The parties disputed whether a letter was a performance bond or a guarantee. The words of the instrument were: ‘We undertake to pay the said amount on your written demand in the event that the supplier fails to execute the contract in perfect performance’
Held: The bond was payable on demand despite the fact that it referred to the supplier’s failure to perform the underlying contract about which there was a dispute. The fact that an instrument makes reference to the contractual performance for which it is security and the circumstances which constitute default does not prevent it being a demand guarantee or performance bond.
Ackner LJ said: ‘If the performance bond was so conditional, then unless there was clear evidence that the seller admitted that he was in breach of the contract of sale, payment could never safely be made by the bank except on a judgment of a court of competent jurisdiction and this result would be wholly inconsistent with the entire object of the transaction, namely to enable the beneficiary to obtain prompt and certain payment.’
 2 Lloyd’s Rep 546
England and Wales
Cited – Gold Coast Ltd v Caja De Ahorros Del Mediterraneo and others CA 6-Dec-2001
The banks appealed findings as to their liability to pay out under on-demand guarantees they had given in respect of stage payments for the construction of a ship. It was claimed that the delivery times had not been met, and the builder was in . .
Cited – Marubeni Hong Kong and South China Ltd v Ministry of Finance of Mongolia CA 13-Apr-2005
A letter was written by the Mongolian Ministry of Finance guaranteeing payment for textile plant and machinery to be supplied to a Mongolian company. A letter from the justice minister confirmed the authority of the finance minister to sign the . .
Cited – Rainy Sky SA and Others v Kookmin Bank ComC 29-Oct-2009
The claimants sought summary judgment under an advance payment bond issued by the defendants in connection with certain shipbuilding contracts. . .
Lists of cited by and citing cases may be incomplete.
Updated: 19 May 2022; Ref: scu.225897