Page:Harvard Law Review Volume 32.djvu/50

16 i6 HARVARD LAW REVIEW be tenable in jurisdictions which reject entirely the doctrine of allowing actions upon contracts by third party beneficiaries; and even where the doctrine is recognized, as it now generally is, still it involves so many difficulties and uncertainties that it would be a misfortune if it were resorted to and relied upon in connection with any instruments of general commercial importance. A theory of estoppel was employed in Johannessen v. Munroe.^ Here the holder obtained a letter of credit from the issuer upon false representations and turned it over to the addressee, together with $500 in cash, in payment of an outstanding indebtedness upon which the addressee was about to sue, whereupon he fore- bore suit. At the time this was done, the holder wrote (falsely) to the issuer that the letter had been dehvered to the addressee in the regular course of business and that the addressee would avail himself of it accordingly. Before closing the transaction addressee inquired of the issuer as to the genuineness of the letter and was advised that it was genuine, that it would not be canceled, and that payment of drafts drawn pursuant thereto would not be stopped unless the holder gave notice that it had fallen into im- proper hands. Nevertheless on the day on which the addressee concluded his arrangement with the holder, the issuer canceled the letter, claiming it was being used improperly. The grounds of defense were, first, that the letter had been obtained by fraud and plaintiff was not a holder in due course for value; and, second, that the holder was not authorized to use the letter as he did. In the Appellate Division, the majority of the court, in sustaining a judgment for plaintiff, relied upon a passage in Daniel on "Nego- tiable Instruments,"^^ and held that deHvery to the plaintiff and action thereon by plaintiff in good faith by forbearing to sue on his claim would cut off all defenses of the issuer. The Court of Appeals took the better ground of estoppel, saying: w 158 N. Y. 641, 53 N. E. 535, 9 App. Div. 409, 41 N. Y. Supp. 586, 84 Hun (N. Y.) 594 (1899). " "While not possessing the characteristics of negotiability which pertain to bills and notes [they] partake of them to such an extent as to be necessarily classed as negotiable instruments." 2 Daniel, Negotiable Instruments, 3 ed., § 1790. All that this means is that if the letter is acted on according to its terms, the issuer can- not set up that he was defrauded into issuing it, nor go into the state of accounts be- tween him and the holder. It is confusing to use the term "negotiable" in this con- nection. See 2 Ames, Cases on Bills and Notes, 783.