"We are of opinion that this entire transaction, beginning with the issuing of the letter of credit and closing with the settlement referred to, presents all the elements of an estoppel, and defendants are precluded from setting up a defense based upon the alleged invalidity of the letter of credit for any cause. . . We have here the representation of certain facts by the defendants with knowledge that the plaintiff proposed to act thereon; the fact that he did so act and took the letter of credit and money in payment of his claim, releasing all parties from further liability. This constituted a taking of the letter of credit in good faith and for value. The plaintiff by the representations of defendants was induced to change his position, to give up his cause of action and proposed legal proceedings, acknowledge full settlement and payment of his claim, and to release all parties." Gray, J., dissented on the ground that the letter of credit was a mere offer and that when it was discovered that the holder was about to use it for a different purpose than that which he had represented, it might be revoked. He was also of the opinion that taking on a precedent debt and giving a receipt for it did not constitute such a change of position as to raise an estoppel. This decision obviously is quite out of line with the offer theory. In the first place if the letter was an offer it contemplated acceptance by addressee accepting bills drawn by the holder and in turn drawing on New York.58 But, so far as appears, the letter had been revoked before any bills were drawn or accepted. If it be held that a promise not to revoke an offer makes it irrevocable, yet here there was no consideration for the issuer's promise, in 58 The letter read: "No. 5687 Messrs. Munroe & Co., Paris: Gentlemen: Office of John Munroe & Co. We hereby open a credit with you in favor of Capt. J. A. Johannessen, S. S. Raylton Dixon for fifteen thousand francs (fcs 15,000) available in bills at ninety days date; on acceptance of any bill or bills drawn under this credit you are to draw on Carsten Boe, New York, at seventy-five days date; payable at the current rate of exchange for firstclass bankers' bills on Paris on day of maturity. Commission is arranged. Bills under this credit to be drawn at any time prior to May 1st, 1892. Truly yours, John Munroe & Co." "The bill may be availed of in sterling, if desired, say six hundred pounds sterling (£600). J. M. & Co." have here a substantive institution of the law merchant, which ought to be sustained on its own basis; and that whatever common-law theories may be convenient for the purpose are to be resorted to in order to fortify it. It is significant that no deliberate written promise of a business man or commercial entity made as a business transaction to answer for credit extended on the basis of the writing has failed of enforcement in our courts.60 Let us now apply these several theories to the actual form of letters in general use to-day in our export trade and test them by the problems to which those forms and the requirements of modern business give rise. III Although letters of credit in our foreign trade vary greatly in form, it is possible to group them into four well-marked types, with many variations of form in each type. The words "confirmed letter of credit," or "irrevocable letter of credit," or both, appear or seem to be implied in each type; and it is on these words that the business world seems to put its main, if not its whole reliance. Leaving these words out of account for the moment and looking at the purport of the letter apart therefrom, we may take as our first type those whose words suggest immediately a notification or acknowledgment by the issuer of the receipt of money to the use of the addressee, to be paid him upon compliance with the terms of its receipt, which are stated as conditions in the letter.61 Refer 60 The cases in note 45, supra, are an apparent exception. But the case in the federal court was one at nisi prius and the instrument was vague in its terms and by no means an ordinary letter of credit. In the Georgia case the language used, "we will carry you," was addressed to the holder, and evidently contemplated an extension of existing indebtedness only. What is said as to agreements for acceptance is but dictum. In the New York case a majority of the court upheld the letter. 61 The following is an example of this type: [Amount] [Addressee]: [No.] [Date] At the request and for the account of [holder] we have opened a confirmed credit in your favor, bearing the above number, available by drafts at sight to an aggregate amount of [amount of credit] for [purposes of credit]. Payments to be made against delivery to us of properly endorsed negotiable railroad bills of lading together with receipted invoices in triplicate at the above stated prices. This credit to remain in force until Any draft drawn under this credit must state that it is drawn under [description, ence to the forms as set forth in the note will show that they contain (a) a statement that a "confirmed" credit has been opened in favor of the addressee for the account of the holder, which as we have seen courts have construed as a representation to the addressee that funds of the holder of the letter had been received and were held to the use of the addressee; (b) a statement of the conditions of the credit, or in other words, of the terms on which the funds were received and are held to the use of the addressee; (c) an authority to draw drafts on the issuer to the amount and under the conditions set forth; and (d) often an express promise to honor such drafts. This type of letter might be treated on the offer theory and could be upheld in that way. But it is perfectly obvious that those who draw and act on letters framed in such terms have in view something much more assured, permanent, conclusive and irrevocable than an offer. Letters of the second type are evidently drawn under the advice of counsel impressed with the offer theory of the cases we have discussed. Such letters are drawn in the form of offers, which are to become contracts upon acceptance by performing the terms set forth in the letter.62 Here there is no direct suggestion that funds