its terms, in the absence of any representation of them in the notification; and as that contract would probably simply be one to pay what should accrue to the addressee under the terms of the then existing buyer-seller contract, in which, as a mercantile contract, time would be an essential element, any modification as to time would thus seem to be a new contract between buyer-holder and seller-addressee to which the contract between buyer-holder and issuer for the benefit of the addressee would not be applicable. On the theory of money received and held to the use of addressee on condition, the issuer would seem to be in the position of a stakeholder for buyer-holder and seller-addressee according to their respective interests, subject to such conditions as the letter may contain. If so, no conditions as to time being imposed, the parties should be able to fix those interests between themselves by further contract, if they choose. In Japanese forms, where no time is fixed, it is not uncommon to find a provision that "this letter expires by limitation." This presumably originates in a provision of the Japanese law,82 taken from German law, requiring express reservations of power of revocation and express provisions for lapse. It effects nothing that would not take place in our law without such clause, so that what has just been said would apply. 83 We should also consider the question of inability to perform the conditions, and the effect of supervening events (e. g., government embargo, fire, strikes, etc.) upon the obligations incurred by the letter. It may well be that the buyer-seller contract will contain provisions as to these things and yet they will not be provided for in the letter of credit. No doubt in general, the parties being agreed in desiring the execution of their contract, extensions of credit would be arranged in such cases. But should the buyer-holder be desirous of withdrawing from his contract he might take advantage of the impossibility of performance of the conditions of the credit and, by trying to cancel, seek to embarrass the seller-addressee by compelling him to pursue his remedy for breach of the contract in a foreign land. In such a case, it would seem clear that on the offer theory of a letter, nothing short of the performance of the condi 82 JAPANESE CIVIL CODE (De Becker's translation), Arts. 521, 524. tions set forth could be an acceptance, and so if such performance became impossible, we should simply have the case of an offer which could not be accepted. The acts of the seller-addressee in the course of manufacture or filling his order under the contract would not really be acts preliminary to acts of acceptance but would be no more than acts in performance of the sales contract. Hence addressee's recourse would be an action as seller against buyer on the buyer-seller contract. Would the case be different on a theory of money received and held to the use of the addressee, or on a theory of the letter of credit as a self-sufficing instrument of the law merchant? If money is received and held to the use of another on an express condition precedent, it is not easy to see how that condition may be dispensed with. If one of the parties made performance of a condition impossible, he might be said to have "waived" it. But such would not be likely to be the case. It would seem that the addressee should consider the risk before he acts on the letter, and if he has reason to fear difficulty, should insist on provisions in the letter for extension of the credit on given contingencies. It is true there is authority in New York, where there has been a tendency to deal with express conditions as if they were conditions implied in law, which seems to indicate that where there is a debt between holder and addressee, incurred by holder through use of the letter, the issuer may be liable although performance of the conditions is not possible. In Krakauer v. Chapman 85 the letter of credit read as follows: "X will send you an order for goods he requires and is authorized to draw on me in your favor for the amount of your bill at thirty days' sight." X ordered goods to the amount of $1000. Addressee did not have all the goods required to fill the order at the time, but delivered $900 worth of goods at once and the balance later. When the last delivery was made X drew upon the issuer for half the order and the bill was accepted and paid. Afterwards X absconded and after unsuccessful attempts to collect from him, the addressee after eight months drew on issuer for the balance. When the first 84 Nolan v. Whitney, 88 N. Y. 648 (1882); Costigan, PERFORMANCE of Contracts, 41-43. 85 16 App. Div. 115, 45 N. Y. Supp. 127 (1897). draft was made, issuer had funds of X sufficient to meet the whole amount of the order, but at the time he was notified that there was an unpaid balance, he no longer had funds of X. A judgment for the addressee was affirmed on the ground that as the drawing of a further draft by X became impracticable because he had absconded, the issuer was obligated to pay for the goods in another way. Two of the five judges dissented. As the letter appears to contemplate one draft for the amount of one order, and one draft had been drawn and honored and the issuer, after eight months, had ceased to hold funds for X, one may well ask whether the circumstances did not amount to a representation to the issuer that the credit had been fully used and so raise an estoppel in favor of the issuer who had adjusted his accounts with the holder on the faith of this apparent state of things. Perhaps this was what one of the dissenting judges had in mind in saying that the second draft was not drawn in a reasonable time. At any rate the soundness of this decision of an intermediate appellate court is too questionable to justify reliance upon it for so doubtful a doctrine as one that courts may make parties' transactions over for them by dispensing with express conditions precedent. In Krakauer v. Chapman performance of the conditions of the letter was impracticable because the condition called for the drawing of