THE McGILL
LAW JOURNAL
VOLUME 5
1959
NUMBER 2
RELATIONS BETWEEN BANKER AND SELLER UNDER
IRREVOCABLE LETTERS OF CREDIT
G. W. Bartholomew*
The legal. nature of the relationship which exists between banker and seller
under an irrevocable letter of credit has long caused difficulty from a theoretical
point of view. There is a tendency to regard this issue as one of academic sig-
nificance only,’ but as Gutteridge has pointed out2 “it is always possible that the
point might arise indirectly between the beneficiary and the buyer of the goods”
whilst, in any case, to quote Cheshire and Fifoot.
“it is undesirable that
established business practice should lac clear legal sanction.”
The discussion of the legal problems involved has given rise to considerable
confusion which, in the opinion of McCurdy :4
is referable to a large extent, if not solely, to an imperfect understanding of
the business transaction, and to an attempt to fit all letters of credit into one
category both factual and legal.
To avoid confusion, therefore, it is necessary to state at the outset that the
following discussion is confined to the position which arises under the irrevocable
or confirmed acceptance documentary letter of credit.5
The transaction involved in the operation of such a credit, in so far as it
is relevant to this discussion, and reduced to its simplest terms, may be put
as follows: In a contract for the sale of goods there will be a term stipulating
that payment is to be effected by means of an irrevocable credit. In compliance
with this term the purchaser will approach his bankers requesting that they
issue a letter of credit in favour of the sellers for the amount of the contract
price. If the bankers are satisfied as to the financial integrity of the purchaser
*University of Tasmania, Hobart, Australia.
1Davies Law relating to Commercial Letters of Credit, 2nd ed. (1954) at p. 57.
2 The Law of Bankers’ Commercial Credits 2nd ed. (1955) at p. 16. He cites Panoutsos
v. Raymond Hadley Corporation of New York [1917] 2 KB. 473 as an instance of this.
The Law Revision Committee in their Sixth Report (1937) also pointed out that the
liquidation of a bank might be obliged to raise technical difficulties.
The Law of Contract 4th ed. (1956) at p. 367.
4Commercial Letters of Credit (1922) 35 Harv. L.R. 539.
5For terminology see McCurdy, op. cit. pp. 542-545.
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[VL5
they will require him to sign a letter of request. This requests the opening of
the credit and the advising of the seller thereof by air-mail or cable either direct
from the issuing bank or through the bank’s agents in the seller’s place of
business, and contains undertakings by the purchaser to re-imburse to bankers
for all payments made under the letter, to pay all charged in relation to the
goods, and to pay the bankers their commission.
. The letter of credit thus issued, in the case of an irrevocable credit, will
contain an undertaking by the bank to accept all drafts drawn under the credit
in compliance with its conditions. These latter relate to the documents which
must accompany the drafts, such as bills of ladings insurance certificates and
invoices. On arrival of these documents the banker will take them up and,
provided they comply with the description of the documents in the letter of
credit, honour his promise to accept drafts drawn under that credit. 6
One problem, although it is by no means the only one, which arises from
this situation is that which concerns the relationship between the seller and the
banker. What is the position of the seller vis-a-vis the banker if the latter, after
issue and notification of the credit, fails to accept drafts drawn in accordance
with the letter? The essential problem is whether the seller can sue the bank
directly. He can, of course, sue the buyer on the original contract of sale, but
to leave him with this remedy alone is largely to defeat the purpose of the whole
operation. The system of banker’s credits is based upon the idea of replacing
the credit of individual firms, whose financial integrity will be unknown to
other parties, by the credit of banking houses. Clearly, if the seller, under
these circumstances, is left with his remedy against the buyer as his only
redress then the justification for the whole system disappears.
That banks do in fact honour their obligations under letters of credit is
obvious from the very small number of reported cases compared with the
enormous number of transactions financed by this means. The problem remains,
however, of determining the legal nature of the banker’s liability. The theoretical
difficulty experienced in formulating the basis of this liability is usually said
to be that the seller has furnished no consideration for the banker’s promise
to make the credit available: vis-a-zis the seller the banker’s promise is a
nudum pactum.7
This theoretical difficulty seems to have been largely ignored by the English
courts. Even as early as 1867 in re Agra and Masterman’s Bank ex p. Asiatic
WFor judicial exposition of the nature of the transaction see Guaranty Trust Company
of New York v. Hannay & Co. [1918] 2 K.B. 623, per Scrutton L.J. at p. 659;
Equitable Trust Co. of New York v. Dawson Partners Ltd. (1925) 25 L.L.I? 90 per
Scrutton L.J. at p. 93; Pavia & Co. S.P.A. v. Thurmann-Neilsen [1952] ^ Q.B. 84 per
Denning L.J. at p. 88 and Trans Trust S.P.R.L. v. Dan!,.ian Trading Co. [1952] 2 Q.B.
297 per Denning L.J. at p.. 304.
7This view was expressed by English counsel, including Sir Frederick Pollock, who
gave evidence in Russell v. Timothy Wiggin & Co. (1842) 21 Fed. Cas. 68, No. 12,
165, cited by Trimble, the Law Merchant and Letters of “Tredit (1949) 61 Hav. L.R.
at p. 992.
No. 2]
LETTERS OF CREDIT
Banking Corporation,” Sir H. M. Cairns L.J. (as he then was) expressed the
view that there was a binding contract between the seller and the banker from
the date when the seller acted upon the letter of credit, a view which was also
expressed by Rowlatt J. in Urquhart, Lindsay and Co. v. Eastern Bank Ltd.,9
and followed by Greer J. (as he then was) in Dexters Ltd. v. Schenker & Co.10
This view has, however, its difficulties and its limitations. In the first place it
is difficult to identify the consideration which supports the alleged contract. In
the second place this view of the matter only deals with the situation which
arises after the seller has acted on the credit. It does not explain the position
arising before that event.
Various alternative theories have been proposed to account for the bank’s
liability to the seller, but this is neither the time nor the place to examine them
in detail.” Our purpose is rather to draw attention to one particular theory
which, whilst it has often been advocated in the United States, seems to have
attracted little attention elsewhere.’ 2 In the words of Hershey, who appears to
have been one of the earliest writers to propose the theory :’s
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.
This theory differs from all others which have been proposed in that it does
not involve an attempt to fit letters of credit under the established categories of
law or equity. It recognises that letters of credit are creatures of the commercial
world whose justification is to be found in the practice of that world and not in
the categories and concepts of the common law. In Donald H. Scott & Co. v.
