Confirmation by intermediary: Overview, definition, and example
What is confirmation by intermediary?
Confirmation by intermediary refers to a process where a third party, such as a bank, broker, or escrow agent, verifies or approves a transaction before it is finalized. This ensures that all parties involved comply with agreed terms, reducing the risk of fraud, errors, or misunderstandings.
For example, in an international trade deal, a bank might confirm a letter of credit before a seller ships goods, guaranteeing that payment will be made once the agreed conditions are met.
Why is confirmation by intermediary important?
Using an intermediary for confirmation adds a layer of security and reliability to financial and contractual transactions. It helps prevent disputes, ensures compliance with contractual terms, and provides assurance to both parties that the transaction will be honored.
For businesses, intermediaries such as banks, brokers, and escrow agents play a crucial role in transactions that involve multiple parties, large sums of money, or international dealings. Their confirmation can serve as an official record that protects against fraud and ensures smooth execution of agreements.
Understanding confirmation by intermediary through an example
Imagine a real estate transaction where a buyer deposits funds into an escrow account. The escrow agent (intermediary) confirms that the buyer has met all payment conditions before releasing the funds to the seller. This confirmation prevents either party from defaulting and ensures a fair transaction.
In another case, an investment firm facilitates the sale of company shares between two parties. Before completing the transaction, the broker (intermediary) confirms the seller’s ownership and the buyer’s payment, ensuring both sides fulfill their obligations before the trade is finalized.
An example of a confirmation by intermediary clause
Here’s how a confirmation by intermediary clause might appear in a contract:
“All payments under this Agreement shall be subject to confirmation by the appointed Intermediary. The Intermediary shall verify compliance with the agreed terms and confirm receipt of funds before releasing any payments to the receiving party.”
Conclusion
Confirmation by intermediary provides an added layer of protection in transactions by verifying compliance and ensuring that all conditions are met before finalization. This reduces risks for businesses and individuals, especially in high-value or complex agreements.
By incorporating a confirmation by intermediary clause in contracts, parties can safeguard their interests, ensure smooth transaction processing, and minimize the chances of disputes or financial loss.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.