2020-07-20
As an important form of international settlement and guarantee, guarantees and standby certificates are widely used in international finance, international leases, and international trade and economic cooperation. Because the two are getting closer. Some people even confuse the two. In fact, there are both basic similarities and many differences between the two. An accurate grasp of the similarities and differences between the two will help to use them correctly in practical work to promote the development of international economic and trade. It also helps protect the legitimate rights and interests of the parties involved. Therefore, this article tries to compare the two.
1. Similarities between guarantee letter and standby letter of credit
(1) The definition is basically the same as that of legal parties
The letter of guarantee and the standby letter of credit, although different in the specific definition of the definition, but in general, they are all parties (applicants) under a transaction contract by the bank or other strong non-bank financial institutions Request or instruction, a written document issued to the other party (beneficiary) of the transaction, promising to pay for the written claim statement or other documents submitted that ostensibly meet the provisions of its terms. The legal parties for a letter of guarantee and a standby letter of credit are basically the same, and generally include the applicant, the guarantor or the issuing bank (the two are in the same position), and the beneficiary. The legal relationship between the three is that the applicant and the guarantor or the issuing bank is a contractual relationship, and the rights and obligations between the two are based on the application for issuance of a letter of guarantee or between the issuing bank and the beneficiary The legal relationship is subject to the terms of the guarantee letter or standby letter of credit.
(2) Similarities in application
Letters of guarantee and standby letters of credit are important forms of international settlement and guarantee, and can play the same role and achieve the same purpose in international economic and trade transactions.
In international economic and trade exchanges, parties to a transaction often require various guarantees to ensure the fulfillment of debts, such as bid guarantees in bidding transactions, performance guarantees, advance payment guarantees for equipment trade, quality or maintenance guarantees, and international technology trade Payment guarantees, etc., these guarantees can be realized in the form of guarantees or standby letters of credit. From the perspective of the emergence of the standby letter of credit, it was produced as an alternative to the guarantee letter. Therefore, the purpose it achieves is naturally consistent with the guarantee letter. The development of practice is exactly the same.
(3) Similarities in nature
Most of the guarantees in international economic and trade practice are demand guarantees, which have absorbed the characteristics of letters of credit and are getting closer to them, making demand guarantees and standby letters of credit increasingly the same in nature. The performance is as follows: First, the guarantee or payment responsibility of the guarantor’s bank or issuing bank is primary, although the letter of guarantee or standby letter of credit is used as a guarantee, that is, when the applicant fails to perform the debt, it will benefit The person can obtain compensation by the letter of guarantee or the standby letter of credit. When the applicant fulfills its debts, the beneficiary does not need to use it (the standby letter of credit is so named); second, although they are based on the applicant and the beneficiary The basic contract is opened, but once opened, it is independent of the basic contract; third, they are purely document transactions, and the guarantor or issuing bank’s claims against the beneficiary are based on the terms in the guarantee or standby letter of credit And the required documents, that is, only payment by receipt. Therefore, some people refer to the guarantee as a "secured letter of credit."
2. The difference between guarantee letter and standby letter of credit
(1) The guarantee is divided into dependent guarantee and independent guarantee, and there is no such distinction in the standby letter of credit
As a kind of guarantee for a person, the guarantee is a subordinate or independent relationship with the basic contract on which it is based. Accordingly, the letter of guarantee is divided into subordinate guarantee and independence guarantee in nature. The traditional letter of guarantee is subordinate. The letter of guarantee is a subsidiary contract of the basic contract. Its legal effect varies with the existence, change, and loss of the basic contract. The guarantor’s liability is a secondary payment liability, and only when the applicant of the guarantee When a breach of contract and does not bear the responsibility for breach of contract, when the guaranteed talent assumes responsibility for breach of contract, the guaranteed talent assumes responsibility for compensation under the guarantee. Whether the applicant breaches the contract is based on the provisions of the basic contract and actual performance to make judgments, but this judgment is obviously not a simple matter, often through arbitration or litigation to resolve the right and wrong. Therefore, when a claim occurs under the dependent guarantee, the guarantor shall determine whether to pay according to the terms of the basic contract and the actual performance. The guarantees used in domestic transactions in various countries are basically dependent guarantees.
The independent guarantee is different. Although it is based on the basic contract, it has an independent effect once it is opened. It is a self-sufficient document. The guarantor’s claim against the beneficiary is only based on the terms of the guarantee.
Independence guarantees generally have to specify that the guarantor’s responsibilities are irrevocable, unconditional and payable on demand. Once the guarantee is issued, without the beneficiary’s consent, the obligations under the guarantee can not be modified or released; the compensation under the guarantee depends only on the guarantee itself, not on the transactions other than the guarantee, and the bank receives the benefit The claimant shall pay the prescribed amount immediately after the claim. A demand guarantee is a typical representative of an independent guarantee.
Independence guarantees were gradually established by the development of banks and business practices in response to the needs of contemporary international trade development after World War II, and became the mainstream and trend of international guarantees. The main reasons are as follows: First, claims for dependent guarantees At that time, the guarantee bank must investigate the true situation of the performance of the basic contract, which is beyond the reach of its personnel and professional and technical capabilities, and will therefore be involved in contract disputes or even lawsuits. Banks consider their own interests and are never willing to be involved in complex contract disputes, which will damage the interests and reputation of banks, and tend to use independent guarantees. Moreover, when banks deal with letter of guarantee business, they are increasingly introducing the processing principles of letter of credit business, and some even call the letter of guarantee a but guaranteed letter of credit. Second, the independence guarantee can make the rights and interests of the beneficiaries more secure and easier to realize. It can prevent the applicant of the guarantee from submitting various reasons such as force majeure, the impossibility of contract performance, etc. to oppose its claims, and avoid prosecuting the defaulter The large amount of money, energy, and protracted litigation and other defects can ensure that their rights and interests will not be harmed by contract disputes.
As a form of letter of credit, standby letter of credit has no distinction between subordination and independence. It has the characteristics of "independence, self-sufficiency, and pure document transaction" of letter of credit. The bank only decides whether to repay based on the terms and conditions of the letter of credit, and has nothing to do with the underlying contract.
(2) The legal norms and international practices applicable to guarantees and standby letters of credit are different.
Due to the different laws and regulations on guarantees in different countries, so far, there has not been an international practice for guarantees that can be widely recognized by the banking and trade circles of various countries. Although the independent guarantee is widely used in international economic and trade practice, most countries do not have clear provisions on its nature in law, which hinders the development of the guarantee to a certain extent.
