Surety Bond Explained

A surety bond is a promise from one party that they will pay a certain amount if the second party, known as the principal, fails to meet a previous obligation, such as to fulfill the terms of a contract. Surety bonds serve to protect against losses if one of the parties fails to meet an obligation. The party whose actions are at the center of a surety bond is known as the principal. The party who agrees to pay a surety bond is known as the surety, while the party that accepts the surety bond is the obligee.

Unlike other contracts, a surety bond definition involves three distinct parties to a surety bond. The parties involved in surety bonds are:

    The obligee – the party who receives the obligation;

    The principal – the primary party who performs the contractual obligation; and

    The surety – the party who assures that the obligee that the principal will perform the task.

A commercial surety bond can be:

    License or permit bond 

    Court bond 

    Public official bond 

    Lost securities bonds 

    Hazardous waste removal bonds 

    Credit enhancement financial guarantee bonds 

    Appeal bonds

    Supersedeas bonds 

    Attachment bonds

    Replevin bonds 

    Injunction bonds

    Bail bonds 

    Mechanic’s lien bonds 

    Administrator bonds

    Guardian bonds 

    Trustee bonds

    Contractor’s license bonds 

    Customs bonds

    Tax bonds 

    Reclamation bonds 

    Environmental protection bonds 

    Broker’s bonds

    Insurance agency bonds 

    Mortgage agency bonds 

    Title agency bonds

    Employee Retirement Income Security Act bonds 

    Motor vehicle dealer bonds

    Money transmitter bonds 

    Health spa bonds

    Self- insured workers compensation guarantee bonds

    Wage and welfare/ fringe benefit bonds.