The three parties to a surety contract are the surety company, the principal, and the obligee.
Our first party is the Surety. In the United States, corporate surety companies are typically insurance companies. They underwrite the principal and obligation to see if the principal can fulfill a contract. They join with the Principal and act as a team. The surety is essentially setting the money aside for the principal in order to guarantee performance or payment. Since this is a credit relationship, the surety acts similarly to a bank.
The second party in the contract is the Principal, likely a contractor. The principal is responsible to fulfill any obligation listed in a contract. If the principal does not, the surety company might step in.
The third party of the contract is the Obligee. The obligee is the beneficiary – The one who benefits — the bondholder. When a bond is issued, just as a check might be issued, the obligee is the one who holds that bond and can make a claim on the bond.
For example: if you are a contractor building a community center for the City of Seattle, you are the principal, the City of Seattle is the obligee, and the surety company issues the bond for the project.
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