People’s Bank vs Sri Lanka Insurance Corporation Ltd. – SC CHC APPEAL NO. 18/09-2017

In the case of People’s Bank v. Sri Lanka Insurance Corporation Ltd., the court examined whether a creditor (the bank) is entitled to file a direct action against a guarantor (the Insurance Corporation) under guarantee bonds, without being required to first exhaust remedies against the principal debtor (BAT International). The court addressed the enforceability of “to pay on demand” clauses within such guarantees and the implications for a guarantor’s right to excussion. The findings centered on the contractual language of the guarantee bonds and the general principles of suretyship under Roman Dutch Law, referencing relevant statutes and legal doctrine. It was established that clear contractual terms obligating payment on demand override the guarantee’s default right of excussion unless e