Letters of Credit Letter of Credit (L/C) (2016 Bar)

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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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