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Published online by Cambridge University Press: 16 January 2009
It is not often that cases concerning bankers' commercial credits reach the Court of Appeal; such a case was W. J. Alan & Co. Ltd. v. El Nasr Export and Import Co. hereafter referred to as the El Nasr case. It would be regrettable that such a case should pass without comment, particularly as the decision also touched important principles of the general law of Contract. This paper will consider firstly the opening of a bankers' commercial credit in two respects: (i) it has recently been contended that whether the credit binds the issuing bank to the seller depends on whether the buyer's duty to procure the credit is a condition precedent to the contract of sale; it will be suggested that the buyer's duty is usually no more than an ordinary term of the contract. (ii) It has been argued that the procuring of a credit by the buyer discharges absolutely his duty to pay the seller under the contract of sale. It will be seen that the courts have now rejected this argument and for good reason. The second part of this paper considers the waiver of duties under the credit, leading to an appreciation of the doctrine sometimes called equitable or promissory estoppel. In particular it will be contended that (i) he who benefits from the waiver must suffer a detriment, although of a rather diluted kind; and (ii) that the waiver may not always be withdrawn, even after the giving of reasonable notice.
1 [1972] 2 Q.B. 189.
2 By Ellinger; see note 17 infra.
3 In the El Nasr case [1972] 2 Q.B. 189.Google Scholar
4 [1972] 2 Q.B. 189, 207–208.
5 For an excellent summary of the various theories, see Ellinger, E.P., Documentary Letters of CreditGoogle Scholar, Part 2; see also Gutteridge, H. C. and Megrah, M., The Law of Bankers' Commercial CreditsGoogle Scholar (4th ed.), ch. 3 and Davis, A. G., The Law Relating to Bankers' Commercial CreditsGoogle Scholar (3rd ed.), ch. 7.
6 See Ellinger, op. cit., pp. 92 et seq. There may also be the objection that the issuing bank does not intend to contract with the seller: Mclnerny v. Lloyds Bank Ltd. [1973] 2 Lloyd's Rep. 389.Google Scholar
7 See Cheshire and Fifoot, Law of Contract (8th ed.), p. 92.
8 See A. G. Davis 52 L.Q.R. 225; 1937 C.L.J. 203; Cheshire and Fifoot loc. cit.
9 [1974] 2 W.L.R. 865.
10 Ibid. at p. 871; cf. the dissenting judgments of Viscount Dilhorne (at pp. 873–874) and Lord Simon (at p. 882).
11 A. G. Davis 1937 C.L.J. 203; Ellinger, op. cit., ch. 4.
12 A. G. Davis 1937 C.L.J. 203.
13 Hamson 54 L.Q.R. 233, 237; Corbin 27 Yale L.J. 362.
14 Op. cit., p. 100.
15 See infra.
16 Horton v. Horton [1961] 1 Q.B. 215, 221Google Scholarper Upjohn L.J.; Miles v. New Zealand Alford Estate Co. (1886) 32 Ch.D. 266, 274 per North J., and 283 per Cotton L.J.
17 Op. cit., p. 89. Cf. the related argument that the seller provides consideration for a contract with the issuing bank by making the contract of sale; this argument was rejected in Mclnerny v. Lloyds Bank Ltd. [1973] 2 Lloyd's Rep. 389.Google Scholar
18 As to this possibility in other contexts, see Pym v. Campbell (1856) 6 E. & B. 370; Aberfoyle Plantations v. Cheng [1960] A.C. 115.Google Scholar
19 As to this possibility in other contexts see Marten v. Whale [1917] 2 K.B. 480Google Scholar; Smallman v. Smallman [1972]Google Scholar Fam. 25.
20 Generally see Reynolds 79 L.Q.R. 534, 536.
21 Cf. the admitted exception in cases such as Knotz v. Fairclough, Dodd & Jones Ltd. [1952]Google Scholar 1 Lloyd's Rep. 226.
