Comparative study of the legal nature of on-demand guarantees and guaranteed letter of credits in domestic law and international trade law

Standby Letter of Credit is one of the tools which has gained more significance in the field of the Banking Law over the course of the past decades. Nevertheless, this tool has not been properly studied in many countries, including Iran. Thus, its role and status remains unclear. Considering the increasing importance and advantages of using this tool in commerce, it proves necessary to study it carefully. This research is after careful study of the peculiarities of Standby Letter of Credit, and also comparing it with a similar tool, namely Demand Guarantee. Due to the similar functions of these tools, which both guarantee the risks of transactions, it is imperative to carefully delineate their differences. In this research we have tried to make clear the similarities and differences in the legal regimes governing the two types of documents, both from procedural and substantive angles. As conclusion, it seems that Standby Letter of Credit has many of the advantages of Demand Guarantee, and in some aspects has even more advantages, since regarding them there is no dispute on the admissibility of the principle of independence. Moreover, despite many similarities, we should consider Standby Letter of Credit as a quite distinct tool. Promulgation of separate regulations under the title of international provisions governing Demand Guarantee supports this idea. It should be noted that the article has been written in a descriptive-analytical manner.