Should Confirming Accept Discrepant Draft?

[dinesh2476]

We received documents along with draft drawn on us, since draft and other documents had discrepancies we forward the documents issuing bank on approval basis.Now we have beneficiary requesting us to accept the draft drawn on us referring the issuing bank acceptance to us confirming maturity date. As a confirming bank, what should be our action.

1. are we obligated to accept a draft? I mean put a stamp on ''accepted'' and returned it to the beneficiary.
2. or It should be treated as deferred payment obligation refusing to put a stamp''accepted'' on draft

Regards
Dinesh

[cristiand969]

Hi,
It is not clear enough for me the whereabouts of the draft. I understand that you forwarded all docs (presumably including draft) to the issuing bank on approval basis. Now, has the beneficiary shown up with another original copy of draft to you for acceptance based on issung bank waiver?
Assuming you hadn't sent the draft to issuing bank, please note that the confirming bank has the liberty not to reinstate its confirmation , even if docs were subsequently accepted by issuing bank. Therefore, confirming bank is not obliged to accept the draft, but if it decides to accept it , such acceptance would be primarly subject to bills of exchange local law . Consequently you should ask your legal department regarding the legal effects produced by 'accepted' stamp.
When you reinstate your confirmation you are obliged to accept the draft by virtue of art 8 and the definition of honour which includes inter alia to 'accept' a bill of exchange.
Therefore, in case of non-acceptance, the point no 2 you have asked above is to be read : a deffered payment obligation of issuing bank not of the confirming bank

[dinesh2476]

Hi cristiand,

Thanks.

Even for the discrepant docs post issuing bank acceptance, we create obligation to pay at maturity to the presenter, i mean we book the transaction in the system keeping receivable(acceptance charges) marked against presenter and will deduct these charges on maturity at the time of proceeds to the presenter.

I doubt, such action is the implied meaning of accepting draft drawn on us or be considered as deferred payment obligaiton to pay at maturity.

as of now, we are booking under acceptance commission only, but what i heard that we cannnot book it under acceptance which is against fundamental of acceptance of draft(draft is discrepant),if the confirming bank is decided to reinstate the confirmation it should be under deferred payment.

Don't understand the rationale for such difference in thought.

Regards
Dinesh

[dinesh2476]

Dear All,

Any opinion welcome.

Regards,
Dinesh

[cristiand969]

As I said earlier, reinstatement of confirmation creates obligation toward beneficiary to accept his draft and pay it at the maturity (see what 'honour' means under point c article 2 of UCP600)
The fact that something is booked in a bank system does not mean that bank is authorized to change the terms and conditions of the credit and to switch the acceptance to deferred payment term. As a confirming bank, you have to act exactly as the issuing bank in terms of undertaking to pay, incur a deferred payment or accept a draft as the credit provides. It is worth mentioning that we are unable to discuss a local practice in a bank or in country (because the local law may ultimately supersede the rules) but rather the general international approach in line of UCP600.
Consequently, either you accept the draft by virtue of confirmation reinstatement or leave the confirmation withdrawn However, I feel that in this particular case, the confirming bank while it does not want to keep their undertaking in line with UCP, it does want to charge beneficiary with the confirmation commission.......
Hope it helps!

[dinesh2476]

Dear cristiand,

Many thanks.

Dinesh