22 See Treitel, The Law of Contract (3rd ed.), pp. 55–56.
23 See Marten v. Whale [1917] 2 K.B. 480Google Scholar (approval of title and restrictions by the plaintiff's solicitor); Smallman v. Smallman [1972]Google Scholar Fam. 25 (approval of the court). In fact there does not seem to be any reason of principle why there should not be an agreement whereby (a) the contract exists but is suspended until a condition within the power and control of one of the parties is satisfied; (b) neither must withdraw or do anything inconsistent with the contract in the meantime; (c) if the condition is not met within a certain or reasonable time there is no liability on either side. Such could be the case where A made a forward contract with B for a product made by B under a licence limiting the number sold, it being agreed that when the delivery date came A could look at his order book and decide whether or not to allot any part of the limited quota to his contract with B. Cf. Mackay v. Dick (1881) 6 App.Cas. 251.
24 A Casebook on Contract (5th ed.), p. 312.
25 [1968] 1 Q.B. 680.
26 Carnegie 31 M.L.R. 78; Cheshire and Fifoot, op. cit., p. 117.
27 It is interesting that in this case Lord Denning implied that the condition, the production of the log-book, was not a duty incumbent on the owner of the car, a surprising conclusion which is criticised by Carnegie loc. cit.
28 [1952] 2 Q.B. 297.
29 [1893] 1 Q.B. 256.
30 Mackay v. Dick (1881) 6 App.Cas. 251; Smith v. Butler [1900] 1 Q.B. 694Google Scholar; note that the former case indicates that if one of the parties impedes performance of the condition he may be liable.
31 [1917] 2 K.B. 473.
32 At p. 477.
33 (1922) 10 Ll.L.R. 496.
34 At p. 497.
35 Cf. Kronman v. Steinberger (1922) 10 LI.L.R. 39Google Scholar, which is not helpful on the present issue. Cf. also Giddens v. Anglo-African Produce Co. Ltd. (1923) 14 LI.L.R. 230Google Scholar, a briefly reported case, in which the successful seller referred to the opening of the credit as a term of the contract.
36 (1936) 55 LI.L.R. 391.
37 At p. 55; see also p. 56.
38 [1952] 1 Lloyd's Rep. 153.
39 At p. 156.
40 [1952] 1 Lloyd's Rep. 348. In the same sense: Plasticmoda S.P.A. v. Davidson's (Manchester) Ltd. [1952] 1 Lloyd's Rep. 527.Google Scholar
41 [1951] 2 Lloyd's Rep. 644.
42 At p. 355.
43 At p. 356; see also Somervell L.J. at p. 352.
44 [1953] 1 Lloyd's Rep. 328.
45 At p. 335.
46 [1955] 2 Lloyd's Rep. 438.
47 At p. 442.
48 [1955] 1 Lloyd's Rep. 303, 310–314 per Devlin J.
49 [1966] 1 Lloyd's Rep. 367.
50 At p. 386.
51 Pavia & Co. S.P.A. v. Thurmann-Nielsen [1952] 1 Lloyd's Rep. 153Google Scholar; Ian Stach Ltd. v. Baker Bosley Ltd. [1958] 2 Q.B. 130.Google Scholar
52 Such might have been the judge's view in Garcia v. Page & Co. Ltd. (1936) 55 LI.L.R. 391Google Scholar: difficulty in getting funds out of Spain. Cf. Establishments Chainbaux S.A.R.L. v. Harbormaster Ltd. [1955] 1 Lloyd's Rep. 303.Google Scholar
53 [1972] 2 Q.B. 189.
54 In theory there is a third possibility that the credit “is no payment at all, but only a means by which payment may be obtained, i.e., …it is only collateral security.… This situation finds no place in any of the authorities.”— W. J. Alan & Co. Ltd. v. El Nasr Export and Import Co. [1972] 2 Q.B. 189, 211Google Scholarper Lord Denning M.R. This possibility was also rejected by McNair, J. in Soproma S.p.A. Marine & Animal By-Products Corp. [1966] 1 Lloyd's Rep. 367, 386.Google Scholar
55 Cf. Saffron v. Société Minière Cafrika (1958) 100 C.L.R. 231, 243Google Scholar, to the effect that the search for intention is artificial.
