surety

Suretyship, or guaranty, is a legal agreement where one party assumes liability for the obligations of another. This involves three parties: the principal (the one whose obligation is guaranteed), the obligee (the one protected), and the surety (the one guaranteeing the obligation).12

Surety bonds are often used to protect businesses against employee dishonesty or to ensure the performance of contracts. Unlike insurance, which covers random events, surety bonds cover failures within the principal's control. The surety has the right to recover losses from the principal, and bonds are typically non-cancelable by the surety.2

Common types of surety bonds include contract construction bonds, court bonds (like fiduciary bonds), official bonds, lost instrument bonds, and license and permit bonds. These instruments substitute the surety's credit for the principal's, sometimes requiring collateral if the principal's credit is uncertain.2