An on-demand guarantee is paid without any discussion of the underlying contract: that is its whole purpose, and Article 2321 of the French Civil Code forbids the guarantor from raising defences drawn from the guaranteed obligation. The instructing party is not defenceless, however. Payment can be blocked if the demand does not comply with the terms of the guarantee, if it falls outside the purpose for which the guarantee was given, or if it is manifestly abusive or fraudulent. The last ground is the best known. It is also the one that succeeds least often.
A mid-sized manufacturer from the Loire-Atlantique builds ship-to-shore gantry cranes. It has delivered and erected two cranes at a port terminal in North Africa, for 12 million euros, and the employer required a 10% performance guarantee issued by a local bank, itself backed by a counter-guarantee from the manufacturer’s French bank. Acceptance was granted with three minor reservations, all since lifted. Eleven months later, on a Friday at 5 pm, the French bank calls its customer: it has just received a demand under the counter-guarantee for 1.2 million euros, it has five business days to examine it, and it will pay if the demand complies. The chief executive wants to know what he can do before Wednesday.
The answer lies in an order of work that urgency tends to make people forget. Before pleading fraud, read the guarantee, then the demand, and only then the contract. This page follows that order: the nature of the undertaking, the compliance check, the call outside the guarantee’s purpose, manifest abuse and fraud as the Cour de cassation understands them in 2026, the special case of the counter-guarantee, the procedure for blocking payment, what remains possible after payment, and how to draft a guarantee that defends itself.
1. An undertaking detached from the contract, by design
Article 2321 of the Civil Code defines the independent guarantee (garantie autonome) as the undertaking by which the guarantor binds itself, in consideration of an obligation entered into by a third party, to pay a sum either on first demand or according to agreed terms. The provision, introduced by the ordinance of 23 March 2006, was left untouched by the reform of security interests of 15 September 2021. It lays down three rules that shape the whole defence: the guarantor may not raise any defence relating to the guaranteed obligation; it is not bound in the event of manifest abuse or fraud by the beneficiary, or collusion between the beneficiary and the instructing party; and, unless otherwise agreed, the guarantee does not follow the guaranteed obligation.
The contrast with a suretyship (cautionnement) is therefore radical. A surety may raise against the creditor every defence available to the principal debtor; an independent guarantor may not, and that is precisely what the beneficiary is buying when it insists on this type of guarantee. The foreign employer does not want a trial on the quality of the crane before being paid. It wants the money first, and litigation afterwards if need be. Pay first, argue the contract later: everything else follows from that formula.
In international trade the undertaking takes several forms. A direct guarantee is issued by the seller’s bank in favour of the foreign buyer. An indirect guarantee, by far the most common with public employers in North Africa, the Gulf and sub-Saharan Africa, involves a local bank that issues the first-demand guarantee and requires cover from the French bank in the form of a counter-guarantee. The American-born standby letter of credit performs the same function in the form of a documentary credit, governed either by the UCP 600 or by ISP98. Finally, many guarantees refer to the ICC Uniform Rules for Demand Guarantees, URDG 758, in force since 2010. That reference changes a great deal, and it should be looked for in the text of the guarantee before anything else.
2. The first line of defence is in the guarantee itself
The guarantor does not check whether the beneficiary is right. It checks whether the demand complies with the terms of the guarantee. That check is formal, but it is strict, and it gives the instructing party arguments it almost always overlooks because it thinks of fraud first. One must verify that the demand arrived before expiry, at the designated place and through the agreed channel (a registered letter is not an authenticated SWIFT message, and vice versa), that it comes from the named beneficiary and not from a subsidiary, assignee or successor the guarantee says nothing about, that the amount claimed does not exceed the amount guaranteed once the reductions provided for at each contractual milestone have been applied, that it is signed by an authorised person where the guarantee so requires, and that it is accompanied by each of the required documents, in the required form and language, failing which the guarantor, which need neither fill the beneficiary’s gaps nor guess its intentions, must reject it. A single discrepancy is enough.
