Can be the primary ,and also can the issuing bank will take the be the secondary primary liability to effect payment. Under URDG758, the governing law and jurisdiction for letter of guarantee business are clearly indicated. UCP600 does not stipulate the governing laws or jurisdiction when disputes under letter of credit happens.
2. Differences
Bank Guarantee Documentary Letter of Credit
The undertaking of the issuing bank
The documents required for payment The liability for payment The law and custom
1. Commons • Both the Bank guarantee and documentary credit are settlement method used in international trade; • They are both issued at the request of the applicant, in favor of the beneficiary, promising the payment obligation when complying documents are presented. • The banks will only deal with documents, while not being responsible for the authenticity and effectiveness of the documents, banking credit replaces the commercial credit, which in a great degree facilitate the development of international transactions.
1 Characteristics of Letter of Guarantee 1）Assurable
The issuing bank will assure to the beneficiary that applicant will fulfill the responsibility and obligation of the contract with its own reputation, only when the applicant breach of the contract can the beneficiary claim reimbursement on issuing bank. When the contract has been fulfilled, the guarantee will be a standby documents and will ceased to be valid at maturity date automatically.
L/C is to effect payment when beneficiary has fulfilled the basic commercial contract and complied documents are presented.
commercial documents specially including transport documents
2）Independent
Letter of guarantee is issued on the ground of the basis transaction contract between the applicant and the beneficiary. Once it is issued, it will not be bound to the basic contract and constitute a independent documents, bears the independent legal effect.
1 Direct L/G
Beneficiary
(1) The beneficiary and applicant signs the underlying contract, beneficiary requires t applicant to open an L/G
Applicant
Guarantor
Definition：Letter of guarantee( L/G) is a written undertaking made by the guarantor at the request of the applicant to the beneficiary, guaranteeing that the applicant will perform obligations under the contract signed between the applicant and the beneficiary.
Chapter 7 Letter of Guarantee
7.1 Definition of Letter of Guarantee 7.2 Characteristics and function of Guarantee 7.3 Parties of Letter of Guarantee 7.4 Contents of Letter of Guarantee 7.5 Basic Procedures of Letter of Guarantee 7.6 Types of Letter of Guarantee 7.7 Differences between Bank Guarantee and Documentary Letter of Credit 7.8 international customs and practice of L/G
3）Documentary
Payment under letter of guarantee is based on the documents presented by beneficiary according to the guarantee regulation clause. It includes beneficiary’s certificate, applicant’s default declaration and other relative documents.
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A L/G is property operative only if the principal failed to fulfill the commercial contract and default certificate are presented
certificate documents which can prove the default of principals.