First demand guarantee

A first demand guarantee is a bank undertaking to pay a stated sum on the beneficiary’s first written demand, without proof of default or reference to the underlying contract. It is independent of the transaction it supports, so the bank cannot raise the principal’s contractual defenses, which makes it close to cash for the beneficiary. In shipping it appears as refund guarantees in shipbuilding, performance and bid bonds, and security for charter or P&I obligations. The ICC Uniform Rules for Demand Guarantees (URDG 758) govern most such instruments. The narrow exception to payment is clear, established fraud.