letter of credit is issued by mistake, this theory alone is insufficient, unless combined with estoppel.

With this theory in mind, what may be said to be the rights, liabilities, and privileges of the parties?29

1. The seller has a valid contract right against the issuing bank from the moment the letter of credit is issued. This right cannot be defeated by any intervening act or default on the part of the buyer.30

2. If the seller has not fully complied with every condition required by the letter of credit, he cannot sue the banker, and the banker has a complete defense against any action the seller or those claiming through him might have.31

3. The banker is entitled to reimbursement from the buyer. The buyer cannot defeat this right by setting up any breach of the sales contract on the part of the seller.32

4. The banker is under a duty to pay the seller according to the tenor of his promise. He cannot set up against the seller claims that he may have against the buyer, nor claims that the buyer might have against the seller.33

so the buyer attempts to enjoin the plaintiff bank from presenting the draft of the seller for acceptance, and also to enjoin the issuing bank from accepting. It was held that the buyer had no right of action whatever against the discounting bank; that the issuing bank would have a good defense against the discounting bank only if the latter had advanced money to the seller on a draft not complying with the terms of the letter of credit; and that if such were the case, then, and then only could an injunction be granted against the issuing bank. The court based these conclusions on the rule that there is no relation between the sales contract and the contract embodied in the letter of credit. (c) The third case was Frey v. Sherburne, supra, n. 26. The buyer claimed that the seller had not complied with the terms of their contract, so sought to enjoin the seller from drawing, and the bank from accepting drafts on their letter of credit. It was held, that if such were the facts, an injunction would lie against the seller, but that under no circumstances would an injunction lie against the banker. The court further said that if the banker accepted drafts not drawn in compliance with the terms of the letter of credit, the buyer would have a valid legal defense against the banker.

The court could have cited the other cases cited in n. 26, supra, to the same effect.

29 The only California cases on this point, in addition to the principal case, are Lafargue v. Harrison, supra, n. 4, and London & San Francisco Bank v. Parrott, supra, n. 9. Dodge v. Meyer (1882) 61 Cal. 405 had to consider a letter of credit, but only incidentally and as a closed incident. It contributes nothing to the law on the subject.

30 Urquhart Lindsay & Co. v. Eastern Bank, supra, n. 4; and cases cited in notes 26 and 20, supra.

31 See cases cited in notes 17, 20, 26, supra. See especially: 33 Yale Law Journal, 651.

32 See especially the cases cited in n. 28, supra. Also see Brown v. Rosenstein (1923) 120 Misc. 787, 200 N. Y. Supp. 491; Lamborn v. Lake Shore Banking Company, supra, n. 11; Baring v. Lyman, supra n. 18; Duncan v. Edgerton, supra, n. 18; Imbrie v. Nagase & Co. (1921) 196 App. Div. 380, 187 N. Y. Supp. 692.

33 Oil Well Supply Co. v. MacMurphey (1912) 119 Minn. 500, 138 N. W. 784; Imbrie v. Nagase & Co., supra n. 32; Russell v. Wiggin, supra, n. 3; Urquhart Lindsay & Co. v. Eastern Bank, supra, n. 4; Border Nat. Bank v. American Nat. Bank, supra, n. 11. See also cases cited in n. 26, supra.

5. A banker may accept and pay drafts which are not in conformity with the terms of the letter of credit; and if the buyer then exercises his right to reject the goods, the banker is entitled to be reimbursed out of the proceeds.34 But this rule is not the whole truth. If the contract with the seller is wider than the terms of the letter of credit, and the seller complies with the terms of his contract, and the banker accepts or pays a draft drawn in conformity with the contract although not drawn in conformity with the terms of the letter of credit, nevertheless the banker is entitled to indemnity as against the buyer.35

6. A purchaser of an unaccepted draft drawn in accordance with the terms imposed by a letter of credit, and who buys in reliance thereon, has a right of reimbursement as against the issuing banker.36 This right cannot be defeated by equities which the issuing banker may have against the seller, or against the buyer. But if such a purchaser discounts a draft not drawn in accordance with the terms of a letter of credit, he has no such right of reimbursement.38

37

7. A drawee bank is in the same position, as regards reimbursement, as a purchasing or discounting bank,39 except in the case of a forged bill of lading attached to the draft."

