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Demand guarantee or bond

Demand guarantees are also called ‘bonds’, and that term is sometimes used in international trade. However, the term bond is not precisely defined in law, and it may refer to another kind of financial debt instrument, different from the demand guarantee. In some countries, like the United States, Canada and England, the term ‘performance bond’ is used for a special undertaking of insurance companies connected to construction contracts, and the term ‘surety bond’ is also used in the same context. It is important to understand that performance bonds and surety bonds are different from demand guarantees explained in the eLearning course Demand Guarantees and are not the subject of that course. Since performance bonds and surety bonds can be confused with demand guarantees, our eLearning course Demand Guarantees avoids the term bond.

Additionally, the international regulation of demand guarantees, the Uniform Rules for Demand Guarantees (URDG), issued by the International Chamber of Commerce, uses the term demand guaranty only.

It is important to observe the explanation included in the eLearning course on Demand Guarantees regarding the independence of demand guarantees. Demand guarantees are independent from the underlying commercial contracts between the beneficiary of a demand guarantee and the bank’s client, called the principal. The principal is the party that requests the bank to issue a demand guarantee in favour of the beneficiary. Performance or surety bonds mentioned above are not independent from the construction contracts in the same way, and they must be distinguished from demand guarantees.

See our eLearning course Demand Guarantees

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