[PDF copy of this judgment can be sent to your email for N300 only. Just order through lawnigeria@gmail.com and info@lawnigeria.com or text 07067102097]





1921 NOV. 24; DEC. 5.


(1922) 1 K.B. 318

BEFORE: Rowlatt J.



Neilson K.C. and C. P. Blackwell for the plaintiffs.

Stuart Bevan K.C. and Sir Cassie Holden for the defendants.

Solicitors for plaintiffs: J. D. Langton & Passmore.

Solicitors for defendants: Coward & Hawkesley, Sons & Chance.



COMMERCIAL AND BUSINESS LAW: Contract–Sale of Goods–Bankers’ Letter of Credit–Irrevocable Credit– Repudiation–Anticipatory Breach–Damages.

BANKING AND FINANCING LAW:- Banking practices – Obligation arising from a Letter of Credit represented as an Irrevocable Credit on behalf of a bank customer for the benefit of a third party – Duty of bank thereto – When refusal to honour payment would amount to breach of contract by bank regardless of instruction by bank-customer to bank


The plaintiffs entered into a contract with buyers in Calcutta to manufacture and ship machinery by instalments over several months at agreed prices, but subject to a stipulation that should the cost of labour or wages increase, there should be a corresponding increase in the purchase price. The buyers were also to open a “confirmed irrevocable credit” in favour of the plaintiffs with a bank in this country, and to pay for each shipment as it took place. In pursuance of this arrangement the defendants, who were the buyers’ bankers in London, wrote to the plaintiffs stating that they would pay bills drawn on the buyers to the extent of 70,000l., the bills to be accompanied by documents and to be received before April 14, 1921, “this to be considered a confirmed irrevocable credit.”


The plaintiffs shipped two instalments under the contract and received payment under the letter of credit. The buyers then found that the invoices included an increase in the purchase price on account of wages and material, and instructed the defendants only to pay so much of the next invoices as represented the original prices. The defendants accordingly refused to pay the bill presented on the next shipment and the plaintiffs then cancelled the contract, claiming damages from the defendants as on a repudiation by the buyers:-


Held, that, the credit being irrevocable, the refusal of the defendants to take and pay for the particular bills on presentation of the proper documents constituted a repudiation of the contract as a whole, and that the plaintiffs were entitled to damages so reckoned. The basis of this form of banking facility is that the buyer is taken, as between himself and the banker, to accept the seller’s invoices as correct. Any adjustment must be made by way of refund by the seller and not by way of retention by the buyer.


ACTION in the Commercial Court before Rowlatt J.


The plaintiffs were manufacturers of machinery, and the defendants were bankers with various branches in the East, including Calcutta. In December, 1919, the plaintiffs agreed to manufacture for the Benjamin Jute Mills Co., Ld., who were customers of the defendants, a quantity of machinery for delivery f.o.b. Glasgow to the amount of 64,942l.

This contract contained (inter alia) the following terms: (1.) that in the event of any increase taking place in wages or cost of materials or transit rates or any further reduction taking place in working hours, the plaintiffs’ prices would be correspondingly increased; and (2.) that the Benjamin Jute Co., Ld., should open in this country a confirmed irrevocable banker’s credit to the extent of 70,000l.
On February 14, 1920, the defendants wrote to the plaintiffs the following letter:-

“4 Crosby Square,


“We beg to advise you that under instructions received from our Calcutta branch we are prepared to pay you the amounts of your bills on B. N. Elias, managing agent, the Benjamin Jute Mills Co., Ld., Calcutta, to the extent of, but not exceeding 70,0001. in all (say seventy thousand pounds). The bills are to be accompanied by the following complete documents covering shipments of machinery to Calcutta, are to be drawn payable 30 days after sight, and are to be received by us for payment on or before April 14, 1921:-

“Signed Invoices in duplicate.

“Complete sets of bills of lading made out ‘to order’ indorsed in blank and marked by the shipping company ‘freight paid.’
“Policies of insurance against marine or war risks.

“This is to be considered a confirmed and irrevocable credit, and the bills should bear a clause to the effect that they are drawn under credit No. 102 dated Calcutta, January 15, 1920.