40

8. The buyer may force the issuing bank to accept and pay drafts drawn in conformity with the letter of credit.11

9. The buyer has a complete defense against any banker, acceptor, or drawee bank, or holder of a letter of credit, who has advanced money on a draft not drawn in conformity with the terms imposed by the letter. He may enjoin these parties from accepting or paying

42

34 Rozema v. Nat. City Bank, supra, n. 26.

35 Supra, n. 31.

36 See generally cases listed in notes 11, 20, 26, 28, and 34, supra. Also see Brazilian & Portuguese Bank v. British, etc. Corp., supra, n. 3; 3 Eng. & Emp. Dig. 255; Maitland v. Chartered Merc. Bank of India, supra, n. 3, and annotations thereon in 3 Eng. & Emp. Dig. 254; Imbrie v. Nagase & Co., supra, n. 32; Stein v. Hambro's Bank (1921) Lloyd's List Law Rep. 433, 507; Nat. Park Bank v. Old Colony Trust Co. (1921) 114 Misc. 127, 186 N. Y. Supp. 717.

37 In re Agra and Masterman's Bank, supra, n. 18; Cf. 3 Eng. & Emp. Dig. 254, for annotations on this case; cf. cases referred to in n. 36, supra.

38 Brazilian and Portuguese Bank v. British, etc. Corp., supra, n. 3; Banco Nacional Ultramarino v. First Nat. Bank, supra, n. 3; International Banking Co. v. Irving National Bank, supra, n. 11.

39 Russell v. Wiggin, supra, n. 3; Wilson & Co. v. Niffenegger, supra, n. 20; see generally cases referred to in n. 36, supra.

40 21 Columbia Law Review, 176-181.

41 Prehn v. Royal Bank of Liverpool, supra, n. 18; see s. c. and annotations on this point in 3 Eng. & Emp. Dig. 254.

42 Cf. Banco Nacional Ultramarino v. First Nat. Bank, supra, n. 3; see especially Williams Ice Cream Co. v. Chase Nat. Bank (1923) 120 Misc. 301, 199 N. Y. Supp. 314. In this case the letter of credit called for a "straight” bill of lading, but the seller had an "order" bill made out. Consequently the seller was not able to force the buyer; and as the defendant banker has advanced money under such situations, it could not force the buyer to reimburse it. In such a case, the banker has relief against the goods. Cf. Rule 5, supra.

such drafts.

However, the same exception is found here that is

set forth in Rule 5 above.

10. If it would entail a breach of their sales contract, the buyer may enjoin the seller from drawing drafts, even if he were able to draw them in accordance with the letter of credit.**

11. The buyer is entitled to recover back from the bank any deposits not needed to reimburse the bank for drafts paid under a letter of credit. 45

12. The buyer may sue the seller, but not the banker, for any breach of the sales contract on the part of the seller.46

13. There seems to be authority for the statement that a buyer might enjoin a bank from accepting the drafts of a seller in those cases where the seller has defrauded the buyer and has become insolvent or has absconded, provided no third parties were prejudiced by such an injunction.*7

14. The latest cases hold that any loss arising through forged or altered shipping documents, or other papers called for by the letter of credit, must be borne by the buyer, and not the bank.48

R. E. S.

CONSTITUTIONAL LAW: CONSTITUTIONALITY OF STATUTE MAKING PUBLIC SCHOOL EDUCATION COMPULSORY-In 1922 the voters of Oregon enacted an initiative measure providing in substance that every parent or guardian in Oregon having custody of a child between the ages of eight and sixteen years must send such child to the public schools. In the consolidated cases of Society of the Sisters of the Holy Names v. Pierce and Hill Military Academy v. Pierce the United States District Court for Oregon enjoined the

43 Frey v. Sherburne, supra, n. 26.

44 Gambrill Mfg. Co. v. American, etc. Corp. (1920) 113 Misc. 448, 185 N. Y. Supp. 783. Because the upper court differed on the facts, the case was reversed. (1920) 194 App. Div. 425, 185 N. Y. Supp. 502. Also see Frey v. Sherburne, supra, n. 26.

