SURETYSHIP: All You Need To Know(+Free Tips)

Image Credit: CNA Surety

In contemporary society, before a valuable transaction is carried out, there must be atleast legal agreement involving different parties. This is where suretyship comes to play. Therefore, this article is intended to enlighten you with suretyship definition, contracts, defense and legally bonded surety laws.

Before we get to know the definition of suretyship, let’s remind ourselves who a surety is/are. A surety is a person or an entity that agrees to take responsibility for the debt, default, or other financial responsibilities of another party.

Suretyship Definition

A Suretyship is a very specialized line of insurance. It is usually created whenever one party guarantees performance of an obligation by another party. Therefore, for clarity, its definition cannot be complete if suretyship has none of these three parties to the agreement. They include;

  1. The principal – undertakes the obligation.
  2. The surety – he guarantees the obligation will be performed.
  3. The oblige – receives the benefit of the bond.

In addition, a simpler definition of Suretyship occurs when a person agrees to be liable for another person’s debt.  For example, being a co-signor on your child’s loan is a typical illustration of suretyship. 

suretyship and surety law
Image Credit: Miltons Matsemela(Suretyship)

Meanwhile, from the definition above, a suretyship arises from an agreement. these parties must be competent with a valid consideration where necessary. They must have openly assented to the contract so that all the parties are apprehended to each other.

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Suretyship Contract

A suretyship contract is a promissory type of insurance policy, that the insurance company (surety) promises the creditor of taking responsibility should incase the principal debtor fails to comply.

In other words, It is a legally binding agreement that the signee will take accountability for another individual’s contractual commitments. It involves the payment of a loan if the principal borrower falls into defaults. Anybody in the act of signing a suretyship contract is automatically a cosigner.

The obligee has the right to file a claim against the bond to recover any damages or losses incurred If the principal fails to follow the terms of the contract with the obligee. However, If the claim is valid, the surety company will have to pay compensation that will not surpass the bond amount. Then underwriters will inturn expect the principal to repay them for any claims paid.

Furthermore, surety contracts help to decrease the risk to the lender. This is because he spends less or no money on hiring agencies or lawyers to secure loan repayment if the borrower defaults. Moreover, anyone who is acting as a cosigner should have a thorough knowledge of the risk involved.

Is a Suretyship Equivalent to a Guarantee?

Although suretyships and guarantees are both kinds of security for a principal commitment, there is a substantial distinction between the two. As a general rule, guarantees generate independent principal responsibilities, whereas suretyships generate supplementary duties.

Who Is known as a Surety?

The person who provides the guarantee is referred to as the “surety”; the person whose default the guarantee covers is referred to as the “primary debtor”; and the person to whom the guarantee is provided is referred to as the “creditor.”

What are a Surety’s Responsibilities?

The primary responsibility of a surety is to ensure that the defendant attends in court when required.
If the surety learns that the defendant intends to leave the nation, flee the court, or go into hiding, they are required to alert the court.

What Does the Bible Mean by the Term Suretyship?

Being a surety is the obligation of a person to answer for another and compensate for any debt or loss that may result from another’s infraction. Whoever despises assurance is certain. Proverbs 11.

What are some examples of guaranty?

For instance, when a student applies for a student loan, the bank will require the student’s parent(s) to sign as guarantors for the loan’s repayment, and when a private company applies for a loan, one or more of the company’s directors will typically sign as guarantors for payment should the company default.

Suretyship Defense

Contracts sometimes contain a waiver of suretyship defences. As earlier said, a surety is a person bound by a contract under which one person agrees to pay a debt if the principal person fails to do so.

Oftentimes, suretyship relies on a variety of defenses that they claim to discharge their obligations under the bonds. On a surface level, these suretyship defenses sound viable. however, most of these defenses, particularly those based on changes under a construction contract, will not apply in favour of a fiscal suretyship.

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Also, suretyship may exercise defenses on a contract that would have been available to the principal debtor. For example the creditor’s breach; impossibility or illegality of performance; fraud, coercion, or deception by the creditor, the statute of controls, refusal of the creditor to accept tender or performance from either debtor or surety. Behind that, here are Traditional defenses;

#1. Release of the principal

The principal is the debtor—the person who is bound to a creditor. A contract of agreement is of huge commercial viability and has been greatly been useful in case of any commercial transactions. This is because a contract of surety acts as a second person to repay the amount if the principal person fails to pay the loan.

#2. Modification of the contract

If the lender modifies the instrument sufficiently to discharge the principal, the surety will also be released. However, modifications include the extension of repayment time.

#3. Statute of frauds

Suretyship contracts are amongst those shreds of evidence by some writing under the statute of frauds, and failure to do so may remove the surety from liability.

#4 General contract defenses

The surety may raise common defenses like incapacity lack of consideration unless they can replace the promissory estoppel.

The following are defenses of principal debtor only:
  1. Death or incapacity of the principal debtor
  2. Principal debtor’s setoffs against creditor
  3. The bankruptcy of the principal debtor
The following are defenses of the principal debtor and surety:
  1. Material breach by the creditor
  2. Fraudulent alteration of the contract
  3. Lack of mutual assent
  4. Creditor’s fraud, duress of the debtor
  5. Statute of limitations
The following are defenses of surety:
  • Surety’s incapacity
  • Fraud by the creditor on surety
  • The illegality of suretyship contract
  • Statute of frauds

Surety Law

Surety law defines a contract of agreement in case the principal debtor fails who is in the first instance liable to pay or perform. It is a legal backup of suretyship. This law gives you the legal concept of surety bonds.

Traditionally, you can rightly agree with me that when it comes to surety bonds, a business that wants to follow the law will first have to know the law. Check your state laws and converse with a surety expert to verify that you have the correct bond amount.


Finally, suretyship is the agreement of undertaking and fulfilling the obligation of another toward a third person. If the principal fails to deliver on the terms of the contract, the obligee shall be allowed to take a lawsuit against the bond in order to reclaim any damages.

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