33

terms.30 Accordingly, if addressed to a specific person, sometimes called a "special letter of credit," 31 it cannot be accepted by anyone else.32 The courts often discuss this as if it were a question of assignability or negotiability, or of strict construction of the liability of a surety or guarantor.34 If the letter of credit were treated as an institution of the law merchant, requiring no commonlaw theory to uphold it, the result would be the same, as the instrument does not confer a power upon anyone but the addressee named. But the same courts usually end by putting the matter in terms of offer and acceptance.35 Where the letter is addressed generally to whomsoever may act upon it (i. e., a general letter of credit), the apparent procedural exigencies of special assumpsit and the elusive word "privity" formerly gave rise to difficulties.3 Our courts, however, soon came to hold that this was a case of an offer addressed to the world at large, which became a contract as soon as anyone accepted or performed its terms, exactly as in the case of an offer of reward.37 Here also the same result would be reached if the letter were treated simply as an instrument of the law merchant, since by its express terms it confers upon anyone who will act thereon the power of becoming a creditor of the issuer. It should be noted also that the instrument treated as an offer of payment to be accepted by extension of credit to the holder has sometimes been in form a statement addressed by the issuer to the holder, advising the latter of the issuer's willingness to become

36

30 Cairns, L. J., In re Agra and Masterman's Bank, 2 Ch. App. 391, 395 (1867). "The liability of a writer of a letter of credit is founded on the simple law of contracts, where the minds of the parties must meet in the common purpose. The act of the writer is an offer, or request, or proposition, and the act of him who furnishes the money is an acceptance." Bank of Seneca v. First National Bank, 105 Mo. App. 722, 726, 78 S. W. 1092 (1904).

31 Birckhead v. Brown, 5 Hill (N. Y.) 634 (1843); Union Bank v. Coster, 3 N. Y. 203 (1850).

Fletcher Guano Co. v. Burnside, 142 Ga. 803, 83 S. E. 935 (1914); Robbins v. Bingham, 4 Johns. (N. Y.) 476 (1809); Birckhead v. Brown, 5 Hill (N. Y.) 634 (1843), aff'd, 2 Den. (N. Y.) 375; Taylor v. Wetmore, 10 Ohio, 491 (1841).

Robbins v. Bingham, supra; Birckhead v. Brown, supra.

"Walsh v. Bailie, 10 Johns. (N. Y.) 180 (1813); Birckhead v. Brown, supra; Taylor v. Wetmore, supra.

25 E. g., Bronson, J., in Birckhead v. Brown, supra.

36 Bank v. Archer, 11 M. & W. 383 (1843); see also Russell v. Wiggin, 2 Story (U. S.) 213 (1842); Franklin Bank v. Lynch, 52 Md. 270, 281 (1879).

"Lawrason v. Mason, 3 Cranch (U. S.) 492 (1806); Birckhead v. Brown, supra; Union Bank v. Coster, supra.

surety for him, if a certain credit was extended,38 or an offer to guarantee acceptance and payment of drafts,39 or an offer to the addressee to "see him paid," which would at least suggest an offer to become secondarily liable.40 Obvious difficulties involved in the law of suretyship and guaranty led the courts to strain the construction a bit in order to bring such cases within the offer theory of letters of credit; though other courts have refused to treat such papers as more than offers to become surety or guarantor and have distinguished them from letters of credit.41 Where the wider interpretation is given to the paper, it must be upon some notion that the addressee has changed his position upon the faith of an understanding of its terms which though not correct he might reasonably entertain; in other words upon the theory of estoppel.

Confusion has arisen in carrying out this offer theory, which in itself is simple and consistent enough, by importing into it a question of the law of negotiable instruments that seems superficially to be involved but in reality is quite beside the point. If one agrees to accept a bill already drawn, or one to be drawn, in such wise as clearly to point out the very instrument, a court of equity, to prevent embarrassment of the case of the holder because of his want of the written evidence to which he is specifically entitled, would decree the promised acceptance.42 And courts of law accordingly have treated a promise thus specifically enforceable as amounting to an acceptance and have allowed the promisee to sue the promisor as an acceptor. But the terms of the promise must be clear and definite in order to be specifically enforceable; and so, if the bill or bills are to be drawn in the future, courts may properly

38 Lawrason v. Mason, supra.

39 Union Bank v. Coster, supra.

40 Cheever v. Schall, 87 Hun (N. Y.) 32 (1895). Here the letter in suit read: "Let Mr. G. have your farm . . . for the term of five years and I will see you paid." G showed this letter to plaintiff, who leased the farm to him on the strength of it. The court said it was "a general letter of credit." If it had been treated as a guarantee, a question would have arisen whether, under the statute of frauds, it was necessary that the name of the addressee appear on the letter. The court obviously sought to avoid this.

