Sureties

A surety is a person or entity that guarantees to fulfill the obligation of another party, typically ensuring performance or payment if the principal fails to meet the obligation. In a standard surety relationship, three parties are involved: the principal who owes the obligation, the obligee who is owed the obligation, and the surety who provides the guarantee. The surety’s liability may be primary in commercial bonds, meaning it must fulfill the obligation if the principal defaults, or the liability may function as a guaranty with secondary liability in some contexts.

Sureties are common in construction projects, banking, and court processes. In construction, a performance bond guarantees project completion, while a payment bond assures payment to subcontractors and suppliers. In the legal sphere, bail bonds function as surety bonds that secure a defendant’s temporary release upon payment of a fee or collateral. Across these domains, the surety undertakes risk in return for fees and often requires collateral or an indemnity agreement from the principal.

Mechanics of a surety arrangement typically involve exoneration, subrogation, and indemnification. If the principal defaults, the surety pays the obligee up to the bond amount and then gains subrogation rights to recover those costs from the principal. Collateral, credit checks, and underwriting standards are commonly used to assess and limit risk. Release or cancellation can occur when the obligation is discharged, the contract completes, or the bond is terminated in accordance with applicable law.

See also: bond, collateral, indemnity, subrogation, guaranty.