Case 126

1
Case 12-6

• Trans Trust Sprl v. Danubian Trading Co., Ltd.

Judicial Body

• United Kingdom, England, Court of Appeal,1952

2
Facts

• In September 1950, a buyer ordered rolled
  steel sheets from a seller. When buyer placed
  its order, it wrote the seller that a credit
  will be opened forthwith. The seller then
  contracted with a wholesaler to procure the
  steel.
• When the seller prompted the buyer for the
  L/C (letter of credit), the buyer responded that
  it had not arranged for one and would not be
  doing so. The seller sued for breach of
  contract. The buyer answered that its order was
  conditional on obtaining a L/C and that since it
  had not done so it had no contractual obligation
  to the seller.

3
Issue

• Was the requirement to get the L/C a condition
  precedent to the formation of the contract or a
  condition of its performance?

4
Decision

• The buyer must pay the seller its
  lost profits.
• When a buyer and seller enter into a contract,
  and the buyer agrees to obtain a L/C, the
  contract already exists, the failure to obtain a
  credit will be a breach that will entitle the
  injured party to sue for damages.

5
Rational

• (1) The facts showed that the buyer promised to
  obtain the L/C as a condition of
  performance.
• (2) The buyers argument that the seller could
  have resold the steel is inapplicable, since in
  L/C transactions the seller often needs the
  assurance provided by a credit in order to
  purchase its own materials. If it does not have
  that assurance, it cannot go ahead with its
  performance, and thus would have nothing to
  resell in the event of a breach.

6
RELEVANCY

• International Business No Money, No Goods !
• Why L/C ?
• The Seller
• Would prefer to be paid in advance
• The Buyer
• Goods are actually shipped
• Goods meets contractual specifications
• Delivery before paying