A bank guarantee (BG) is a financial instrument issued by a bank on behalf of a client (the applicant) to a beneficiary, guaranteeing that the applicant will fulfill its obligations under a certain contract or agreement. It essentially serves as a form of financial security for the beneficiary, ensuring that they will receive payment or compensation if the applicant defaults on its commitments.
BGs are commonly used in various international trade transactions, project contracts, and other commercial agreements. These guarantees provide a layer of protection for both parties involved, ensuring that the transaction is completed successfully and that any potential losses are minimized.
This template provides a comprehensive and customizable bank guarantee format that can be used for a wide range of transactions. It includes essential clauses and provisions commonly found in standard BG agreements, but it is crucial to consult with legal professionals to tailor it to the specific requirements of the transaction.
A well-structured bank guarantee should encompass the following essential elements:
Guarantee Number and Date: Each BG should have a unique identification number and a clearly stated issuance date. Parties Involved: The guarantee should clearly identify the parties involved, including the issuing bank, the applicant (or guarantor), and the beneficiary. Underlying Contract/Agreement: The BG should explicitly state the specific contract or agreement it is related to and the relevant terms and conditions. Amount of Guarantee: The maximum amount of the guarantee should be clearly stated in the currency of choice. Obligations Covered: The guarantee should precisely define the obligations of the applicant that it covers. This could include payments, deliveries, performance, or any other agreed-upon conditions. Beneficiary's Rights: The BG should outline the beneficiary's rights in case of default by the applicant, including the procedures for claiming the guarantee. Validity Period: The duration of the guarantee should be explicitly stated, indicating the effective date and the expiry date. Conditions of Payment: The guarantee should clearly state the conditions under which the beneficiary can claim payment from the issuing bank. This could include specific events, documentation, or proofs required. Governing Law: The governing law applicable to the guarantee should be specified, along with the jurisdiction where any disputes will be resolved. Signatories: The guarantee should be signed by authorized representatives of the issuing bank, confirming their commitment to fulfilling the obligations stated.Guarantee Number: [Insert BG Number]
Date: [Insert Date]
[Issuing Bank Name]
[Address of Issuing Bank]
Beneficiary: [Insert Beneficiary Name]
[Address of Beneficiary]
Applicant/Guarantor: [Insert Applicant Name]
[Address of Applicant]
Subject: Guarantee for [Description of Underlying Contract/Agreement]
This Guarantee is issued by [Issuing Bank Name] (hereinafter referred to as "the Bank") on behalf of [Applicant Name] (hereinafter referred to as "the Applicant") in favor of [Beneficiary Name] (hereinafter referred to as "the Beneficiary").
WHEREAS, [Applicant Name] is undertaking [Description of Applicant's Obligations] under the [Description of Underlying Contract/Agreement] dated [Date of Contract/Agreement] (hereinafter referred to as "the Contract");
NOW, THEREFORE, in consideration of the premises and for the sum of One (1) Dollar (US$1.00), receipt of which is hereby acknowledged, the Bank hereby guarantees to the Beneficiary that if the Applicant fails to perform its obligations under the Contract as specified, the Bank shall pay to the Beneficiary, upon the Beneficiary's first written demand and without any conditions precedent, an amount not exceeding [Amount of Guarantee] (hereinafter referred to as "the Guarantee Amount").
Payment under this Guarantee shall be made within [Number] days of receipt of the following documents by the Bank:
A written demand from the Beneficiary setting forth the Applicant's default and the amount due under the Guarantee. A certified copy of the Contract. [List any other required documents, such as invoices, delivery receipts, etc.].This Guarantee shall remain in full force and effect for a period of [Number] years from the date hereof, but shall terminate automatically upon the [Specify event that will terminate the Guarantee, e.g., full performance of the Contract, satisfactory completion of the project, etc.].
This Guarantee shall be governed by and construed in accordance with the laws of [Specify Applicable Jurisdiction]. Any dispute arising out of or in connection with this Guarantee shall be settled amicably, and failing such amicable settlement, shall be finally resolved by arbitration in accordance with the rules of [Specify Arbitration Institution] in [Specify Location of Arbitration].
IN WITNESS WHEREOF, the Bank has caused this Guarantee to be executed as of the date first written above.
[Issuing Bank Name]
By: [Name of Authorized Representative]
[Title of Authorized Representative]
[Seal of Issuing Bank, if applicable]
Specific conditions for payment under the BG should be clearly defined based on the nature of the underlying contract and the desired protection for the beneficiary. Here are some common examples:
Proof of Non-Performance: The beneficiary might be required to provide documentation demonstrating the applicant's failure to meet its obligations, such as invoices for unpaid payments, delivery receipts indicating incomplete deliveries, or test reports proving non-compliance with performance standards. Notice Period: The beneficiary might need to provide the applicant with a formal notice of default, allowing a grace period for remediation before resorting to the BG. The notice period should be specified in the guarantee. Independent Confirmation: The beneficiary could be required to obtain independent confirmation of the applicant's default from a third party, such as a surveyor, inspector, or independent auditor. This adds an extra layer of assurance for the issuing bank. Documentation Requirements: The beneficiary might need to present specific sets of documents to the issuing bank, such as invoices, bills of lading, insurance certificates, or original contracts, in addition to the demand for payment. Legal Proceedings: The beneficiary might be required to initiate legal proceedings against the applicant before seeking payment under the BG, except in cases where legal proceedings are impractical or would delay the beneficiary's recovery.A well-drafted bank guarantee is a valuable tool for safeguarding the interests of both parties involved in a transaction. It provides a secure and reliable mechanism for ensuring that obligations are fulfilled and potential losses minimized. This comprehensive template provides a starting point for creating a BG, but it is crucial to consult with legal professionals to adapt it to the specific needs of each transaction.
The clarity and comprehensiveness of the guarantee, along with the specific conditions for payment, are essential factors in avoiding disputes and ensuring a smooth and successful execution of the underlying contract.
