The document discusses letters of credit, which are arrangements where an issuing bank binds itself to pay a third party beneficiary, authorize another bank to pay or accept drafts, or authorize negotiation against stipulated documents. It also discusses the difference between guaranty and suretyship, noting that guaranty creates a secondary obligation while suretyship creates a primary one, guarantors are entitled to excussion while sureties are not, and guarantors insure the solvency of the principal debtor while sureties insure the debt.
The document discusses letters of credit, which are arrangements where an issuing bank binds itself to pay a third party beneficiary, authorize another bank to pay or accept drafts, or authorize negotiation against stipulated documents. It also discusses the difference between guaranty and suretyship, noting that guaranty creates a secondary obligation while suretyship creates a primary one, guarantors are entitled to excussion while sureties are not, and guarantors insure the solvency of the principal debtor while sureties insure the debt.
The document discusses letters of credit, which are arrangements where an issuing bank binds itself to pay a third party beneficiary, authorize another bank to pay or accept drafts, or authorize negotiation against stipulated documents. It also discusses the difference between guaranty and suretyship, noting that guaranty creates a secondary obligation while suretyship creates a primary one, guarantors are entitled to excussion while sureties are not, and guarantors insure the solvency of the principal debtor while sureties insure the debt.
The document discusses letters of credit, which are arrangements where an issuing bank binds itself to pay a third party beneficiary, authorize another bank to pay or accept drafts, or authorize negotiation against stipulated documents. It also discusses the difference between guaranty and suretyship, noting that guaranty creates a secondary obligation while suretyship creates a primary one, guarantors are entitled to excussion while sureties are not, and guarantors insure the solvency of the principal debtor while sureties insure the debt.
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LETTERS OF CREDIT
Letter of Credit (L/C) (2016 Bar)
It is any arrangement, however named or described, whereby the issuing bank acting at the request and on the instructions of a customer (applicant) or on its own behalf, binds itself to: (PAN) 1. Pay to the order of, or accept and pay drafts drawn by a third party (Beneficiary); 2. Authorize another bank to pay or to accept and pay such drafts; or 3. Authorize another bank to Negotiate, against stipulated documents.
GUARANTY/SURETYSHIP
Q: What is the difference between "guaranty" and "suretyship"? (2010 Bar)
A: Guaranty and Suretyship distinguished: 1. The obligation in guaranty is secondary; whereas, in suretyship, it is primary. 2. In guaranty, the undertaking is to pay if the principal debtor cannot pay; whereas, in suretyship, the undertaking is to pay if the principal debtor does not pay. 3. In guaranty, the guarantor is entitled to the benefit of excussion; whereas, in suretyship the surety is not entitled. 4. Liability in guaranty depends upon an independent agreement to pay the obligations of the principal if he fails to do so; whereas, in suretyship, the surety assumes liability as a regular party. 5. The Guarantor insures the solvency of the principal debtor; whereas, the surety insures the debt. 6. In a guaranty, the guarantor is subsidiarlty liable; whereas, in a suretyship, the surety binds himself solidarity with the principal debtor (Art. 2047).
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