On System Of Independent Guarantee And Perfection

Independent guarantee is a form of personal guaranty which is independent from underlying trade contracts, and was born for the requirement of increasingly frequent international trade. The beneficiary only needs to present the demand for payment; the guarantor has to pay the amount the beneficiary required. This paper will discuss this modern form of guaranty and how to perfect it. Besides foreword and epilogue, the paper is divided into four parts altogether.First, the History Evolution of Independent Guarantee. Independent guarantee is a form of guaranty which originated on the base of traditional accessory guarantee and has developed these years. With the development of commercial economy, the disadvantages of traditional accessory guarantee have gradually manifested. Under this circumstance, independent guarantee which is free from the restraint of accessory generated to meet the need of economic development. Therefore, independent guarantee has some characteristics of traditional guarantee. Besides the superiority of independent guarantee to traditional guarantee, the autonomy of the will principle has provided a theoretical basis for its generation and development.Second, Independent Guarantee and Its Legal Relations. There isn't a certain legal phraseology for independent guarantee. In writer's opinion, the English phraseology of this new-type of guarantee should be "independent guarantee". There are many definitions of independent guarantee, too. In writer's opinion, the definition stated in the 2nd article of the United Nations Convention on Independent Guarantees and Stand-by Letters of Credit can be used as standard, that is: "An independent commitment, known in international practice as an independent guarantee or as a stand-by letter of credit, given by a bank or other institution or person ("guarantor/issuer") to pay to the beneficiary a certain or determinable amount upon simple demand or upon demand accompanied by other documents, in conformity with the terms and any documentary conditions of the undertaking, indicating, or from which it is to be inferred." The particularities of independent guarantee are independence, irrevocability and relative unconditionality. Independence is the most essential characteristic of independent guarantee. The other characteristics derive from it. There are mainly three aspects of independency. First, fulfillment of contract of independent guarantee is independent of underlying transaction. Second, independent guarantee is not affected by the changing objects of the underlying contract. Third, independent guarantor does not take the right of defense which the traditional accessory guarantor takes. Irrevocability of independent guarantee means that once the letter is issued, unless it stipulates that it is revocable, the contract of independent guarantee takes effect and the guarantor cannot withdraw the letter without approval of creditor. Relative unconditionality consists of two aspects. "Unconditionality" means once the document which the beneficiary presents apparently in conformity with the promise of the guarantee, the guarantor has to take the obligation. "Relative" means the beneficiary has to present required document, and the claim of beneficiary still has to obey the promise of the guarantee. There are two forms of independent guarantee: demand guarantee and standby letter of credit. A demand guarantee means any guarantee, bond or other payment undertaking, however named or described, by a bank, insurance company or other body or person given in writing for the payment of money on presentation in conformity with the terms of the undertaking of a written demand for payment and such other document as may be specified in the guarantee. It's widely adopted by European countries. But American banks were forbidden to undertake guarantee, so they have adopted standby letters of credit. Actually, standby letters of credit are typical independent guarantees. And now standby letters of credit are widely used in Japan, France and many Latin American and Middle East countries. The both parties of independent guarantee are guarantor and beneficiary. The legal relation between them is independent guarantee. This is the most important legal relation in independent guarantee system. Besides, there are underlying transaction contract relation between creditor (beneficiary) and debtor (warrantee) and commission legal relation between creditor and guarantor.Third, Extraterritorial Application and Regulations of Independent Guarantee. Independent guarantee is almost applied in all kinds of transactions. In some transactions, independent guarantee have already become an absolutely necessary credit tool. Nowadays, legal precedents in the commons law system and continental law system have accepted this new form of guarantee. But still we have to admit there is a side-effect in application of independent guarantee: fraudulent demands of beneficiary. In practices of independent guarantees, fraudulent demands of beneficiary include fraud and abuse of law. The characteristics of independent guarantees enable fraudulent demands of beneficiary. In order to establish legal status of independent guarantee and regulate its practices, some international organizations and countries constituted some regulations. Meanwhile, they establish and consolidate the fraud rule which can prevent beneficiary from fraud. So-called a defense of fraud exception means if the beneficiary fraud, even though he presented document which was in conformity with the promises of independent guarantee, the guarantor is entitled to reject. It's very complicated to confirm what fraud is and so far different countries have not reached an agreement. In writer's opinion, we can only cognize fraud when beneficiary not only conducts fraud, but also intends to fraud. When fraud happens, it's not enough to count on guarantor relief. The effective way is to apply for injunction.Forth, Thinking about Perfecting System of Independent Guarantee in Our Country. Along with development of our country, independent guarantee is applied more and more frequently and widely. There are two different opinions about legal effect of independent guarantee in judgment practice of our country. One opinion is we should admit legal effect of independent guarantee. And it should coexist with accessory guarantee. The other is independent guarantee can only be used in international transactions. It can't be used in domestic business activities. Otherwise, it would have a negative impact on domestic institution of guaranty. Writer approves the former. Now legislations about independent guarantee in our country are confused and incomplete. There are not special laws and regulations for independent guarantee. Only introducing it as an exception of traditional guarantee or classing it into credit system when introduce letter of credit. The problems of confused independent guarantee legal system and narrow application range is urgent. In writer's opinion, we should establish legal status of independent guarantee, and then complete its legislation.