56 This was accepted by Lord, Denning M.R. in W. J. Alan & Co. Ltd. v. El Nasr Export and Import Co. [1972] 2 Q.B. 189, 209–210.Google Scholar
57 Ibid. p. 210.
58 Ornstein v. Hickerson (1941) 40 F.Sup. 305Google Scholar, following Vivacqua Irmaos S.A. v. Hickerson (1939) 190Google Scholar So. 657; cf. the explanation offered by Ellinger, op. cit., p. 145, that the buyer had reimbursed the bank.
59 Generally, see Davis op. cit. ch. 2.
60 [1972] 2 Q.B. 189.
61 (1894) 13 N.Z.L.R. 13.
62 At p. 20.
63 At p. 23.
64 At p. 18.
65 (1931) 53 F. (2d) 362.
66 At pp. 364–365.
67 (1958) 100 C.L.R. 231.
68 At p. 244.
69 At pp. 243–244.
70 [1971] 1 Lloyd's Rep. 401, 416.
71 See also Uniform Customs and Practice for Documentary Credits, 1962Google Scholar, Article 3; Schmitthoff, The Export Trade, pp. 212–213.
72 Op. cit., p. 141.
73 [1956] 2 Lloyd's Rep. 219.
74 At p. 236; he did refer to some observations of Devlin, J. in Sinason-Teicher Inter-American Grain Corp. v. Oilcakes & Oilseeds Trading Co. Ltd. [1954]Google Scholar 1 Lloyd's Rep. 376, 381, which are, as noted by Orr, J. in W. J. Alan & Co. Ltd. v. El Nasr Export and Import Co. [1971] 1 Lloyd's Rep. 401, 418Google Scholar, too general to be useful.
75 [1966] 1 Lloyd's Rep. 367.
76 See W. J. Alan & Co. Ltd. v. El Nasr Export and Import Co. [1971]Google Scholar 1 Lloyd's Rep. 401, 419 per Orr J.
77 At p. 386.
78 [1971] 1 Lloyd's Rep. 401, 419.
79 Cheshire and Fifoot, op. cit. p. 433; Chitty on Contracts, 23rd ed. (1968) vol. 2, pp. 226–227Google Scholar; Davis op. cit., pp. 48 et seq.; Gutteridge and Megrah, op. cit., p. 33; Paget, The Law of Banking, 8th ed. (1972), pp. 639–640; Ellinger, op. cit., pp. 138 et seq., and in 24 M.L.R. 530, citing foreign writers to the same effect.
80 At p. 218.
81 At p. 221.
82 At p. 212.
83 See, for instance, Chalmers, Bills of Exchange, 13th ed. (1964), p. 339.
84 Op. cit., p. 46.
85 Op. cit., p. 640.
86 See Ellinger, op. cit., p. 151.
87 26 Harv.L.R. 296.
88 See the El Nasr case [1972] 2 Q.B. 189, 210.Google Scholar
89 Equitable Trust Co. of New York v. Dawson Partners Ltd. (1927) 27 LI.L.R. 49, 52Google Scholar; Moralice (London) Ltd. v. E. D. & F. Man [1954]Google Scholar 2 Lloyd's Rep. 526.
90 In Moralice (London) Ltd. v. E. D. & F. Man, supra, it was held that the bank rightly refused payment to a seller who tendered documents evidencing the shipment of 499.7 metric tons instead of the 500 metric tons required by the credit.
91 [1972] 2 Q.B. 189.
92 See Ellinger op. cit., p. 287.
93 [1917] 2 K.B. 473.
94 22 Com.Cas. 207.
95 At p. 477.
96 At p. 479.
97 See e.g. Hartley v. Hymans [1920] 3 K.B. 475.Google Scholar
98 See e.g. Cheshire and Fifoot, op. cit., p. 534.
99 [1947] K.B. 130.
1 (1877) 2 App.Cas. 439.
