What is Surety?

Legal Definition
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. The person or company providing this promise is also known as a "surety" or as a "guarantor".

A surety most typically requires a guarantor 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 by the principal.

In the United States of America, the Miller Act may require a surety bond for contractors on certain federal construction projects; in addition, many states have adopted their own "Little Miller Acts". The surety transaction will typically involve a producer; 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.
-- Wikipedia
Legal Definition
Someone who assumes direct liability for another's obligation. Financial creditors may require the debtor to find a surety, who then signs the loan agreement along with the debtor. Although similar to a guarantor, a financial surety's liability arises as soon as the agreement is closed.
Legal Definition
Contracts. A person who binds himself for the payment of a sum of money or for the performance of something else, for another, who is already bound for the same. A surety differs from a guarantor, and the latter cannot be sued until after a suit against the principal. 10 Watts, 258.

2. The surety differs from bail in this, that the latter actually has, or is by law presumed to have, the custody of his principal, while the former has no control over him. The bail may surrender his principal in discharge of his obligation; the surety cannot be discharged by such surrender.

3. In Pennsylvania it has been decided that the creditor is bound to sue the principal when requested by the surety, and the debt is due; and that when proper notice is given by the surety that unless the principal be sued, be will consider himself discharged, he will be so considered, unless the principal be sued. 8 Serg. & Rawle, 116; 15 Serg. & Rawle, 29, 30; S. P. in Alabama, 9 Porter, R. 409. But in general a creditor may resort to the surety for the payment of his debt in the first place, without applying to the principal. 1 Watts, 28O; 7 Ham. part 1, 223. Vide Bouv. Inst. Index, h. t.; Contribution; Contracts; Suretyship.
-- Bouviers Law Dictionary
Legal Definition
A surety is one who at the request of another, and for the purpose of securing to him a benefit, becomes responsible for the performance by the latter of some act in favor of a third person or hypothecates property as security therefor. Civ. Code Cal. § 2831; Civ. Code Dak. § 1673. A surety is defined as a person who, being liable to pay a debt or perform an obligation, ls entitled, if It is enforced against him, to be indemnified by some other person who ought himself to have made payment or performed before the surety was compelled to do so. Smith v. Shelden, 35 Mich. 42, 24 Am. Rep. 529. And see Young v. McFadden, 125 Ind. 254, 25 N. E. 284 ; Wise v. Miller, 45 Ohio St 388, 14 N. E. 218 ; O'Conor v. Morse, 112 Cal. 31, 44 Pac. 305, 53 Am. St. Ren. 155; Hall v. Weaver (C. C.) 34 Fed. 106.
See also
-- Black's Law Dictionary
Legal Definition
One who, at the request of another and for the purpose of securing him a benefit, becomes responsible for the performance by the latter of some act in favor of a third person, or hypothecates property as security therefor. See 112 Cal. 31, 53 Am. St. Rep. 155, 44 Pac. 305.
-- Ballentine's Law Dictionary