Overview of Surety Bond-Concept and Components


What is a surety bond? It is a promise by a guarantor also known as surety to pay a party (known as the obligee) an amount of money if the second party (the principal party) fails to meet certain obligations or if the second party fails to fulfil the terms of the contract. The surety bond also known as the surety protects the obligee against losses resulting from the second party’s (principal’s) failure to meet the contract terms. In a nutshell, surety bond is a contract among at least three parties.

Components of a Surety Bond

Following are the three components of a surety bond or surety:-

  • Such bond comprises of the obligee and it is the party who receives the obligation.
  • It comprises of the principal and it is the primary party who performs the contractual obligation.
  • The surety gives assurance to the obligee that the principal can complete the task.

In Europe, the surety bonds can be issued by surety companies, banks. If the banks issue the surety then they are called bank guarantees. If issued by the surety companies then they are known as surety bonds. The surety bonds pay out cash to the limit of the bank guarantees if the Principal fails to uphold his obligations to the obligee and this is without the obligee’s reference to the Principal, against the obligee’s statement of claim to the bank.

Concept of Surety

In the context of the surety bonds, the contract formed between the obligee and the Principal implies the principal’s credibility, its performance and ability to complete according to the agreement terms. If the principal fails to deliver as expected, fails to meet the terms of contract then the surety bond protects the obligee from losses.

There are online businesses which allow prospective customers to invest in bonds. Such businesses maintain websites where they highlight the services they offer to the customers. Customers can calculate the bond cost, they can get a free bond quotes. They can communicate with such business using the communication address and contact number given in the business website.

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