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算授課教師：XXXCatalogue01Introduction02NegotiableInstrument03Remittance04CollectionCatalogue05LetterofCredit06StandbyLetterofCredit07LetterofGuarantee08InternationalFactoring Catalogue09Forfaiting10DocumentsinInternationalSettlement11ExaminationofDocumentsCatalogue12FinancinginInternationalSettlement13RisksinInternationalSettlementChapter6StandbyLetterofCredit6.1

OverviewandDefinitionofStandbyLetterofCredit

Inchapter6,wewilltalkaboutstandbyletterofcredit.Theterm“standby”meanstheissuingbank’spaymentobligationmayhappen,itmayalsonothappen.Standbyherebearsthemeaningof“available”.Standbyletterofcreditisusedtopromisetheapplicantwillfulfilltheregulatedobligation.Thenatureofastandbyletterofcreditisabankguarantee.Itisalsocalledguaranteecredit.6.1

OverviewandDefinitionofStandbyLetterofCreditCommercialbanksareprohibitedfromundertakingobligationsunderguaranteesandonlyinsuranceandbondcompaniesareallowedtoissuebonds(guarantees).Asthecustomerinacommercialbankhasthedemandtoissuebonds,thestandbyletterofcreditisafinancialinnovationconductedbyAmericancommercialbankstobypassthisregulation.6.1

OverviewandDefinitionofStandbyLetterofCredit

Byissuingthestandbyletterofcredit,iftheborrowerfailstorepaythebeneficiary,theissuingbankwillpaythebeneficiaryonbehalfoftheborrower.Iftheborrowerrepaysthemoneyatmaturity,thecreditwillceasetobevalid.asthestandbyletterofcreditbearsthecharacteristicsofindependent,documentaryanddemandpayment,comparedwithguarantee.Itismorewidelyacceptablebybanks,importersandexporters.6.1

OverviewandDefinitionofStandbyLetterofCredit

TheICCPublicationNo.515InternationalChamberofCommerceDocumentaryLetterofCreditGuidelinedefinesstandbyletterofcreditasanydocumentarycreditorsimilararrangement,howevernamedordescribed,whichrepresentsanobligationtothebeneficiaryonthepartoftheissuer:6.1

OverviewandDefinitionofStandbyLetterofCredit

(1)torepaymoneyborrowedbytheapplicant,oradvancedtoorfortheaccountoftheapplicantor;(2)tomakepaymentonaccountofanyindebtednessundertakenbytheapplicantor;(3)tomakepaymentonaccountofanydefaultbytheapplicantintheperformanceofanobligation.6.1

OverviewandDefinitionofStandbyLetterofCredit

Standbyletterofcreditisoftenusedtoguaranteebidbond,repaymentandcontractperformance.Understandbyletterofcredit,whenthebeneficiaryhaspresentedstipulateddraftandcertificatecertifyingthattheapplicanthasfailedtofulfillrelativeobligation,itcanthenbereimbursedbytheissuingbank.Standbyletterofcreditalsobelongstodocumentarycredit.6.1

OverviewandDefinitionofStandbyLetterofCredit

Withthewiderspreadingofstandbyletterofcredit,thefunctionaldifferencebetweencommercialcreditandstandbyletterofcreditismoreandmoreobvious.Misunderstandinganddisputesincreasegradually.Itiscompulsorilynecessarytoestablisharuleregulatingstandbyletterofcreditbusinessspecifically.6.1

OverviewandDefinitionofStandbyLetterofCredit

Underthisbackground,theUnitedStatesInstituteofInternationalBankingLawandPracticeissuedthedraftofinternationalstandbypracticeandittookeffectonJan.1st,1999.So,therulesguidingthestandbyletterofcreditoperationareInternationalStandbyPractices1998(ISP98).Asstandbyletterofcreditalsobelongstodocumentarycredit,itcanalsobesubjecttoUCP600.6.2