Barclay’s Bank,’ 4 Bankes L.J. stated:
8(1867) L.R. 2 Ch. 391 at 396. His Lordship also expressed the view (at p. 397)
that the principles of equitable assignment could be invoked.
9[1922] 1 K.B. 318.
10(1923) 14 Ll. L.R. 586 at p. 588. See also the view expressed in a dictum by
Devlin J. in Sinason-Teicher Inter-American Grain Corporation v. Oilcakes and Oilseeds
Trading Corporation Ltd. [1954] 1 W.L.R. 935. This case was actually concerned with
a bank guarantee, but his Lordship, in comparing such guarantees with letters of credit,
stated (at p. 941) “If it is an irrevocably confirmed letter of credit it creates a direct
relationship between the bank and the seller and the bank becomes directly liable to
the seller for the fulfilment of the obligation it has undertaken in the letter of credit.”
More recently the Court of Appeal, has expressed the same view in Malas v. British
Imex Industries [1958] 1 All E.R. 262.
“lThe various theories are discussed by Gutteridge, op. cit. pp. 14-26 and Davies,
op. cit. pp. 57-69 and Relationship between Banker and Seller under a confirmed Credit
(1936) 52 L.Q.L. 225.
1 21t is remarkable that this theory is discussed by neither Davies nor Gutteridge.
See, however, Baxter Law of Banking and the Canadian Bank Act, The Carswell Co.
Ltd., Toronto 1956, at pp. 208, 209.
13 Letters of Credit (1918) 32 Hay. L.R. 1 at p. 38.
14[1923] 2 KB. 1 at p. 10.
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The large and important part which letters of credit play in modern commerce
restrains me from expressing my opinion on many of the points argued. The
system should be kept as free as possible from technicalities, and from unnecessary
judicial dicta which may embarrass business dealings in future.
Since all attempts to fit letters of credit under the established categories of
law or equity inevitably result in the whole subject becoming embroiled in
technicalities which have no real relevance so far as the commercial world is
concerned, the essential merit of recognising letters of credit as self-sufficing
instruments of the law merchant is that the development of the law on the
subject is kept free from such technicalities.
This theory was, however, rejected by both McCurdy’ 5 and Thayer”6 .
McCurdy, although he admitted that 17 “this is unquestionably the desirable
solution for the irrevocable and confirmed types of letters of credit”, neverthe-
less objected on the ground that there was no consideration to support the
promise of the bank to the seller. He admitted that the courts have recognised
mercantile customs such as that of negotiability but argued that they have
rejected mercantile customs which require the enforcement of contracts which
are unsupported by consideration. Thus he cited the failure of the attempt,
made by Lord Mansfield in Pillans v. van Mierop,’8 to reduce consideration
to the level of an evidentiary requirement, rather than as a point of substance.
This he regarded as a fatal flaw in the theory that letters of credit could be
recognised as self-sufficing instruments of the law merchant
Thayer took much the same view. Although he admitted that,19 “at first glance
this view seems both simple and efficient. It approximates very nearly to the
mercantile understanding of the transaction”, yet, after quoting the view of
McCurdy, he continued .o
Whether accidentally or otherwise, the doctrine of consideration has become an
integral part of the Anglo-American
law of contract, and for the present must
be accepted as a fact. So far as the theory of a mercantile specialty fails to
account for any consideration for the undertaking of the bank to the seller, it must
accordingly be regarded as inadequate.
It is submitted that these objections, based upon a lack of consideration,
raise unnecessary difficulties. The problem involved is not that of enforcing
a promise which
is unsupported by consideration, for the banker receives
consideration for his promise from the buyer; the difficulty is that the consid-
eration has not moved from the seller, or to put it in a slightly different form,
the seller is not a party to the contract. Bearing this in mind it is submitted
that the problem may legitimately be viewed as one which involves the question
150p. cit.
IOlrrevocable Credits in International Commerce: Thcir Legal Nature (1936) 36 Col.
L.R. 1031.
170p. cit. at p. 564 n. 60.
18(1765) 3 Burr. 1663.
1o0p. cit. at p. 1041.
200p. cit. at p. 1042.
No. 2]
LETTERS OF CREDIT
of enforcing a jus quaesitum tertio arising from a contract, which may be
either enforced at common law or alternatively be recognised as a valid mercantile
custom.
Two points, however, immediately arise. The first concerns the general
position of a jus quaesitum tertio in the common law. The second concerns
the extent to which such a mercantile custom could be recognised by the
courts. Before we can discuss these, however, it is necessary to discuss a further
problem as to the nature of a jus quaesitum tertio itself, for many legal systems
seem to have some difficult in recognizing such rights and, so far as the
common law is concerned, the difficulties in the way of recognising such rights
are often formulated in two different ways:
a) consideration has not moved from the promisee;
b) the plaintiff is not a party to the contract.
It has been pointed out that these two formulations of the difficulty are
not identicl.2 1 Thus Cheshire and Fifoot have emphasised that Roman law,
although it did not possess a doctrine of consideration, nevertheless, did not
normally allow third parties to enforce contracts made for their benefit. The
learned writers go further, however, and argue that :22
In England, therefore, if a third party seeks to sue on a promise, he is faced with
two obstacles: the insular objection that he has given no consideration and the
more comprehensive difficulty that he is a stranger to the contract.
That Roman law possessed a doctrine of third party contracts which in some
cases prevented ‘a tertius from enforcing a contract made for his benefit is
indisputable; but that does not prove that the common law possesses a doctrine
of privity independent of the doctrine of consideration 23
It may be pointed out that the Roman law, on this matter, rested on a very
different basis from that of the common law. The Roman doctrine rested on
the view that third party contracts were not only unenforceable at the instance
of the tertius but were invalid even as between the parties to the contract.
As Girard puts it :24
(N.S.) 764,
(1905)
21Law Revision Committee, Sixth Report, (1937).
220p. cit. at p. 365.
23 0n the problem of third party contracts see Williston, Contracts for the Benefit
of Third Persons (1902)
15 Hay. L.R. 768; Henning, History of the Beneficiary’s
Action in Assumpsit (1904) 43 A.L.R.
