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Godarz Eftekhar Jahromi Professor of Law, Shahid beheshti University Mohammad Issaei Tafreshi Assistant Professor of Law, Tarbiat Modares University Morteza Shahbazinia Ph.D. Student of Private Law, Tarbiat Modares University This article discusses the developments of legal regime of International Bank Guarantees, according to the Rules published by International Chamber of Commerce. This research shows that the main source of rules, governing this instrument, is usage and practice of international trade and attempts of ICC for applying of traditional legal rules inattention to international practice has been failed. Subsequently the chamber published "Uniform Rules for Demand Guarantees" (Publication No.458) in 1992. This new rules are mainly based on commercial usage and practice, and embraced the basic practical characters of bank guarantees as they are used in international trade; characters such as independence of guarntee and the effects of it. Also, the 458 Rules recognized issuance of simple demand guarantees and provide some practical resolves for other legal issues of bank guarantees such as providing of clear methods of ascertaining the applicable law and resolving disputes, limiting of bank duty to a formal compliance and accepting the documentary of bank guarantees.

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Morteza Shahbazinia Assistant Professor of Law, Ministry of Science, Research and Technology  The Condition of payment form the heart of the guarantee. They determine the actual benefits for the beneficiary and the risk exposure for the account party/principal debtor. For example, it is the clause that payment will be made on the beneficiary’s first demandwithout any proof of default that renders this particular guarantee totally different from the traditional or accessory guarantee. On the other, aguarantee payable upon submission of an arbitral or court decision is in substance hardly different from the contract of accessory guarantee. While different as regards the degree of default, all conditions of payment share a common characteristic, namely their documentarynature. All of them require the submission of documents and the bank’s duty is confined to examining whether these documents comply with the documents prescribed in the guarantee. It is this documentary nature of the conditions of payment, which enables the bank to perform its function.

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Abstract It is recognized that, as a general rule, the beneficiary can assign his rights pursuant to the guarantee to a third party, with or without a specific stipulation to this effect. This rule is also endorsed in article 4 of URDG and article 10 of UNCITRAL Convention. It is expressly noted that assignment of the rights of the guarantee means assignment of the proceeds only, and that the assignee can not call the guarantee without the cooperation of the beneficiary. This is only different if the guarantee contains explicit provisions to the contrary. Such a stipulation would be extremely dangerous for the account party, since it virtually turns the guarantee into a negotiable instrument and the risk of a call, including a fraudulent call, will increase significantly. Unless otherwise stated in the guarantee, the beneficiary is not entitled to transfer the guarantee in the sense that the transferee is able to call the guarantee independent from and without the cooperation of the beneficiary/transferor or in the sense that the transferee is entitled to request the issue of a second guarantee in his favour. The beneficiary’s right to the proceeds of the guarantee upon a valid call is ordinarily also capable of being pledged, but this depends on the law that governs the guarantee. The approach of Iranian law to this matter is discussed in this article.

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One of the basic characteristics of documentary transactions is the independence of these transactions from the underlying contract and the documentary payment terms in these transactions. The beneficiary of the letter of credit shall present the documents stated in the Letter of Credit or the bank guarantee in order to claim payment. In some cases, the documents presented by the beneficiary are fraudulent while this action might have been committed without cooperation or even the information of the beneficiary by a third party. Whether or not the principle of fraud would be applicable regarding the third party fraudulent actions, two viewpoints have been presented. Many lawyers believe in the view that the fraud principle is also applicable for the third party deceptions, and the payment shall be withheld (it shall be refrained from payment) in this regard. On the other hand, another group believes that the fraud principle is not applicable against the guiltless beneficiary, and the amount in the letter of credit shall be paid. This article will review and analyze the position of legal systems in this respect.