Indemnity Bond or a Surety Bond is an undertaking given by a party entering into a contract promising to bear the losses in case of breach of contract. When a party who is liable to perform the obligations in a contract refuses to oblige, then the defaulting party becomes liable to meet the costs of damages to the opposite party.
The general insurance policy is an example of Indemnity Bond where the authority issuing Insurance policy promises that it shall indemnify the party buying the policy in the event of a specific event.
Condition for the enforcement of indemnity bond
As long as there is no infringement in contract, the obligated party will not be asked to pay to the principal. The liability arises only when there is a default in the performance of duty specified in the contract.
Difference between an affidavit and indemnity bond
An affidavit is a statement taken on oath stating that all the statements are correct and no material information is concealed. On the other hand, an indemnity bond provides a surety that the party will be monetarily compensated in case of infringement of contract by the other party.
Here are some examples where Indemnity Bonds are significantly used
An Indemnity Bond is similar to an Insurance surety bond on many grounds. Just like when one party possessing insurance policy suffers loss then the genuineness of actual damage is looked into by the insurance agents in order to indemnify the party similarly when one party breaches a contract then the claim is decided based on the actual loss caused to the suffering party.
Another scenario is when a person loses a share certificate. One has to approach the share issuing authority so that the accounts can be frozen and financial loss can be prevented. It is required to apply for a duplicate share certificate for which one has to deposit an indemnity bond stating that he/she is the true owner of the share certificate. The indemnity bond states that the share certificate is genuinely lost and his request for issuing of a new share certificate be processed. The applicant also gives an indemnity of all costs and expenses with regard to the issue of new share certificate.
An Indemnity Bond is also provided to Company/Educational Institution at the time of alteration in the basic details of the employee/candidate. The applicant promises to indemnify any loss with regard to any further changes in the basic details of the applicant.
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