Definition
To open a credit means to accept or pay the draft of a correspondent who has not yet furnished funds to cover it. In commercial and banking practice, the phrase describes the act of extending credit to a correspondent party — typically a merchant or trading house in another city or country — by honoring that party's drafts before any actual funds or assets have been deposited or remitted to back the transaction. The party opening the credit effectively commits to paying on behalf of the correspondent, relying on the correspondent's future payment or on the commercial relationship between them rather than on existing funds held.
The concept sits at the intersection of commercial paper, banking, and mercantile agency law. It is closely related to the letter of credit and the bill of exchange, both of which formalize the extension of credit across distances and between parties who may never meet face to face.
Common Confusion
"Open a credit" should not be conflated with "open credit" as that phrase is used in modern consumer finance, where it typically refers to a revolving credit line (such as a credit card) that a borrower can draw on up to a limit. The historical commercial meaning is narrower and more specific: it describes a discrete transactional act — the acceptance or payment of a draft — not the establishment of an ongoing credit facility. Researchers encountering the phrase in nineteenth-century mercantile sources should read it in the narrower transactional sense, not the modern consumer-credit sense.
Why It Matters in Research
This term appears almost exclusively in older commercial law authorities and mercantilist treatises. Its practical significance in the Law Mind corpus is almost entirely historical. Researchers working in nineteenth-century commercial law, bills of exchange, or international trade will encounter it as part of the vocabulary governing correspondent banking and merchant credit relationships.
Several traps await the historical researcher:
First, the phrase is easy to misread as a generic description of "establishing a line of credit." In context, it has a more precise meaning: the unilateral extension of credit through the act of accepting or paying a draft for which no funds have been received. The distinction matters when analyzing a party's liability.
Second, both Black's and Bouvier's cite Pardessus (Cours de Droit Commercial, no. 296) as the source authority — a French commercial law treatise. This signals that the concept entered Anglo-American legal dictionaries through Continental mercantile law. Researchers working on the doctrine's development should be aware that its theoretical grounding is civilian rather than common law in origin, which can affect how courts of different traditions interpreted the underlying obligations.
Third, the term connects to broader structures in the corpus: letters of credit, acceptance, and bills of exchange. A researcher following a nineteenth-century commercial dispute involving this concept will almost certainly need to understand the mechanics of acceptance under the law of commercial paper.
Historical Dictionary Support
Black's and Bouvier's are in complete agreement on the definition, reproducing it in nearly identical language and citing the same source. This convergence is notable but not surprising — both dictionaries were drawing from the same Continental authority rather than from distinct common law case development.
What the historical dictionaries do not address is the procedural and liability framework that surrounds the act: what obligations arise once a credit is opened, what happens on default by the correspondent, or how the act of opening a credit interacts with the law of agency or negotiable instruments. These gaps are typical of the brief definitional entries common to nineteenth-century legal dictionaries, and researchers should not treat the dictionary entry as a complete statement of the law.
The Pardessus citation (Cours de Droit Commercial) is a genuine and frequently cited French commercial law authority of the early nineteenth century. Its influence on American commercial law dictionaries reflects the extent to which early American commercial law borrowed conceptual vocabulary from French and Continental sources, particularly in areas like bills of exchange and maritime commerce.
Jurisdictional Note
Because this term derives from Continental commercial law doctrine rather than English common law, its reception and application varied across jurisdictions. American courts in commercial centers like New York and Louisiana — the latter with a strong civilian tradition — were more likely to encounter and apply the concept than courts in jurisdictions with thinner commercial law traditions.