In modern business, it is almost impossible not to transact without the use of credit. Often, the amounts of business expenses outmatches the business incomes or at least at one time or another. In order to shore up one’s deficits, it is essential to obtain loans to fill in the gaps. In addition, some businesses generally require additional capital outlay to operate. It is advisable that an entity settles for the best capital mix that balances the assets and liabilities well. An entity must have just the right ratio of debt and equity capital. In accessing debt capital, an entity or a person has several options. Some of the financial instruments that may be relied on are the bonds and the liens. It is instructive to appreciate that while the two are applicable as sources of debt capital, they could as well be claims falling under debts owed by parties to other parties. The paper shall discuss all the dimensions in a bid to shading some light on the differences between the bond and the lien claims. It is imperative from the onset to note that the bonds offer better protection to the creditor as well as provide flexible credit to the debtor. This paper thus prefers the bond claims over the lien claims.
A lien essentially refers to the claim of a property as a security for a debt owed. In that context, liens are claimed by the creditor against the property of the debtor. The lien is a powerful legal tool that has several repercussions on the property attached. Often in the spirit of promoting commercial transactions, the courts are ready to listen to grievances of parties with the intention of resolving the disputes. This is one responsibility conferred on the courts in relation to commerce. The lien claim hence is enforceable by a court of law. The consequence of a lien claim is that it encumbers the property so attached in the claim. The claimant of the debt moves to court and prosecutes his case in a suit. The successful prosecution of the suit thereof earns the claimant a lien. A lien is a claim on a property. In that context, as long as the lien is valid and properly issued by a Court of competent jurisdiction, the party relying on the lien assumes priority rights over the property in question. The lien can thus be perceived as an equitable remedy in the sense that it seeks to aid the oppressed in commercial transactions. The spirit is that with the introduction of inconveniences on the property of the debtor, the latter would see it fit to pay the debt and obtain possession of the property attached. However, it is instructive to note that failure of the party to pay off the debt may as well lead to the Court’s transfer of the property to the claimant in the lien. In other words, by operation of the law, the failure to pay a debt due may occasion a transfer of ownership of the attached property to the creditor. In that respect, the lien claim should be appreciated for its protection of the rights of the creditor. It seeks to inject some sanity and honesty in commercial transaction by acting in an equitable manner.
Additionally, it should be noted that various legal jurisdictions entertain judgment liens and equitable liens. The former refers to the judgment given in court in favor of the judgment decree holder to the extent that he has a lien over the property of the judgment debtor. To that extent, the judgment lien is seen as an expeditious alternative to the achievement of the rights of the judgment decree holder as against the judgment debtor. In that respect, judgment liens should be seen as forms of execution of decrees obtained in competent courts of law. On the other hand, equitable liens are issued by courts to aid in the attainment of justice. In that respect, an equitable lien may lie as against a property owner to correct an injustice occasioned directly on the proprietor’s fault. The advantage of liens lies primarily on the enforceability as they gain legal recognition upon being conferred by the court. However, for a lien to be conferred to the claimant by the courts, the claimant must have instituted the proceedings on time and must have come to the aid of the law with clean hands. This in many cases frustrates the claimant’s claim as the circumstances of the case may vary from case to case.
On the other hand, bond claims refer to financial claims in which the claimant seeks to gain from a debt which was previously owed. In many cases, bond claims arise upon the termination of tenancies. Often, the claimant is the tenant who seeks to have the landlord pay back the deposit and or reimburse for expenses incurred on behalf of the landlord.
The other limb of bonds arises when one seeks to give an assurance of performance of a contractual obligation. Often, the right to the bond claim is given to the principal who consumes the proceeds of the offer and hence offers the consideration. Take the example of a construction company entering a contract. A bond claim may arise that in the event the constructor fails to deliver, the offering party may execute a bond. Usually this arises because of the high stakes in such commercial transactions. The obligation of performance on the part of the contractor is strengthened by the existence of the bond. Bonds often come with sureties. This is to say one guarantees to pay a similar amount of the bond value in the event the fruits of the contract are not delivered as anticipated.
However, it is imperative to appreciate the fact that bonds in themselves are complete and sureties are not mandatory. The approach of the law in the implementation of bonds is much flexible. In fact, the bonds are not defeated by factors such as time and the faults of the parties. The approach the court assumes considers the totality of the circumstances. This is manifested even in the different types of claims. In instituting for sureties only, the process is rather expeditious and requires less legal representation as compared to claims involving both the sureties and the principal amount.
In conclusion, it should be appreciated that bond and lien claims suffice as financial instruments used in protecting and ensuring the adjudication of rights to deserving parties. While the differences are subtle, they are informed by the different needs in the market. With the foregoing discussion in mind, it is the considered opinion of the paper that between bonds and lien claims, the former are more advantageous.
Works Cited
Banks, Erick. Finance: The Basics. New York: Routledge, 2010.
Dlabay, Les R and James L Burrow. Business Finance. New York: Cengage Learning, 2007.
Rush, John and Michael Ottley. Business Law. New York: Cengage Learning EMEA, 2009.
