Surety Bond

A surety bond is a contract among at least three parties:The principal - the primary party who will be performing a contractual obligationThe obligee - the party who is the recipient of the obligation, and The surety - who ensures that the principal's obligations will be performed.Through this agreement, the surety agrees to uphold - for the benefit of the obligee - the contractual promises (obligations) made by the principal if the principal fails to uphold its promises to the obligee. The contract is formed so as to induce the obligee to contract with the principal, i.e., to demonstrate the credibility of the principal and guarantee performance and completion per the terms of the agreement.
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Noun
1. a bond given to protect the recipient against loss in case the terms of a contract are not filled; a surety company assumes liability for nonperformance
(synonym) performance bond
(hypernym) bond, bond certificate

A three party bond contract in which a third party (the surety) backs up a principal by agreeing to honour the principal's obligation(s) towards the obligee of a bond in the event of the latter's default. - (read more on Surety Bond)