FDM.3:5.3 - Constructing the payment conditions of a guarantee

For the loan in §5.2, suppose G separately guarantees L up to 2,000 of B’s unpaid principal. The supplied terms activate payment only after the principal due date has passed, two following business days have elapsed without cure, and G has received a valid demand. Payment is due two following business days after that demand. The same stipulated weekday-only calendar applies. The question is whether this guarantee can supply B with money for the 4 May payment.

Construct the condition as a conjunction. A principal shortfall alone supplies only one part. Keep the outstanding covered principal from the loan, the end of the cure interval and the demand’s validity and receipt as distinct inputs. When all activation conditions hold, the amount is the lesser of covered unpaid principal and 2,000; the recipient is L. A scenario assumption about default cannot substitute for an actual valid demand.

On the branch where B makes no maturity payment and no intervening event reduces principal, the two following business days are 5 and 6 May. A valid demand received on 7 May makes payment due on 11 May, after 8 May and 11 May as the two following business days. Covered principal is 2,665, so the guarantee payment is 2,000 on that branch.

This construction supplies no funds to B before 4 May. It can protect L against part of the later loss, and its existence could affect a separately offered financing decision. Those are different uses. To account for a later guarantee payment, FDM.4 also needs its effect on L’s claim and any resulting claim by G against B. The guarantee amount alone cannot establish that B’s total obligations fell by 2,000.

The transferable move is to derive the trigger, qualifying action, beneficiary and resulting date together. Loan-style arithmetic with a guarantee limit inserted as a payment would miss the work that produces the event. If demand validity is unresolved, return the affected conditional event and obtain the responsible interpretation; unrelated known loan amounts remain usable.