Where the guarantee is subject to URDG 758, the demand must be supported by a statement of the beneficiary indicating in what respect the applicant is in breach (URDG 758, art. 15). A demand that simply asks for payment, without stating any breach, does not comply, and the guarantor must reject it. The guarantor has five business days following presentation to examine the demand (art. 20), and if it rejects it, it must do so by a single notice listing every discrepancy (art. 24). Unless otherwise provided, the guarantee is governed by the law of the place of the guarantor’s issuing branch, and disputes go to its courts (arts. 34 and 35). For a first-demand guarantee issued in Algiers or Riyadh, it is therefore local law and the local court that govern the undertaking, not French law.
One mechanism deserves particular attention, because businesses often misunderstand it: the “extend or pay” demand. The beneficiary claims payment but offers, as an alternative, an extension of the guarantee. The guarantor may then suspend payment for up to 30 calendar days (URDG 758, art. 23) while the instructing party decides. Many calls are in fact disguised requests for extension, sent as expiry approaches by a beneficiary that has not yet decided whether it has a grievance. Agreeing to a short, negotiated extension is often better than litigation started in a rush.
As soon as the call is announced, the instructing party should therefore obtain from its bank a complete copy of the demand and its attachments, and compare it word for word with the text of the guarantee. It takes an hour. It has saved more cases than any application for interim relief.
3. A call outside the guarantee’s purpose: what the Cour de cassation clarified on 1 April 2026
The second defence concerns the purpose of the guarantee. An advance payment guarantee covers repayment of the advance, not liquidated damages for delay; a bid bond covers withdrawal of the tender, not performance of the contract; a performance guarantee covers the seller’s failures during performance, not a debt arising under another contract between the same parties. The guarantor cannot discuss the contract. It may, however, refuse to pay under a guarantee a debt that the guarantee was never meant to cover.
The commercial chamber put this plainly in a reported judgment of 1 April 2026: although the guarantor may not raise any defence relating to the guaranteed obligation, an independent guarantee cannot be called outside the purpose for which it was given, or in the event of manifest abuse or fraud; and to assess whether the call is consistent with that purpose, the court looks at the guarantee itself and at the underlying contract (Cass. com., 1 April 2026, no. 24-13.364, reported). The judgment thus allows the court to read the underlying contract, but for a precise purpose: to identify what the guarantee was meant to cover, not to decide who is right about performance.
The distinction is decisive in practice. If the employer calls an advance payment guarantee when the advance has been entirely absorbed by deliveries it has accepted, the call falls outside the purpose, and the point is proved on the documents: the contract, the payment schedule, the acceptance certificates. If the same employer calls a performance guarantee alleging a performance shortfall of the cranes that the seller disputes, the call remains within the purpose, and the debate on whether the defect is real belongs to the judge of the contract.
4. Manifest abuse and fraud: a deliberately high threshold
That leaves the ground everyone invokes. The guarantor is not bound in the event of manifest abuse or fraud by the beneficiary. The key word is the second one. The abuse must be visible without inquiry, on reading the documents, without any need to resolve a serious dispute about performance of the contract. The judge does not try the contract: he observes, or does not observe, something obvious.
The same judgment of 1 April 2026 shows how high the bar is. The independent guarantee at stake, for 47 million euros, secured completion of the redevelopment of a major Paris railway station. The beneficiary called it after declaring the concessionaire’s rights forfeited, and the instructing party argued that the forfeiture was unlawful and was being challenged before the administrative courts. The Court held that a call based on a contractual breach whose reality is disputed before the competent court, and whose attribution to the guaranteed debtor is not devoid of any basis, does not amount to manifest abuse or fraud. Payment was ordered.
The message is clear, and a client should be told it without hedging: disputing the breach, even seriously, even before the competent court, is not enough. The attribution of the breach to the instructing party must be devoid of any basis. The cases that clear this bar are those in which the beneficiary calls the guarantee after acknowledging in writing that performance was proper (acceptance without reservations, signed release of reservations, certificate of end of warranty); those in which it claims a sum already obtained by set-off or other payment; and those in which the call relies on a failure that the contract expressly placed on the beneficiary itself. In the Nantes manufacturer’s case, the release of the three reservations signed by the employer itself is the key document. Without it, the application would be lost before it started.