CharacteristicsofStandbyLetterofCredit

Thestandbyletterofcreditisanletterofcreditwhichhasthenatureofguarantees.Itisanirrevocable,independent,documentary,demandpaymentandbindingundertaking.6.2

CharacteristicsofStandbyLetterofCredit6.2.1Irrevocable

Thestandbyletterofcreditisirrevocable.Anissuer’sobligationsunderastandbyletterofcreditcannotbeamendedorcanceledbytheissuerexceptthatallrelativepartiesagreewithsuchamendmentorcancellation.6.2

CharacteristicsofStandbyLetterofCredit6.2.2Independent

Oncethestandbyletterofcreditisissued,itexistsasaseparateself-sufficientdocument.Itisseparatedfromthebasictransactionsalesbetweentheapplicantandthebeneficiarywhicharethebasestoissuethestandbyletterofcredit.Itisalsoseparatedfromthecontractualrelationshipbetweentheapplicantandtheissuingbank.Thebasictransactioncontractcannothaveanyeffectontheissuingbank.6.2

CharacteristicsofStandbyLetterofCredit6.2.3Documentary

Wewouldliketoemphasizeagainthatstandbyletterofcreditisdocumentarycredit.Standbyletterofcreditismoreoftenusedininternationalguaranteebusiness.Insteadofpaymentinstrument,itisusedasguaranteeinstrument.Thedocumentsrequiredarebillsofexchangeandnon-transportdocuments,suchasdefaultcertificate.6.2

CharacteristicsofStandbyLetterofCredit6.2.4DemandPayment

Standbyletterofcreditisaguaranteecredit.Whenthebeneficiaryhaspresentedthebillofexchangeanddefaultcertificatethatapparentlycomplywiththetermsandconditionsofcredit,upondemand,theissuingbankshouldeffectpaymentimmediately.6.2

CharacteristicsofStandbyLetterofCredit6.2.5Enforceable

Whenthestandbyletterofcredithasbeenissued,nomatteritisauthorizedbytheapplicantornot,chargeshavebeentakenbytheissuingbankornot,thebeneficiaryhasreceivedthecreditornot,theissuingbankisboundtotaketheresponsibilitystipulatedinthecredit.6.3PartiestoStandbyLetterofCredit6.3.1Applicant

Applicantisapartywhoappliesfortheissuanceofastandbyletterofcreditonbehalfofhimselforforaccountofothers,andanissueractingforitsownaccountisalsocalledapplicant.6.3PartiestoStandbyLetterofCredit6.3.2IssuingBank

Issuingbankisapartythatissuesthestandbyletterofcreditattherequestofapplicant.Issuingastandbyletterofcreditmeanstheissuermustpaytheholderofthedraftonpresentationinthecasethatthetermsandconditionsofthestandbyletterofcreditonitsfacearecompliedwith.6.3PartiestoStandbyLetterofCredit6.3.3AdvisingBank

Advisingbankisapartythatisrequestedtoadviseastandbyletterofcredit.Theadvisershouldnotifytherequestingpartywhenhedecidesnottoadvisethestandbyletterofcredit.Theadvisershouldchecktheapparentauthenticityoftheadviser’sstandbyletterofcreditinaccordancewithstandbyletterofcreditpractice.6.3PartiestoStandbyLetterofCredit6.3.4Beneficiary

Beneficiaryisanamedpartywhoisentitledtodrawadraftunderastandbyletterofcredit.Thebeneficiarycantransferthedrawingrightseffectivelytoanotherpartywhichiscalledtransfereebeneficiary.6.3PartiestoStandbyLetterofCredit6.3.5ConfirmingBank

Confirmingbankisapartywhich,uponanissuer’snomination,addsitsownundertakingtotheissuer’sundertakingtohonorastandbyletterofcredit.Theconfirmercanbeconsideredasaseparateissueranditsconfirmationhasthesameeffectivenessastheissuer.6.3PartiestoStandbyLetterofCredit6.3.5ConfirmingBank

