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Note: To secure a loan for the construction of a club in Shanghai being built by Shanghai Pacific (Borrower), Mr. Shih, the principal of S Y Technology (Applicant/Surety), obtained two standby LCs issued by US Bank National Association (Issuer) in favor of Industrial and Commercial Bank of China (Lender/ Beneficiary) for US$4,000,000 and US$1,000,000. Borrower promised to reimburse Applicant and transferred stock in the company. When there was a default on the loan by Borrower, Beneficiary drew on the standby LCs. After applying the proceeds to the loans, Beneficiary returned the excess amount to Issuer.

After the standby was drawn and reimbursement made, Applicant/Surety sued affiliates of Borrower and brought this action to wind up two of the companies. Borrower argued that the value of the transferred stock should be deducted from the amount due. Applicant/Surety responded that the stock was only collateral. The High Court of Singapore, Prakash, J., ruled that the stock served as collateral and ordered that the winding up proceeding continue.

[JEB/jmf]

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