What
is a Bank Guarantee?
A
bank guarantee may be defined as a written
undertaking by which a bank, at
the request of its customer (the applicant),
irrevocably commits itself to pay a sum of
money to a third party (the
beneficiary) upon receipt of a complying demand by the
beneficiary informing the bank that the applicant failed to fulfill
his obligations under the underlying commercial contract.
As
it appears from the definition, the bank does not guarantee the
actual fulfillment of the applicant’s obligation under the
contract. It only commits itself to pay, in whole or in part, the
amount stated in the guarantee.
This
means that the bank will not, and is not liable to, deliver the goods
or assume any responsibility for carrying out a project.
Parties
involve in Bank Guarantee:
An
applicant : the party having an obligation under the underlying
relationship supported by the guarantee.
A
beneficiary : the party in favor of which a guarantee is issued.
A
guarantor : the bank issuing the guarantee and committing itself to
pay upon receipt of a complying demand for payment.
Counter
Guarantee:
A
counter guarantor who guarantees the guarantor
banks obligation. If so, counter-guarantor ( bank ) issues a
counter guarantee in favor of the bank who will commit payment to
the beneficiary.