a draft by a party who had absconded. Another case more likely to arise may occur where the letter is conditioned in substance upon performance of a contract between buyer-holder and seller-addressee and the holder for any reason countermands his order or refuses to go on with the contract. Here after such a breach the law would not permit the seller-addressee to proceed with further performance of the contract, and thus performance of the conditions of the letter would become impracticable. In such cases, if the letter is treated as acknowledging that money of the holder has been received and is held to the use of the addressee upon condition, and a breach of contract by the holder renders it impracticable for the seller-addressee to go on and hence impracticable to perform further the conditions of the letter, how far is the estoppel to deny that money of the holder is in the issuer's hands, raised by the addressee's acting on the faith of the letter, available to the addressee for the purpose of reaching such fund by attachment or garnishment in an action on the contract by ad dressee against holder? It will be observed that the forms of contract sometimes used to secure the issuer, prior to his issuance of the letter, cover all loss or damage to him arising from his issuance of the letter and so fully protect him.86 No inequitable result would follow from the application in this way of estoppel; for the estoppel is raised by the circumstance that the addressee has relied and acted upon a reasonable understanding of the letter as acknowledging that the issuer holds moneys or funds of the holder. Why is this estoppel not as available to enable an addressee who acts promptly to protect himself in case a holder breaks his contract, as it is to enable him to draw drafts where the contract has not been broken but the issuer seeks to cancel his letter? Perhaps some such conception was in the mind of the Court in Krakauer v. Chapman. V Of the several common-law theories developed in the cases growing out of the old time letter of credit, we have already seen that the offer theory was on the whole the orthodox theory in the sense that it has the support of the larger number of judicial opinions, but that it failed to explain all the cases; whereas the theory of the letter as an acknowledgment of money held to the use of the addressee on condition will explain all the cases and has the support of some of the strongest decisions. Applied to the forms of export letters of credit now in use and to the problems arising thereunder, the guarantee theory and the theory of notification of a contract between holder and issuer for the benefit of addressee are both as unsatisfactory as they proved to be when applied to the cases of the past, and they may be dismissed without further comment. Of the two more satisfactory theories, that of money held to the use of addressee best meets the test of the present day forms of such letters and the needs of business under the problems they raise. The offer theory is impotent to give effect to the words "confirmed" or "irrevocable" on which the business man sets such store; is inadequate where the issuer in an instalment contract seeks to cancel as to subsequent instalments after the delivery of one or more instalments; is inadequate where the holder seeks to See form in HOUGH, PRACTICAL EXPORTING, 548; also Vaughan v. Mass. Hide Corporation, 209 Fed. 667 (1913), where issuer's indemnity contract also provides for lien on goods and special trust receipts. withdraw and induces the issuer to try to cancel after the selleraddressee has begun to perform his contract; is inadequate where the buyer-holder seeks to pull out or break the contract by anticipation, before the seller-addressee has done anything thereunder; is unsatisfactory in case of business changes and gives rise to doubtful questions in situations where the issuer may need the protection of a bill of interpleader. In all these cases the theory of money held to the use of the addressee proves much more satisfactory, and if we must have a strictly common-law theory, it is much to be preferred. But all the requirements of the situation are met and on the whole are better met by treating the letter of credit as a self-sufficing instrument of the law merchant. In the end nothing will do so well as a frank and full recognition by law of the universal understanding of the commercial world. To bring this about, bankers should agree on a simple, uniform letter, and the courts should give effect to it for what it is intended to be. Perhaps the timid, not to say false, conservatism of the courts may compel business men to turn to the Commissioners on Uniform State Laws and invoke the aid of the legislator. But legislation cannot come in time to take care of the litigation that is almost certain to flow presently from the enormous volume of business done under these letters in the last four years. The courts may, if they will, do all that is needed; for, I repeat, it is a false conservatism that stands in their way. Courts are properly cautious in abandoning rules or doctrines, since to do so may endanger the stability of our economic order by disturbing the transactions of the past and unsettling acquisitions; but there is nothing truly conservative in adhering to conditions of uncertainty in the laws governing commerce, or in defeating or unsettling business transactions, carried on in large volume, by insisting on applying to them doctrines or theories developed for earlier and different conditions of trade, or in disturbing credit by making it uncertain whether the deliberate promises of business men made in the course of business as business transactions, and in practice relied upon with confidence in the every day course of our commerce, are to be legally enforceable. In the words of Cockburn, C.-J.,87 87 Goodwin v. Robarts, L. R. 10 Ex. 337 (1875). Cf. 2 MACHEN, CORPORATIONS, 88 1734 ff.; Mercer County v. Hacket, 1 Wall. (U. S.) 83 (1863); White v. Vermont, 21 How. (U. S.) 575 (1858). In Mercer County v. Hacket, Grier, J., says (page 95): |