Few understand the relationships created by the ancient notion of a surety. Those familiar with surety law understand that there is no mystery as the relationships are defined by contracts and often colored by applicable law. While many mediators have knowledge of the issues involved in the underlying dispute (whether construction, finance, probate, or some other area), few mediators grasp both those underlying substantive matters and the unique duties, obligations, and interests involving a surety. Failing to do so can result in an inefficient or ineffective resolution or no resolution at all.
The surety relationship is a tri-partite relationship, which is rare in legal settings and in life.
Sports usually involve two people or teams. Democratic republics have two dominant political parties. We live in a binary world that usually focuses on two polar positions -- north-south, red-blue, hot-cold, young-old, white-black, on-off…It’s the yin and yang of life. A surety relationship is an anomaly.
A surety has an obligation to an owner or obligee and is set forth in a bond.
The bond may be required by law. If so, the requirements of the law can impact the duties owed by the surety beyond those set forth within the four corners of the bond.
The owner or obligee also has duties and obligations to the surety.
Some may be included in the bond and some are the product of statutes, but many are the creatures of common law. A failure to know or appreciate their provisions can be a pitfall for the unwary owner or obligee and could substantially limit or eliminate the benefits provided by the bond.
The surety also has duties and obligations to the principal, the person or entity who acquires or provides the bond, and the principal has duties and obligations to the surety.
Those responsibilities may be within the bond but are certainly set forth in the master surety agreement or other agreement given the surety in return for its provision of the bond or bonds. And likewise, statutory and common law set forth obligations each to the other.
The principal has duties and obligations to the owner or obligee.
These often arise under a contract between them but may be supplemented or completely provided by statute. And likewise, the owner or obligee has responsibilities to the principal.
In addition to the owner, there may be other third-party obligees, who are beneficiaries under a bond though they may not be named within it, such as subcontractors and supplies under a payment bond for a construction project.
The principal has duties and obligations to them which are usually provided by contract and may be supplemented or provided in whole by statute. These third-party beneficiaries may not be in contractual privity with the owner or primary obligee but that doesn’t mean that either is not the beneficiary of rights and responsibilities flowing from other contractual relationships. Of course, the relationship between the surety and these third-party beneficiaries is more direct and obvious, with duties and obligations each to the other as provided by the bond and supplemented by statutes and common law.