Can a Guarantee Be Amended to Reflect Legal Succession of Beneficiaries?

A change in the identity of the beneficiary under a demand guarantee may arise not from a transfer of the guarantee, but from legal succession under the applicable law, such as inheritance or donation. In such cases, should the guarantor treat the change as a transfer under Article 33 of URDG 758, or simply amend the guarantee to acknowledge the new beneficiaries?

The following Q&A discusses this issue.

Question

Dear Mr. Old Man,

I hope you are doing well.

I have a question regarding URDG 758 and the ISDGP.

Can the guarantor issue an amendment extending the expiry date of a Performance Guarantee issued in connection with a contract between the Contractor and the property owners, while also reflecting changes to three beneficiaries resulting from legal succession (two by inheritance and one by donation)?

The changes are evidenced by inheritance deeds and a deed of donation, are reflected in an amendment to the underlying contract, the property register has been updated to show the new owners, and a legal opinion confirms the validity of the transfers under Albanian law.

My view is that the amendment should both extend the guarantee’s expiry date and update the Beneficiary field to reflect the new beneficiaries.

To make it clear that these changes arise by operation of law (ISDGP paragraph 202), rather than by a transfer of the guarantee under Article 33 of URDG 758, I propose including the following statement:

“The Guarantor acknowledges that the beneficiaries are now X, Y and Z in place of A, B and C, as evidenced by the inheritance deeds and deed of donation presented to the Guarantor. This acknowledgement records the legal effect of those documents only and does not constitute a transfer of the Guarantee within the meaning of Article 33 of URDG 758.”

What is your view? Is it preferable to include an express acknowledgement of the legal succession, or is it sufficient simply to replace the beneficiaries’ names in the Beneficiary field without any explanatory wording?

My opinion is based on ICC Opinion TA952, which clearly states that URDG does not override applicable local law.

Kind regards,

Dani

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Answer

Dear Dani,

Thank you for your interesting question.

First, according to Article 5(a) of URDG 758, a guarantee is, by its nature, independent of the underlying relationship and the application. Accordingly, the guarantor is in no way concerned with or bound by such relationship.

Secondly, under Articles 11(a), 11(b) and 11(c) of URDG 758, a guarantee can neither be amended nor cancelled without the agreement of the guarantor and the beneficiary.

If the guarantor is satisfied with the documentary evidence and the legal opinion confirming that, under the applicable local law, the rights of the beneficiaries have passed to their legal successors, the guarantor may issue an amendment extending the expiry date while updating the beneficiary details.

In my view, it is preferable for the amendment to expressly acknowledge that the change of beneficiaries results from legal succession under the applicable law, rather than from a transfer of the guarantee under Article 33 of URDG 758. This makes it clear that the amendment merely records the legal effect of the succession and does not constitute a voluntary transfer of the guarantee.

Accordingly, wording substantially similar to the one you proposed would be appropriate.

Note:

• If the original beneficiaries are still alive, any amendment changing the beneficiary details should be made with the agreement of the guarantor and the original beneficiaries in accordance with Article 11 of URDG 758. The amendment may then acknowledge that the rights under the guarantee have passed to X, Y and Z pursuant to the applicable local law. Such acknowledgement merely records the legal effect of the succession and should not be regarded as a transfer of the guarantee under Article 33 of URDG 758.
• If one or more of the original beneficiaries have passed away, the guarantor cannot obtain the agreement of the deceased beneficiary as required by Article 11. Instead, the guarantor should act in accordance with the applicable local law and the documentary evidence establishing the legal successors, such as a court order, probate documents, inheritance deeds, or other legally effective instruments. In such circumstances, the amendment merely records the legal effect of the succession and the substitution of the beneficiaries, rather than a transfer of the guarantee under Article 33 of URDG 758.

Best regards.

Mr. Old Man