Inordertoemphasizethattheconfirmingbankbearsthesameresponsibilityandobligationastheissuingbankandprovidesthesameguarantee,ISP98speciallyregulatesthattheconceptoftheissuingbankincludestheconfirmingbank.6.3.5ConfirmingBank

ISP98furtherstipulatesthatwhenstandbyletterofcreditdoesnotstatetowhomdocumentswillbepresented,thepresentercanchooseeithertheissuingbankortheconfirmingbanktopresentdocuments.Thepaymentobligationoftheconfirmingbankdoesnotconnectwiththerightstoexaminedocuments.Whentheissuingbankdoesnotrejectdocumentswithinreasonablecheckingtime,despitethedocumentsexistdiscrepancy,andconfirmingbankdoesnotexecutedocumentcheckingrights,theconfirmingbankwillalsobearthepaymentresponsibility.6.3PartiestoStandbyLetterofCredit6.3.6ReissuingBank

Reissuingbankisthepartythatissuesstandbylettersofcredittoitsdomesticbeneficiaryaspertherequestoftheforeigncounterguarantor.Reissuingstandbyletterofcreditisalwaysestablishedasperthebeneficiarycountry’slaw,governmentregulationortherequestofthebeneficiary.Thepurposeofdoingthisistochangetheoverseaguaranteeintodomesticguarantee,onceclaimoccurs,thebeneficiarycanbereimbursedquicklyandthearbitrationwilltakeplacebyusingdomesticlaw.6.3.6ReissuingBank

Whenstandbyletterofcreditisreissued,thebeneficiarycanonlyclaimonthereissuingbank.Hehasnorighttoclaimonthecounterguarantor(originalissuingbank).Asthereissuingbankcanclaimagainontheissuingbankbythecounterstandbyletterofcredit,thereissuingbankisthenominalguarantor,whoindeedwillnotbeartheactualrisk.Reissuingbanknormallylocatesinthebeneficiary’scountry.6.3.6ReissuingBank

Thereissuingbankhastherighttorefusetherequesttoreissuethecredit,whenitdecidesnottodoso,itmustinformtheissuingbankwithoutdelay.Whenthereissuingbankdecidestoacceptthereissuingrequest,itisobligedtoissueastandbyletterofcreditasperthecounterguarantor’srequestandinformthebeneficiarytimely..6.4MainContentsofStandbyLetterofCredit Althoughtherearedifferentkindsofstandbylettersofcredit,themaincontentsofthemarethesameandcanbesummarizedasfollows:(1)Nameanddetailedaddressoftheapplicant.(2)Nameanddetailedaddressofthebeneficiary.(3)Nameanddetailedaddressoftheissuingbank.(4)Nameanddetailedaddressoftheadvisingbankandthetransmittingbank(ifany).(5)Issuingdateandnumberofthestandbyletterofcredit.6.4MainContentsofStandbyLetterofCredit(6)Referencenumber,dateandsubjectofthebasictransactioncontractwhichthestandbyletterofcreditisbasedon.(7)Theamountwhichthestandbyletterofcreditundertakestoreimburse,bothinwordsandinfigures.(8)Natureofthestandbyletterofcredit,typeofthestandbyletterofcredit,e.g.performancestandbyletterofcredit,bidbondstandbyletterofcredit,etc.(9)Thevalidityperiodofthestandbyletterofcredit,whenthestandbyletterofcreditiseffective,whenitceasestobeeffective.6.4MainContentsofStandbyLetterofCredit(10)Primeliabilityoftheissuingbank,rightsandobligationsoftheapplicantandthebeneficiary.(11)Claimdocumentsrequirements.Forexample,whatcertificates/documentsarerequiredtopresentwhenthebeneficiaryclaimsagainsttheissuingbank.(12)Theapplicableregulationandlawofthestandbyletterofcredit.Itindicateswhendisputesanddisagreementsoccur,whichlaworregulationwillbereferredforarbitration.ThestandbyletterofcreditissubjecttoUCP600,ISP98orotherinternationalcustomsandpractices.6.5ProceduresofStandbyLetterofCreditPleaseseeChart6.1fortheproceduresofstandbyletterofcredit.6.5ProceduresofStandbyLetterofCredit①Theapplicantandthebeneficiarysignanunderlyingcontract,andthebeneficiaryrequirestheapplicanttoopenastandbyletterofcredit.②Theapplicantappliesforastandbyletterofcredittotheissuer.③Theissuernotifiesthestandbyletterofcredittotheadviser.④Theadvisernotifiesthestandbyletterofcredittothebeneficiary.⑤Whentheapplicantisinbreachofthecontract,thebeneficiarywillpresentthedraft,demandforpaymentandthestatementofthedefaulttotheadviserforindemnity.6.5ProceduresofStandbyLetterofCredit⑥Theadviserpresentsthedraft,demandforpaymentandthestatementofthedefaulttotheissuerforindemnity.⑦Theissuerexaminestherelativedocumentsandthenpaystheadviser.⑧Theadvisertransferstheproceedstothebeneficiary.⑨Theissuerclaimsindemnitytotheapplicant.6.6TypesofStandbyLetterofCredit6.6.1Tender/BidBondStandbyLetterofCredit

