Also called an on demand bond (www.practicallaw.com/1-107-6927), a demand bond or a performance bond. A guarantee that imposes a primary obligation on the issuer to pay the beneficiary on its first demand (or on demand (www.practicallaw.com/3-107-6926)) 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, and the beneficiary is usually entitled to payment simply on submitting a statement that the primary obligor has failed to perform the contract. 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 standby letters of credit (www.practicallaw.com/3-107-7308), they differ from true guarantees (www.practicallaw.com/6-107-6675) (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.
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).
For information on the Uniform Rules for Demand Guarantees (www.practicallaw.com/6-502-0542) (also called URDG 758 (www.practicallaw.com/2-502-0558)), see Practice note, Bonds, guarantees and standby credits: overview: International Chamber of Commerce Uniform Rules (www.practicallaw.com/4-107-3649).