23.6.20 The concept of constructive communication used here should be developed. A creditor who is “questioned” about the irregularity is required to take reasonable steps to ensure that he understands the nature and implications of the transaction; otherwise, it will be accompanied by a design note. A creditor is questioned by a combination of two factors – the transaction is not to the financial advantage of the guarantor and a significant risk that the debtor will commit an injustice in obtaining the security. 23.7.3 In equity, the guarantor has requests for exemption even before payment. Once the surety`s obligation to pay under the guarantee has become absolute as a result of the creditor`s acquisition of a right to immediate payment by the guarantor, the guarantor is entitled to request the principal debtor to pay the debt in order to release the guarantor from that obligation. The guarantor proceeds through a “quia timet” (literally “because he fears”) legal action. You should also check if the debtor has assets that they can use as collateral for the loan. This reduces your risk, as the lender must require the collateral before the guarantor becomes liable. It is advisable to negotiate with the parties to include this as a condition of guarantee. Before that, however, you should seek legal advice, as there are various formal requirements that must be met. In May 2012, Capstone won the contract for another construction project in Bedok. As the Bedok project required guarantee facilities, ECICS increased the existing credit facility under the facility agreement to US$4.6 million under an additional agreement between ECICS and Capstone in June 2012. The increase in the credit facility was secured by a personal guarantee from Mr. Yew, Mr.
Chew and Ms. Kua. Under the enhanced guarantee mechanism, ECICS issued a performance guarantee to HDB for the work carried out at Bedok. Capstone was later dissolved in 2013. 23.6.2 As we have seen, ancillary liability is an essential aspect of a security, and if the principal debtor is discharged, so is the guarantor. Thus, if the principal debtor fulfills his principal obligation and makes the payment, the guarantor is also fulfilled. There is no general principle that payment from the principal debtor to the creditor must be made to settle the secured debt. Another case in which the principal debtor is discharged is when the termination of the contract by the creditor entitles the principal debtor to terminate the principal contract. 23.8.3 The first case is where the bank knows that the use of the performance guarantee is manifestly or manifestly fraudulent.
In order to obtain an injunction against a bank in respect of the fraud exemption, the principal must prove that the beneficiary did not honestly believe that he or she had a legitimate claim and that at the time of the application, the bank was either aware of the recipient`s fraud or reckless, since the only realistic conclusion that could be drawn in the circumstances was that the claim had been made fraudulently. 23.5.5 The liability of a guarantor, which provides security for that of the principal debtor, arises when the principal debtor is in default. Liability arises immediately after default and, unless the guarantee provides otherwise, is not conditional on the creditor taking any of the following actions: 23.3.3 Unilateral guarantees fall into two categories: specific (where the counterparty is complete and indivisible) and permanent. A continuous guarantee is a guarantee when the counterparty is divisible and covers a number of acts or transactions. A special guarantee may be revoked before the full consideration has been provided. A standing guarantee may be revoked for future transactions by notifying the creditor. Creditors often include a clause in the guarantee to cancel or limit this right of withdrawal; Such clauses appear to be effective. Thus, Ms Kua`s liability for Capstone`s increased exposure was not such as to exclude her from the initial review of the original agreement, which sought to oblige all guarantors, including Ms Kua, to provide ECICS with a guarantee for `all funds`. 23.2.1 We have seen previously that a guarantee is a promise by the guarantor that if the principal debtor is liable and does not pay, the guarantor will do so.
Such an obligation must be distinguished from another obligation of third parties that is very similar – the exemption. The difference between the two is the principle of guarantee or secondary liability.