Surety is a legal concept in which one party (the surety) guarantees to fulfill the obligations or responsibilities of another party (the principal) if the principal fails to do so.
Essentially, the surety acts as a guarantor or insurer, promise a third party (the obligee) that certain obligations will be met.
A surety involves three distinct parties:
The Surety: the party that provides a guarantee or promise to the obligee that they will fulfill the obligations of the principal if the principal fails to do so. In the case of a surety bond, this would be the bond holder.
The Principal: the individual or entity that has a duty or obligation to perform a certain action or fulfill a contractual commitment. In the case of a surety bond, this would be the executor.
The Obligee: the party to whom the obligations are owed. This could be a Creditor, a contractor, a government agency, or any party with a vested interest in the performance of the principal's obligations. In the case of a surety bond, this would be the deceased's estate.
Other key points about surety include:
Performance Guarantee: surety is often used to provide assurance that a contract or obligation will be fulfilled as agreed. If the principal fails to perform, the surety steps in to cover the costs, damages, or losses suffered by the obligee.
Cost (Premium): the principal pays a premium to the surety for assuming the risk. The premium is usually a percentage of the total amount of the bond.
Claims: If the principal fails to fulfill their obligations, the obligee can make a claim against the surety. If the claim is valid, the surety compensates the obligee and then seeks reimbursement from the principal.