2 This is accepted by Chitty, op. cit., nos. 1154–1155; the learned editors note that some writers have separated equitable estoppel from waiver on the ground that the latter doctrine requires no detriment to be suffered by the promisee: yet it is this very detriment with its appeal to equity that is thought by others to legitimize the conclusions reached in the waiver cases.
3 [1960] 2 Lloyd's Rep. 340. For waiver of the time at which credits must be opened, see Garcia v. Page (1936) 55 LI.L.R. 391Google Scholar; Ets. Chainbaux S.A.R.L. v. Harbormaster Ltd. [1955]Google Scholar 1 Lloyd's Rep. 203.
4 At p. 348.
5 (1888) 40 Ch.D. 268.
6 [1950] 1 K.B. 616, 623.
7 [1966] 1 Lloyd's Rep. 367.
8 At p. 386.
9 [1972] 2 Q.B. 189.
10 At p. 221.
11 At pp. 217–218.
12 Uniform Customs and Practice for Documentary Credits, 1962Google Scholar, General Provision (c); Urquhart Lindsay & Co. Ltd. v. Eastern Bank Ltd. [1922] 1 K.B. 318Google Scholar; Malas (Hamzeh) & Sons v. British Imex Industries Ltd. [1958] 2 Q.B. 127Google Scholar; in The United States Dulien Steel Products Inc. of Washington v. Bankers Trust Co., 189 F.Supp. 922; Ellinger, op. cit., pp. 183 et seq.; Gutteridge and Megrah, op. cit., pp. 52 et seq.
13 Ellinger, op. cit., p. 184.
14 J. and J. Cunningham Ltd. v. Robert A. Monroe & Co. Ltd. (1922) 28 Com.Cas. 42, 45.Google Scholar
15 Treitel, op. cit., p. 89; Fenner v. Blake [1900] 1 Q.B. 427.Google Scholar
16 Vanbergen v. St. Edmund Properties Ltd. [1933] 2 K.B. 233.Google Scholar
17 Vanbergen v. St. Edmund Properties Ltd., supra.
18 [1971] 1 Lloyd's Rep. 401, 420.
19 Respectively Central London Property Trust Ltd. v. High Trees House Ltd. [1947] 1 K.B. 130Google Scholar, and Tool Metal Manufacturing Co. Ltd. v. Tungsten Electric Co. Ltd. [1955] 1 W.L.R. 761.Google Scholar
20 [1964] 1 W.L.R. 1326. This case in the Privy Council clearly decided that the promisee must alter his position. Unfortunately it does not indicate what form that alteration must take. The hire-purchaser of eleven lorries had written to the owners suggesting that he should not pay instalments while the lorries were being repaired; the owners agreed. The hire-purchaser later argued that he had altered his position (i) by refraining from making alternative proposals, (ii) by delivering the lorries for repair so that they were out of service, and (iii) by organising his business on the basis that he would not have to pay the instalments until the lorries were back in service. This argument was rejected by the Privy Council, not because such things could not amount to an alteration of position, but because, the matter having been first raised on appeal to the Federal Court of Nigeria, there was insufficient evidence of the truth of the hire-purchaser's contentions.
21 [1972] 2 Q.B. 189, 218.
22 Ibid. p. 213.
23 Ibid. p. 221.
24 (1952) 15 M.L.R. 1; the High Trees case [1947] K.B. 130, 134, a formula that he has reiterated in subsequent cases.
25 Cf. Chitty, op. cit., no. 138, regarding the position as uncertain and nothing the doubt over the meaning of detriment. Cf. also the American Restatement of the Law of Contracts § 90 (1932):
A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. (Italics supplied.)
The words italicised are not found in the draft Restatement (Second). Nonetheless they have been restrictively construed by the courts: see Henderson 78 Yale L.J. 343, 386.
