CLOSED Penalty Bond - Lost Instrument in All States
Table of Contents
Brief Summary
A lost stock certificate or other instrument usually cannot be reissued until you give the issuer an indemnity bond. A closed penalty bond names a fixed dollar limit, so you and the surety know the exposure up front, and the issuer gets the protection it needs to release a replacement.
A closed penalty lost instrument bond is an indemnity bond with a fixed, stated limit, posted by the owner of a lost, destroyed or stolen instrument so the issuer will replace it or pay on it. Under UCC 8-405, an issuer must replace a lost security certificate once the owner files a sufficient indemnity bond and meets the issuer's other reasonable requirements.
We can help with all All States bonds!
How to Apply for a CLOSED Penalty Bond:
- Notify the issuer or transfer agent of the loss promptly.
- Ask the issuer for the required bond amount, any bond form and its other replacement requirements.
- Complete the bond application with details of the lost instrument and how it was lost.
- Pay the premium and sign the indemnity agreement with the surety.
- Deliver the executed bond and any affidavit of loss to the issuer.
Detailed Information About the All States CLOSED Penalty Bond:
Closed penalty versus open penalty
A lost instrument bond protects the issuer, transfer agent or paying party if the original instrument later turns up in someone else's hands. A closed penalty bond caps the surety's liability at a specific dollar figure written on the bond. An open penalty bond carries no fixed cap. Which form is acceptable is the issuer's call, so ask before you apply.
Where the requirement comes from
For stock and other certificated securities, Uniform Commercial Code section 8-405 says the issuer shall issue a new certificate if the owner asks before the issuer has notice that a protected purchaser has acquired the original, files a sufficient indemnity bond, and meets other reasonable requirements the issuer sets. If a protected purchaser later presents the original, the issuer can recover on the bond. UCC 8-406 adds that an owner who waits too long after learning of the loss to notify the issuer can lose the right to a replacement.
For checks, notes and other negotiable instruments, UCC 3-309 lets a person enforce a lost instrument only if a court finds the party required to pay is adequately protected against a later claim. A bond is a common way to provide that protection.
Each state adopts the UCC through its own statutes, so the exact section number may differ in your state.
Setting the amount
The issuer or its transfer agent sets the bond amount, usually tied to the value of the lost instrument. Get the required amount and any prescribed form from them in writing before the bond is issued.
Premium
The surety prices the bond from the penalty amount, the type of instrument and the applicant's credit. You see the actual premium when you apply.
Eligibility and Requirements for an All States CLOSED Penalty Bond:
- Proof that you owned or were entitled to enforce the instrument.
- An affidavit or statement describing the loss, if the issuer asks for one.
- A request made before the issuer learns a protected purchaser holds the original.
- A fixed bond amount set by the issuer or transfer agent.
- Applicant credit review by the surety.
All States CLOSED Penalty Bond FAQs:
The bond has a fixed maximum, stated in dollars on the bond. The surety will not pay more than that figure. An open penalty bond has no stated cap.
The issuer or transfer agent that will replace or pay the instrument. Get the figure from them before applying.
Under UCC 8-405 the issuer must replace it if you ask before it learns a protected purchaser has the original, file a sufficient indemnity bond and meet its other reasonable requirements.
If a protected purchaser presents the original, the issuer may have to honor it and can then recover its loss on the bond. You repay the surety for any claim it pays.