112,
(1908) 47 A.L.R. (N.S.) 73 (reprinted in Anglo-American Essays in Legal History
(1909) Vol. III 339) Corbin, Contracts for the Benefit of Third Persons (1918) 27 Yale
L.J, 1008; Whittier, Contracts Beneficiaries (1923) 32 Yale L.J. 790; Corbin, Con-
tracts for the Benefit of Third Parties (1930) 46 L.Q.R. 12; Finlay, Contracts for the
Benefit of Third Persons (1930); Starke, Contracts for the Benefit of Third Parties
(1948) 21 A.L.J. 382, 422,455,22 A.L.J. 67; Dold, Stipulations for Third Parties (1948)
and Dorwick’s, A Jus Quaesitum Tertio by Way of Contract in English Law (1956)
19 M.L.R. 374.
44 A.L.R. (N.S.)
24Manuel Elinentaire de Droit Romain 8th ed. (1929) at p. 478. See also Monier,
Manuel Elitnentaire de Droit, Vol. II, 3rd ed. and Buckland, Textbook of Roman
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Les stipulations pour autrui sont nulles en ce double sens qu’elles ne font pas
naitre d’action pour le stipulant et qu’elles n’en font pas naitre pour le tiers.
The common law seems never to have taken this view. In re Schebsman, du
Parcq L.J. stated :25
It is open to the parties to agree that, for a consideration supplied by one of
them the other will make payments to a third person for the use and benefit of
that third person.., it cannot, I think, be doubted that the common law would
regard such an agreement as valid and as enforceable (in the sense of giving a
cause of action for damages for its breach to the other party to the contract)
and would regard the breach of it as an unlawful act.
What then is the evidence which supports the view that the common law
possesses a doctrine of privity which is independent of the doctrine of considera-
tion? There are three factors which suggest, it is submitted, that in fact the
common law possesses no such independent doctrine. The first is that, prior to
the establishment of the doctrine of consideration in its modern form third
party contracts were regarded as enforceable even at the instance of a tertius,2 e
which they could not have been had there been, at that time, an independent doc-
trine of privity. Second, it was only after the decision in Eastwood v. Kenyon2T
Law, 2nd ed. (1932) p. 426 et seq. A number of exceptions later mitigated the applica-
tion of this principle, but the principle itself remained, see Institutes 3.19.3 It may be
added that commercial credits give rise to problems even in countries that do not
know the doctrine of consideration. Whether the concept of the stipulation pour autri
provide a sufficient basis seems uncertain. See Brethe, Le Cridit confirmi en Droit
francais.
25[1944] Ch. 83. The only doubt would appear to relate to the question whether,
in such cases, the plaintiff can recover substantial damages. This was denied in West
v. Houghton (1879) L.R. 4 C.P.D. 197 but in Lloyds v. Harper (1880) L.R. 16 Ch. D.
290 Lush Lj. stated: “I consider it to be an established rule of law that where a
contract is made with A for the benefit of B, A can sue on the contract for the
benefit of B -and recover all that B could have recovered if the contract had been made
with B himself.” If the opinion of Lush L.J. prevails the alleged common law rule
regarding third party contracts seems to reduce to a narrow procedural rule. However,
whichever view should prevail it seems clear that the validity of third party contracts
is not affected by whether the damages recoverable are substantial or nominal.
2GSee Lever v. Heys (1599) Moore 550; Provender v. Wood (1630) Het. 30; Hadves
v. Levit (1631) Het. 176; Starkey v. Mill (1651) Sty. 296; Thomas’s case
(1655)
Sty. 461; Sprat v. Agar (1658) 2 Sid. 115; Corny and Curtis v. Collidon (1674) 1
Free. 284 (“he that hath the interest in the promise shall have the action”); Dutton
v. Pool (1677) 2 Lev. 210; Yard v. Eland (1698) 1 Ld. Raym. 368. In the eighteenth
century the principle was enunciated from
time to time and even as late as 1787
(Marchington v. Vernon 1 B & P 101 m. (c))
the court stated “if one person makes
a promise to another for the benefit of a third that third person may maintain an
action upon it.” For decisions to a contrary sense see Bourne v. Mason (1669) 1 Vent.
6, Crow. v. Rogers (1726) 1 Stra. 592 and Price v. Easton (1833) 4 B. & A. 433.
27(1840) 11 A. & E. 438. The relationship between Eastwood v. Kenyon and third
party contracts arise because a number of the earlier cases on third party contracts
involved the problem of whether “moral obligation” could be regarded as sufficient
consideration, as in Dutton v. Poole in which the court stated “the nearness of the
relation gives the daughter the benefit of the consideration performed by her father.”
No. 2]
LETTERS OF CREDIT
had finally settled the modem doctrine of consideration that the courts set
their faces against the enforcement of such contracts by a tertius which suggests
that their attitude was related to, and even a consequence of, the development
of consideration. Third, as Dowrick has demonstrated,2 both Tweddle v.
Atkinson29 and Dunlop v. SelfridgeO were based essentially upon the concept
of consideration, rather than upon any independent doctrine of privity 3 1 On
these grounds it is submitted that the only difficulty that arises in connection
with third party contracts at common
law is a difficulty based upon the
necessity for consideration flowing from the promisee, there is no further obstacle
based on a lack of privity.
If we are correct in this assumption, we may turn to consider the general
position of a ius quaesitum tertio in the common law. Until recently the position
would appear to have been adequately summed up in the opinion of Lord
Haldane in Dunlop v. Selfridge in which his Lordship stated :32
In the law of England certain principles are fundamental. One is that only a
person who is a party to a contract can sue on it. Our law knows nothing of a
ils quacsitum tertio arising by way of contract.
Recent decisions, however, have suggested that the position
is not quite
so simple. In Smith and Snipes Hall Farm Ltd. v. River Douglas Catchment
Board,33 Denning L.J. (as he then was) was prepared to deny the proposition
that English law does not recognise the existence of a ius quaesitum tertio. His
Lordship stated that the principle enunciated by Lord Haldane in Dunlop v.
Selfridge “is not nearly so fundamental as it is sometimes supposed to be”‘
and he argued that it had not supplanted a more fundamental principle 9 4
I mean the principle that a man who makes a deliberate promise which is intended
to be binding, that is to say under seal or for good consideration, must keep his
promise; and the court will hold him to it, not only at the suit of the party who
gave the consideration but also at the suit of one who was not a party to the
contract, provided that it was made for his benefit, and that he has sufficient
interest to entitle him to enforce it, subject always, of course, to any defences
that may be open on the merits.
