A Bank Guarantee (“BG”) is a common mode of securing payment of money in commercial dealing as the beneficiary, under the guarantee, is entitled to realize the whole of the amount under that guarantee in terms thereof, irrespective of any pending dispute between the person on whose behalf the guarantee was given and the beneficiary. Since the BG represents an independent contract between the bank and the beneficiary, both the parties are bound by the terms thereof. The invocation, thus, has to be in accordance with the terms of the guarantee, or else, the invocation itself would be bad in law.

Types of Bank Guarantees:

The two types of BGs are: (i) Unconditional BGs; and (ii) Conditional BGs. 

An Unconditional BGs ensure the payment to the beneficiary “unconditionally and irrevocably” on beneficiary's first demand upon invoking the guarantee. 

The Conditional BG has certain conditions which once fulfilled, the Conditional BG can be invoked by the beneficiary. One has to pay attention to language of the guarantee so as to determine which kind of guarantee is it. 

Some Guarantees though mention the words “unconditionally and irrevocably,” they qualify such expressions with a condition or a situation upon occurring of which the underlying guarantee becomes encashable. In such circumstance, the BG in question would be categorized as a Conditional BG. Therefore, the terms of guarantee are extremely material.

Contact:

Jason Gavin

Email: jasongavin44@gmail.com

Telephone/WhatsApp: + 44 7452 390049

Twitter: @JasonGa58390383


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