What term describes a bond that guarantees payment of obligations under a contract?

The correct answer is "Surety bond." A surety bond is a three-party agreement that ensures the obligations of one party (the principal) to another party (the obligee) will be fulfilled. This type of bond provides a guarantee that the principal will perform the duties outlined in a contract. If the principal fails to do so, the surety company (the third party) is obligated to compensate the obligee, which adds a layer of financial security and trust to contractual agreements.

In the context of this question, while other types of bonds exist, a surety bond specifically captures the essence of guaranteeing payment or performance under a contract. For instance, a performance bond is a type of surety bond focused on ensuring that a contractor completes a project as per the contract specifications. However, the broader term that encompasses all contracts where obligations are guaranteed is the surety bond.

Options like commercial bonds and bid bonds have more specific functions. A commercial bond often refers to bonds that protect against various risks associated with conducting business, while a bid bond guarantees that the bidder will undertake the contract if awarded, rather than ensuring performance throughout the project's lifecycle. Hence, surety bonds are central to the concept of guaranteeing contract obligations, making it the most appropriate