Further, giving illustrations of the operation of this principle, he stated:
The point taken in both Eastwood v. Kenyon and Tweddle v. Atkinson was that
“natural love and affection” could no longer be regarded as good consideration.
28Qp. cit. at pp. 382-3.
29(1861 1 B. & S. 393.
30[1915] A.C. 847.
3 1 Dowrick’s conclusion (op. cit. at p. 384) is that “the principle obstacle to a third
party rights doctrine is not that the leading cases preclude the possibility of a ils
quaesitum tertio by way of contract, but that on the authorities even a tertius must
provide consideration to acquire a contractual right.
32[1915] A.C. 847 at p. 853.
33[1949] 2 K.B. 500. There are of course a number of recognised exceptions to the
rule against a ils quaesitum tertio based on statute, e.g. Road Traffic Act 1930.s. 36 (4).
34At p. 515.
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[Vol 5
It covers, therefore, rights such as the following which cannot justly be denied –
the right of a seller to enforce a commercial credit issued in his favour by a
bank under contract with the buyer…
His Lordship returned to this point in Drive Yourself Hire Co. (London)
Ltd. v. Strutt3 5 regarding the interpretation to be put on the Law of Property
Act, 1925 s. 56.36 In an opinion which was admittedly obiter, his Lordship
stated 7
I can think of no words more apt to do away with the rule in Tweddle v. Atkinson,
leaving the courts free, in cases respecting property, to go back to the old common
law whereby a third party can sue on a contract made expressly for his benefit.
Devlin J. likewise seems to have no difficulty with the idea of a jus quaesitum
tertio arising by way of contract. In Pyrene Co. Ltd. v. Scindia Navigation Co.
Ltd. his Lordship stated.98
There is nothing novel about the idea of a third party coming in to enforce a
contract either an undisclosed principal or as a beneficiary… The principle is
very familiar in mercantile contracts.
Whilst this case was not concerned with letters of credit, it is worthwhile noting
the comment of Cheshire and Fifoot. 9
The ready recognition of commercial interests which this case reveals suggests that,
if the problem of Bankers Commercial Credits is presented to the courts, it may
now be solved in the same way.
Adler v. Dickson40 was yet another case in which the problem of third party
contracts was raised. At first instance Pilcher J., although he accepted the
principle enunciated by Denning L.J. in Smith and Snipes Hall Farm Ltd. v.
River Douglas Catchmzent Board, nevertheless held that it was inapplicable in
the case before him on the ground that the defendants did not have a sufficient
interest to entitle them to rely on the exception clause in the contract alleged
to have been made for their benefit.41
In the Court of Appeal Denning L.J. whilst he naturally adhered to the
principle that he had enunciated in earlier cases, nevertheless held that it did
not assist the defendant on the ground that the clause had not been made for
their benefit, although he agreed that had the clause been appropriately worded
35[1954] 1 Q.B. 250.
3615 & 16 Geo. V. c.20. The section provided “A person may take an immediate
interest in land or other property or the benefit of any condition, right of entry,
covenant or agreement over or respecting land or other property, although he may
not be named as a party to the conveyance or other instrument.”
37At p. 274. This interpretation which has not commended itself to either Crossman
159 L.T. 279 or Wynn-Parry J. in
J. in re Foster, Hudson v. Foster (No. 2) (1938)
re Miller’s Agreement Uniacke v. A.-G. [1947] 1 Ch. 615, is described by Cheshire
and Fifoot, op. cit. at p. 375 as “attractive and generous.”
38[1954] 2 Q.B. 402 at p. 422.
390p. cit. at p. 369.
40[1955] 1 Q.B. 158.
4lAt p. 172.
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LETTERS OF CREDIT
the defendants would have been able to claim its protection 4 2 Whilst Morris
L.J. seems to have taken much the same view, Jenkins L.J. expressed himself
in words which suggest that he was not prepared to accept even the general
average and contribution.43
Even if these provisions had contained words purporting to exclude liability of
the company’s servants non constat that the company’s servants could successfully
rely on that exclusion in proceedings brought against them by some third party
injured by their tortious conduct, for the company’s servants are not parties to
the contract.
Finally reference must be made to the recent decision in Shamia v. Joory44
in which the-principle laid down by Lord Blackburn in Griffin v. Weatherby45
was applied by Barry J. in circumstances which suggest that it may well prove
useful in relation to the problem of commercial credits. This principle, which
Lord Blackburn regarded as settled since Walker v. Rostron46 was, in his
Lordship’s words, that :47
Where a person transfers to a creditor on account of a debt whether due or not,
a fund actually existing or accruing in the hands of a third person, and notifies
the transfer to the holder of the fund, although there is no legal obligation on
the holder to pay the amount of the debt to the transferee yet the holder of the
fund may, and if he does promise to pay the transferee then that which was merely
an equitable right becomes a legal right in the fransferee, founded on the promise;
and the money becomes a fund received or to be received for and payable to the
transferee, and when it has been received an action for money had and received
to the use of the transferee lies at his suit against the holder.
Provided only that the bank may be regarded as possessed of a ‘fund’ within
the meaning of the above principle4″ it would appear that the issue of the letter
of credit may be regarded as a sufficient promise on the part of the bank to
the seller to found a right of action in the latter should the bank refuse to
honour its promise contained in the letter.
The various decisions mentioned above seem to suggest that the concept of
privity of contract as it arises in the common law, is undergoing considerable
change. It is presumably too early to say just how far the changes will go,
and since it must therefore be regarded as an open question just how far the
common law does admit the possibility of a jus quaesitum tertio arising from
contract, 49 we must turn to consider the problem from the point of view of
42At p. 184.
43At p. 186..
44[1958] 2 W.L.R. 84.
45(1868) L.R. 3 Q.B. 753.
46(1842) 9 M. & W. 411.
47At p. 758.
4 8 1n Shamia v. Joory Barry J. stated, with regard to the meaning of the term ‘fund’:
“In my judgment all that the law requires is that there must be in the hands of or
accruing to the third person, either a sum of money, or a monetary liability, over which
the transferor has a right of disposal.” (at p. 90).
49Dowrick, op. cit. p. 393 concludes that “Lord Justice Denning’s general doctrine
of jus quaesitum tertio in contract is not yet an established part of our positive law.”
