Surety Bonds
Surety always involves three parties:
- Obligee: the party to whom the bond is payable in the event of a default;
- Principal: the party on whose obligation is guaranteed; and
- Surety: the party that assumes the obligation if the principal cannot.
A surety bond protects the obligee against losses, up to the limit of the bond, that result from the principal's failure to perform its obligation or undertaking. Unlike insurance, a loss paid under a surety bond is fully recoverable from the principal.
The two most common forms of surety are contract surety and commercial surety.