Guarantee - written obligation of the bank or financial institution (guarantor) issued at the request of the client (principal), pay a sum of money specified in the Guarantee to the beneficiary at his request with complies the conditions of the Guarantee.
Main provisions of the Guarantee:
- Appointment of Guarantee - ensuring the proper performance of its obligations to the principal beneficiary.
- For the issuance of Guarantee, the principal pays fees to the guarantor.
- The Guarantee does not depend from obligation to secure the fulfillment of which the Guarantee is issued.
- The Guarantee is subject to the laws of the country at which Guarantee was issued.
- The Guarantee is irrevocable and beneficiary may not transfer the rights require under Guarantee to another person if at Guarantee does not provide otherwise.
- The rights of the beneficiary under the Guarantee must be submitted to the guarantor before end Guarantee's period for which Guarantee was issued.
- The Guarantee provided for the guarantor's obligation to the beneficiary is limited to the payment of the amount by which the Guarantee was issued. Liability of the guarantor to the beneficiary for failure or improper performance of obligations under the Guarantee is not limited to the amount by which the Guarantee was issued, if at Guarantee does not provided otherwise.
- The guarantor is entitled to request from the principal the recourse recoveries of amounts paid to the beneficiary under the Guarantee. The terms of such compensation are determined by agreement the guarantor with principal, pursuant to which the Guarantee was issued.
In international practice legal for Guarantee are regulated in accordance with the Uniform Rules for Demand Guarantees (URDG), International Chamber of Commerce (ICC), Publication No. 758, latest revision.
Guarantor's obligation before beneficiary is cease:
- After payment to the beneficiary the amount by which the Guarantee was issued;
- At the end of Guarantee's period for which the Guarantee was issued;
- In case of failure by the beneficiary of his rights under the Guarantee and return the Guarantee to the guarantor;
- In case of failure by the beneficiary of his rights under the Guarantee by a written statement on the release of the guarantor from his obligations.
Advantages of the Guarantee:
- Minimization for both parties the risks to the transaction associated with failure or improper performance of contractual obligations, taking into account the specifics of the guarantee instrument (irrespective of the obligations secured by the Guarantee is issued, irrevocable and non-transferable rights requirements);
- Fast and reliable way to resolve problem situations at transactions without recourse to the courts;
- Opportunity not to divert money from circulation for translation in favor of the counterparty;
- The possibility to receive of deferred payment or loan, by collateral for which acts the Guarantee;
- Cheaper financial instrument, compared with the credit or factoring.
Draft of Guarantee