A confirmation of an irrevocable Documentary Credit by a bank (Confirming Bank) upon the authorisation or request of the Issuing Bank constitutes a definite undertaking of the Confirming Bank, in addition to that of the Issuing Bank, provided that the stipulated documents are presented to the confirming bank or to any other Nominated Bank on or before the expiry date and the terms and conditions of the documentary Credit are complied with, to pay, to accept Draft(s) or to negotiate.
1. A double assurance of payment
2. Silent confirmation
A double assurance of payment
An irrevocable Confirmed Documentary Credit gives the Beneficiary a double assurance of payment, since it represents both the undertaking of the Issuing Bank and the undertaking of Confirming Bank. The second obligor (confirming bank) engages that drawings under the Documentary Credit will be duly honoured in accordance with the terms and conditions of the Documentary Credit.
Normally, one considers the classification of the credit and the financial standings of the Issuing Bank. If an Issuing Bank is considered to be a first class bank, there may not be any need to have its Documentary Credit confirmed by another bank. Nevertheless, the beneficiary may desire that the Documentary Credit and payment thereunder be guaranteed by a bank located in his own country. In such a situation, such Confirming Bank becomes legally liable to the Beneficiary to the same extent that the Issuing bank does. Despite the fact that UCP 500 Article 2 states "....For the purpose of these Articles, branches of a bank in different countries are considered another bank", the Beneficiary should review the confirmation of a Documentary Credit given by a branch or a subsidiary of the Issuing Bank to see whether it is indeed another separate and distinct bank obligation under the Documentary Credit.
Silent confirmation
Silent confirmation represents an agreement between a bank and the Beneficiary for that bank to "add its confirmation" to the Documentary Credit despite not being so authorised by the Issuing Bank.
The Beneficiary wishes to obtain the Security of "the Confirming Bank" and is willing to pay the "confirmation commission" due, but the beneficiary does not wish to request the Applicant to instruct the Issuing Bank to give its authorisation to have another bank confirm its Documentary Credit.
Under UCP 500 sub-Article 9(b), the Documentary Credit may only be confirmed if it is so authorised or requested by the Issuing Bank. Therefore, the Documentary Credit may not be confirmed when it has not been authorised or requested by the Issuing Bank. Nevertheless, the fact that such an unauthorised "confirmation" may have been effected extends the responsibility of the bank which "confirmed" the Documentary Credit against the Beneficiary, without recourse as a "Confirming Bank" to the Issuing Bank which clearly did not request or authorise the bank to "add its confirmation". The "Confirming Bank" does not acquire the same rights to the Credit as the Issuing Bank and is not a "Confirming Bank" in any sense of the word. In effect, there has not been a "confirmation" but a seperate arrangement between the Beneficiary and the "confirming bank" which "confirmed" the Documentary Credit under which said bank is irrevocably obligated, subjected to compliance, to purchase or discount the Draft(s) and/or document(s) drawn and presented by the Beneficiary, and usually without recourse.
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