Which type of bond is designed to ensure a party performs its obligations?

The type of bond designed to ensure a party performs its obligations is known as a surety bond. Surety bonds are agreements among three parties: the principal (the party responsible for fulfilling the obligation), the obligee (the party that requires the obligation to be fulfilled), and the surety (which guarantees that the principal will perform as promised). If the principal fails to meet their obligations, the surety is responsible for compensation to the obligee, thereby ensuring that the contract terms or duties are completed.

Performance bonds, which are also mentioned, specifically guarantee that a contractor will complete a project according to the contractual terms. While all performance bonds are surety bonds, not all surety bonds are performance bonds; the surety category encompasses various types of bonds, including performance and payment bonds.

General liability bonds and fidelity bonds serve different purposes. General liability bonds cover claims of damages due to negligence, while fidelity bonds protect against employee dishonesty or fraud. Thus, surety bonds, which include various specific types like performance bonds, are the broadest category ensuring that obligations are performed.