Banks frequently receive "conditional claims" from the beneficiaries of Bank Guarantees issues by them, on behalf of their customers. In such conditional claim letters, the beneficiaries ask the Banks to extend the BG before the expiry/claim date, or invoke the BG. Normally, Banks contact the customers and have the BG extended, leading to no invocation. But some legal experts are of the opinion that such a conditional claim is no claim at all, or an improper/invalid claim, and should not be entertained. They opine that on receipt of such conditional claims, Banks should write to the Beneficiaries saying that as per terms & conditions of the BG, they are liable to invoke the BG if an unconditional claim/invocation letter is received. In other words, the reason why a BG is being invoked cannot be because "it was not extended".
My personal opinion is that a conditional claim is a valid claim, and Banks should invoke the BG and pay to the Beneficiary, if the BG is not extended. The very purpose of the conditional claim letter is that the beneficiary wants to continue to be covered against risk of default on the part of the BG applicant, and thus seeks extension of the BG. Since the cover is lost on non-extension, the Beneficiary can demand payment immediately. In most conditional claim letters, the wordings are "on non-extension of the BG by expiry/claim date, this conditional claim letter may please be treated as a letter for invocation of the BG." I think even if it seems that the reason why the BG is being invoked is that "it was not extended", Banks should invoke the BG and pay the Beneficiary.
I tried to find a legal definition of "a valid claim" but could not find it. Request Legal experts in the forum to opine on the matter.
