Surety Bond Definition

A surety bond is a contract involving three parties: the principal, who will be performing some obligation; the obligee, who will be receiving the obligation; and the surety, who ensures the principal performs the obligation. The surety guarantees the obligation in behalf of the obligee and is deemed a disinterested third party who does not derive direct benefit from the obligation.

For example, a performance surety bond might specify that a housepainter will paint a homeowner’s house in a specific time period and according to local code; the surety ensures that the principal discharges the contractual obligation in compliance with the bond. Surety bonds are commonly used in construction and fiduciary engagements though in principal they could be used in any type of transaction.