Legal Definitions - subsurety

A subsurety is a person or entity who provides a guarantee for an obligation, but their responsibility only activates if both the primary obligor (the "principal") and another guarantor (an "earlier surety") fail to fulfill their commitments. Essentially, a subsurety acts as a backup to a backup. Their promise offers an additional layer of security, but their liability is secondary to the first surety.

Here are some examples to illustrate the concept of a subsurety:

• Construction Project Bond: Imagine a large construction company (the principal) is hired to build a new public library. The city requires a performance bond to ensure the project is completed. A major insurance company (Surety A) provides this bond, guaranteeing the construction company's performance. However, due to the project's immense size, Surety A seeks additional security. Another, smaller insurance firm (Surety B) agrees to act as a subsurety. Surety B's obligation is to step in and cover costs only if the construction company defaults and Surety A is unable or unwilling to fulfill its primary guarantee to the city. In this scenario, Surety B is the subsurety because its liability is contingent on the failure of both the construction company and Surety A.

• Business Loan Guarantee: A startup company (the principal) secures a significant loan from a bank. The bank requires a personal guarantee from the company's founder (Surety A) to mitigate risk. To further strengthen the loan's security, the founder's business partner (Surety B) agrees with the founder that if the startup defaults on the loan and the founder (Surety A) is unable to cover the debt from their personal assets, then Surety B will step in to repay the bank. Here, the business partner (Surety B) is the subsurety because their promise to pay the bank is conditional on the startup defaulting *and* the founder (the first surety) failing to meet their personal guarantee.

• Commercial Lease Agreement: A subsidiary company (the principal) leases a large office space. The landlord requires a guarantee from the parent company (Surety A) to ensure rent payments and property maintenance. To provide an extra layer of assurance to the parent company, one of the parent company's directors (Surety B) agrees that if the subsidiary defaults on the lease and the parent company (Surety A) fails to honor its guarantee to the landlord, then the director will personally cover the landlord's losses. The director (Surety B) acts as a subsurety because their obligation to the landlord only arises if both the subsidiary defaults *and* the parent company (the earlier surety) fails to meet its guarantee.