Atender/bidbondstandbyletterofcreditsupportsanobligationoftheapplicanttoexecuteacontractiftheapplicantisawardedabid.Iftheapplicantdoesnotexecutethecontract,theissuerwillpaythebeneficiaryanindemnityaccordingtotherelativeclauseinthestandbyletterofcredit.6.6TypesofStandbyLetterofCredit6.6.2PerformanceStandbyLetterofCredit

Aperformancestandbyletterofcreditsupportsanobligationoftheapplicanttoperformthebasictransactioncontract.Theissuingbankguaranteescompensationwhenlossesarisefromadefaultoftheapplicantincompletionoftheunderlyingtransactions.Duringthevalidityofthestandbyletterofcredit,iftheapplicantisinbreachofthecontract,theissuershouldpaythebeneficiarytheindemnityprescribedinthestandbyletterofcredit.6.6TypesofStandbyLetterofCredit6.6.3AdvancePaymentStandbyLetterofCredit

Anadvancepaymentstandbyletterofcreditsupportsanobligationoftheissuertoaccountforanadvancepaymentmadebythebeneficiarytotheapplicant.Theadvancepaymentstandbyletterofcreditisusuallyusedintheinternationalcontractedprojectandtheimportandexporttrade.6.6TypesofStandbyLetterofCredit6.6.4CounterStandbyLetterofCredit

Acounterstandbyletterofcreditservesasabackuptotheissuanceofaseparatestandbyorotherundertakingsbythebeneficiaryofthecounterstandby.Itissimilartoacounterguarantee.6.6TypesofStandbyLetterofCredit6.6.5FinancialStandbyLetterofCredit

Afinancialstandbyletterofcreditsupportsanobligationoftheissuer,guaranteeingthattheborrowedmoneywillbepaid.Thefinancialstandbyiswidelyusedininternationalloansandfinancingfacilities.Theforeigninvestorscanobtainthecreditfundsofferedbythehostnationagainstthefinancialstandby.6.6TypesofStandbyLetterofCredit6.6.6DirectPayStandbyLetterofCredit

Adirectpaystandbyletterofcreditsupportsapaymentinduetimeofanunderlyingpaymentobligation,typicallyinconnectionwithafinancialstandbyletterofcreditwithoutregardtoadefault.Thedirectpaystandby(whichisthesamemeaningofstandbyletterofcredit)hasbeenappliedinpaymentwithusuryonacertaindateintheissuingbondandmakinganindenturecontract.Thedirectpaystandbybreaksthetraditionalqualityofguarantee.6.6TypesofStandbyLetterofCredit6.6.6DirectPayStandbyLetterofCredit

