A performance bond may be on-demand or conditional. Determining whether the instrument falls into one class or another will be affected by a number of different factors. Practitioners should avoid the use of the word ‘guarantee’ if the instrument is intended to be payable on demand without conditions. The use of the phrase ‘on demand’ will also point to the instrument being intended to be an on-demand bond as opposed to a conditional bond or guarantee1.
Under an on-demand bond, the bank undertakes to pay the bond on written demand of the beneficiary, irrespective of
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