Define: Suretyship

In finance, a surety, surety bond or guaranty involves a promise by one party to assume responsibility for the debt obligation of a borrower if that borrower defaults.

suretyship is a contract between a person called a surety and a creditor or obligor, who in this relationship is called the principal. The surety promises the creditor to pay the principal’s debt, make good his default or pay damages for his tort. This is frequently done at the same time that the debt or obligation is created, often in the same instrument. The consideration for the surety’s promise may be the making of the contract or entering into some other relationship with the principal. In other cases, specific consideration may be furnished by the creditor to the surety. Upon the principal’s default, or whenever the creditor may enforce his claim against the principal, he may sure the principal and surety jointly or severally, and payment by either is a discharge pro tanto of both obligations.

Sureties at common law were as a rule uncompensated, and for this reason, their contracts were considered “uberrimae fidei” and interpreted as much as possible in favour of the surety. At the present time, sureties are for the most part, corporations that perform their duties for compensation, generally in the form of a periodically paid premium. Courts are inclined, therefore, to treat these contracts like any other and apply ordinary rules of interpretation. Indeed, since the contract is often contained in printed forms furnished by the surety, the rules of interpretation applied are likely to favour the creditor.

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This glossary post was last updated: 11th April, 2024.