26 Op. cit., p. 90. See also Spencer Bower and Turner, The Law Relating to Misrepresentation (2nd ed.) no. 323.
27 Contracts (7th ed.) pp. 83–84.
28 Op. cit., pp. 97–98.
29 Law of Contract (23rd ed.) p. 108; similarly see Prof. J. F. Wilson 67 L.Q.R. 330 and 1965 Camb.L.J. 93.
30 See Prof. J. F. Wilson in 1965 Camb.L.J. 93, 96 answering Dr. D. M. Gordon in 1963 Camb.L.J. 222.
31 (1877) 2 App.Cas. 439, 448, substantially reiterated by Bowen L.J. in Birmingham and District Land Co. v. London and North Western Ry. Co. (1888) 40 Ch.D. 268, 286.
32 Note that occasionally the circumstances may reveal an overriding inequity facing the promisor, which may permit him to disregard his promise in spite of its effect on the promisee: Williams v. Stern (1879) 5 Q.B.D. 409; D. & C. Builders v. Rees [1966] 2 Q.B. 617Google Scholar; Treitel op. cit., 97–98.
33 (1877) 2 App.Cas. 439.
34 Hartley v. Hymans [1920] 3 K.B. 475.Google Scholar
35 Tool Metal Manufacturing Co. Ltd. v. Tungsten Electric Co. Ltd. (1950) 69 R.P.C. 108, 115.Google Scholar
36 1963 Camb.L.J. 222, 253.
37 [1972] 2 Q.B. 189, particularly at pp. 212–214.
38 Ibid. p. 213.
39 Ibid. p. 213.
40 [1904] 1 Ch. 305.
41 [1950] 1 K.B. 616.
42 [1904] 1 Ch. 305, 314–315.
43 [1947] K.B. 130.
44 Op. cit., p. 109.
45 67 L.Q.R. 330, 344. See also Spencer Bower and Turner, op. cit., no. 323.
46 Cf. Prof. J. F. Wilson in 67 L.Q.R. 330, 333 in 1965 Camb.L.J. 93, 96.
47 Generally, see Ellinger, op. cit., ch. VI.
48 [1952] 1 Lloyd's Rep. 527.
49 [1917] 2 K.B. 473; 22 Com.Cas. 207.
50 [1960] 2 Lloyd's Rep. 340.
51 The first Tool Metal case (1952) 69 R.P.C. 108, 116Google Scholarper Cohen L.J.
52 (1877) 2 App.Cas. 439.
53 [1972] 2 Q.B. 189, 218.
54 [1955] 1 W.L.R. 761, 785; also Lord Cohen at 795 and 799.
55 (1953) 71 R.P.C. 1, 21.
56 [1947] 1 K.B. 130, 135.
57 [1955] 1 W.L.R. 761.
58 For instance, Garcia v. Page (1936) 55 LI.L.Rep. 391Google Scholar; Charles Rickards Ltd. v. Oppenhaim [1950] 1 K.B. 616Google Scholar; Ets. Chainbaux S.A.R.L. v. Harbormaster Ltd. [1955] 1Google Scholar Lloyd's Rep. 203; Soproma S.P.A. v. Marine & Animal By-products Corp. Ltd. [1966]Google Scholar 1 Lloyd's Rep. 367.
59 Emmanuel Ajayi v. R. T. Briscoe (Nigeria) Ltd. [1964] 1 W.L.R. 1326, 1330.Google Scholar
60 Birmingham and District Land Co. v. L.N.W.R. Co. (1888) 40 Ch.D. 268; Robertson v. Minister of Pensions [1949] 1 K.B. 227Google Scholar; Emmanuel Ajayi v. R. T. Briscoe (Nigeria) Ltd. [1964] 1 W.L.R. 1326, 1330Google Scholarper Lord Hodson. Further, where waiver of a right to terminate the contract for breach amounts to affirmation and the innocent party takes some further benefit under the contract, the waiver cannot be withdrawn and the contract terminated: Davenport v. R. (1877) 3 App.Cas. 115.
61 Emmanuel Ajayi v. R. T. Briscoe (Nigeria) [1964] 1 W.L.R. 1326, 1330Google Scholar, italics added.
62 D. & C. Builders Ltd. v. Rees [1966] 2 Q.B. 617Google Scholar, 624; see also the decision of the New Zealand Supreme Court to the same effect in P. v. P. [1957] N.Z.L.R. 854; Macgregor J. decided that the promise could not be withdrawn because that would be inequitable; it is not clear that the view that such promises can only be suspensory was argued before him. Moreover the learned editor of Spencer Bower and Turner (op. cit., no. 325) is of the opinion that this case does not provide an instance of permanent waiver.
