Error did not invalidate bank guarantee

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Error did not invalidate bank guarantee

Categories:

Lending restrictions,

Summary:

In June 2022, Heath, a company director, arranged for one of his two companies to lease a property. The bank issued a bank guarantee to the landlord for up to $250,000 in the event the company fell behind with rent or other payments. However, the bank incorrectly inserted the name of Heath’s other company on the guarantee. Two years later, the landlord demanded the full $250,000 for outstanding rent, and the bank honoured the demand and debited Health’s company for the same amount. Heath complained that the guarantee was defective and that his company with accounts at the bank was not in default of any debt. He asked for a reversal of the debited amount, but the bank refused, saying the intention of the parties and the purpose of the guarantee were clear and the company had indemnified the bank for this liability.

Published:

March 2025

Our investigation

The bank acknowledged it had made an error in the guarantee, just as Heath acknowledged his company had fallen behind with lease payments. We reviewed correspondence and examined the bank guarantee and concluded the incorrect reference did not invalidate the guarantee because the intention and purpose of the guarantee were clear and the parties had acted in accordance with both.