URDG-758-Articles 12 & 13

The obligation of the guarantor does not depend on the actual liability of the applicant to the beneficiary under the underlying relationship. It is an undertaking to pay a specified sum on demand as per guarantee terms.

Article 12 URDG-758
Extent of guarantor's liability under guarantee


A guarantor is liable to the beneficiary only in accordance with, the terms and conditions of the guarantee and, these rules so far as consistent with those terms and conditions, up to the guarantee amount.

A guarantor is liable to pay demands which complies with terms of the guarantee, URDG-758 and ISDGP, up to the maximum guarantee’s amount.

Article 13 URDG-758
Variation of amount of guarantee

A guarantee may provide for the reduction or the increase of its amount on specified dates or on the occurrence of a specified event under the terms of the guarantee which results in the variation of its amount. In order to ensure that the guarantor is able to know the value of the guarantee at any one time, the occurrence of the specified event must be determinable from one of below sources:

  • Presentation to the guarantor of a document indicating the occurrence of the event.
  • The guarantor’s own records which include debit and credit through guarantor’s account.
  • A publicly available index identified in the guarantee.

Let’s understand the above point’s with the help of examples:

Example-1: An advance payment guarantee may contains the reduction of the amount clause as the works progresses and applicant earns its part on each stage. An applicant has to perform under the actual contract. In order to ensure the performance of the applicant, a beneficiary may request applicant to add a clause in guarantee to present a certificate which is duly signed by applicant and beneficiary as the stage by stage work completes.

Example-2: A machine manufacturing company (as seller) provides for the buyer to make staged payments to the seller, where buyer’s payment obligation covered by a payment guarantee issued by the buyer’s bank. The payment guarantee will initially be issued for the full value of the contract, but will provide for that amount to be reduced to reflect the staged payments made by the buyer.

Parties involved in guarantee may agree that the stage payments shall be made from the buyer’s account at the bank to the seller. The buyer will give an instruction to the bank (who is guarantor as well) for each payment, identifying the underlying contract and the payment guarantee to which the payment relates. The guarantor (bank) can then identify debits from its own records and the guarantee will automatically be reduced to reflect those payments.

Example-3: A demand guarantee may be issued covering the payment by the buyer (as applicant) to the seller (as beneficiary) for multiple shipments of crude oil over a 1 year period. The sale contract provides for the price of each consignment to be fixed by reference to the price of crude oil on the international market at the time of shipment.

In this case, the value of the guarantee may fluctuate, and the prices can be determined by the guarantor from a specified publicly available index, such as the daily oil price information published by Platts website i.e www.platts.com.

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Chandan Kumar Yadav
My name is Chandan Kumar Yadav CDCS, CSDG, CITF, PGDIBO,AML-KYC, CCFE, MLIBF, CSF, 6SIGMA a trade finance professional with an experience of 11 years whereas worked with several stages of letter of credit, bank guarantee and on other payments methods of trade transactions such as documentary collection, open accounts, SBLC etc., I have a fair understanding of Trade Based Money Laundering as well, Blogging related to Trade Finance is my passion and I want to share which I know and learn from others, I have worked with Wells Fargo, Yes Bank Limited and Bank of America, India which helped me to gain knowledge, view of Trade Finance and importance of International Trade in world's economy. Trade Finance is thumping product, everyday we are learning something new so in order to keep learning I started this as one of the platform. . Let's Learn Together

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