63 Cheshire and Fifoot, op. cit., p. 90; Chitty, op. cit., no. 139; Sutton and Shannon, op. cit., pp. 82–83; Spencer Bower and Turner, op. cit., no. 325.
64 Op. cit., p. 111.
65 Op. cit., pp. 96, 105–106; Treitel and Reynolds, Malaya Law Review 16, 17; see also Prof. J. F. Wilson in 67 L.Q.R. 330; 1965 Camb.L.J. 93.
66 (1877) 2 App.Cas. 439, 448.
67 Cheshire and Fifoot, op. cit., p. 90.
68 Birmingham and District Land Co. v. L.N.W.R. Co. (1888) 40 Ch.D. 268, 286.
69 See [1947] K.B. 130, 135–136.
70 69 R.P.C. 108; Prof. J. F. Wilson 1965 Camb.L.J. 93, 102, 107; cf. Dr. Gordon 1963 Camb.L.J. 222, 249.
71 (1877) 2 App.Cas. 439.
72 Cf. Johs. Thode v. Vda. de Gimeno y Cia S.L. [1960] 2 Lloyd's Rep. 298, 307Google Scholar where Diplock J. said this: “The cable of Mar. 12, addressed to the master, saying ‘Proceed Tarragona, confirm’, given before the vessel had arrived at Valencia Roads for orders, as it was her duty to do, anticipated orders which the charterers would have been entitled to give on arrival at Valencia Roads. When acted upon by the owners, the charterers, indeed, in my view, thereby waived their right to fulfilment by the owners of the obligation to arrive at Valencia Roads. Whether this is best described as waiver at common law or equity, or estoppel at common law or equity, as may be indicated by such cases as Birmingham and District Land Co. v. L.N.W.R. Co. (1888) 40 Ch.D. 268 and Charles Rickards Ltd. v. Oppenhaim [1950] 1 K.B. 616Google Scholar, or whether it amounts to a variation in the terms of the contract, does not, for this purpose, I think, matter. The result of the telegram sent by the charterers on Mar. 12, 1958, in my view, absolved the owners of the obligation which lay upon them then under the charterparty to go to Valencia Roads, and, with the disappearance of the obligation to go to Valencia Roads, it seems to me that there must have disappeared the correlative right of the charterers to cancel if the vessel failed to arrive at Valencia Roads by 2 p.m. on Mar. 13, 1958.” This decision is regarded by Marston, G. and Smith, D. W. in 1 Australian Current Law Review at p. 169Google Scholar as being illustrative of the extinctive effect of the High Trees rule. The learned judge does indeed seem to have contemplated such a possibility by the language used; however, the facts would seem to disclose a variation: in return for the ship's being released from the duty to go to Valencia Roads the owners allowed the charterers to give orders earlier than permitted under the contract and acted on them in the way apparently desired by the charterers.
73 (1877) 2 App.Cas. 439, 448.
74 See also the American Restatement of the Law of Contracts, § 90.
75 This would seem to be the view of Lord Denning: 15 M.L.R. 1.
76 1965 Camb.L.J. 93, 113.
77 (1884) 9 App.Cas. 605; Treitel, op. cit., p. 106.
78 For instance Cheshire and Fifoot, op. cit., p. 91.
79 (1877) 2 App.Cas. 439.
80 See also Denning, J. in the High Trees case [1947]Google Scholar K.B. 130, 135.
81 Woodhouse A.C. Israel Cocoa Ltd. S.A. v. Nigerian Produce Marketing Co. Ltd. [1972]Google Scholar A.C. 741, 758.
82 I wish to express my gratitude to Dr. G. Marston and Dr. L. S. Sealy for their helpful comments on a draft of this article. The responsibility for error remains my own.