Byusingdirectpaystandbyletterofcredit,whenthecorporationraisesfundsbyissuingcommercialpaper,localbankisrequiredtoissuedirectpaystandbyletterofcredit,provideguaranteetotheissuingenterprise,andbearsthepaymentobligation.Whentheindebtednessmatures,theissuingbankwilleffectpaymentdirectlytothecreditors.Theinvestorwilljudgetheriskoftheinvestmentonlypertheissuingbankscreditworthiness,insteadofconsideringtoomuchontheissuingenterprise.6.6TypesofStandbyLetterofCredit6.6.7CommercialStandbyLetterofCredit

Acommercialstandbyletterofcreditsupportstheobligationoftheissuertopayforgoodsorservicesintheeventofnon-paymentbytheapplicant.Iftheapplicanthasn’tfulfilledthepaymentobligation,theissuerwillpayagainstthedocumentspresentedbythebeneficiary,normally,thedocumentsincludingcommercialinvoice,claimdocumentsandcertifyingthattheapplicantisinthebreachofthecontract.6.7DifferencesbetweenStandbyLetterofCreditandDocumentaryLetterofCredit

Bothofstandbyletterofcreditanddocumentaryletterofcreditareinthenatureofcredit.The“Bible”theyarebothsubjecttoistheUniformCustomsandPracticeforDocumentaryCredits(UCP600).Theyarebothindependentdocumentsseparatingfromtheunderlyingcontractswhichtheyarebasedon.Standbyletterofcreditanddocumentaryletterofcreditbothbearthebankingcredit.Banksaredealingwithdocuments,notdealingwithgoods.Underbothsituations,theissuingbankbearstheprimaryliabilitytoeffectpayment.6.7DifferencesbetweenStandbyLetterofCreditandDocumentaryLetterofCreditDocumentaryLetterofCreditStandbyLetterofCreditFocusonthepaymentininternationaltradeFocusonguaranteeorfinancingFullsetofdocumentsneedtobepresentedDemandforpaymentandstatementofdefaultoftheapplicantneedtobepresentedDocumentsbeartheitemsofshipmentperiod,presentationperiodandvalidityDocumentsbeartheonlyitemvalidity,shipmentperiodandpresentationperiodarenotindicatedSubjecttoUCP600SubjecttobothISP98andUCP600PaymentconditionisperformanceofthecontractbythebeneficiaryPaymentconditionisinthebreachofcontractbytheapplicant6.8TheInternationalCustomsandPracticesforStandbyLetterofCreditThecustomsandpracticesthatguidethestandbyletterofcreditbusinessareInternationalStandbyPractices(ISP98),ICCPublicationNo.590,whichwasexecutedonJanuary1st,1999.ISP98isestablishedonthebasisofreferringtoUniformCustomsandPracticeforDocumentaryCredits(UCP500)andUniformRulesforDemandGuarantees(ICCPublicationNo.458,URDG458).Itisapplicabletointernationalstandbyletterofcredit,alsotodomesticstandbyletterofcredit.6.8TheInternationalCustomsandPracticesforStandbyLetterofCreditAnystandbyletterofcreditorsimilarindependentguarantee,nomatterhowitisnamedordescribed,whenitisindicatedasperISP98,thenitisapplicabletoISP98.AstandbyletterofcreditcanbeissuedasperUCP600andISP98,thenbothUCP600andISP98areapplicable.Underthiscircumstance,ISP98enjoysthepriorityrighttoUCP600,onlywhenISP98doesnothavethespecificregulationsconcerningthatsituation,thenUCP600willbeusedtoexplainandsettlerelevantsituations.6.8.1ImpliedClaimDocuments

AsperArticle4.08ofISP98,ifastandbydoesnotspecifyanyrequireddocument,itwillstillbedeemedtorequireadocumentarydemandforpayment.Herethedemandforpaymentisthedocumentsrequiredunderstandby.Thisregulationonceagaincertifiesthatstandbyletterofcreditisthedocumentarycredit.6.8.2FormoftheDeclaration