45 Orr v. Union Bank of Scotland, supra, n. 20.

46 Brown v. Rosenstein, supra, n. 32; Bank of Plant City v. Canal-Commercial, etc. Bank, supra, n. 11; Cf. Lamborn & Co. v. Log Cabin Products Co. (1923) 291 Fed. 435; Hungerford Smith Co. v. Lamborn (1921) 200 N. Y. Supp. 292; Urquhart Lindsay & Co. v. Eastern Bank, supra, n. 4; Bank of America v. Whitney-Central Nat. Bank, supra, n. 11.

47 Cf. dictum in Brown v. Rosenstein, supra, n. 32; Frey v. Sherburne, supra, n. 26. This rule is a limitation on Rule 4. It was not applied, however, in Maitland v. Chartered Merc. Bank of India, supra, n. 3. Other cases contain dicta or decisions not entirely reconcilable with the rule as here outlined. Cf. Lamborn v. Lake Shore Banking Co., supra, n. 11.

48 British Linen Co. v. Caledonian Ins. Co. (1861) 4. Macq. H. L. 107, 7 Jur. (N. S.) 587, 4 L. T. 162, 9. W. R. 581; Bank of Montreal v. Recknagel (1888) 109 N. Y. 482, 17 N. E. 21; Brown v. Rosenstein, supra, n. 32; and principles and rules of Rules 3, 6, 7, and 12. Opinions to the contrary are cited in the notes to those rules.

1 November 7, 1922, a bill for the amendment of § 5259, Oregon Laws. Oregon Laws, 1923, p. 9.

2 (March 31, 1924) 296 Fed. 928.

defendant state officers from enforcing this law, on the ground that it violated the Federal Constitution.

At the outset the court considered two procedural questions. Concerning them it held: first, that even though the law did not go into effect until 1926, the suit was not prematurely brought; second, that the complainants as proprietors of private schools could properly bring the suit although the parents and guardians alone were subject to prosecution under the law. So far as these points were concerned, the court held that the prejudice from the statute to the business of the complainants was both immediate and direct.

On the merits of the case the court held that the law was an unreasonable exercise of the police power. "The absolute right of these schools," the court said, "to teach the grammar grades and the right of the parents to engage them to instruct their children, we think, is within the liberty of the Fourteenth Amendment."5

There seems to be no direct authority on the constitutional point involved in the principal case. By analogy the decision is supported by several recent decisions of the Supreme Court, among which may be mentioned Meyer v. Nebraska holding that a state cannot forbid the teaching of a foreign language in private schools; Adkins v. Children's Hospital' overthrowing the District of Columbia's minimum wage law for women; Truax v. Corrigans invalidating an Arizona statute which forbade injunctions against "peaceful picketing" in labor disputes; and Adams v. Tanner holding that employment agencies can be regulated but not prohibited.

The Oregon case seems a stronger one against the constitutionality of the statute involved than any of the cases last cited. As the opinion states, it was not even claimed that the private schools exerted a harmful or menacing influence, or that their teaching was inferior to that of the public schools, or that, except by the bare fact of their

3 That equity can anticipate and prevent a threatened injury has been recognized by the United States Supreme Court in a number of cases, among which are Pennsylvania v. West Virginia (1922) 262 U. S. 553, 67 L. Ed. 1117, 43 Sup. Ct. Rep. 658; Vicksburg Water Works Co. v. Vicksburg (1902) 185 U. S. 65, 46 L. Ed. 808, 22 Sup. Ct. Rep. 585; Detroit Creamery Co. v. Kinnane (1920) 264 Fed. 845, affirmed, 255 U. S. 102, 65 L. Ed. 531, 41 Sup. Ct. Rep. 304. Moreover, the court found in the principal case that the complainants were already suffering injury, 296 Fed. 928, 935.

