A bank guarantee as a form of lending and as a type of credit security is an increasingly frequently provided service by commercial banks aimed at guaranteeing the fulfillment of a specific obligation. The latter may arise from a contract between two persons, one of whom is a debtor and the other a creditor. The debtor, for his part, initiates the issuance of a bank guarantee, concluding a contract with a bank-guarantor, which should secure his main obligation with the third party - creditor (beneficiary).

In view of the great applicability both in international trade and at the national level, it is good to be familiar with the main characteristics of the bank guarantee as an independent type of commercial transaction, securing the possible default on the part of the principal debtor (principal/trustee).

Due to the lack of a wider volume of normative rules governing the bank guarantee (with the exception of Art. 442 of Commercial law), when concluding such a legal transaction, the General Terms and Conditions of the relevant bank, which are contained in the individual contract with the principal (i.e. the person whose obligation the bank will guarantee), find the most serious application. Their clauses are generally based on the International Chamber of Commerce Uniform Rules of Contractual Warranties of 1978 (ICC) and the International Chamber of Commerce Uniform Rules of Demand Warranties of 1992 (ICCW), which are international trade customs in nature.

Some of the more essential elements of this absolute commercial transaction, from which the rights and obligations of the parties under it derive, are:

• Accessory – the bank guarantee follows the main obligation that the principal has towards the beneficiary;
• Remuneration – the ordering party pays the bank remuneration for issuing the guarantee, interest, which are charged on this amount, as well as expenses incurred from the credit institution; upon payment of the main obligation by the guarantor, he has the right of recourse against the creditor on the occasion of the payment (i.e. the latter must return the corresponding guarantee amount);
• Collateral – banks require their clients to establish collateral in their favor (some credit institutions in their General Terms and Conditions give preference to certain types of collateral);
• Realization of the bank's guarantee-security responsibility – the guarantor will pay the corresponding amount only when there is default on the part of the originator of the guaranteed obligation and after the due date;
• Modalities – in the bank guarantee contract, the parties agree on certain modalities (terms and conditions) under which the bank is responsible for the main obligation.

If you need a consultation with a lawyer to provide you with more information about the rights and obligations under a bank guarantee contract, contact us!