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mercantile custom, i.e., even if, for the purpose of argument, it is assumed that
Lord Haldane’s opinion in Dunlop v. Selfridge represents an accurate statement
of the common law today, to what extent could the courts recognise a mercantile
custom by virtue of which a jus quaesitum tertio can arise from a contract?W
This involves discussion of the extent to which mercantile customs can be
recognised by the courts, and it is to this problem that we must now turn.
It would probably be true to say that there is no such thing in the common
law as the negotiorum gestio. This has not, however, prevented the courts
from recognising mercantile customs by which the claims of a negotiorum
gestor are admitted. Thus in Falcke v. Scottish Imperial Insurance Co.51 Bowen
L.J. immediately after stating the above principle, noted three exceptions which
were based on “maritime law” which, on these matters, his Lordship considered
differed from the common law. The three exceptions were salvage, general
average and contribution. 52
Lord Goddard C.J. in Sachs v. Miklos,-3 using the terminology of implied
agency of necessity, added two further exceptions, namely, the acceptance of a
bill of exchange for honour, and the power of a ship’s master to hypothecate
his ship and cargo. The latter is quite clearly a matter of “maritime law”
whilst for the former we have the opinion of Park B. in Hawtayne v. Bourne54
that the exception to the general principle is based on the “law merchant.” 55
We may conclude that the fact that the common law has no concept of
negotioriem gestio5 6 has not prevented the courts from recoghising mercantile
customs which admit the claims of a negatiorum gestor and it is suggested that,
by analogy, mercantile customs which admit of the possibility of a jus quaesitum
5OMead, op. cit. considers that the “special theory” is unnecessary on the ground that,
so far as American law is concerned, a jus quaesitum tertio is recognised. It is-because,
as we have submitted, this cannot yet be said of English law that we must give
consideration to the “specialty theory”.
51(1886) 34 Ch.D. 234 at p. 248. See also Lord Kenyon in Exall v. Patridge (1799)
8 T.R. 308 and Child v. Manley (1800) 8 T.R. 610.
5 2 1n Nicholson v. Chapman (1793) 2 H.Bl. 254 Eyre L.C.J. explained the exception
of salvage on the basis of “public policy and commercial necessity.”
53[1948] 2 K.B. 23. The courts have shown no disposition to extend these excep-
tions. See Nicholson v. Chapman, supra, Hawtayne v. Bourne (1841) 7 M. & W. 595;
Gwilliam v. Twist [1895] 2 Q.B. 84; Jebra v. Ottoman Bank [1927] 2 K.B. 254 and
Munro v. Wilmott [1949] 1 K.B. 295.
54Supra
55Pollock suggested that the right of a partner to indemnify from his co-partners
constitued a further exception in that he regarded the right as going beyond the right
of indemnity as derived from the law of agency. He considered that the right arose
quasi ex contractu and suggested that it was analogous to salvage and average. (The
Law of Partnership 15th ed. at p. 75. The learned editor has however doubted Pollock’s
opinion on this point –
p. 76 n.3).
56A possible exception, even in the common law is to be found in relation to burial.
10 C.B. 776; Jenkins v. Tucker (1788) 1 H.B1. 90
See Ambrose v. Kerrison (1851)
and Brashaw v. Beard (1862)
12 C.B.N.S. 344.
No. 2]
LETTERS OF CREDIT
tertio arising from contract, may likewise be recognised by the courts, despite
the possible absence of such a conception from the common law.
Probably the best example of the recognition by the courts of mercantile
custom was the recognition extended to the custom of negotiability. In this
connection it is worthwhile recalling the words of Cockburn L.C.J. in Goadwin
v. Robarts,57 words which, in the opinion of Lord Chorley “should be inscribed
in letters of gold in every court handling commercial litigation.”5 8 His Lordship
stated :59
thus spoken of in relation to bills of exchange and other
The law merchant
negotiable securities, though forming part of the general body of the lex inercatoria,
is of comparatively recent origin. It is neither more nor less than the usages of
merchants and traders, ratified by decisions of courts of law which, upon such
usages being proved before them, have adopted them as settled law with a view
to the interests of trade and public convenience… Why is it to be said that a
new usage which has sprung up under altered circumstances, is to be less admissible
than usages of past time? Why is the door to be now shut to the admission and
adoption of usage in a matter of altogether cognate character, as though the law
had been finally stereotyped and settled by some positive and premeptory enactment
His Lordship somewhat limited the effect to these words, however, when he
added:
We must by no means be understood as saying that mercantile usage, however
extensive, should be allowed to prevail if contrary to positive law, including in
the latter such usages as, having been the subject of legal decision, and having
been sanctioned and adopted by the courts, have become, by such adoption, part of
the common law. To give effect to such a usage which involved a defiance or
disregard of the law would obviously be contrary to a fundamental principle.
That there must be some limit upon the recognition that can be accorded to
mercantile usage is obvious, what is not so obvious is the criterion to be applied.
To say that a usage which is “contrary to positive law” will not be recognised
in this context?
is hardly very helpful. What is meant by “positive law”
Negotiability was unknown to the common law, and such attempted assignments
were, in one sense at least, contrary to positive law, yet they were recognised
as valid, on the basis that they constituted mercantile custom. 6 0
Without attempting to lay down any general rules for determining the limits
of recognition in such cases, it is submitted that the recognition of the existence
of a jus quaesitunt tertio arising by way of contract is a mercantile custom
57(1875) L.R. 10 Ex. 76, aff’d (187 5) L.R. 10 Ex. 337.
58The Conflict of Law and Commerce (1932) 48 L.Q.R. 55.
59At p. 346.
600n the other hand the custom of the London Stock Exchange whereby the provi-
sions of the Banking Companies’ (Shares) Act 1867 are disregarded may clearly be
regarded as a mercantile custom which is “contrary to positive law” and which may
therefore be refused recognition by the courts on that ground. It was designated
9 Q.B.D. 546 and by
“unreasonable” by Lord Coleridge in Neilson s,. James (1882)
Brett M.R. in Perry v. Barnett (1885) I5 Q.B.D. 388. See also Seymour v. Bridges
8 T.L.R. 351. That
(1885)
mercantile usage cannot prevail over a statute was made clear as early as 1612 in
Greenway & Barkers case, God. 260.
14 Q.B.D. 460 and Coates, Son and Co. v. Pacey (1892)
100
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[Vol. 5
which may be recognised by the courts without infringing the limitation laid
down by Cockburn L.C.j. and this even if it be assumed that the common
law, as such, does not recognise the existence of such a right.
