A surety, surety bond or guaranty, in finance, is a promise by one party to assume responsibility for the debt obligation of a borrower if that borrower defaults. The person or company that provides this promise, is also known as a surety or guarantor.
The situation in which a surety is most typically required is when the ability of the primary obligor or principal to perform its obligations to the obligee (counterparty) under a contract is in question, or when there is some public or private interest which requires protection from the consequences of the principal's default or delinquency. In most common law jurisdictions, a contract of suretyship is subject to the Statute of Frauds (or its equivalent local laws) and is only enforceable if recorded in writing and signed by the surety and the principal.
In the United States, a surety bond may be required for certain federal projects due to the Miller Act; in addition, many states have adopted their own "Little Miller Acts". The surety transaction will typically involve a producer, and in the United States the National Association of Surety Bond Producers (NASBP) is a trade association which represents this group.
If the surety is required to pay or perform due to the principal's failure to do so, the law will usually give the surety a right of subrogation, allowing the surety to "step into the shoes of" the principal and use his (the surety's) contractual rights to recover the cost of making payment or performing on the principal's behalf, even in the absence of an express agreement to that effect between the surety and the principal.
Traditionally, a distinction was made between a suretyship arrangement and that of a guaranty. In both cases, the lender gained the ability to collect from another person in the event of a default by the principal. However, the surety's liability was joint and primary with the principal: the creditor could attempt to collect the debt from either party independently of the other. The guarantor's liability was ancillary and derivative: the creditor first had to attempt to collect the debt from the debtor before looking to the guarantor for payment. Many jurisdictions have abolished this distinction, in effect putting all guarantors in the position of the surety.
In the United States, under Article 3 of the Uniform Commercial Code, a person who signs a negotiable instrument as a surety is termed an accommodation party; such a party may be able to assert defenses to the enforcement of an instrument not available to the maker of the instrument.
See also 
- Loan guarantee
- Surety bond
- Surety (Canadian criminal law)
- Student Loan Guarantor
- International Surities
||This article needs additional citations for verification. (November 2010)|
- Schubert L. (2003). Q&A: The Legal Basics of Surety Bonds. Construction Executive.
- McIntyre M. (2007). [http://suretyinfo.org/pdf/CBO-suretyrelationship.pdf The Surety Relationship Underwriters and Bond Producers—Your Key Advisers. Construction Business Owner.