Unlawful calling of the Performance Bond

By Giuseppe Broccoli on 20 May 2022

The Performance Bond is called with a demand served by the beneficiary to the guarantor in order to receive the payment of the amount stated in the demand itself and within the cap set by the bond. On the one hand, it is true that such guarantee, if used fairly, represents a good protection for the beneficiary, on the other hand, there are various situations where the bond is used unlawfully.

In particular, we refer to all those cases in which the calling is considered as ‘abusive’ or ‘fraudulent’.

 

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Performance Bond: obligations of the bank in case of calling

By Giuseppe Broccoli on 20 May 2022

The Performance Bond is an autonomous guarantee at first demand which is issued by the guarantor upon instructions of a subject (for example, the seller or the contractor, so-called ‘applicant’) based on a contract stipulated between the guarantor and the applicant.

The applicant submits the request to issue the bond according to the conditions of the underlying contract stipulated between the seller/contractor and purchaser/owner and to secure the due performance in favour of the latter.

 

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What to do in case of fraudulent calling of the Performance Bond

By Giuseppe Broccoli on 19 May 2022

The calling of the performance bond is fraudulent when the beneficiary demand the payment to the guarantor without having however the right to do so and being aware of this so that the result will be that the beneficiary will obtain an unfair profit.

 

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Performance Bond: how and to what negotiate

By Giuseppe Broccoli on 19 May 2022

In international commercial transactions, it is very common for the importer/owner to request the supplier/contractor to issue a Performance Bond (i.e., almost always an autonomous and on-demand guarantee) to be called in the event of breach of some of the contractual obligations, as agreed in the underlying contract.

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Performance Bond: How it works under Italian Law

By Giuseppe Broccoli on 19 May 2022

The Performance Bond is a guarantee by means of which the purchaser or the owner secure the risk of the default of the counter-party (the supplier or the contractor). In case of default, the purchaser will obtain a sort of indemnity from the subject who issued the bond (usually a bank, called also the ‘guarantor’).

 

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Performance bond as on-demand guarantee.

By Giuseppe Broccoli on 18 May 2022

The Performance Bond is an on-demand guarantee (or rather, under Italian Law, it is an ‘autonomous’ and at first demand' guarantee) by virtue of which the beneficiary (as buyer or owner) can obtain a certain amount of money on the basis of a simple request submitted to the guarantor declaring that the other party has breached some of its contractual obligations.

No need for the beneficiary to prove the actual default.

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