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Guarantee: Difference between revisions
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:*any other customary grounds for discharge of guarantees. | :*any other customary grounds for discharge of guarantees. | ||
*The “punctual performance” of the guaranteed obligations: makes [[Time is of the essence|time of the essence]]. | *The “punctual performance” of the guaranteed obligations: makes [[Time is of the essence|time of the essence]]. | ||
*Is given without prejudice to beneficiary’s rights against obligor | *Is given without prejudice to beneficiary’s rights against obligor. | ||
*Is independent of any other security or [[credit support arrangement]]. | *Is independent of any other security or [[credit support arrangement]] between beneficiary and obligor. | ||
===Indemnity=== | ===Indemnity=== | ||
In addition to the [[guarantee]], an [[indemnity]] against: | |||
*'''Expenses''': Beneficiary’s expenses incurred as a result of obligor’s non-performance of the guaranteed obligation, | |||
*'''Losses due to unenforceability''': the value of obligations which have become void or unenforceable against the obligor for any reason. Especially where you are lending to sovereigns or undertakings in unsophisticated jurisdictions, whose governments are apt to change local laws to protect struggling local undertakings besieged by vultures and locust capitalists, the risk that a perfectly sensible loan suddenly becomes beyond the jurisdictional pale is not beyond the realms of possibility. By its nature, a [[guarantee]] depends on the existence and validity of the underlying obligation. An [[indemnity]], being simply an unconditional obligation to pay a sum of money in a certain circumstance, does not. | |||
===Currency and payment=== | ===Currency and payment=== | ||
*Currency: Payment must be in the currency of the underlying obligations | *'''[[Currency]]''': Payment must be in the currency of the underlying obligations | ||
*Freely available funds: in immediately available funds | *'''Freely available funds''': in immediately available funds | ||
*Interest: with interest at such rate as beneficiary reasonably determines, from the date of demand until payment in full. | *'''No set-off or counterclaim''': without [[set-off]] or counterclaim, | ||
*Suspense account: beneficiary may place amounts beneficiary pays into a suspense account pending satisfaction in full. | *'''Interest''': with interest at such rate as beneficiary reasonably determines, from the date of demand until payment in full. | ||
*'''Suspense account''': beneficiary may place amounts beneficiary pays into a suspense account pending satisfaction in full. | |||
===Demand process=== | ===Demand process=== | ||
Beneficiary may make a demand under the guarantee without having taken any steps against the obligor | *Beneficiary may make a demand under the guarantee without having first taken any steps to recover the debt against the obligor (this is another benefit of the indemnity). | ||
===Discharge=== | ===Discharge=== | ||
*Beneficiary does not have discharge guarantee if | *'''No discharge of prejudice''': Beneficiary does not have discharge the guarantee if that might prejudice its claim under insolvency laws. Though presuming you only discharge the guarantee once the debt is fully paid, it is hard to know what your residual claim against the obligor would be, before or after its insolvency. | ||
* if beneficiary discharges guarantee following a payment that is then set aside, voided or found unenforceable, | *'''Reinstatement''': if beneficiary discharges guarantee following a payment that is then set aside, voided or found unenforceable, the guarantor’s liability is reinstated as if the beneficiary neve discharged the guarantee in the first place. | ||
===Guarantor’s rights versus counterparty=== | |||
Frequently guarantors only agree to issue a guarantee on payment of a fee, and on condition of reimbursement by the obligor should the guarantee be called. The beneficiary should require that until it has been fully paid: | |||
*Guarantor can only proceed against the obligor with the beneficiary’s consent (this incentivises the guarantor to pay out on the guarantee of course) | |||
*The guarantor holds any sums it receives from the obligor to the beneficiary’s order to be applied at the beneficiary’s direction. | |||
===Miscellaneous=== | |||
*'''Tax gross-up''': If the guarantor is subject to some withholding that the obligor wouldn’t have been the guarantor has to gross up to put the beneficiary in the same place it would have been in against the obligor. | |||
*'''[[Successors and assigns]]''': the guarantee inures for the benefit of the beneficiary’s successors. Especially for long-term guarantees this can be important, given the propensity of those in the international capital markets to merge, expire or shape-shift. | |||
{{sa}} | {{sa}} | ||