AsperSection4ofISP98,demanddeclaration(certificate)isthecoredocumentofstandbyletterofcreditbusiness.Whenthebeneficiarypresentsthedemandforpayment,itisnotnecessarytoattachanysampleorblankformat.Whenthestandbyletterofcreditprovidestheblankformat,thebeneficiaryonlyneedstopresentdocumentscreatedaspertheformat.Theblankformatisnotnecessarytobepresentedsimultaneously.Ifthedocumentisrequiredtobeissuedbyperson,butformandcontentsarenotrequired,onlywhenthedocumentiswitnessed,confirmed,certified,signedandactedsimilarlybytherequiredsomebody,thenitisdeemedtobecomplyingpresentation.6.8.2FormoftheDeclaration

Ifastandbyletterofcreditrequiresthepaymentdemandtobecertifiedbysomebodyotherthanthebeneficiary,buttheformandcontentsarenotrequiredspecifically,onlywhenthedocumentsaresignedbyapersonotherthanthebeneficiaryindicatingheiscertifyingthedocuments,thenitisdeemedtobecomplyingpresentation.Itisunnecessaryandimpossiblefortheissuingbanktoverifythetruthfulnessandeffectivenessofthesignature.6.8.3DemandforPayment

Demandforpaymentisthedocumentthatrequirestoreimburseunderstandbyletterofcredit.AccordingtoArticle4.16ofISP98,ademandforpaymentneedsnotbeseparatedfromthebeneficiary‘sstatementorotherrequireddocuments.6.8.4NegotiableDocuments

Ifastandbyletterofcreditrequirespresentationofadocumentthatistransferablebyendorsementanddeliverywithoutstatinghowortowhomendorsementmustbemade,thenthedocumentmaybepresentedwithoutendorsement,or,ifendorsed,theendorsementmaybeinblankand,inanyevent,thedocumentmaybeissuedornegotiatedwithorwithoutrecourse.6.8.5LegalorJudicialDocumentsArticle4.19ofISP98regulates,ifastandbyletterofcreditrequirespresentationofagovernment-issueddocument,acourtorder,anarbitrationaward,adocumentoracopyneedstobeissued/certified/authenticatedbyagovernmentagency,courtortribunal,suitablytitled,signedanddated.Onepointneedstomentionisthatbothoriginalandcopyofthejuridicaldocumentareacceptableundertheconditionthatstandbyletterofcreditdoesnothaverelativerequirement.Ifthestandbyletterofcreditspeciallyrequiresoriginaldocumenttobepresented,thencopyofjuridicaldocumentisnotacceptable.6.8.6OtherDocumentsIfastandbyletterofcreditrequiresadocumentotherthanonewhosecontentisspecifiedinISP98withoutspecifyingtheissuer,datacontent,orwording,adocumentcompliesifitappearstobeappropriatelytitledortoservethefunctionofthattypeofdocumentunderstandardstandbypractice.6.8.7TheTimeValidityofStandbyLetterofCreditArticle9.01ofISP98stipulates,astandbyletterofcreditmustcontainanexpirydate,orpermittheissuertoterminatethestandbyletterofcredituponreasonablepriornoticeorpayment.Inordertoprotecttheissuingbankandtheapplicant’sinterest,andtofacilitatethebusinessoperation,itisreasonableandnecessarytoregulateadateonwhichthestandbyletterofcreditbecomesnullandvoid.Theissuingbankcanterminatethestandbyletterofcreditindifferentcircumstances:6.8.7TheTimeValidityofStandbyLetterofCreditwhenthestandbyletterofcreditisirrevocableanditisnotoperativeautomatically,theterminationadvicemustbemadeinadvance,andonlyupontheconsentofthebeneficiary,canthestandbyletterofcreditbeterminated;whenthecreditisoperativeautomatically,theissuingbankmustmakeadviceinadvance,andonlywhenthecurrentstandbyletterofcredithasnotbeenutilized,canthestandbyletterofcreditbeterminated;whenthestandbyletterofcreditisrevocable,onlywhentheterminationadvicearrivesbeforethebeneficiarybeginstoexecutethestandbyletterofcredit,canthestandbyletterofcreditbeterminated.6.8.8Beneficiary’sStatementClausesWhendomesticenterprisesborrowmoneyfromtheforeignbank,domesticbankmayactattherequestoftheborrower,issueastandbyletterofcreditinfavoroftheforeignlendingbank.Incasethedomesticenterprisesfailtorepayatmaturity,thelendingbankcanavailtostandbyletterofcredittogetreimbursed.6.8.9AutomaticAmendmentClausesTheamountcanbeincreasedordecreased,andtheexpirydatecanbeextendedautomaticallywhenautomaticamendmentclausesareincludedinthestandby.Underthissituation,thestandbyletterofcreditwillbeamendedautomaticallywithoutnoticeorconsentwiththerelatedparties.ThankYou！國(guó)

