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RULES FOR DEPOSIT OF GUARANTY LETTER AS SECU-RITY
Article 102 of the Code of Civil Procedure, as amended in 2003, provides that a person who is to deposit a security bond with the court should in principle deposit cash, negotiable certificates of deposit ("NCD") or securities, but that a guaranty letter issued by an insurer or by a bank that conducts guarantee business may be lodged instead. Lodging a guaranty letter as a security can be relatively inexpensive in terms of fees, and it does not entail the various disadvantages of depositing cash, such as the tie-up of the funds for a lengthy period or the need, if a bank's NCD is lodged, to apply to the court to exchange the NCD before it reaches maturity to avoid loss of interest. Thus the use of guaranty letters is ex-pected to become a common practice in the fu-ture.
The amended Code provides no specific procedures for depositing a guaranty letter. As a result, since the new provision took effect, there has been uncertainty over such issues as which department should keep the guaranty letter (the lodgment office, the court of execution, or the court hearing the case) and what matters should be stated in the guaranty letter. However, on 12 November 2004, the Judicial Yuan issued its Rules on Accepting Guaranty Letters Issued by Insurers or Banks as Security, which address some of these issues.
Article 4 of the Rules provides that a guaranty letter should state the names of the parties to the case, the case number, nature of the case, and the monetary amount guaranteed. It should also state that the guaranty letter takes effect on the date on which the court rules to accept the guaranty letter as security, and remains effective until such time that a court order for return of the guaranty letter becomes irrevocable; and that the issuer has to waive its right of beneficium ordinis. The issuer should fill out the date of issuance on the guaranty letter and sign it or stamp it with its seal.
If the court accepts a guaranty letter as security, the letter should be placed in the safekeeping of the court of first instance that is hearing the case or has jurisdiction over the case, or of the court of execution. The Rules do not specify which de-partment of the court should have custody of the guaranty. However, an explanatory letter of the Judicial Yuan dated 16 March 2004 states that a guaranty letter is not a physical collateral as re-ferred to in Subparagraph 2, Article 6 of the Lodgment Act; it therefore cannot be lodged with a lodgment office, but should be kept by the clerk of the court with jurisdiction over the case or the clerk of the executions department of the court of execution. In addition, the person des-ignated by the court as custodian of guaranty letters should not only maintain a register of the guaranty letters lodged, but should also in each case make a docket in triplicate: one copy (the counterfoil copy) to be placed in the safe to-gether with the guaranty letter for safekeeping; one copy (the receipt copy) to be retained by the party lodging the security; and the remaining copy (the file copy) to be sent to the attention of the relevant clerk of the court or to the appeal court that is hearing the case for either's case files.
Article 19 of the Rules provides that the guaranty letter is to be held until such time as the party that lodged the guaranty applies for its return, or as the guaranty letter is subject to compulsory execution. When a court ruling to grant the re-turn of a guaranty letter becomes irrevocable, there will definitely be no issues with the liability of the guaranty issuer; or if the beneficiary of the guaranty applies for compulsory execution, the amount of damages due will become certain. In the first situation, to apply for return of a guar-anty letter, the party that lodged it should make an application under Article 104 of the Code of Civil Procedure and then submit the original of the court ruling, a certificate of irrevocability of the ruling, and the receipt copy of the guaranty letter that the party obtained when lodging the guaranty. If the party is unable to present the above receipt, it need only prove that it is the original lodger of the guaranty letter, and the court may still permit the return of the guaranty letter. In the second situation, the custodian should hand over the guaranty letter to the exe-cution officers for compulsory execution and notify the party that lodged the guaranty.