What is the worth of an abstract guarantee (standby letter of credit)?

We learn the worth of an abstract guarantee when we need to enforce it. The theory is simple. An abstract guarantee, also called unconditional, irrevocable and payable upon first demand, is assumed to ensure the highest level of security for transactions. Furthermore, it is usually issued by banks widely proclaiming themselves to be “public confidence institutions”; but in practical terms, leaving guarantors and/or contractors without any means of defence.

Are you sure? When helping one of our key Clients to cash a guarantee of a considerable value which was much in excess of 20 million zlotys, yet-again we had a great opportunity to test in practice the full spectrum of the debtor’s defences applied by the contractor’s representatives. Their behaviour was understandable in these circumstances, unlike the attitude of the bank invoking its authority as a “public confidence institution” as the grounds basis for  …  withholding the cashing of the guarantee. As it turned out, bankers do not lack creativity.

This time, in our opinion, with the help of our lawyers, the matter ended well for our Client – the courts rose to the occasion and dismissed the petitions to withhold payments, and the bank paid in full all the amounts due together with the accrued interest. If a guarantee is to fulfil its role of securing business transactions, it is of importance that it is dependable. Nothing can corrupt business more than uncertainty, with the exception of the excessively protracted court proceedings.  However, this may be a topic of another blog.

Marcin Skromak, Attorney-At-Law

The matter of cashing the bank guarantee was conducted by our team under the direction of Marcin Skromak, Attorney-At-Law.