LETTER OF CREDIT. An open or sealed letter, from a merchant or bank or banker, in one place, directed to another, in another place or country, requiring him, if a person therein named, or the bearer of the letter, shall have occasion to buy commodities, or to want money to any particular, or to an unlimited, amount, either to procure the same, or to pass his promise, bill, or other engagement for it, the writer of the letter undertaking to provide him the money for the goods, or to repay him by exchange, or to give him such satisfaction as he shall re quire, either for himself or the bearer of the letter. Pars. N. & B. 108 ; Byles, Bills, Wood's ed. 173 ; 3 Chitty, Com. Law 336.
It is a general offer of a contract, address ed to all persons who may be willing to act upon it, and may be accepted by any such person making advances upon bills drawn according to its terms. L. R. 2 Ch. 391.
These letters are either general or special : the former is directed to the writer's corre spondents generally, wherever the bearer of the letter may happen to go ; the latter is directed to some particular person. When the letter is presented to the person to whom it is addressed, he either agrees to comply with the request, in which case he immedi ately becomes bound to fulfill all the engage ments therein mentioned; or he refuses, in which case the bearer should return it to the giver without any other proceeding, un less, indeed, the one to whom the letter is di rected is a debtor of the one who gave the letter, in which case he should procure the letter to be protested; 3 Chitty, Corn. Law 337 ; 1 Beaw. Lex Mer. 607; McClung v. Means, 4 Ohio 197.
A letter requesting one person to make advances to a third person on the credit of the writer is a letter of credit ; President, etc., of Mechanics' Bank v. R. Co., 13 N. Y. 599 ; First Nat. Bank v. Fiske, 133 Pa. 241, 19 Atl. 554, 7 L. R. A. 209, 19 Am. St. Rep. 635.
In England it seems questionable whether an action can be maintained by one who advances money on a general letter of cred it; Russell v. Wiggin, 2 Story 214, Fed. Cas. No. 12,165; 11 M. & W. 383 ; the reason given being that there is no privity of con tract between the mandant and the manda tory. But in this country the contrary doc trine is well settled; Union Bank of Louisi ana v. Coster's Ex'rs, 3 N. Y. 214, 53 Am. Dec. 280 ; Northumberlabd County Bank Eyer, 58 Pa. 102 ; Pollock v. Helm, 54 Miss.
1, 28 Am. Rep. 347, n. In England, a letter of credit is not negotiable ; 1 Macck. 513; Grant, Bank. ch. 15 ; except when it relates to bills of exchange; L. R. 2 Ch. App. 397; 3 id. 154. The same rule has been generally followed here, but it has been held that a general letter of credit, if it authorize more than a single transaction with the party to whom it is given, may be honored by several persons successively, keeping within the specified aggregate; Union Bank of Louisi ana v. Coster's Ex'rs, 3 N. Y. 203, 53 Am. Dec. 280 ; Lowry v. Adams, 22 Vt. 160. A telegram authorizing the use of a person's name for a certain sum of money is not in the nature of a general or continuing letter of credit, and does not extend the right to use the name beyond the amount specified; Bullen v. Dawson, 139 Ill. 633, 29 N. E. 1038.
The debt which arises on such letter, in its simplest form, when complied with, is between the mandatory and the mandant ; though it may be so conceived as to raise a debt also against the person who is sup plied by the mandatory. First, when the let ter is purchased with money by the person wishing for the foreign credit, or is given in consequence of a check on his cash account, or procured on the credit of securities lodged with the person who gave it, or in payment of money due by him to the payee, the letter is, in its effects, similar to a bill of exchange drawn on the foreign merchant or banker. The payment of the money by the person on whom the letter is given raises a debt, or goes into account between him and the writer of the letter, but raises no debt to the person who pays on the letter, against him to whom the money is paid. Second, when not so purchased, but truly an accommoda tion, and meant to raise a debt on the person accommodated, the engagement generally is to see paid any advances made to him, or to guaranty any draft accepted or bill discount ed; and the compliance with the mandate, in such case, raises a debt both against the writer of the letter and against the person accredited; 1 Bell, Com. 371, 5th ed. The bearer of the letter of credit is not consider ed bound to receive the money ; he may use the letter as he pleases, and he contracts an obligation only by receiving the money; Pothier, Contr. de Change, 237.