“Kindly acknowledge receipt.

“Yours faithfully,
The plaintiffs thereupon bought raw material and in 1920 began to manufacture the goods. They made two shipments under the contract in February and March, 1921, and tendered to the defendants bills of exchange together with shipping documents, which the defendants duly paid. On February 18, 1921, the defendants wrote to the plaintiffs, in reference to their former letter of February 14, 1920, a further letter advising them that they had heard from Calcutta that should it be necessary for the plaintiffs to include in their invoice for extra cost of labour, this extra amount must be referred to the buyers, before they (the defendants) would be at liberty to pay the same. The defendants then refused to meet the bills of exchange presented by the plaintiffs on the third shipment, and only did so, under protest on May 9, 1921, when the confirmed credit had expired.

The plaintiffs meantime on April 12, 1921, issued a writ in the action, and in their points of claim, dated June 29, 1921, alleged that the defendants’ letter of February 18, 1921, was a breach of the contract contained in their letter of February 14, 1920, and that they (plaintiffs) had suffered damage, and lost the profit which they would otherwise have made, and that there was no available market for the goods.
The defendants in their points of defence (July 30, 1921) alleged that it was a term or condition in the contract between the plaintiffs and the Benjamin Jute Mills Co., Ld., that the plaintiffs should not draw bills of exchange for more than shippers’ current prices in December, 1919, and in particular that they should not include in such bills any increased cost over the price in 1919 on which the agreed credit of 70,000l. was calculated. They contended that the plaintiffs had acted in breach of this term or condition; and further that the damage (if any) was too remote and was not recoverable.


The points taken in argument are sufficiently set out in the judgment of Rowlatt J.
Cur. adv. vult.




Dec. 5.


ROWLATT J. read the following judgment:

In this case the essential facts are few and simple. The plaintiffs in this country arranged with the Benjamin Jute Mills, Calcutta, to manufacture and ship to them over a series of months a quantity of machinery, at prices mentioned in a pro forma invoice; subject however to a stipulation not infrequently insisted upon by manufacturers at the date when the arrangement was made, that should the cost of labour or wages advance there would be a corresponding advance in the prices to be paid by the buyers. The goods were to be paid for by means of a confirmed irrevocable credit to be opened by the buyers in favour of the plaintiffs with a bank in this country, who were to pay the plaintiffs for each shipment as it took place. In pursuance of this arrangement the defendant bank at the instance of the buyers issued to the plaintiffs a document the terms of which I need not rehearse in detail, it being sufficient to state that the defendants undertook up to a certain amount and within a certain limit of time to pay the plaintiffs, against bills drawn upon the buyers accompanied by corresponding invoices and shipping documents, the amount of such invoices. This credit was by its terms to be irrevocable and the invoices were to be for machinery. There can be no doubt that upon the plaintiffs acting upon the undertaking contained in this letter of credit consideration moved from the plaintiffs, which bound the defendants to the irrevocable character of the arrangement between the defendants and the plaintiffs; nor was it contended before me that this had not become the position when the circumstances giving rise to this action took place.


