n SA Mercantile Law Journal = SA Tydskrif vir Handelsreg - Construction of demand guarantees gone awry : : case note




The term 'construction guarantee' is generally used to describe a primary (independent) undertaking given by a guarantor (often a bank) to a third party (beneficiary) in respect of obligations of a principal (bank's customer) to that third party (beneficiary). The guarantor of this type of undertaking promises or gives a primary (independent) or direct undertaking to perform in accordance with the guarantee, irrespective of whether or not the principal's (customer's) obligation is enforceable. However, in 2011 (5) SA 528 (SCA), a case involving 'two construction guarantees' - one for R1 181 104, 80 and the other for R1 106 500 - the Supreme Court of Appeal illustrated that it is not the name or label (title or heading) that is given to a payment obligation or undertaking (instrument) that determines whether it is accessory or independent in nature, but rather its substance and construction that does.


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