Guarantees, standby credits and URDG 758
Domain scope
This domain tests independent guarantees, counter-guarantees and standby credits. The exam expects you to distinguish a demand guarantee from an accessory guarantee and to apply URDG 758 demand and expiry rules.
Core rules
- An independent guarantee is payable on a complying demand, not on proof that the underlying contract was breached.
- URDG 758 governs demand guarantees if incorporated. A demand must be in writing and, unless excluded, supported by a statement of breach.
- Expiry is strict. A demand after expiry is not payable.
- Counter-guarantees involve an instructing party, a counter-guarantor and a guarantor.
- A standby credit is a bank undertaking often subject to ISP98, UCP 600 or URDG 758 depending on its wording.
- Common types: bid bond, performance guarantee, advance payment guarantee and retention guarantee.
Worked example
A performance guarantee for USD 500,000 is subject to URDG 758 and expires on 31 December. On 2 January the beneficiary demands payment without a statement of breach. The guarantor should reject: the demand is late and lacks the required statement. The result is the same even if the underlying performance failure is genuine.
Traps that cost marks
- Treating a demand guarantee as a suretyship requiring proof of loss.
- Accepting a demand after expiry.
- Ignoring an extend-or-pay demand.
- Missing the statement of breach requirement.
- Assuming fraud allegations automatically stop payment; the fraud exception is narrow and fact-specific.