A contractor's surety bond of $15,000 covers a project where they owe $8,500 to suppliers and $12,000 to subcontractors. What is the maximum the bond will pay out?
Correct Answer
A) $15,000
The surety bond maximum payout is limited to the bond amount of $15,000, regardless of total claims exceeding that amount.
Why This Is the Correct Answer
A surety bond functions as a guarantee up to its face value. Regardless of how much total liability exists ($8,500 + $12,000 = $20,500), the bond will never pay more than its stated limit of $15,000.
Why the Other Options Are Wrong
Option B: $12,000
$12,000 represents only the subcontractor obligation. While this is less than the bond limit and could be one claimant's recovery, the question asks for the maximum total bond payout, which is the bond's face value.
Option C: $8,500
$8,500 represents only the supplier obligation. Paying only this amount would not exhaust the bond, and it ignores the subcontractor claim. The bond's ceiling is its face value, not one partial claim.
Option D: $20,500
$20,500 is the total of both debts combined, but surety bonds are capped at their face amount. The bond cannot pay more than $15,000 no matter how large the combined claims are.
Memory Technique
Think of a surety bond as a bucket with a fixed capacity ($15,000). No matter how much water (claims) you pour in, the bucket can only hold — and release — what fits up to its rim.
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