Law: Contract Act (IX of 1872)

Section: 186,187,193,194

(a) Letter of credit-Definition and types of Contract between issuing banker and paying or negotiating banker-Relationship partly that of principal and principal and partly of principal and agent-Contract between paying banker and beneficiary-Depends upon terms in which paying banker's promise to pay is couched.   Halsbury's Laws of England, Vol. 11, para. 396 at p. 213; Sassoon (M. A.) & Sons Ltd. v. International Banking Corpn. (1927) A C 711; In re: Agra and Masterman's Bank, Ex parte Asiatic Banking Corpn. (1867) 2 Ch. App. 191; Practice and Law of Banking, Fifth Edition and Law of Foreign Exchange in Pakistan Chapter XIV, Part II, para. 158, Vol. I by Dr. Qutabuddin Ahmad ref.   (b) Contract Act (IX of 1872), Ss. 186, 187, 193 & 194 Principal and agent-Principal having or deemed to have knowledge of limitation of agent employed by him-Cannot complain that agent had failed to do that which he had not within his power to do.   B applied to C a Pakistani Bank to purchase for him 106,683 Swiss Francs for the import of aluminium sheets from Switzerland and 18,500 Canadian Dollars for purchase of aluminium ingots from Canada. At the relevant time Pakistani Banks had no direct arrangement in hard currency area and, therefore, they operated through the sterling area and such an arrangement was permitted under paragraph 158 of the Pakistan Foreign Exchange Regulations. The Pakistani Bank C consequently had to arrange for the letters of credit for the beneficiaries in the aforesaid two countries, namely, Canada and Switzerland, through a bank in the sterling area and for this purpose chose D a bank in London with which it had commercial dealings. The interme diary bank D debited the account of the Pakistani Bank C with sterling equivalent to the amount required for the purchase of the Swiss Francs and Canadian Dollars. However, before the purchase of the foreign currency could be made the sterling was devalued with the result that the amount set apart by the intermediary bank D for the purchase of Swiss Francs and Canadian Dollars fell short and hence a further demand was made on C the Pakistani Bank to make good the deficiency to…