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ACCA Applied Skills · Corporate and Business Law (Global) · Transportation documents and means of payment

Dravik Ltd is the seller under a documentary credit that is irrevocable and confirmed by a bank in Dravik's own country. The issuing bank in the buyer's country then becomes insolvent before payment. What is the effect of the confirmation for Dravik?

The confirming bank must still pay Dravik. Confirmation gives the seller a separate, independent payment undertaking from the confirming bank in addition to the issuing bank's, so the issuing bank's insolvency does not remove the seller's right to be paid against conforming documents.

  1. AThe confirming bank has its own independent undertaking to pay Dravik if conforming documents are presentedCorrect
  2. BDravik must claim only from the insolvent issuing bank
  3. CDravik must claim from the buyer, as the confirmation falls away
  4. DThe confirming bank must pay only if the buyer agrees

Explanation

Confirmation adds the confirming bank's own definite undertaking to that of the issuing bank. This protects the seller against the issuing bank's insolvency or country risk. Dravik can therefore claim from the confirming bank on presenting conforming documents.

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