URDG 758 - Article 4-Issue and effectiveness

This Article help us to understand the issuance and effectiveness of the guarantees.

 

URDG 758 - Article 4-Issue and effectiveness

A. A guarantee is issued when it leaves the control of the guarantor. In most of the cases the date on which guarantee is sent, and the date when it leaves the control of the guarantor will be same. However, these could be different days as well. For example, if a guarantee prepared in paper format, it is possible that the guarantee may be signed and dated on Monday, but kept overnight by the guarantor until it is handed over to a courier on Tuesday. Now Questions arises, is guarantee issued on Monday or Tuesday?

In the above scenario guarantee will be leaving the control of the guarantor on Tuesday so will deemed to be issued on Tuesday.

B. A guarantee is irrevocable on issue even if it does not state this, there is no dedicated field like commercial letter of credit in guarantee, it means that even if guarantee does not state that “irrevocable” it will deemed to be irrevocable if it is issued and leaves the control of the guarantor, further no amendment or cancellation can be made without the consent of the concerned parties.

C. The beneficiary can present a demand from the time of issue of the guarantee or such later time or event as the guarantee provides. In guarantees, expiry may be a fixed date, after three years of opening (in case no expiry date or event) or an expiry event.

Once a guarantee is issued a demand can be made from the issuance date to expiry date or event as per guarantee terms.

Additional Points:

  • Further confusion arises in the above scenario if guarantor handed over the paper guarantee to Courier Company but instructs them not to deliver the document until the guarantor has given the further instruction to do so. In case second instruction is given on Thursday. Is the date of issue therefore Thursday, on the basis that the instrument remained under the control of the guarantor until then?
  • We get the answer for this situation through sub‑article 4(a) that a demand guarantee is issued when it leaves the control of the guarantor. In the above example, if the guarantor hands over the guarantee to the courier on Tuesday for delivery to the beneficiary, the guarantee will be issued on Tuesday. If, however, the guarantor instructs the courier company to not to deliver the document until the guarantor’s further instruction to deliver it, the guarantee will be issued on the day of the second instruction, ie Thursday.
  • Time when the beneficiary receives the guarantee is not relevant to the date of issue. If the guarantee is sent by courier on Thursday from India to China for immediate delivery to the beneficiary but is not delivered until Sunday, the date of issue will still be Thursday.

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Chandan Kumar Yadav
My name is Chandan Kumar Yadav CDCS, CSDG, CITF, PGDIBO,AML-KYC, CCFE, MLIBF, CSF, 6SIGMA a trade finance professional with an experience of 11 years whereas worked with several stages of letter of credit, bank guarantee and on other payments methods of trade transactions such as documentary collection, open accounts, SBLC etc., I have a fair understanding of Trade Based Money Laundering as well, Blogging related to Trade Finance is my passion and I want to share which I know and learn from others, I have worked with Wells Fargo, Yes Bank Limited and Bank of America, India which helped me to gain knowledge, view of Trade Finance and importance of International Trade in world's economy. Trade Finance is thumping product, everyday we are learning something new so in order to keep learning I started this as one of the platform. . Let's Learn Together

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