Which statement is true regarding the legal nature of surety bonds?

The correct answer is that surety bonds guarantee payment only if there is a default. A surety bond is a three-party agreement involving the principal, the obligee, and the surety. The principal is the party that needs the bond, the obligee is the party requiring the bond, and the surety is the party that backs the bond and guarantees the performance or payment.

If the principal defaults on their obligation, the surety is responsible for compensating the obligee up to the bond's limit. This core function of a surety bond is central to its legal nature, as it provides a safeguard for the obligee against the risk of non-performance or non-payment by the principal.

In contrast, surety bonds are not loans; rather, they are a promise to fulfill obligations, which distinguishes them from typical loan agreements. The nature of surety bonds means they do not always require collateral in the same way that loans might, although the surety may assess the risk associated with the principal. Lastly, while many surety bonds are often issued for fixed amounts, this is not a defining characteristic of their legal nature, making their nature regarding default the most accurate statement.