Kuwait Court of Cassation principle number 143

Summary: - Letter of guarantee. Its nature. An undertaking that, of itself, creates an original, abstract or direct obligation on the issuing bank to pay its value to the beneficiary whenever requested to do so within the period specified therein, without regard to any objection by the instructing party, and the bank is discharged, like the beneficiary, if it does not receive a demand for payment from the beneficiary during its validity period. Exception. Express agreement to renew the letter of guarantee before expiry of its term at the beneficiary's request without the consent of the customer, the "instructing party." - Absence from the letter of guarantee of automatic renewal or of the beneficiary's right to request its renewal for another period before expiry of its term. Effect thereof. The bank may not extend it except with the customer's consent and at the customer's request. Reason therefor. Extension of the term is established for the benefit of the instructing customer. Extension of the term without his consent and despite his objection. Consequence thereof. The bank's liability. - Defective reasoning in a judgment. When present. Where its reasons contain a defect affecting the soundness of the inference. This occurs if the court bases its conviction on evidence objectively unsuitable to support that conviction, fails to understand the fact established before it, or there is a contradiction between its elements. Rule: The provision in Article 382 of the Commercial Code that "A letter of guarantee is an undertaking issued by a bank at the request of a customer of its own (the instructing party) to pay a specified or ascertainable amount to another person (the beneficiary), without restriction or condition, if requested to do so within the period specified in the letter ....", and the provision in Article 386 thereof that "The bank is discharged vis-à-vis the beneficiary if it does not receive a demand for payment from the beneficiary during the validity period of the letter of guarantee, unless express agreement to renew it is reached before that period expires," indicate, as established in the case law of this Court, that a letter of guarantee is a person's and final undertaking that, of itself, creates an original, abstract and direct obligation on the bank to pay its value to the beneficiary whenever requested to do so within the period specified therein, without regard to any objection by the instructing party. The bank is discharged vis-à-vis the beneficiary if it does not receive a demand for payment from the beneficiary during the validity period of the letter of guarantee, unless it is expressly agreed to renew that period automatically without any need for the consent of the customer (the instructing party), or it is expressly agreed to renew the letter of guarantee before expiry of its term at the beneficiary's request without the consent of the customer (the instructing party). Accordingly, where the letter of guarantee contains neither automatic renewal nor the beneficiary's right to request its renewal for another period before expiry of its term, the bank in that event may not extend the letter of guarantee except with the customer's consent and at his request, since extension of the term is established for the benefit of the customer (the instructing party). If renewal takes place without his consent and despite his objection, the bank is liable for it. It is also established that the reasons for a judgment are considered tainted by defective reasoning if they contain a defect affecting the soundness of the inference. This occurs if the court bases its conviction on evidence objectively unsuitable to support that conviction, fails to understand the fact established before it, or a contradiction occurs between the elements, as where the conclusion reached by the court does not logically follow from those elements.