Collusion between the beneficiary and the instructing party, also mentioned in the provision, works the other way: it protects the guarantor against a concerted call designed to make it bear a debt the debtor will not pay. It matters mainly to banks and in insolvency, rarely to exporters.
5. The counter-guarantee: blocking payment in France is almost impossible
The indirect structure adds a tier, and that tier changes everything. The French bank is not bound to the employer: it is bound to the local bank, by a counter-guarantee that is itself independent. When the local bank calls the counter-guarantee, the French instructing party would like to rely on the abuse committed by the employer in calling the first-demand guarantee. The Cour de cassation does not allow it: the manifestly abusive nature of a call on the counter-guarantee cannot result solely from the abusive nature of the call on the first-demand guarantee; fraudulent collusion between the first-tier guarantor and the beneficiary of the guarantee must be shown (Cass. com., 3 May 2016, no. 14-28.962, reported). The first-tier guarantor’s knowledge is assessed when it calls the counter-guarantee or, if it has already paid the beneficiary, when it made that payment.
In other words, one must prove that the bank in Algiers or Riyadh knew, when it paid or called, that the employer’s demand was abusive. That proof is almost impossible to produce in a few days. The realistic strategy therefore moves to the first tier: act before the court of the place of the issuing bank, under local law, to have payment of the first-demand guarantee prohibited, and at the same time inform the local bank, in writing and with supporting documents, that the demand is abusive. That notice is not a formality. It puts the local bank on notice, and it is what later makes collusion arguable in France at the time the counter-guarantee is called.
What happens in those first forty-eight hours thus happens in two countries at once, and the firm advising the exporter should have identified, from the day the contract was signed, the local colleague able to go before the court of the place of the issuing bank.
6. Obtaining an order not to pay: interim relief and the evidence
In France, an instructing party with a serious argument applies to the interim relief judge (juge des référés) for an order prohibiting the guarantor from paying. Between commercial companies, the president of the commercial court, or of the economic activities court where that pilot scheme is running, rules under Articles 872 and 873 of the Code of Civil Procedure: the measure prevents imminent harm or stops a manifestly unlawful disturbance. Expedited “hour to hour” proceedings make a same-day hearing possible. The guarantor and the beneficiary must be summoned; the latter, if abroad, is rarely reached in time, which weakens the order later on.
The file is built around three documents: the full text of the guarantee and, where relevant, of the counter-guarantee; the demand with its attachments; and the documents that make the abuse visible without discussion (acceptance certificate, release of reservations, correspondence from the beneficiary acknowledging performance, proof of a payment already made). A technical report on the quality of the works is almost useless at this stage: if an expert is needed to establish the abuse, the abuse is not manifest.
Two mistakes recur. The first is applying after payment, because the bank paid on the fourth day without waiting for the end of the examination period; an order not to pay then serves no purpose, and the focus must shift to recovery. The second is asking the interim relief judge to rule on performance of the contract, which amounts to asking him for what he cannot do and leads to dismissal. The interim judge does not say who is right. He says whether the call is manifestly unjustifiable.
7. After payment: the contract comes back into play
Payment under the guarantee does not end the dispute. It only reverses who carries it. The beneficiary has received a sum on account of what the contract actually owes it; if the judge of the contract, or the arbitral tribunal designated by the arbitration clause, finds that the instructing party committed no breach, or a breach worth less than the amount called, the beneficiary must repay. The judgment of 1 April 2026 makes the same point in its own way, by ordering the guarantor to pay on account of the decision of the competent court.
The instructing party then brings proceedings on the merits before the court or arbitral tribunal provided for in the underlying contract, and claims repayment of the sum paid, with interest and, where appropriate, damages for a wrongful call. This is when the quality of the dispute resolution clause shows. A contract subject to the courts of the employer’s country forces the exporter to litigate on its opponent’s home ground; a contract with an ICC arbitration clause seated in Paris or Geneva allows it to obtain an award enforceable in more than one hundred and seventy States party to the New York Convention.
One last situation is worth mentioning: a guarantor that pays although the abuse was manifest, and although it had been duly informed of it, is at fault. Its recourse against the instructing party becomes open to challenge, and the debit to the account can be disputed. Provided, of course, that the bank was informed in writing, with documents, before it paid.