41 E. g., Scribner v. Rutherford, 65 Iowa, 551, 22 N. W. 670 (1885). The letter read: "A. P. Kenyon wants a little money; if you want anyone on the note, I will fix it when I come in." The court refused to treat this as more than it professed to be, to wit, an offer to become surety on Kenyon's note if money was loaned him.

Bank of Montreal v. Thomas, 16 Ont. 503 (1888).

insist on a considerable particularity of description before allowing promisor to be held as acceptor.43 When, however, the addressee sues, not on the bill seeking to hold the issuer as an acceptor, but on the contract to accept bills drawn under and within the terms of the letter, no more particularity ought to be required than in any other case of offer and acceptance. If there is enough certainty to make a contract there is a cause of action.44 Unhappily the origin of the requirement of particularity in the description of the bills to be drawn has often been overlooked, and in actions for breach of contract to accept, the courts have demanded all the certainty involved in a decree for specific performance, and hence involved also in an action to charge the promisor as acceptor.45 With the relaxation in equity of the strict rule as to certainty, so that it is enough if there is a contract at law which the court is in a position to enforce without making a new contract and without undue hardship,46 the basis of the doctrine in Coolidge v. Payson is doubtful and more than one court long ago gave it up.47 At all events it has nothing to do on principle with liability upon a letter of credit in an action for non-acceptance or non-payment of drafts drawn in accordance with the terms of the letter.48

Letters of credit which might well have been dealt with on the offer theory have sometimes been treated on a theory of guar

Coolidge v. Payson, 2 Wheat. (U. S.) 75 (1817); Schimmelpennich v. Bayard,

1 Pet. (U. S.) 264 (1828); Boyce v. Edwards, 4 Pet. (U. S.) 111 (1830); Garrettson v. North Atchison Bank, 39 Fed. 163 (1889); Ulster County Bank v. McFarlan, 3 Den. (N. Y.) 553 (1846); First National Bank v. Clark, 61 Md. 400, 406 (1883); Lewis v. Kramer, 3 Md. 265, 289 (1852).

44 Franklin Bank of Baltimore v. Lynch, 52 Md. 270, 280 (1879); Lafargue v. Harrison, 70 Cal. 380, 11 Pac. 636 (1886); Nelson v. First National Bank, 48 Ill. 36 (1868); Carnegie v. Morrison, 2 Met. (Mass.) 381 (1841); Bissell v. Lewis, 4 Mich. 450 (1857); Pollock v. Helm, 54 Miss. 1 (1876); Bank of Montreal v. Thomas, 16 Ont. 503. In the latter case the action seems to have been brought upon the bill rather than upon the contract to accept it, but questions of pleading were not raised.

45 State National Bank v. Young, 14 Fed. 889 (1883); Atlanta National Bank v. Northwestern Fertilizing Company, 83 Ga. 356, 9 S. E. 671 (1889); Krakauer v. Chapman, 16 App. Div. 115 (dissenting opinion) 45 N. Y. Supp. 127 (1897).

46 Jones v. Parker, 163 Mass. 564, 40 N. E. 1044 (1895); Equitable Gas Company 7. The Baltimore Coal Tar and Manufacturing Company, 63 Md. 285 (1884); 3 POMEROY, EQUITY, §§ 1400 et seq.

47 See Nelson v. First National Bank, 48 Ill. 36 (1868); Bissell v. Lewis, 4 Mich. 450 (1857).

48 See the vigorous statement of Story, J., in Russell v. Wiggin, 2 Story (U. S.) 213, 231 (1842).

antee.49 In other cases what seem on their face to be contracts of guarantee or offers to become guarantor have been treated on the offer theory of letters of credit.50 But courts have not consistently treated such cases as cases of letters of credit.51 The disadvantages of a guarantee theory are the doctrine as to notice to the guarantor when his offer is accepted by giving credit to the principal,52 requirements of the statute of frauds as to the contents of the memorandum on which one secondarily liable may be charged,53 and the danger of releasing parties secondarily liable in the course of dealings with the principal debtor.54 Because of these, the value of letters of credit as instruments of credit would be seriously impaired if a guarantee theory were to be adhered to, and the courts

