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Guarantees-Chapter 5

Elsevier Ltd
DOI: 10.1016/b978-075065908-6.50005-x
  • Political Science


Publisher Summary Guarantees, or bonds are widely used in international trade to support performance and payment obligations. This chapter provides an overview of guarantee and its types. There are two basic types of guarantees: the true guarantee and on-demand guarantee. The true guarantee is used when a guarantor undertakes to be responsible for the debt or debts of a third party. The essential feature of this guarantee, which sets it apart from the on-demand guarantee, is the fact that the guarantor is secondarily liable. The beneficiary cannot call for payment under the guarantee until he can show that he has first requested repayment of the debt from the principal, without success. The on-demand guarantee is an undertaking by a bank to pay the beneficiary a certain sum to cover the action or default of a third party. A government department may engage a contractor to build a bridge but requires some sort of guarantee against faulty work and delay. The principal types of guarantees used in international trade are bid bonds, performance bonds, retention bonds, and advance payment bonds.

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