URDG 758 Case Studies on Demand Guarantees
A demand guarantee pays on documents, not on who was right about the contract. These cases show how that plays out.
A demand guarantee under URDG 758 is paid on a complying demand, not on proof that the applicant actually failed. The guarantee is independent of the contract behind it (Article 5), and the guarantor looks only at what is presented. Most case questions test whether you can keep that line clear when the facts invite you to argue the underlying contract.
The setting below is common for Indian banks: a Hyderabad engineering contractor wins a project in Oman. Its Indian bank issues a counter-guarantee, and a local bank in Muscat issues the performance guarantee to the project owner. Both instruments say they are subject to URDG 758.
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Case 1: A Demand With No Statement of Breach
The project owner sends a signed demand for the full amount. It says only "we hereby demand payment". The guarantee does not mention a supporting statement either way.
- 1
Is a supporting statement required?
Yes. Under Article 15(a), a demand must be supported by a statement saying in what respect the applicant is in breach, unless the guarantee expressly excludes it (Article 15(c)). Silence does not exclude it.
- 2
How long does the guarantor have?
Five business days following the day of presentation to examine it (Article 20).
- 3
What must it do to reject?
Send a single rejection notice listing each discrepancy, without delay and by the close of the fifth business day (Article 24). It must also have informed its instructing party of the demand without delay (Article 16).
- 4
Answer
The demand does not comply and the Muscat bank should reject it on time. The beneficiary can present a fresh, complying demand before expiry; a rejected demand does not end the guarantee.
Case 2: Extend or Pay
Two weeks before expiry, the project owner presents a complying demand that says "extend the guarantee by six months or pay". The contractor wants time to negotiate.
Under Article 23, the guarantor may suspend payment for up to 30 calendar days after receiving the demand. If the extension is granted within that period, the demand is treated as withdrawn. If not, the guarantor pays the complying demand without needing a further one. A counter-guarantor in the same chain may suspend for a period up to 4 calendar days less than the guarantee's suspension period, so the Indian bank's window is shorter than the Muscat bank's. Answer: the contractor's decision to extend has to reach the Muscat bank, through the Indian bank, inside the suspension period.
Case 3: The Contractor Says "Do Not Pay, We Completed the Work"
The Muscat bank pays a complying demand and claims on the Indian bank's counter-guarantee with a supporting statement that it has received a complying demand (Article 15(b)). The contractor writes to its Indian bank with the completion certificate and asks it to refuse.
Answer: the Indian bank must examine the counter-guarantee demand only against the counter-guarantee and URDG 758. Disputes over the project are outside its examination (Article 5). URDG 758 contains no fraud exception of its own; whether payment can be stopped for fraud is a question for the governing law and the courts. Unless a court order intervenes, a complying demand is paid. Under Article 34, a counter-guarantee is governed by the law of the counter-guarantor's location, so here Indian law, while the Muscat bank's guarantee is governed by the law of its location, unless either instrument says otherwise.
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Quick Answers to Common URDG 758 Scenarios
Guarantor rejects on the 7th business day
Rule
Precluded from claiming non-compliance; must pay
Article
24
Beneficiary demands less than the full amount
Rule
Partial demands allowed; multiple demands allowed unless prohibited
Article
17
Guarantee shows no expiry date or expiry event
Rule
Terminates three years after issue
Article
25
Expiry falls on a day the place of presentation is closed
Rule
Extends to the first following business day
Article
25
Demand asks to extend or pay
Rule
Suspension up to 30 calendar days
Article
23
No governing law stated
Rule
Law of the guarantor's or counter-guarantor's location
Article
34
| Scenario | Rule | Article |
|---|---|---|
| Guarantor rejects on the 7th business day | Precluded from claiming non-compliance; must pay | 24 |
| Beneficiary demands less than the full amount | Partial demands allowed; multiple demands allowed unless prohibited | 17 |
| Guarantee shows no expiry date or expiry event | Terminates three years after issue | 25 |
| Expiry falls on a day the place of presentation is closed | Extends to the first following business day | 25 |
| Demand asks to extend or pay | Suspension up to 30 calendar days | 23 |
| No governing law stated | Law of the guarantor's or counter-guarantor's location | 34 |
How the IIBF Exam Tests This
IIBF lists URDG with case studies. Expect a scenario with a demand and a complaint from the applicant, and options that mix URDG and UCP language. The traps: assuming a statement of breach is optional (it is required unless excluded), counting five banking days instead of five business days, and letting the applicant's evidence of performance decide the answer. Under URDG 758 the documents decide.
FAQs
Does a demand fail if the guarantee says nothing about a statement of breach?expand_more
Yes. Under Article 15 the supporting statement is required unless the guarantee expressly excludes it, so silence does not help the beneficiary. It can still present a fresh, complying demand before expiry.
What happens if a guarantor rejects a demand late under URDG 758?expand_more
If the rejection notice has not gone out by the close of the fifth business day after presentation, the guarantor is precluded from claiming that the demand does not comply, and must pay (Article 24).
What is extend or pay under URDG 758?expand_more
A demand that asks the guarantor to either extend the guarantee or pay. The guarantor may suspend payment for up to 30 calendar days while the applicant decides (Article 23).
Can a bank refuse to pay a guarantee because the applicant disputes the claim?expand_more
Not under URDG 758. The guarantee is independent of the contract (Article 5). Only a court acting under the governing law can stop payment, typically on fraud grounds.
Next steps
- ISP98arrow_forward
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- UCP 600 Casesarrow_forward
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