Having received the letter of credit, the plaintiffs proceeded to manufacture the machinery and actually shipped two instalments of it, receiving payment from the defendants under the letter of credit against bills accompanied by invoices and other documents called for by that instrument. Before the third shipment was made the buyers, finding that the plaintiffs were including in their invoices an addition to the prices originally quoted, in respect of an alleged rise in the cost of wages or materials, instructed the defendants only to pay so much of the next invoices as represented the original prices. These instructions (very unfortunately, as I think, from many points of view) the defendants obeyed. The plaintiffs however refused to part with the documents representing their goods unless they received the full amount of the invoices; and upon the defendants maintaining their position cancelled the contract as to further shipments, as upon a repudiation by the buyers, and have brought this action against the defendants, claiming as damages the loss on material thrown on their hands, and loss of profit; in other words, the same damages as they would claim against the buyers on their repudiation of the contract. After the action had been commenced the defendants paid to the plaintiffs the amount of the invoices, the original refusal of which had caused the dispute.
In my view the defendants committed a breach of their contract with the plaintiffs when they refused to pay the amount of the invoices as presented. Mr. Stuart Bevan contended that the letter of credit must be taken to incorporate the contract between the plaintiffs and their buyers; and that according to the true meaning of that contract the amount of any increase claimed in respect of an alleged advance in manufacturing costs was not to be included in any invoice to be presented under the letter of credit, but was to be the subject of subsequent independent adjustment. The answer to this is that the defendants undertook to pay the amount of invoices for machinery without qualification, the basis of this form of banking facility being that the buyer is taken for the purposes of all questions between himself and his banker or between his banker and the seller to be content to accept the invoices of the seller as correct. It seems to me that so far from the letter of credit being qualified by the contract of sale, the latter must accommodate itself to the letter of credit. The buyer having authorized his banker to undertake to pay the amount of the invoice as presented, it follows that any adjustment must be made by way of refund by the seller, and not by way of retention by the buyer.
There being thus in my view a breach of contract, the question arises what damages the plaintiffs can recover. The point is a new one, and not free from difficulty. It is, of course, elementary that as a general rule the amount of damages for non-payment of money is only the amount of the money itself. If, for instance, the defendants had merely undertaken to pay the price of goods as and when shipped, nothing being said about the undertaking being irrevocable within limits of time and amount, such undertaking would become binding only in respect of each shipment upon its being made, the successive shipments being the separable considerations for the separable undertakings referring to them respectively; and the engagement could be revoked at any time as to future shipments. In such a case the damages in case of a refusal to pay for any shipment made before revocation would be merely the amount owing in respect of the shipment. In the present case, however, the credit was irrevocable; and the effect of that was that the bank really agreed to buy the contemplated series of bills and documents representing the contemplated shipments just as the buyer agreed to take and pay for by this means the goods themselves. Now, if a buyer under a contract of this sort declines to pay for an instalment of the goods, the seller can cancel and claim damages upon the footing of an anticipatory breach of the contract of sale as a whole. These damages are not for non-payment of money. It is true that non-payment of money was what the buyer was guilty of; but such non-payment is evidence of a repudiation of the contract to accept and pay for the remainder of the goods; and the damages are in respect of such repudiation. I confess I cannot see why the refusal of the bank to take and pay for the bills with the documents representing the goods is not in the same way a repudiation of their contract to take the bills to be presented in future under the letter of credit; nor, if that is so, why the damages are not the same. Mr. Stuart Bevan argued that the sellers should go on shipping and sue the bank toties quoties. Why should they be put in this position as against the bank any more than as against the seller? What is the difference for this purpose between the obligation to take the goods and pay the invoice, and the obligation to take bills and documents representing the goods and pay the invoice? The whole purpose of the arrangement is that the seller shall have a responsible paymaster in this country to protect him against the very contingency which has occurred and the very damages which he claims.


Mr. Stuart Bevan, however, further argued that the plaintiffs ought to have minimised their damages by tendering bills only for so much of the invoices as in view of the attitude of the buyer the bank would pay, letting their goods and relative documents go against this reduced payment, and drawing other bills for the balance. These bills they would have to discount without documents, and of course without excluding recourse against themselves; but if the buyers refused them acceptance and the plaintiffs had to pay them they could then, if right in their position, says Mr. Stuart Bevan, still sue the defendants. This is merely to contend that the plaintiffs should have let their documents go against such part of their invoices as the bank would pay, and sue them for the rest. This is not minimising damages but abandoning their right to be paid against documents.


The damages to which the plaintiffs are entitled are the difference between on the one hand the value of the materials left on their hands and the cost of such as they would have further provided, and, on the other hand, what they would have been entitled to receive for the manufactured machinery from the buyers, the whole being limited to the amount they could in fact have tendered before the expiry of the letter of credit.


A subsidiary question arose whether the plaintiffs are entitled to interest on the money paid after action for the goods that had actually been shipped. I do not see upon what ground I can award this interest.


Judgment for plaintiffs. (F. P. F. )

error: Our Content is protected!! Contact us to get the resources...