A similar question was presented in Truax v. Raich (1915) 239 U. S. 33, 60 L. Ed. 131, 36 Sup. Ct. Rep. 7, L. R. A. 1916D 545, Ann. Cas. 1917B 283, where the Supreme Court held that an alien employee could bring suit to restrain the enforcement of an act which prohibited employers under penalty from employing more than a certain number of aliens. See also: Terrace v. Thompson (1923) 263 U. S. 197, 68 L. Ed. 44 Sup. Ct. Rep. 15.

5 296 Fed. 928, 937. (1922) 262 U. S. 390, 67 L. Ed. 698, 43 Sup. Ct. Rep. 625; 12 California Law Review, 136; 18 Illinois Law Review, 394.

1238.

7 (1923) 261 U. S. 525, 67 L. Ed. 785, 43 Sup. Ct. Rep. 394, 24 A. L. R.

8 (1921) 257 U. S. 312, 66 L. Ed. 254, 42 Sup. Ct. Rep. 124.

9 (1917) 244 U. S. 590, 61 L. Ed. 1336, 37 Sup. Ct. Rep. 662, L. R. A. 1917F 1163, Ann. Cas. 1917D 973.

existence, they interfered with the school policy of the state. It involved no question of regulation or supervision; the question, in reality, was whether the private schools could exist at all. Under such circumstances there would seem to be scant reason for destroying the lawful business of the complainants and abridging the liberties of their patrons in intimate personal affairs.

The scope of this note does not warrant a discussion of the principles governing the exercise of the state police power. It is enough to say, as has been pointed out in notes and articles in this review 10 and elsewhere," that, while courts cannot control legislative policy or set aside laws merely because they deem such laws unwise, they, nevertheless, can protect liberty and property against oppressive measures which do not seek by reasonable means a legitimate governmental end.

Neither is this note a proper place for a lengthy discussion of the political philosophy underlying the Oregon law. On that point, however, apart from the legal aspects of the principal case the following quotation from a recent article in "The American Mercury" may not be inapt: "It is a popular idea that the majority should rule. But this does not mean that the people should vote on every question affecting human life, and that the majority should then pass penal statutes to make the rest conform. No society can hold together that does not have a broad toleration for minorities. To enforce the obedience of minorities by criminal statute because a mere majority is found to have certain views is tyranny and must result in endless disorder and suffering."12 M. M. P.

OF

CONSTITUTIONAL LAW: POLICE POWER: REGULATION CHARGES OF EMPLOYMENT AGENCIES-In Ex parte Smith,1 it was held that a statute enacting a maximum schedule of charges for employment agencies was unconstitutional under the due process clause. It was said that the operation of employment agencies was a "harmless and beneficial business" and that the ". . . right of contract common to the followers of all legitimate vocations is an asset of the petitioner in his chosen occupation, and . . . is a part of the property in the enjoyment of which he is guaranteed protection by the Constitution. By the act in question he is arbitrarily stripped of this right of contract, and deprived of his property, and left, in following his vocation and in pursuit of his livelihood, circumscribed and hampered by a law not applicable to his fellow men in other occupations."2

108 California Law Review, 429; Charles Bufford, The Scope and Meaning of Police Power, 4 California Law Review, 269.

11 Black's Constitutional Law (3rd ed.) p. 394-395. Freund, The Police Power, § 18 ff. Also §§ 10, 12; 29 Harvard Law Review, 779.

12 August 1924, The Ordeal of Prohibition, 2 American Mercury, 419.

1 (Feb. 26, 1924) 67 Cal. Dec. 275, 223 Pac. 971.

267 Cal. Dec. 275, 276. This quotation was taken by the court from Ex parte Dickey (1904) 144 Cal. 234, 238, 77 Pac. 924.