and contract terms: what the defendant signs, what the premium buys, how collateral is handled, and who must repay the surety.
Core rules
- The bail bond is a three-party surety contract: surety, defendant/principal, and court/obligee. The indemnity agreement is a separate contract by which the indemnitor reimburses the surety for losses, costs, and fees.
- Premium is earned when the bond is executed, unless the contract or law provides otherwise; it is not held in trust as refundable collateral. The agent must not rebate or split premium improperly.
- Collateral must be receipted, identified, held in a fiduciary capacity, and returned when the bond is exonerated or the surety's exposure ends. The agent must account for collateral and not commingle it with business funds.
- Indemnitors are typically jointly and severally liable. The agreement may cover forfeiture, extradition, recovery costs, and attorney fees.
- Any power of attorney or bond form must be authorized and used exactly; alterations can void the surety's obligation.
Worked example
A defendant pays a $3,000 premium and pledges a $20,000 car as collateral. The defendant fails to appear and the court forfeits the $50,000 bond. The premium is not refunded. The surety may look to the indemnitor and collateral for its actual loss, up to the penal sum, after paying or settling the forfeiture. The agent must give a written accounting and return any excess collateral.
Traps
Calling premium refundable. Commingling collateral with operating funds. Taking collateral without a receipt. Promising to return collateral before exoneration.