Governing Principles of Bank Guarantees in Iranian Law

Abstract

Bank guarantees are among the most significant legal instruments for securing financial obligations in both domestic and international commercial relations. Unlike the traditional institution of civil suretyship, this instrument features an independent, irrevocable structure grounded in commercial and banking customs. The governing principles of bank guarantees—including the principle of independence from the underlying contract, the principle of immediacy, the principle of documentary appearance, the principle of good faith, the principle of prohibition of abuse of rights, and the principle of the beneficiary’s reliance on the bank’s commitment—offer a coherent framework for interpreting, drafting, and enforcing these instruments. Accordingly, the aim of the present study is to elucidate the governing principles of bank guarantees in Iranian law. The findings, derived from a descriptive-analytical methodology and library-based sources, reveal that in the Iranian legal system, due to the absence of a specific statute on bank guarantees, these principles play a critical role in filling legal gaps, organizing banking practices, and guiding the legal interpretation of guarantee instruments. Judges, legal advisors, and arbitrators, by relying on these principles, are enabled to make decisions aligned with international commercial customs and equitable trade practices. Furthermore, these principles are extensively applied in drafting guarantee texts, determining demand conditions, limiting the bank's liability, and combating fraudulent or fictitious claims. The results of this research indicate that these principles not only serve as the current interpretive and operational basis, but also possess the potential to become the backbone of future legislation regarding bank guarantees. Their coherence, broad applicability, and alignment with international standards have rendered these principles a strategic tool in the advancement of banking law in Iran.