49 Lafargue v. Harrison, supra; Walsh v. Bailie, 10 Johns. (N. Y.) 180 (1813); Taylor v. Wetmore, supra; cf. Birckhead v. Brown, supra. In Lafargue v. Harrison, the court's proposition that the letter of credit was "a guaranty by them of the credit to Mel and Sons during the time and for the amount specified" seems to be an awkward recognition of the instrument as a transaction of the law merchant. In effect, the court says to the issuer "you can't say the holder did not have funds with you because you guaranteed to the addressee that he had." A better way of putting it would be that the letter could reasonably be so interpreted, and after the addressee had acted on it, the issuer was estopped. But in this particular case, as the letter was drawn, there is no such representation, nor are there any words amounting to a guarantee of anything. If the court means that the legal effect of the letter was that of a guarantee, it is holding the letter of credit a self-sufficing instrument without seal or consideration.

anal

50 Boyd . Snyder, 49 Md. 342 (1878) (“This contract of guaranty ogous to a general letter of credit"); Lawrason v. Mason, 3 Cranch (U. S.) 492 (1806) ("We will become your security for 130 barrels of corn payable in 12 months"); McLaren v. Watson, 26 Wend. (N. Y.) 425 (1841), affirming 19 Wend. (N. Y.) 557 (1838) ("I hereby guarantee payment"); London Bank v. Parrott, 125 Cal. 472, 58 Pac. 164 (1899) ("and these presents shall be deemed to be, and shall constitute to you, a continuing guaranty by each of us"); Northumberland v. Eyer, 58 Pa. St. 97 (1868) (written guarantee indorsed on a note, which, said Sharswood, J., "is not distinguishable from a general letter of credit"); Cheever v. Schall, 87 Hun (N. Y.) 32 (1895) ("I will see you paid"). If Judge Sharswood's proposition is well taken, does the general letter of credit stand as a transaction of the law-merchant, requiring no commonlaw consideration?

51 Adams v. Jones, 12 Pet. (U. S.) 207 ("I will be security for the payment"); Scribner v. Rutherford, 65 Iowa, 551, 22 N. W. 670 (1885) ("if you want anyone on the note I will fix it when I come in"). As to the effect of issuer's death where letter is treated as a guarantee, see Michigan State Bank v. Estate of Leavenworth, 28 Vt. 209 (1855).

52 Adams v. Jones, supra. This led the court to hold the instrument a letter of credit in London Bank v. Parrott, supra.

53 Cheever v. Schall, 87 Hun (N. Y.) 32 (1895).

54 London Bank v. Parrott, supra.

therefore have tried not only to find better ways of treating genuine letters of credit, but have shown some tendency to turn guarantees into letters of credit in the supposed interest of security of mercantile transactions.

As a basis for discussing our third, or contract-for-benefit-ofthird-party theory, we may take the case of Carnegie v. Morrison.55 Here one Oliver, the Boston agent of the defendants, a firm of bankers in London, wrote as follows:

"Messrs. MORRISON, CRYDEN & COMPANY,

London:

Mr. John Bradford, of this City, having requested that a credit may be opened with you for his account, in favor of Messrs. D. Carnegie and Company of Gottenburg, for three thousand pound sterling, I have assured him that the same will be accorded by you on the usual terms and conditions."

This letter was delivered to Bradford, but the bankers were notified that the letter was written and would be forwarded by Bradford to Carnegie and Company with a request for credit. This might have been treated as an offer by the defendant addressee to Carnegie and Company and accepted by them when they gave credit to Bradford. Counsel for defendants argued that it was only a contract between defendants and Bradford that the former would give the latter credit, so that the plaintiffs were not parties to it and could not sue on it. Answering this argument, Shaw, C. J., said:

"He (Bradford) had funds either in cash or credit with the defendants. and entered into a contract with them to pay a sum of money for him to the plaintiffs. . He gave the plaintiffs notice of what he had done and sent them the instrument as authentic evidence of the fact. They assented to and affirmed it as an act done in their behalf and gave the defendants notice thereof and conformable to the terms of the letter of credit drew their bills on the letter of credit. The refusal to accept was a breach of the promise thus made. . . . It would be vain to say that this promise was not made for the benefit or (according to the terms of some of the cases) for the interest of the plaintiffs."

This looks very much like a theory of a contract between the issuer and holder for benefit of addressee. But such a theory would not

55

2 Met. (Mass.) 381 (1841). See also on "right of third party to sue," 25 L. R. A. 257, note; Franklin Bank of Baltimore v. Lynch, supra.