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What is a Contract of Suretyship?

Surety Contract

performance bond application

A Contract of Suretyship is another name for a surety agreement. This contract is a three party agreement whereby the surety serves in a capacity to provide a guaranty on behalf of another entity. The contract of suretyship allows the surety to step into the shoes of the party being guaranteed (the Obligor) under the terms of the original agreement. The original agreement is between the Obligor (the party that is being guaranteed by the Surety) and the Obligee. In a construction situation, the Obligee is the project owner, such as the landowner. The Obligor would be the general contractor.

So, there are two contracts at play. The first contract is the contract to build something by the Obligor for the benefit of the Obligee. This agreement sets forth the terms that will apply for the performance bond. The performance bond, or Contract of Suretyship, will refere to this first contract. The contract of suretyship has all three parties involved, which will then provide a guaranty for the Obligee by the Surety if the Obligor is unable to finish the project according to the terms of the first agreement. So, the second agreement will be written in a way to refer to the first contract.