reimbursed." Accordingly, as between the issuer of the letter and the correspondent the letter of credit is a mandate. It is a mandate to the correspondent to pay to or give credit to the holder; the correspondent becoming thus entitled to be reimbursed by the issuer of the letter. But the correspondent is not obliged to pay or to give credit. He simply acquires a claim against the issuer by doing so. Hence, as between the issuer of the letter and the correspondent it is revocable down to the time the correspondent acts on it,10 like any mandate." On the other hand, as between the issuer of the letter and the holder the transaction is treated as one of "opening of a credit" (ouverture de crédit) and hence is not revocable.12 It is taken to show an opening of a credit between the one who gives the letter of credit and the one for whom it is given.13 This requires some explanation. In continental banking, the borrower from a bank arranges for a credit on which he can draw. In other words, as we should put it, he overdraws to the amount agreed upon.14 There is not a loan, as in our practice, but an agreement to loan up to a certain amount within a certain time. As the civilians put it, there is not a mutuum but a pactum de mutuo dando.15 This doctrine is a result of the modern idea of the binding force of a promise made as a business transaction 16 and of the equally modern notion of the power of the promisee to exact specific performance." Accordingly the promise to make a loan, which in Roman law was unenforceable, as a mere pact, unless made in the form of a stipulation, in the modern law is a binding transaction.18 Glück says of the pactum de mutuo dando:

9 INST. III, 26; POTHIER, TRAITÉ DU CONTRAT DE MANDAT, § 1.

13 Id., § 736.

14 4 LYON-CAEN ET RENAULT, § 709 f. On this subject, see FALLOISE, TRAITÉ DE L'OUVERTURE DE CRÉDIT.

99.

15 4 LYON-CAEN ET RENAULT, §§ 684, 709.

16 A good account of this in English may be seen in LEE, ROMAN-DUTCH LAW, 197–

17 See Amos, "Specific Performance in French Law," 17 L. QUART. REV. 372. 18 Ouverture de crédit or promesse de prêt, 2 COLIN ET CAPITANT, DROIT CIVIL FRANÇAIS, 662; 2 BAUDRY-LACANTINERIE, PRÉCIS DE DROIT CIVIL, 10 ed., § 1576; 20 BAUDRY-LACANTINERIE, TRAITÉ DE DROIT CIVIL, § 700; Promessa di mutuo, 2 CHIRONI, ISTITUZIONI DI DIRITTO CIVILE ITALIANO, § 354; Krediteröffnung, Darlehensvorvertrag, Darlehensversprechung, 2 DERNBURG, BÜRGERLICHE RECHT, 3 ed.,

"Most civilians are agreed that the bare agreement to make a loan to another binds the promisor and gives rise to an action against him. . . . For according to the Roman law a stipulatio de mutuo dando has actionable obligation. But today a bare agreement is as efficacious as a Roman stipulation." 19

In French law an obligation à donner involves a duty to deliver in specie and hence is treated much as we do cases to which we apply the equitable maxim of considering that as done that ought to be done.20 It follows that the promise to loan money or extend credit is not only legally enforceable but the case is treated as if the promisor actually held the money of the promisee.21

If, then, a letter of credit is treated as an opening of a credit, it means that the case is considered as one where the person for whom the letter is given has deposited money with the one who gives the letter, to be drawn on by those who advance money upon the letter. The third person who advances money on the letter is treated the same as a depositor drawing on his account. Simply those who give credit on the faith of the letter draw on the deposit instead of the holder of the letter, and they do this by virtue of the contract of mandate between the one who issues the letter and the one to whom it is addressed. As between the issuer of the letter and the holder, the letter is not revocable because the law holds the promisor in the opening of a credit to performance of his promise. But when a mandate has ceased to be executory it has ceased to be revocable.22 Because of their theory of mandate the French usually provide an express clause as to revocability.23

When this French theory of the letter of credit is applied to our law it will be seen that, although at first sight both the theory of the pactum de mutuo dando and the theory of the mandate are inapplicable, we have legal doctrines which may be utilized to bring about similar results. If in French law the letter of credit testifies to an opening of a credit, in our law it may be said to amount to an

§ 236; 2 CROME, System des Deutschen 'bürgerlichen RechTS, § 247, 4; 1 ENNECCERUS, Kipp und Wolff, Lehrbuch des bürgerlichen RecHTS, 1912 ed., § 364. 19 12 GLÜCK, PANDEKTEN, § 779. See also 4 GLÜCK, § 292; 13 STRYK OPERA OMN., ed. of 1840, 312.

20 FRENCH CIVIL CODE, Art. 1136.

21 20 BAUDRY-LACANTINERIE, TRAITÉ DE DROIT CIVIL, § 701.

INST. III, 26, § 9.

acknowledgment of money received from the holder of the letter to the use of the person to whom it is addressed upon the conditions named in the letter. When acted upon by the person to whom it is addressed this would certainly estop the issuer of the letter from denying that he held the money as acknowledged. As we have no such institution as the Roman mandate, we should not be confronted with the difficulty that the transaction would be irrevocable on the one side and revocable on the other while executory. For our purposes the doctrine of money received to the use of a third person, and the estoppel involved in change of position upon the faith of the acknowledgment, would suffice.

