Demand Guarantee (Bürgschaft auf erstes Anfordern)

Concept

A demand guarantee obliges the surety to pay immediately upon the creditor’s mere demand, without first having to examine whether the underlying principal claim actually exists or whether the principal debtor has any objections.

Mechanism and Risk Allocation

Disputes over the existence of the secured claim are deferred to a subsequent process (a recovery action) under a demand guarantee: the surety must pay first and may then sue the creditor for repayment if it turns out the demand for payment was unjustified.

Relevance in International Business

Demand guarantees are particularly common in international trade and construction business, as they offer the beneficiary creditor a particularly fast, cash-like form of security and thus come functionally very close to an abstract bank guarantee, which in practice imposes heightened requirements on contract drafting to prevent abuse.