a separate letter called a lettre d'indication. In the case
of an ordinary credit, the banker advises his correspondent
that he has granted such a letter in favour of a particular
person, whose signature is sometimes enclosed for compari-
son, but circular notes may be presented to any one of a
large number of correspondents.
If letters of advice were

sent to them all, the labour would be great, and to a large
extent useless. Accordingly, the letter of advice is intrusted
to the traveller to present when he wishes to cash a circular
note, and in order to guard against forgery he appends his
signature to the lettre d'indication, which also states the terms
upon which he is to be entitled to draw on the issuer of the
circular notes. The mandate in a circular note is to cash
the draft of the traveller at so many days' sight upon the
banker for the precise sum named in the note. This draft
must be drawn upon the back of the note, where a blank
form of bill is printed. The traveller, or the correspondent,
strictly speaking, ought to fill up this blank before signing,
but the usual practice is for the traveller to indorse the
circular note, and his doing so is authority to the corre-
spondent to fill in the blanks of the draft above his
signature. The traveller's liabilities are, of course, the same
whether the draft is filled up before or after his signature
is indorsed on the note. In all the forms of letters of credit
already mentioned the letter is handed by the granter to the
payee for presentation, but it is common for a banker
to open a credit for a customer with a banker in another
town, or abroad, and instead of giving a letter of credit to
his customer, to write himself to the other banker, instruct-
ing him to honour the draft of the customer or of a
correspondent of the customer. A large portion of the
foreign trade of the country is carried on by means of such
credits, and bankers derive considerable profits from the
percentage which they charge for accepting bills on behalf
of their customers.

The rights and liabilities arising out of letters of credit Obligations now fall to be considered. The granter of a letter of credit under letters undertakes a two-fold obligation; first, to the granter, and

of credit.

second, to his correspondent. The grantee is entitled to expect that his drafts drawn in conformity with the letter of credit will be honoured by the correspondent to whom the letter is addressed, or by the granter if the obligation in the letter is such; and if the correspondent or the granter fails to cash the drafts, or to accept and pay the drafts drawn upon him, the granter of the letter will be liable in damages to the grantee. Thus in the case of Prehn v. Royal Bank of Liverpool, L. R. 5, Ex. 92, the defendants undertook to accept bills drawn by the plaintiffs' foreign firm to the extent of £20,000, and expressed this obligation in a letter, the terms of which were complied with by the plaintiffs. The bills were accepted by the defendants, who were provided with funds by the plaintiffs sufficient to meet the bills. Before, however, the bills became due, the bank suspended payment, and intimated to the plaintiffs that the bills would not be paid. In order to save the cost of re-exchange, the bills having been indorsed to third parties, the plaintiffs arranged with M. & Co. to accept the bills for honour of the drawers, and paid them £568 of commission for so doing. The plaintiffs also incurred £44 for notarial, and £97 for telegraphic expenses. The latter expense was necessary in order to communicate the arrangements made, and to prevent the bills going back to the foreign port. The Court of Exchequer held that the plaintiffs were entitled to these sums in name of damages for the breach of contract by the bank.

Again, in the case of in re Agra Bank ex parte Tondeur, L. R. 5, Eq. 160, where the letter issued was a document credit, the same principle was acknowledged, though the claim for damages was disallowed on the ground that the suspension of payment by the bank before there was time for the letter of credit to be used was not a breach or repudiation, inasmuch as permission might have been given to the liquidators under the winding up of the bank to negotiate the bills. Here the agents of the grantee of the letter, when they found that the bank had suspended payment, made no use of the letter, but raised money independently of it, and at a considerable cost. Vice

Chancellor Wood pointed out that the only question was, "Have the bank refused to complete the contract, or disabled themselves from performing it?" The bank's loss of credit caused by its suspension was no more a ground for claiming damage than if it had been occasioned by the prevalence of disastrous rumours, and if the grantee's agents had been obliged to pay more in the way of discount than was originally expected. In short, the banker does not guarantee that his credit will remain good, but undertakes that he or his correspondent will accept the grantee's draft, and he is liable in damages for failure to perform this undertaking. Where the grantee of a letter of credit has paid the amount to his banker, he is entitled to recover the same from the banker in the event of the drafts of the payee not being honoured, or of the banker repudiating his liability under the letter. The granter cannot defend himself by producing merely the letter of credit. He must produce a draft or drafts by the payee. If he or his correspondent has paid upon a forged draft, he cannot set up the amount so wrongly paid against the grantee's claim for repetition. This was settled by the case of Orr and Barber v. Union Bank of Scotland, 31st Jan. 1852, 14 D. 395, rev. 1 M'Q. 513, in which the obligations arising out of the granting of such letters were considered with great care and deliberation. The view arrived at by the Court of Session, adverse to the relevancy of the pursuers' case, when the cause was for the fourth time in the Inner House, was set aside by the House of Lords, and the above propositions laid down.