Other examples in which the common law courts have recognised mercantile
customs provide some support for this submission. Thus even the doctrine of
consideration has been modified under the pressure of commercial needs, as
is illustrated by the rules that an antecedent debt or liability is sufficient
consideration to support a negotiable instrument6′ and that once value has been
given for a negotiable instrument the holder is deemed to be a holder for value
as regards the acceptor and all persons who became parties to the bill prior
to that time.62
There is even some slender authority for the view that the courts have in
fact recognised exceptions to the jus quaesiturn tertio rule. One decision which
has been recently claimed as constituting such an exception is that in Elder
Denpster & Co. v. Paterson Zochonis & Co.3 The interpretation of this deci-
sion as one involving an exception to the jus quaesitum tertio rule seems to
stem from the remarks of Denning L.J. in White v. John Warrick and Co.
Ltd.6 4 in which his Lordship said of the Elder Dempster case, “It is one of
those cases where a third party can take advantage of a contract made for his
benefit”, 65 a view which he later repreated in Adler v. Dickson.6 6 In the latter
case, however, Jenkins L.J. was inclined to interpret the Elder Dcrnpster case
rather more restrictively.6 7
61(1875) L.R. 10 Ex. 162.
62Collins v. Martin (1797) 1 B. & P. 648. Another good example of the recognition
of mercantile custom is provided by the right of stoppage in transitu. On this see the
remarks of Bowen L.J. in Kendall v. Marshall Stevens (1888) L.R. 11 Q.B.D. 356
at p. 368 and especially those of Lord Abinger in Gibson v. Carruthers (1841) 8 M.
& W. 321 at p. 338. The right of undisclosed principals in agency are probably also
to be explained on this basis.
63[1924] A.C. 522. It has been pointed out that this case is not cited in the first
three editions of Cheshire and Fifoot and even in the fourth edition it is only mentioned
in a footnote. It is not mentioned by Corbin, Starke or Finlay.
64[1953] 2 All E.R. 1021.
0SAt p. 1026.
66[1955] 1 Q.B. 158. His Lordship stated: “it is one of those cases –
by no means
rare – where a third party is entitled to enforce a contract made for his benefit.”
67At p. 195. The speeches or their Lordships in the Elder Dempster case, on this
point, were as Denning L.J. pointed out in Adler v. Dickson very “compressed”. Lord
Cane appears to have relied on the concept of agency. In Gibert, Stokes and Kerr
Pty, Ltd. v. Dalgety & Co. Ltd. [1948] S.R. N.S.W. 435 Owen J. (as he then wasj
claimed that the use of the concept of agency, in this context, introduced an unnecessary
fictional element: “With all respect, I think that the notion that the grantor of a bill
of lading makes it both as a principal and as an agent for those whom he may employ
to perform the contract, with the result that all who take part in the performance of
the contract becomes parties to it, and the converse proposition, that he acts as agent
for the cargo owner to make contracts on the latter’s behalf with all who may be
No. 2]
LETTERS OF CREDIT
Another decision which is sometimes claimed as involving an exception to
the jus quaesitum tertio rule is Les Affriteurs Rgunis Socigt6 Anonyme v.
Leopold Walford (London) Ltd. 8 in which the House of Lords allowed an
action by a broker, who had negotiated a charter-party, for his commission
which, by a clause in the charter-party, the owners had agreed to pay. Admitt-
ing that so far as the brokers were concerned the charter-party was res inter
alios acta, Lord Birkenhead nevertheless held, following Robertson v. Wait,69
that, “in such cases the charterers can sue as trustees on behalf of the broker”,
and further held that, although the charterers had not been made parties to
the action, “the matter shall be dealt with as if the charterers were co-
plaintiffs.”
Even if the “cumbrous fiction” 70 of the trust concept be admitted (a view
which is now difficult to reconcile with the subsequent decisions in Vandepitte
v. Preferred Accident Insurance Corporation of New York 7′ and re Schebs-
man72 ) there still remains the even more cumbrous fiction of allowing matters
to proceed “as if” the charterers had been co-plaintiffs, which they were not.
Whilst the decision, which in fact gives effect to what would appear to be
normal business practice, is doubtless desirable, it is surely deplorable that to
reach a result the courts must indulge in games of “let’s pretend”. This decision
indicates, however, that the courts are prepared to modify the common
law
concept of privity to meet commercial usage in certain cases. The fact that they
are prepared to do so in some cases suggests that it is not unreasonable to argue
that they should do so again in the case of letters of credit, although there
would seem to be no need to resort to such methods to attain the desired
result, since mercantile usage is a sufficient justification for allowing third
parties to sue on contracts made for their benefit, quite apart from the technic-
alities of the common law.
It is thus submitted that there is no particular justification for the view
that the number of such exceptions (if exceptions they really are) to the jus
quacsitum tertio rule is now fixed. In this context it should be remembered
that in Edelstein v. Cchuler & Co. 73 Bingham J. expressed the view that,
employed to effect the contractual carriage introduces an unreal and fictional element
into a commercial transaction, and for that reason alone does not appeal.” (at p. 443).
See also Waters Trading Co. Ltd. v. Dalgety & Co. Ltd. [1952] S.RI N.S.W. 4.
68[1919] A.C. 801.
69(1853) L.R. 8 Ex. 299. It is perhaps worth emphasising that this case was decided
before Tweddle v. Atkinson (1861).
70(1939) 55 L.Q.R. 208.
71[1933] A.C. 70. Lord Wright stated: “the intention to constitute a trust must be
affirmatively proved.”
72[19441 Ch. 83 Lord Green M.R. stated “It is not legitimate to import into the
contract the idea of trust when the parties have given no indication that such was
their intention.”
73[1902] 2 K.B. 144 at p. 154.
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[Vol. 5
It is also to be remembered that the law merchant is not fixed or stereotyped; it
has not yet been arrested in its growth, by being moulded into a code; it is, to use
the words of Cockburn C. J. in Goodwin v. Robarts, capable of being extended
and enlarged so as to meet the wants and requirements of trade in the varying
circumstances of commerce.
This view has been recently echoed in the Judicial Committee of the Privy
Council, for in Bank of Baroda Ltd. v. Punjab National Bank Ltd.74 Lord
Wright stated:
But the law merchant is not a closed book, nor is it fixed or stereotyped…
Practices of business men change, and courts of law in giving effect to the dealings
of the parties will assume that they have dealt with one another on the footing
of any relevant custom or usage prevailing at the time in the particular trade
or class of transaction.
