A Surety Bond is a contract between three parties – the Surety, the Principal, and the Obligee. The Surety Company issues a bond on behalf of the Principal, for the purpose of compensating the Obligee if the Principal’s fails to perform an obligation. The Surety Bond guarantees that the Principal will perform a specified task for the Obligee.
The Surety Company may be referred to as the Surety, the Bonding Company, or the Guarantor. The Surety Company provides the bond and promises to perform if the Principal defaults. The Surety Company will collect a service fee from the Principal and issue a Surety Bond. The Surety Bond’s limit of liability is known as the penal sum. If the Principal defaults and fails to fulfill its obligation to the Obligee, the Surety will pay the penal sum of the bond to the Obligee.
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