BANK-GUARANTEE

Bank Guarantee civil law guarantee instrument URDG 758.

Definition

Bank Guarantee types: (1) Demand Guarantee: payable on first demand ('on first demand'/'à première demande') by beneficiary submitting compliant demand without need to prove underlying default - independent obligation of bank vs underlying contract. (2) Conditional Guarantee: payable only upon proof of default (e.g., court judgment or arbitration award), less common. (3) Performance Guarantee: guarantees contractor's performance under construction/supply contract. (4) Advance Payment Guarantee: guarantees return of advance payment if contractor fails to deliver. (5) Bid Bond Guarantee: guarantees bidder will sign contract if awarded. (6) Payment Guarantee: guarantees buyer/applicant's payment obligation to seller/beneficiary. (7) Customs Guarantee: guarantees customs duty payment to authorities. (8) Tax Guarantee: guarantees tax payment to fiscal authorities. (9) Counter-Guarantee: second bank (counter-guarantor) issues guarantee to first bank (guarantor) who issues primary guarantee to beneficiary, used in cross-border situations. URDG 758 key principles: independent obligation (Article 5), documentary nature (Article 8 - banks deal in documents not goods/services), strict compliance (Article 19 - banks examine documents for compliance), force majeure (Article 26), expiry (Article 25). Standby + Guarantee + L/C terminology overlap: same economic function (payment guarantee, performance guarantee), legal form differs (L/C and SBLC common-law origin vs Guarantee civil-law origin). MT760 SWIFT message used for both (Guarantee/Standby Letter of Credit message type, BIC qualifies as Standby or Guarantee per text).

Origin

Bank Guarantee historical roots civil law 19th century ; URDG first published 1992 (URDG 458) ; URDG 758 published 2010 ICC Publication 758 ; ~$5T+ outstanding globally 2024.

Example in context

French exporter signs contract Algerian oil refinery EUR 20M equipment supply ; Algerian customer requires Advance Payment Guarantee 10% EUR 2M for advance payment release: French exporter's bank Societe Generale issues MT760 Advance Payment Guarantee EUR 2M (URDG 758 subject) to Banque Exterieure d'Algerie BEA ; Algerian customer pays advance EUR 2M ; if French exporter fails to deliver, BEA presents demand to SocGen, SocGen pays EUR 2M, claims against French exporter.

Related terms

• URDG 758 — governing rules.
• Standby LC — common-law equivalent.