Posted in Finance, Accounting and Economics Terms, Total Reads: 1583
Definition: Bank Guarantee
Bank Guarantee is a type of guarantee in which a bank ensures to repay for the liabilities of a person, debtor or an organization when they are unable to repay it themselves. It is similar to a surety given by a third party for the liabilities of a debtor except that the third party in this case is a Bank. The guarantor i.e. the bank undertakes the responsibility for the repayment of the liabilities of the party primarily responsible for it and hence sit provides security to that party.
When a bank provides guarantee to a beneficiary, the legal position must be examined to confirm the significance of the legal aspect of the guarantee. The guarantor is obliged to pay to the claim without challenging or even checking the material justification of the claim. But the guarantor can examine the conditions laid in the guarantee for ascertaining that claim is valid. The beneficiary holds a strong legal position and can claim for the payment at any point in time without objections raised from the guarantor. The obligation of the guarantor does not depend on the continuation of a contractual relationship between the principal and the beneficiary.