In business relationships contracting parties may require performance or payment from each other. Demand guarantees provide contracting parties with the comfort that such performance or payment will occur. But what are demand guarantees and how does one go about getting one?
“Demand guarantees are issued by a bank (the guarantor) to a beneficiary on behalf of its client. When the bank’s client defaults under the contractual agreement with the beneficiary, the beneficiary is only required to make a written demand on the bank in order to receive payment. Thus a demand guarantee is a type of protection that provides contracting parties with peace of mind,” said Anton Smit, Executive Officer: Credit at Bank Windhoek.
“A guarantee is by its nature independent of the underlying contractual relationship, and the bank is in no way concerned with or bound thereby. A reference in the guarantee to the underlying relationship for the purpose of identifying it does not change the independent nature of the guarantee.
What this means is that the bank is obliged to honour complying claims received on guarantees, even despite any contrary claims or defences arising from the bank’s client,” Smit explained.