Surety Bond

The concept of a surety bond may be somewhat confusing because it is a contractual obligation that is significantly different than most traditional contracts. Namely, it is a contract that involves three parties as opposed to the more common two. Specifically, a surety bond includes the two parties commonly found in a contract, the principal and the obligee, and the third party known as the surety. It is the role of the surety to cover the obligations of the principal in the effect of a default. For example, a surety could co-sign a loan agreement for the principal. If the principal does not pay the loan back, it would fall upon the surety to make the needed payments. This is but one example of a surety bond. There are many others and they would all share the common denominator of three parties to the contract. It is also important to note the obligee must not be in breach of the surety bond contract, or else the obligation on the part of the principal and the surety would be voided.

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