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First Demand Bank Guarantees

First Demand Bank Guarantees

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First demand guarantees are frequently used in practice.They were used before there were statutes only regarding "dependent" guarantees, known also as "suretyships". Now there are several international statutes on first demand guarantees, each of them holding its own field of applicability and differing concerning the strength of independence of the guarantee from its underlying transaction. The question is open whether there is a need for the UN Convention on Independent Guarantees and Stand-by Letters of Credit since the number of states having ratified the Convention is so small. In order to answer this question, the Convention has to be compared to the other tools regulating the application of demand guarantees. Inter alia, the following issues have to be considered in this respect. To which degree should the demand guarantee be independent from the underlying transaction. How to balance the principle of independence with the issue of fraud (unfair calling). Whether the lack of conceivable basis is compatible with the principle of independence and what about the right to set-off in this respect.