The Guarantor The guarantor of an acceptance credit may or may not be a banker. If he is a foreign banker, he may arrange for his clients' credits with his banking correspondents in foreign countries, facilities which otherwise they might not be able to secure. In such cases, on behalf of his customers, he will probably attend to proper preparation of drafts and documents, collections, etc.
If he is a domestic banker, not himself in a position to accept in sufficient amounts to supply the entire needs of his customers, he will probably act as agent in procuring other acceptors and is likely to act for them in attending to the local details of the busi ness involved, such as holding collateral, receiving and remitting proceeds, etc. He may also negotiate the paper for his customers, but his obligation as guarantor is to the grantor of the credit, generally the acceptor. , His obligation, broadly stated, is to insure fulfilment of the obligation of the taker of credit to provide funds but may include other obligations stipulated as an essential condition to the grant ing of the credit, such as assurance that funds derived from the credit will be applied only to the uses for which the credit was given, and that the proceeds of the underlying transactions when realized will be applied as agreed.
In such cases the guarantor is paid by his clients a commission which may, or may not, include the acceptor's commission. The acceptor's commission, however, will probably be lower on a credit guaranteed by a banker than if it were not so guaranteed. There may be other profits accruing directly or indirectly to the banking guarantor such as proper charges for exchange and collections, and the benefits accruing from exchange for re mittance. Or the guarantor may be a merchant or manufacturer desiring goods available through an importer or producer who for one reason or another, without the granting of these acceptance facilities, could not swing the business in the volume required. Their own lines might be full or too large a margin might be re quired by their bankers unless they received additional guarantee against loss. Such a guarantor may stipulate a commission or he may act without special compensation, being primarily interested in getting the goods, or to control their market, and for these reasons he may be willing to assist in the financing by guarantee ing the contract of the person that does control their disposition.
Or there may be reasons of friendship or relationship that may form the motive for a guarantee of credits. 4 Guaranty of Letters of Credit Issued for Interior Correspondents Some national banks have lately acted as guarantors of letters of credit issued at their request by correspondent banks in large financial centers on behalf of the former's customers. The in terior bank, instead of issuing a letter of credit itself to an appli cant customer, gets one of its metropolitan correspondents to issue a letter for the customer's account, and guarantees that, in case the customer fails to put the issuing bank in funds to meet the acceptances, it will do so. If no letter of credit is drawn, the metropolitan correspondent simply agreeing to accept a draft drawn on it by the customer, the interior bank, in a collateral agreement with the correspondent guarantees the customer's obligation to provide funds against maturity of the acceptance. The guarantor's liability is the same in either method of conduct ing the transaction. Some banks also, in consideration of a fee or commission, indorse acceptances for the accommodation of their customers or note-brokers.
No express authority of law authorizes a national bank to lend its credit by indorsing an acceptance or by guaranteeing or acting as surety on a letter of credit. Whether such activities are ultra vires or not for a national bank, has not yet been determined by the courts; it is, however, defmitely determined that a national bank's power to discount negotiable paper and to loan money does not carry with it the power to guarantee, or act as surety upon, the obligation of another, nor is such power incidental to the business of banking. And it does not seem that the power to accept drafts and issue letters of credit incidental thereto carries with it the power to guarantee, or act as surety upon, acceptances or letters of credit issued by'other banks.