surety bond

A surety bond is a contractual agreement involving three parties :

The principal is the party that needs the bond , the obligee is the party that requires the bond, and the surety is the party that assures the obligee that the principal will fulfill their obligations.

Surety bonds function like a security deposit . When a party owes legal duties to others, they post a surety bond to guarantee their performance . If the party fails to perform their duty , the obligee is compensated out of the bond. Surety bonds are frequently used to secure fiduciary relationships and in international, large, or complex transactions .

For example, many jurisdictions require guardians to post a surety bond before formally taking responsibility for their wards . Similarly, a company making a large purchase from a foreign supplier might require the supplier to post a surety bond.

[Last reviewed in June of 2024 by the Wex Definitions Team ]

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