demand guarantee

demand guarantee
International
A guarantee that imposes a primary obligation on the issuer to pay the beneficiary on its first demand for payment, where the primary obligor fails to perform the contract. The issuer's obligations are not affected by disputes over the underlying contract between the beneficiary and the primary obligor. The guarantee is independent from the underlying contract which it guarantees and operates strictly in accordance with its terms.
There are various types of demand guarantee including tender, performance and advance payment. Similar in nature to on demand bonds and standby letters of credit (standby letter of credit) they differ from true guarantees (that is, contracts of suretyship). The obligation of the guarantor to make payment under a true guarantee is a secondary obligation dependent on the beneficiary establishing that the primary obligor is in breach of the underlying contract.
Related links
Uniform Rules for Demand Guarantees (URDG) Uniform Rules for Demand Guarantees (URDG) (http://uk.practicallaw.com/topic6-502-0542)
For more on demand guarantees and how they differ from true guarantees, see Practice note, Bonds, guarantees and standby credits: overview: The guarantor's obligation (www.practicallaw.com/4-107-3649).

Practical Law Dictionary. Glossary of UK, US and international legal terms. . 2010.

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