If the law merchant has not in fact become stereotyped, and if the mercantile
custom by which a banker is liable to a seller under an irrevocable letter of
credit is well established, what need is there to look further for a justification
for the banker’s liability? It has been submitted that there is nothing in the
nature of the custom itself to render it such that the courts could not recognise
it, and further that the recent decisions tend to suggest that the common law
itself is moving towards a position under which the concept of the enforceability
of a jus quaesitum tertio may form part of the ordinary law of contract.
Our conclusion thus far is first, that the theory that letters of credit may be
recognised as “mercantile specialties” is not invalidated by objections based
upon the fact that consideration does not flow from the seller, and second that
the seller’s right to enforce the banker’s promise may be regarded as a jus
quaesitum tertio arising from the contract between the banker and the buyer
which, even if not recognised by the common law may be recognised by the
courts as a valid mercantile custom.
There remains, however, one difficulty which must be negotiated before this
theory can be regarded as a possible basis for the operation of letter of credit.
This difficulty relates to the question whether letters of credit have reached a
sufficient degree of uniformity to warrant recognition as self-sufficing instru-
ments of the law merchant. McCurdy, writing in 1921, argued’that letters of
credit had not in fact reached that degree of uniformity which would warrant
such recognition, and he contrasted them with bills of exchange. 75
At least two points may be made in connection with this objection. In the
first place, in the forty years which have elapsed since Beale’s article on the
subject,76 which McCurdy quoted in support of his argument, there has been
a tremendous expansion in the use of such credits and standard forms are
74[19441 A.C. 176 at p. 182.
750p. cit. at p. 564.
70Utility of Letters ot Credit in Export Trades: A Plea for Standard Forms (1917)
95 Banker’s Magazine 271.
LETTERS OF CREDIT
No. 2]
commonly employed.7 7 Thus Thayer, writing in 1936, referred to them as,78
“one of the most important single instruments employed today in international
commerce.” Finkelstein, writing in 1930, whilst admitting that the argument
based on a lack of uniformity had some force, nevertheless considered that the
irrevocable credit was the one form of commercial credit which had reached
a sufficient degree of uniformity to merit recognition as self-sufficing instru-
ments of the law merchant.79
Finally it should be emphasised that commercial letters of credit, in one
form or another, have been known to the courts for many years. As early as
1871, in Banner v. Johnston, the Lord Chancellor, Lord Hatherly, was able
to say :80
The transactions out’of which this letter of credit arose are of a very ordinary
character, as we have been able to learn from numerous cases brought before the
courts with reference to mercantile engagements in the purchase of cotton abroad.
Again, in 1875, in Morgan v. Lariviere, Lord Cairns, after describing the nature
of the transaction, stated, “Your Lordships are perfectly familiar with this,
which occurs every day in commerce.”81
Professor Davies has suggested that these cases involve a rather different
form of the letter of credit than that encountered today. He states :m
Both these decisions..,
turned on the older form of letter of credit which was
given by a merchant or banker to his customer authorising the customer to draw
on the merchant or the banker, it being the intention of the parties that the letter
should be shown to third parties so that the customer might
thereby obtain
credit.
With respect it is submitted that this is not so. The facts of these cases, as
reported, with which may be taken the fact situation of the earlier decision in
re Agra and Masterman’s Bank ex. p. Asiatic Banking Corporation, seem
clearly to suggest that, in all essentials, the credit used was of the same nature
as that encountered today. One decision which does, however, indicate that the
type of credit mentioned by Professor Davies was employed, is re Agra Bank
ex. p. Tondeur.8 3 In this case the letter of credit was given by the bank to the
77The International Chambers of Commerce has published Uniform Customs and
Practice for Commercial Documentary Credits, the last edition of which appeared in
1951.
7 8 0p. cit. at p. 1031.
79Legal Aspects of Commercial Lettcrs of Credit (1930).
It may be added that
Thayer, op. cit. at p. 1041 n. 46 remarks, concerning the argument based on lack of
uniform’ty, “ThIs difficulty does not appear to be insuperable. Its (i.e. letter of credit)
basic characteristics remain unchanged and are well understood commercially.”
80(1871) 5 H.L. Cas. 157 at p. 166.
81(1875) 7 H.L. Cas. 423 at p. 432. It should perhaps be added that in Prehn V.
Royal Bank of Liverpool (1870) L.R. Ex. 92 the buyer apparently felt it incumbent
upon him to explain the nature of the transaction involved to his banker.
820p. Cit. at p. 9
83(1867) L.R. 5 Eq. 160.
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applicant, and upon which he was entitled to draw. In such cases the problem
we are discussing here could hardly arise. The conclusion, is surely that,
despite undoubted developments of commercial practice, the letter of credit, in
its modem form, has been known to the courts for nearly a century.8 4
A second point which may be made with regard to McCurdy’s argument is
that whilst commercial practice regarding cheques and bills of exchange is
undoubtedly uniform today, and has been so for many years, it can hardly be
said that this was true at the date when the custom of negotiability was recog-
the customs of negotiability by
nised by the courts. The
recognition of
to the beginning
to date back
the common law courts would appear
of the seventeenth century, but it was surely not until a good deal later that the
practice with regard to such instruments became uniform. 5
The mere fact that complete uniformity of pratice has not yet been obtained
in regard to letters of credit cannot of itself therefore be regarded as a decisive
objection to their recognition as self-sufficing instruments of the law merchant.
Clearly some degree of uniformity is necessary before the courts would be
justified in extending recognition to such instruments, but it is submitted that
the degree of uniformity attained today is sufficient to warrant such recognition
being accorded.
So far as the banks are concerned it would appear that the actual form and
wording of the irrevocable letter of credit is uniform. The only point upon
which there is lack of uniformity relates to the interpretation of the description
of the documents which are required to accompany drafts drawn under the
letter of credit. The principle was enunciated by Bailhache J. in English Scottish
and Australasian Bank Ltd. v. Bank of South Africa thus :86
It is elementary to say that a person who ships a reliance on a letter of credit
must do so in exact compliance with its terms. It is also elementary to say that
a bank is not bound or indeed entitled to honour drafts presented to it under a
letter of credit unless those drafts with the accompanying document are in strict
accord with the credit as opened.