date and number of letter] and must be addressed to [issuer] and the amount of the draft must be noted on the back hereof by the negotiating bank or bankers. We hereby agree with the bonâ fide holders that all drafts issued by virtue of this credit and in accordance with the above stipulated terms, shall meet with due honor upon presentation at the office of the [issuer] if drawn and negotiated by [expiration date]. [Signature of issuer] The following form, falling within the same type, suggests both money received and held to the use of the addressee and also notification of a contract between holder and issuer for the benefit of addressee: [Addressee] [Date] We received today from [foreign correspondent bank] a message as follows: "Account [name of holder] open following confirmed credit [amount of credit] favor [name of addressee] against [terms and purposes of credit]." Of which kindly take notice. The credit will remain in force for [period of credit] and the same is hereby confirmed for the account of [foreign correspondent Bank]. [No. of Letter] 62 An example of this type is: Irrevocable Export Credit No. [Addressee]: [Signature of Issuer] [Expiration date] You are hereby authorized to draw upon us for account of [holder] at sight to the extent of [amount of credit] covering [purposes and terms of the credit]. Payment to are held; at most this could only be inferred from the authority to draw on the issuer for the account of the holder. What is most notable in this type is the care with which the authority to draw upon the issuer is brought within the terms of Coolidge v. Payson as interpreted in later cases in the Federal Supreme Court. Summarily stated letters of this type contain (a) a statement by way of caption, but not in their body or text, that they are "confirmed" or "irrevocable;" (b) an authority to the addressee to draw on the issuer for the account of the holder with a precise description of the drafts to be drawn. Looking only at this second element, these letters are clear enough; but they raise at once the question why if this is all there is to them, should the issuer say at the top of the instrument that it is "confirmed" or "irrevocable?" Does he mean to add something to the second element, and if so, what? In business understanding the answer is obvious, but in law we must inquire. In a third type the form of letter suggests a contract between the holder and the issuer for the benefit of the addressee whereby the addressee is to be paid by the issuer on condition of his performing the terms of a contract which he has made with the holder. The letter takes the immediate form of a notification to addressee of the former contract.63 Unless, because of the obvious disadvantages involved the courts were to twist such letters into offers, as we have seen them do where the instrument in form used language importing guarantee or suretyship, there is little in the text of this type of letter to lay hold of for any other common-law theory than one of notification of a contract between holder and issuer for the benefit of addressee. But such letters are also usually captioned, or in collateral correspondence are stated to be "conbe made against [statement of documents required]. Drawing must clearly specify the number of this credit. 63 Following is an example: [Addressee]: [No.] [Signature of Issuer] [Date] We have received instructions from [holder] to pay you against your receipt in triplicate any sum or sums up to [amount of credit] against shipment of [terms and purposes of the credit]. This letter to be presented with your receipts and documents. [Signature of Issuer] Sometimes a contract between holder and issuer is expressly stated, e. g., "we have received instructions from [holder] with whom all necessary arrangements have been made"; also such forms may include an authority to draw. firmed," or "irrevocable," or sometimes "confirmed and irrevocable letters of credit." This raises at once the question whether the text of the instrument is not an informal attempt to express a transaction of another sort rather than that indicated by the text. taken alone a transaction well known to the commercial world by the name given it. Lastly there is a fourth type drawn apparently with no theory in mind other than the business understanding of a "confirmed and irrevocable letter of credit," and on the assumption that the written promise of a business man in the course of business is self sufficient. Here it will be observed there are no words suggesting the holding of money to the use of the addressee, and unless some meaning is attributed to the very words "confirmed letter of credit" which will bring it within the theory of a representation of money held to the use of addressee or the theory of an offer, the addressee must bestir himself to show a consideration by proof that the letter was issued in exchange for his then and there entering into a contract with the holder, or something of the sort. Either that or we must go outside common-law theory and look to the law merchant to uphold such letters. As the matter stands in the decisions, the first type, from the standpoint of the exporter, is clearly the most satisfactory. In view of commercial usage, the understanding of the business world, and the decisions of the New York courts in Johannessen v. Munroe 65 and Krakauer v. Chapman 66 it may well be contended, and it is submitted, that courts which are reluctant to go further should hold, as the minimum of progress demanded, that use of the words 64 For example this form: Irrevocable Letter of Credit [No.] [Addressee]: [Date] At the request of [holder] we hereby open an irrevocable letter of credit, [No. in your favor to the extent of [amount of credit] against [terms and purposes of credit] available until [expiration date] under the contract between yourselves and [holder]. We hereby agree and promise to pay you the amount above mentioned upon presentation of the documents in compliance with the terms of this credit. [Signature of Issuer] Other variations of these forms may be found in HOUGH, PRACTICAL EXPORTING, 544 f. 65 158 N. Y. 641, 53 N. E. 535, 9 App. Div. 409, 41 N. Y. Supp. 586 (1899). 616 App. Div. 115, 45 N. Y. Supp. 127 (1897). |