The facts of this case were as follows. Campbell paid into the Union Bank of Scotland £460, 9s., and in return received a letter of credit addressed to the Manchester and Liverpool District Banking Company in favour of Orr and Barber, a Liverpool firm, who were creditors of Campbell. Campbell transmitted the letter to Orr and Barber, both of whom were absent when the letter arrived. taining the letter of credit was opened by their clerk, who drew a cheque upon the said bank for the amount, forged Orr and Barber's signature, and presented the forged cheque

The letter con

with the letter of credit to the bank, by whom it was paid. The clerk absconded with the money. The Liverpool bank declined to pay a second time to Orr and Barber, who then demanded payment from Campbell's representative, who admitted his liability. An action was then raised in name of Orr and Barber and of Campbell against the Union Bank, in which, after much discussion, it was held that the pursuers had no claim against the Union Bank, on the ground that the Union Bank had fulfilled its obligation by opening a credit with a solvent party, and putting him in funds to meet Orr and Barber's drafts, and that it was no ground of action to allege that the Union Bank's correspondent declined to honour Orr and Barber's drafts, and at any rate that the pursuers were bound to produce the letter of credit dishonoured or unpaid before repetition of the sum paid for it could be claimed from the Union Bank. This last proposition practically resolved itself into this, that the pursuers must sue the Liverpool bank either for payment of the amount of the credit, or for recovery of the document itself, on the ground that it had been acquired without title. The first of these courses could not be adopted, as by the law of England no action lay against the Liverpool bankers, because there was no privity of contract between them and either Orr and Barber or Campbell. The letter of credit might perhaps have been recovered, but it seemed unnecessary to put the pursuers to the risk of a litigation to recover a document, the absence of which was perfectly accounted for, and which was really not required by the pursuers. The terms of the letters of credit were admitted, and the Liverpool bank had refused to honour Orr and Barber's drafts drawn in accordance with it. All that the pursuers required to prove was this refusal, and that they were ready to do. The pursuers accordingly appealed to the House of Lords, where the judgment of the Court of Session was reversed, and the relevancy of the action sustained. Lord Chancellor Cranworth said: "The Union Bank must show either that the Liverpool bank actually paid the draft of Orr and Barber when called on to do so pursuant to the letter of

credit, or else that they did something which, as between them and Orr and Barber, they are entitled to treat as equivalent to payment. It is certain that they did not pay the draft of Orr and Barber, and the only question therefore is on the other alternative, whether the payment which they made on the forged cheque is a payment which they are entitled to consider as valid between them and Orr and Barber. Payment on a forged cheque or order is not of itself any payment at all as between the person paying and the person whose name is forged. If then the Liverpool bank cannot set up the payment which they made on the forged cheque, it follows of necessity that the present claim of the appellants is well founded, for they can have no possible remedy against the Liverpool bank, between whom and them there is no privity whatever. The Union Bank have given to Orr and Barber a credit on the Liverpool bank, but that bank will not honour their draft, so that the parties are necessarily thrown back on those with whom the money was originally lodged, and whose contract has not been performed," 1 M'Q. 513, 521. This case was prior to the passing of 16 & 17 Vict. cap. 59 (1853), the 19th section of which protects bankers paying on a forged indorsation of a draft or order, but the liability of the Union Bank would not have been thereby taken away. What was forged was not an indorsation, but a signature to a draft, and a banker paying a forged draft has no protection.

In the subsequent case of The Caledonian Insurance Company v. British Linen Company, 21 D. 1195, 4 MQ. 107, also arising before 1853, the agent of the insurance company obtained payment of a letter of credit addressed to a country agent of the bank by forging the signature of the payee on the back of the letter of credit. The bank was obliged to pay over again, but apparently the result would have been different if the payment had occurred subsequently to the passing of the Act. Although the document was expressed as a letter of credit requesting the bank agent to honour the payee's drafts, it was in substance nothing more than a draft payable by an agent of the bank,