What does suretyship involve?

Suretyship involves guaranteeing that one party will fulfill their obligations to another party. This arrangement typically includes three key entities: the obligee (the party receiving the obligation), the principal (the party who is obligated to perform), and the surety (the entity, often an insurance company or a financial institution, that guarantees the principal's performance). If the principal fails to meet their commitments, the surety steps in to ensure that the obligee is compensated or that the obligations are satisfied.

This concept is widely used in construction contracts, where a surety bond assures the project owner that the contractor will complete the project according to the agreed terms. Because of its role in securing the obligations between parties, suretyship plays a crucial part in many commercial and contractual relationships.