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A contract guaranteeing the performance of a specific obligation. Simply put, it is a three-party agreement under which one party, the surety company, answers to a second party, the owner, creditor or “obligee,” for a third party’s debts, default or nonperformance. Contractors are often required to purchase surety bonds if they are working on public projects. The surety company becomes responsible for carrying out the work or paying for the loss up to the bond “penalty” if the contractor fails to perform.
• The Obligee - the party who is the recipient of an obligation.
• The Principal - the primary party who will be performing the contractual obligation,
• The Surety - who assures the Obligee that the principal can perform the task
License and permit bonds are required by certain federal, state, or municipal governments. These bonds function as a guarantee from a Surety to a government and its constituents (Obligee) that a company (Principal) will comply with an underlying statute, state law, municipal ordinance, or regulation.
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