Legislative Proposals On Domestic Demand Guarantees

As a common and convenient way of security, demand guarantees is widely used in international commercial activities. With the development of domestic economy, they are also increasingly used in domestic commercial activities in recent years. However, domestic laws do not mention the legal effect of domestic demand guarantees, which lead to a dilemma for banks who are often the issuers of demand guarantees. In the event of a claim, banks' payment may lead to a sue for their improper payment. On the other hand, if banks do not pay according to demand guarantees, then their reputation will be hurt.To solve this problem, we begin with the tradition of security's dependency to define what is meant by independent guarantees. Then we introduce the development process of independent guarantees in the main national and international markets through which we can see that there is a trend to recognize the legal effectiveness of domestic demand guarantees among main countries and international markets. Considering the diversity of independent guarantees in practice, the words'independent guarantees'in this article include demand guarantees, letters of credit and other independent way of security guarantees.Subsequently, the introduction of the classification of bond leads to the concept for domestic demand guarantees. Accordingly, the article introduces legislation and judicial practice on domestic demand guarantees, which harms economic activities, such as the different understanding of the effectiveness and the inconsistent judgment in different courts. Meanwhile, the article proposes some legal risk prevention measures for our country.Then, the article respectively introduces legislation on domestic demand guarantees in civil law countries and common law countries. It can be seen that the world's major countries have recognized the legal effectiveness for demand guarantees, which made our domestic approach in sharp contrast.Finally, both jurisprudence and law and economics analysis on the effectiveness of domestic demand guarantees come to the same conclusion that we should recognize the effectiveness of domestic demand guarantees at least in some extent. Meanwhile, the article put forward its own proposals on domestic legislation for demand Guarantees.In summary, through historical and comparative research methods, the article researched the development of demand guarantees in all major countries adn international commercial activities, which concluded that the recognition for demand guarantees in effect is a general trend. The article also researched domestic legislation and judicial practice for demand guarantees. Contrasting with the legislation on domestic demand guarantees in civil law countries and common law countries, the article suggested that domestic demand guarantees should be recognized instead of being negated, and accordingly made the corresponding legislative proposals.Innovation of this article is on the domestic effectiveness for demand guarantees while using the analytical methods of jurisprudence and law and economics analysis, and the different way came to the same conclusion; besides the usual classification of the legislative approach on the legislative proposals, the article suggested the proportion of recognition of the effectiveness and the clear distinction between demand guarantees and sureties in order to guide practice.