ABSTRACT
A performance condition may be dependent either because the contract so provides4 or may be implied from the nature of the contract.
In Trans Trust SPRL v Danubian Trading Co Ltd,5 the parties entered a contract for the sale of rolled steel on fob.6 The terms under which payment was to be made by way of an irrevocable letter of credit, to be opened by the buyer in the seller’s favour. The buyers subsequently agreed to sell the steel to American buyers, subject to a requirement that they too should open an irrevocable credit in favour of the first buyers, so as to facilitate the performance of both contracts. The American buyers failed to open a letter of credit. In an action by the sellers against the first buyers, the sellers sought a declaration that they were entitled to be indemnified against any damages payable by them to the American buyers. It was held that the sellers were discharged from further performance of their obligation to deliver when the letter of credit was not opened, since the seller’s obligation was dependant on performance of the buyer’s obligation to open the credit in the first place:
Trans Trust SPRL v Danubian Trading Co Ltd [1952] 1 All ER 970, CA, p 976 Denning LJ: This is another case concerned with the modern practice whereby a buyer agrees to provide a banker’s confirmed credit in favour of the seller. This credit is an irrevocable promise by a banker to pay money to the seller in return for the shipping documents. One reason for this practice is because the seller wishes to be assured in advance, not only that the buyer is in earnest, but also that he, the seller, will get his money when he delivers the goods. Another reason is because the seller often has expenses to pay in connection with the goods and he wishes to use the credit to pay those expenses. He may, for instance, be himself a merchant, who is buying the goods from the growers or the manufacturers and has to pay for them before he can get delivery, and his own bank may only grant him facilities for the purpose if he has the backing of a letter of credit. The ability of the seller to carry out the transaction is, therefore, dependent on the buyer’s providing the letter of credit, and for this reason the seller stipulates that the credit should be provided at a specified time well in advance of the time for delivery of the goods.
