Definition
Performance bond or other type of guarantee payable to the obligee on demand, often without the presentation of other documents and without the need to show the demand is in compliance with the terms of the underlying contract. In effect, it is a substitute for a cash deposit. Under UK law, a demand guarantee is independent of the underlying contract and is separate from the counter-guarantee (if any) given by the obligee's bank to the obligor's bank. Under US law also a demand guarantee enjoys similar protection and is called a standby letter of credit. Also called independent guarantee.
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