The German law on the subject is substantially the same. It is set forth in convenient form by Cosack.24 Cosack makes a distinction between a mandate of credit (kreditauftrag) and a letter of credit (kreditbrief). He says that the letter of credit strictly is in the nature of anweisung rather than mandate. The anweisung of the older law consisted of two parts, a mandate to pay and a mandate of satisfaction. For this clumsy legal theory of a bill of exchange in terms of Roman law the Germans have now worked out a theory of the bill of exchange as a single formal legal transaction. When, therefore, Cosack says the letter of credit and the bill of exchange are species of this same general theoretical genus, he not only gives us a more scientific analysis but brings out that the letter of credit as a device of finance is really as much a substantive transaction of the law merchant as is a bill or note; a position which it seems our courts might well adopt.

Summing up the situation in the continental commercial law, we may say the letter of credit is a mandate to some particular addressee, or addressed generally to such person as may comply with it, commissioning him to pay money, or give credit to the holder, whereby the addressee or the person (in case of a circular letter of credit) who complies with it, becomes entitled to hold the issuer of the letter for the sum of money advanced or the credit given within the terms of the mandate. So far, translated into our law, there is nothing but an offer to the correspondent or to the world at large, accepted by giving credit or advancing money according to the terms of the offer. And it is significant that in the very

24 LEHRBUCH DES HANDELSRECHTS, 7 ed., § 79.

21 25

useful analysis at the end of Ames' "Cases on Bills and Notes he treats the letter of credit precisely on this theory. But this type of letter of credit does not meet the requirements of international business to-day. What does meet it squarely is the French theory of the letter of credit as testifying to an opening of a credit between the holder and the issuer of the letter, so that the letter is really an authorization to the addressee to draw upon the money deposited by the holder with the issuer. That fits in with the requirements of international business to-day exactly, and fits well with our common-law doctrine of money received to a third party's use.

It is worth noting also that the development of the continental law on this subject has been hindered if not warped by two conditions which are paralleled in our own experience. The civilians, familiar with the earliest and simplest or so-called tourist form of letter, could not escape its analogy when confronted with the newer forms, and proceeded on the assumed necessity of fitting every form of letter, including those developed by present-day commerce into a legal theory of third-century Rome. That is to say, the doctrine of mandate being at hand to explain one form of letter, it was assumed that all other forms must be made to fit into that doctrine. So our courts, in the development of the subject, also suffer from this same analogy of the tourist letter and the same assumed necessity of fitting a present-day transaction of commercial usage into some common-law theory of a day that is past. The noticeable disposition of the more recent continental writers, 26 in the language of Maitland,27 to "face modern times with . . . modern weapons," to distinguish the new from the old and to regard the letter of credit we are here considering as a self-sufficient transaction of the commercial law and as part of the growing law merchant, deserves thoughtful consideration at the hands of commonlaw lawyers.

II

Common-law categories have never willingly conceded a place in the sun to the novelties developed by the exigencies of modern business. It required a long struggle culminating in an act of Par

liament to induce the common law to recognize the written instruments of the law merchant. As enlightened a judge as Lord Holt resisted reception of the promissory note into the company of legal transactions, and even now that bills and notes are established mercantile specialties the courts do not like to admit them as such in theory but seek to fit them into the common-law category of simple contracts. Checks were able to establish themselves as forms of bills, but insurance policies soon ceased to be instruments of the law merchant and have had a common-law development; and to-day bills, notes and checks are the only recognized instruments of the law merchant. At one time it seemed as if letters of credit might be so treated, so that the promise of a merchant or banker as a transaction of the law merchant in the form of an irrevocable letter of credit could stand on its own bottom as a binding and self-sufficing legal transaction.28 But the development of the law merchant along liberal lines and its free absorption into our common law seem to have stopped with the passing away of our earlier generation of constructive judges, and for the last half of the nineteenth century hard and fast molds were at hand into which all mercantile transactions and inventions must inevitably be fitted.29 Hence we must perforce deal with this subject on common-law lines, and seek to give effect to the demands of commerce by means of some common-law theory.

The decisions of our courts on this subject in the past have had to do with four common-law conceptions, namely: offer, resulting in simple contract; guaranty; contract for the benefit of a third person; and estoppel.

To-day it is generally assumed that the letter of credit is an offer made into a contract by extension of a credit according to its

28 Marshall, C. J., in Coolidge v. Payson, 2 Wheat. (U. S.) 66, 75 (1817); Story, J., in Russell v. Wiggin, 2 Story (U. S.) 213, 231 (1842); Bronson, J., in Birckhead v. Brown, 5 Hill (N. Y.) 634 (1843). See also as evidence of this, dicta in Scribner v. Rutherford, 65 Iowa, 551, 22 N. W. 670 (1885); Johannessen v. Munroe, 158 N. Y. 641, 53 N. E. 535, 9 App. Div. 409 (1899), 41 N. Y. Supp. 586; Liggett v. Bank, 233 Mo. 590, 136 S. W. 299 (1911); 2 DANIEL, NEGOTIABLE INSTRUMENTS, 3 ed., § 1790.

29 For example, the clearing-house when it arose, was not recognized for the purposes of the doctrine as to presentation within a reasonable time, and but for the opportune enactment of the uniform Negotiable Instruments Law, legislation would probably have become necessary. Holmes v. Roe, 62 Mich. 199, 28 N. W. 864 (1886); Edmisten v. Herpolsheimer, 66 Neb. 94, 92 N. W. 138 (1902).