A “demand guarantee” is generally a short and simple instrument issued by a bank, or any other financial institution, under which the obligation to pay a maximum amount of money arises merely upon the making of a demand for payment in the prescribed form and sometimes also the presentation of documents as stipulated in the guarantee within its period of validity. Many demand guarantees are payable on first demand without any additional documents, although increasingly guarantees require at least a statement indicating that the principal is in breach. A demand guarantee must therefore be honoured on presentation of a written demand that complies with its provisions.
In a broader way, a demand guarantee can be defined as an undertaking given for payment of a maximum amount of money on presentation to the party giving the undertaking of a demand for payment, nearly always required to be in writing, and such other documents as may be specified in the guarantee within the period and in conformity with the other conditions of the guarantee.
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