ICC Digital Library Forum

In a LC which should be confirmed by the advising bank one of the documents which need to be presented requires presentation of a performance bond. In a separate message forming intergral part of the LC the text for the performance bond is provided. Text requires that the bank who issued the performance bond is obliged to pay "2. IN CONSIDERATION OF THE FORGOING, WE....THE FULFILMENT OF THE SELLED OBLIGATIONS UNDER THE SAID LC AND AS HEREIN AND UNDERTAKE THAT IF THE SELLER FAILS TO PERFORM ITS OBLIGATIONS UNDER THE SAID LC/CONTRACT WE SHALL PAY......ONLY OF THE UNDERSTOOD THAT THE SOLE JUDGE FOR DECIDING WHETHER THE SELLER HAS PERFORMED THE CONTRACT AND FULFILLED THE TERMS AND THE CONDITIONS OF THE CONTRACT WILL BE YOU (LC ISSUING BANK)...."
Lifetime for the performance bond must be 18 months from date of shipment, whereas the LC is a sight LC with rather short expiry.
My question is,
1. whether you would accept such a wording for the performance bond
2. in case out of the performance a claim is being lodged, does this affect the confirming bank, anticipating that documents (PB was part of documents) have been considered as clean.
Thank you all for your views.

Hi
1. No I would not accept such a wording
2. Yes it would affect the confirming bank even if the LC expired long time ago and documents considered as clean. A PB would in any case bind any bank issuing the PB, since the wording clearly stipulates “…AND UNDERTAKE THAT IF THE SELLER FAILS TO PERFORM ITS OBLIGATIONS UNDER THE SAID 'LC/CONTRACT' WE SHALL PAY......” even if the LC has expired, we can presume that the contract is still valid.
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