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算授課教師：XXXInternationalSettlementCatalogue01Introduction02NegotiableInstrument03Remittance04CollectionCatalogue05LetterofCredit06StandbyLetterofCredit07LetterofGuarantee08InternationalFactoring Catalogue09Forfaiting10DocumentsinInternationalSettlement11ExaminationofDocumentsCatalogue12FinancinginInternationalSettlement13RisksinInternationalSettlementChapter7LetterofGuarantee7.1DefinitionofLetterofGuarantee

Ininternationalbusiness,obstaclesdoexistbetweenthebuyerandthesellertofulfillthetransaction.Asellermightfinditdifficulttoassessthebuyer’swillingnessandabilitytopay,whilethebuyermightnotbesureabouttheseller’scredit

worthinessandwhetherthesellerhasadequatefinancialandtechnicalresourcestofulfillthecontractobligation.7.1DefinitionofLetterofGuarantee

Inordertofacilitatethetransaction,athirdparty,normallyacommercialbankwillparticipateinthebasictransaction,usingitsownreputationandabundantfundstoensurethatacertainpartywillfulfilltheresponsibilityandobligationundertheunderlyingcontract.Thebank’sletterofguaranteethencameintobeing.7.1DefinitionofLetterofGuarantee

Letterofguarantee(L/G)isawrittenundertakingmadebytheguarantorattherequestoftheapplicanttothebeneficiary,guaranteeingthattheapplicantwillperformobligationsunderthecontractsignedbetweentheapplicantandthebeneficiary.Inthedefinition,theguarantoristhepartythatmakesguarantee,anditisusuallyabank;theapplicantisthepartythatappliesfortheletterofguarantee.Differentfrompreviouspaymentmethods,theapplicantisnotfixed.Itcanbeeitherthebuyer(importer)ortheseller(exporter).7.1DefinitionofLetterofGuarantee

TheapplicablerulesfortheguaranteearetheUniformRulesforDemandGuarantees(ICCPublicationNo.758)andtheUniformRulesforContractGuarantees(ICCPublicationNo.325).BytheUniformRulesforDemandGuarantees,ademandguaranteemeansanyguarantee,bondorotherpaymentundertaking,howevernamedordescribed,issuedbyabank,insurancecompanyorotherbodyorperson(theguarantor)inwriting,promisingthepaymentofmoneyonpresentationinconformitywiththetermsofthewrittendemandattherequest,orontheinstructionoftheprincipal.7.1DefinitionofLetterofGuaranteeFromthedefinition,wecanseethatademandguaranteeiscallablemerelyuponthebeneficiary’sstatementthattheapplicantisinbreachofcontract.BytheUniformRulesforContractGuarantees,contractguaranteesareguaranteesspecificallygivenbythebanks,insurancecompaniesandotherguarantorsintheformoftenderguarantees,performanceguaranteesandrepaymentguaranteesinrelationtoprojectsinanothercountryinvolvingthesupplyofgoodsandservices,ortheperformanceofwork.7.2CharacteristicsandFunctionofLetterofGuarantee7.2.1CharacteristicsofLetterofGuaranteeAssurableTheissuingbankwillassuretothebeneficiarythattheapp