Duhaime's Law Dictionary


Performance Bond Definition:

A contract wherein a third-party, in exchange for a fee, secures another's fulfillment of a contract or performance of a duty.

Related Terms: Bond, Surety Bond, Surety, Substantial Performance

Also called, in some jurisdictions, a surety bond.

In Trenton Works v Panalpina, Justice Nathanson of the Nova Scotia Supreme Court has before him a contract between Trenton and Panalpina to transport railway cars by ship from Halifax to Tanzania. That contract included this term: "as a guarantee of the full performance of all it's obligations under the contract, Trenton shall present to Panalpina a performance bond ...."

Panalpina secured a performance bond in the amount of $2,927,574 from Halifax Insurance Company.

One of the railway cars was damaged during loading and Trenton looked to Panalpania and the surety (Halifax Insurance Company) for damages. The Court held the surety to the performance bond as regards the damaged railway car and wrote, at ¶29:

"[T]he general effect of a performance bond is the indemnification by the surety of the loss suffered by the creditor or obligee."

REFERENCES:

  • Trenton Works Lavalin Inc. v. Panalpina Inc., 126 N.S.R. (2d) 287 (1993)

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