8. A guarantee that defends itself is negotiated at issuance
The best time to defend against an abusive call is eighteen months before it, when the buyer sends its form of guarantee and the sales team, in a hurry to sign, forwards it to the bank unread. A few provisions change the economics of the undertaking without affecting its independence. Submission to URDG 758 obliges the beneficiary to state the alleged breach, which shuts out pure cash-flow calls. An automatic reduction clause at each milestone (delivery, commissioning, acceptance) prevents a guarantee of 10% of the price from remaining fully exposed when 90% of the work has been accepted. A fixed expiry date, rather than an event (the end of the contractual warranty, for instance), prevents the guarantee from surviving indefinitely. Article 2321 also allows the sum to be payable according to agreed terms: making payment conditional on a specific document (a certificate from a named expert, an arbitral award, a court decision) remains compatible with independence, since the guarantor only checks that the document is present and compliant.
The choice of structure matters just as much. A direct guarantee issued by the French bank and governed by French law places disputes on the guarantee before the French courts; an indirect guarantee places most of the risk before the courts, and under the law, of the beneficiary’s country. The exporter does not always have a choice, particularly with public buyers that insist on a local bank. When it does, it should use it.
For the Nantes manufacturer, the course of action is therefore as follows: obtain on Friday evening the local bank’s demand and its attachments, check the formal compliance of the call against the counter-guarantee, notify the French bank and the local bank in writing of the release of reservations signed by the employer, bring proceedings locally before the court competent for the first-demand guarantee, and prepare interim proceedings in France that will only succeed if the local bank, once informed, still calls. The firm assists exporters in negotiating their bank guarantees and in defending them when they are called; its page on international commercial litigation describes this work, and the contact form allows a pending call to be outlined in a few lines.
Frequently asked questions
Can the bank refuse to pay an on-demand guarantee because I dispute the breach?
No. Article 2321 of the French Civil Code prevents the guarantor from raising defences drawn from the guaranteed contract. The bank may only reject a demand that does not comply with the terms of the guarantee, a call outside the guarantee’s purpose, or a manifestly abusive or fraudulent call. On 1 April 2026 the Cour de cassation held that a breach disputed before the competent court is not enough to establish manifest abuse where its attribution to the instructing party is not devoid of any basis.
How long does the bank have to pay?
It depends on the text of the guarantee. Where it is subject to the ICC’s URDG 758, the guarantor has five business days following presentation to examine the demand. That is also the time the instructing party has to check the compliance of the call and, if appropriate, apply for interim relief. A demand that offers extension as an alternative allows the guarantor to suspend payment for up to 30 days.
Can a counter-guarantee called by a foreign bank be blocked in France?
It is very difficult. Abuse by the ultimate beneficiary is not enough: fraudulent collusion between the foreign bank and that beneficiary must be shown, assessed when the foreign bank calls the counter-guarantee or pays the first-demand guarantee (Cass. com., 3 May 2016, no. 14-28.962). The useful strategy is to act locally against the first-demand guarantee and to inform the foreign bank, with supporting documents, that the demand is abusive.
Which court should be asked to stop payment?
For a guarantee issued by a French bank, the French interim relief judge, which between commercial companies is the president of the commercial court, under Articles 872 and 873 of the Code of Civil Procedure. For a first-demand guarantee issued abroad, the court of the place of the issuing bank, whose law in principle governs the undertaking. Interim proceedings do not decide the contractual dispute: payment is prohibited only if the call is manifestly abusive or outside the guarantee’s purpose.
Can a guarantee paid wrongly be recovered?
Yes. Payment under the guarantee is provisional as regards the underlying contract. The instructing party may bring proceedings on the merits, before the court or arbitrator designated by the contract, to recover the sums called beyond what the beneficiary was actually entitled to, with interest and, where appropriate, damages. How effective that remedy is depends largely on the dispute resolution clause in the main contract.
On the same subject: documentary credit discrepancies and non-conforming documents; the bank refuses my documentary credit: what to do?; exporting from France in 2026, the legal checklist before signing; exporter disputes, six situations, six answers; the ICC arbitration clause, five decisions before signing.