The problem remains, however, of determining when the documents are in
“strict accord” with the terms of the letter of credit. Thus if the letter requires
a clean bill of lading, the problem is to determine just what constitutes a clean
bill of lading for this purpose, or to put it another way, the problem is to
84The two earliest cases cited by Davies, op. cit. which involved transactions in the
nature of letters of credit are Pillans v. van Mieron, supra, and Mason v. Hunt. (1778)
7 T.R. 350. In both these cases, however, as Professor Davies points out, the nature
of the credit involved differed substantially from that involved in the modem letter
of credit.
85See Holden, History of Negotiable Instruments in English Law (1955). He cites
Martin v. Boure (1602) Cro. Jac. 6 as the first case in which negotiable instruments
came before the courts of common law.
86(1922) 12 L1.L.R. 21 at p. 24.
No. 2]
LETTERS OF CREDIT
determine just how strict the compliance must be.87 It would appear that the
practice in problems such as this may vary, but it is submitted that variation
of practice on such points cannot necessarily be taken as excluding the possibility
of the recognition of letters of credit as self-sufficing mercantile instruments,
in the sense that the banker’s liability is recognised as resting on a mercantile
custom by virtue of which a jus quaesitum tertio arises, rather than on some
principle of law or equity which has been pressed into service by way of analogy
or fiction.
It may finally be remarked that there would appear to be some slight authority
in favour of our submission. In International Banking Corporation v. Barclay’s
Bank s8 Atkin L.J. (as he then was) is reported as having said, of the position
in relation to “cable credits”, “the law relating to such transactions is not at
the moment so crystallised that it is not dependent upon proof of custom.”
This would seem to imply that his Lorship was prepared to accept proof of
mercantile custom in these matters, thereby implying that the matter was one of
mercantile custom rather than of deduction from purely legal premisses. Thus
his Lordship would appear to have been of the view that “cable credits” had
not, at that time, reached the stage of development which e.g., debenture bonds
had reached in Edelstein v. Schuler & Co., in which Bingham J. felt himself
able to hold that :89
It is no longer necessary to tender evidence in support of the fact that such bonds
-are negotiable…
the courts of law ought to take judicial notice of it.
We are not, of course, submitting that letters of credit have reached that stage,
for no attempt appears to have been made judicially to establish the mercantile
custom for whose existence we are contending, but the admission that the
problems are such as must be solved by reference to mercantile custom is a long
step in the direction which, we would submit, leads to a correct solution of
these problems.
We would therefore suggest that on the score of uniformity irrevocable
credits have reached that stage of development which would warrant the courts
in accepting evidence of mercantile custom as a sufficient justification for the
to be nothing in the
-banker’s liability to the seller. There would appear
decided case to rule out this course of action and it is therefore submitted that
it constitutes a step that the courts can now justifiably take.
7
8
Thus we may note that the decisions of Devlin J. in Sinason-Teicher Inter-
American Grain Corporation v. Oilcakes and Oilseeds Trading Corporation
1t would appear that the English courts require “literal” compliance with the
description. See S.H. Rayner & Co. v. Harnbro’s Bank Ltd. [1943] 1 K.B. 37 and
Moralice (London) Ltd. v. E.D. & F. Man [1954] 2 Lloyds Reports 526 and see also
British Imex Industries v. Midland Bank [1958] 1 All E.R. 264.
88(1925) unreported, but available in Legal Decisions Affecting Bankers Vol. 5. (1955)
cited by Gutteridge, op. cit. at p. 14.
s9Supra at p. 55.
McGILL LAW JOURNAL
[Vol. 5
Ltd.,90 suggests that the issue of a letter of credit does in fact create an obliga-
tion on the bank to meet drafts drawn under the credit without indicating the
basis of that obligation. We would therefore submit that we are free to suggest
that the basis of this obligation, which the courts would seem prepared to
recognise, is in fact that of a jus quaesitum tertio arising from a contract by
mercantile usage, a view which, more recently, has received some support from
the decision of the Court of Appeal in Malas and Malas v. British Inex In-
dustries in which Jenkins L.J. stated :91
It seems to be plain that the opening of a confirmed letter of credit constitutes
a bargain between the banker and the vendor of the goods which imposes on the
banker an absolute obligation to pay, irrespective of any dispute which there may
be between the parties on the question of whether the goods are up to contract
or not. An elaborate commercial system has been built up on the footing that
bankers’ confirmed credits are of that character, and, in my judgment, it would
be wrong for this court in the present case to interfere with that established practice.
It may be observed that American writers, basing themselves on the more
abundant American material, appear to be prepared to go a good deal further
than the English authorities seem to justify. Finkelstein stated.92
The courts have adjusted the rights of the various parties to these instruments
with surprising few differences of opinion. The approach in all types of problems
has been that of the law merchant… The theory that the irrevocable letter of
credit is a mercantile specialty has now for some time been acted upon and has
been functionally adopted.., its formal recognition as a mercantile specialty cannot
be long delayed.
Thmble, writing in 1948, stated :9
Not only is it historically clear that the irrevocable letter of credit is an old
mercantile specialty but the present writer submits that the history of the irre-
vocable letter of credit, and the decided cases, establish that the basic principles
of the law governing it are independent of the common law rules of consideration
In conclusion our submission is that the circumstances of the commercia.
world are such that it is now time that the irrevocable letter of credit was
recognised as a self-sufficing instrument of the law merchant, or as a mercantile
specialty, and that, in particular, there is no need to look further for the
justification or sanction for the banker’s liability, under such letters, to the
seller. The custom provides its own justification.
It has often been pointed out that the law tends to lag behind the customs
of merchants, indeed Trimble has stated that :94
law judges towards the law
the attitude over nearly a millenium, of common
merchant should be classified as among the manifestation of the deficiencies of the
human mind when it attempts to apply reason to social values and relationships.
90[19541 1 W.L.R. 935.
91[1958] 1 All E.RL 262.
920p. cit. at p. 294.
Woap. cit. at p. 1003.
94Ibid. at p. 981.
No. 2]
LETTERS OF CREDIT
107
The fact of the matter is that if the constantly repeated assertion that the law
merchant is part of the common law is to have any meaning at all, then surely
the case presented by commercial letters of credit is one for its implementation.
The practice of merchants in regard to this matter is now sufficiently well
developed to inerit judicial recognition as a further development of the law
merchant. There is no need further to torture the calcified contractual con-
ceptions of the common law in an endeavour to reconcile them with developing
business practice. The courts can, and it is submitted should, recognise that
practice as it stands and enforce the
lormal expectations of business men on
the simple basis of mercantile custom.
