Where an insurer provided a performance bond/guarantee in which it undertook to pay ‘on receipt of a written notice from the seller’ saying that the purchaser had defaulted, it was held that extinctive prescription only started to run when demand for payment was made even though three years had passed since the default event.
The purpose of a performance/payment guarantee is to assure a contracting party that it will be paid, unaffected by any controversies or disputes relating to the underlying agreement. The underlying contract has no effect on the guarantor’s liability and therefore the default under the agreement does not trigger the running of prescription. Only the demand alleging default does so.
The parties are always entitled to determine in the agreement itself when prescription will commence to run. They have only to say so. But they must say so if they want to change the ordinary principles.
In addition, the guarantee in question, according to its terms, remained valid until the purchaser’s obligations had been fulfilled under the agreement or payment of the guarantee had been made. The guarantee therefore did not lapse three years after performance of the underlying agreement became overdue. Even though three years passed from the date of default under the underlying agreement before demand was made, the claim under the guarantee had not prescribed.