4 HARVARD LAW REVIEW giving rise to the letter, and controversies as to breach of such con- tract; [rights of issuer and other parties in case of a notice to stop payment; rights in case of failure to perform the sale contract be- cause of force majeure, government embargoes, commandeered ships, etc.; insolvency of parties; attempts at rescission by holder or issuer; effect of changes made or of dealings had between pur- chaser and vendor after issuance of letters; procurement of the credit by fraud or unauthorized use of the letter. And on the legal theory applied may also depend the solution of the question, now apparently somewhat ignored, as to how a bank's outstanding letters of credit are to be treated in its accounting or under the national banking law. I In trying to arrive at any sound theory of law applicable to these letters, one naturally turns first to their place of origin. The letter of credit is an old institution of continental commercial law, well understood as far back as the seventeenth century. When, through trade with Europe, the institution became known to us, our courts turned naturally, in our period of absorption of the law merchant, to the continental books for guidance in construing it and copious citations from these books appear in our earliest letter of credit cases.^ The subject had a simple theoretical development on the continent which gave effect to the mercantile idea that a promise made in course of business is enforceable. In Anglo- American law, on the other hand, in the generation following Lord Mansfield, it became definitely settled that a merchant's promise in writing made in a business transaction did not suffice of itself to create legal obligation, hence the continental theory could not be adopted. Other reasons, partly economic, prevented letters of credit from assuming much importance in our commerce and as a result there does not seem to have been sufficient litigation over them to compel the working out of a consistent legal theory. When the outbreak of the war required new credit devices in our foreign trade, it was natural that the commercial letter of credit, somewhat dormant with us. but in common use abroad, should be employed to fill the gap without much consideration being given to its legal character and implications.
- Coolidge V. Payson, 2 Wheat. (U. S.) 66 (181 7); Russell v. Wiggin, 2 Story (U. S.)
213 (1842); note to Mandeville v. Riddle, i Cranch (U. S.) 290, 298, 366 (1803).
