Corporate Bonding

Whenever two parties enter a relation under the terms of which one of the parties is obligated to perform certain services in a certain manner for the other, a risk is created that the former party will fail to fulfill his obligations. Such failure may be due to dishonesty, to inability or to a combination of the two. In any event it is likely to cause financial loss or other hardship to the second party. In recognition of this risk there grew up the practice of personal bonding under which a third party, called the surety, guaranteed the honesty or efficiency of the party who had undertaken the primary obligation, known as the principal. This guarantee or bond ran in favor of the obligee for whom the services were to be performed.* The purpose of such an arrangement was, of course, to decrease the risk carried by the obligee by adding to the obligation of the principal that of the surety, usually an individual of actual or reputed means.