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
Public official bond
Lost securities bonds
Hazardous waste removal bonds
Credit enhancement financial guarantee bonds
Mechanic’s lien bonds
Contractor’s license bonds
Environmental protection 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.