P L D 1957 (W (PLP)

INAMULLAH, J.

This is a suit for the recovery of Rs. 15,973 against the defendant Bank. This amount includes a sum of money paid as ' margin money ' to the defendant, together with interest on the same at the rate of 5 per cent. The action arises under the following circumstances: The plaintiff purchased 10,000 Ibs. of yarn of Italian origin from Messrs. Louis Dreyfus & Company Limited. The plaintiff required two Letters of Credit in London to pay the price of the contracted goods to his sellers in London. The plaintiff on the 8th May 1951 requested the defendant Bank to arrange to open two Letters of Credit, one for 7,000 lbs. yarn and the other for 3,000 lbs. yarn. The plaintiff made separate applications for two Letters of Credit to the defendant and the defendant in pursuance of those applications opened the Letters of Credit with the Chartered Bank of India, Australia and China. The terms on which the Letters of Credit were opened are embodied in Exhs. 6/1 and 6/2, the applications for the opening of Letters of Credit dated the 8th May 1951. In pursuance of the agreement between the parties, the plaintiff paid the margin money between the 11th May 1951 and 14th May 1951. He paid Rs. 10,495 against the Letter of Credit No. 46/2109 in respect of 7,000 lbs. yarn together with Rs. 210 and Re. 0-14-0 as commission and postage. The plaintiff also paid Rs. 4,495 for the Letter of Credit No. 46/2108 in respect of 3,000 lbs. yarn together with Rs. 90 and Re. 0-14-0 as the defendant's commission and postage. The plaintiff again paid Re. 0-14-0 on the 18th May 1951 at the request of the defendant. According to the terms of agreement between the parties, the defendant was required to open two Letters of Credit. The defendant was also required to take two separate sets of documents, namely the following, in respect of the two Letters of Credit "(i) Invoices. (ii) Clean " shipped on board " Bill of Lading. (iii) Insurance policy on the said consignment for the invoice value plus 10 par cent. thereon covering Marine Insurance as per Institute Cargo Clause (W. 4) and perils as per. Institute Strike Clauses both to include Wartime Extension Clauses and War Risks a3 per Institute Clause of 1st June 1949 ". The defendant, in contravention of the terms embodied in the Letters of Credit, allowed the sellers to draw only one draft in respect of the whole amount payable for 10,000 lbs. yarn against only one set of documents, viz. :- (i) Invoices, (ii) One Bill of Lading, (iii) Insurance Policy, and (iv) One Certificate of Origin. The plaintiff, on presentation of the draft some time in August 1951, protested to the defendant against the contravention of the terms of the Letters of Credit and requested the defendant to comply with the terms. The defendant Bank on the 26th September 1951 tendered two drafts and two separate sets of documents. These documents, however, on examination appeared not to be in accordance with the terms of the Letters of Credit. Accord ing to the Letters of Credit, the defendant had to submit two separate clean ' shipped on board ' Bills of Lading covering 7,000 lbs. and 3,000 lbs. yarn respectively. The defendant however, on the contrary, tendered two delivery Orders issued by the Shipping Agents at Karachi. The Delivery Orders were also not correct. The invoices tendered were in respect of 13 cases and 32 cases respectively, while the Delivery Orders related to 14 cases and 33 cases. Lastly, only one certificate of Origin in respect of all the 46 cases was tendered. The defendant Bank in spite of several opportunities failed to tender the documents in accordance with the Letters of Credit, and therefore, the plaintiff was obliged on the 26th September 1951, to repudiate his liability to take the said documents and retire the Bills of Exchange. On the above facts, the plaintiff claims the return of the margin money together with interest thereon. From the written statement filed by the defendant Bank it would appear that the Bank repudiates all its liability on the following grounds :- (1) That the defendant Bank was only a guarantor of the plaintiff with the Chartered Bank of India, Australia and China. The plaintiff was a constituent of the defendant Bank, and the defendant Bank not being a foreign Exchange Bank, introduced the plaintiff to the Chartered Bank for the opening of the Letters of Credit. The defendant signed the applications of the plaintiff to the Chartered Bank for the issue of two Letters of Credit as guarantor. (2) That the contract with Messrs Louis Dreyfus & Co., Limited was for 10,000 lbs. yarn, and therefore it was open to the sellers to utilise their credit as they liked. (3) That the position of the defendant Bank was that of an " agent of known principal ", and as such, the suit against the defendant is not maintainable. (4) That the instructions of the plaintiff were fully complied with, and the plaintiff could not refuse to accept the draft drawn by the sellers. (5) That the suit against the defendant Bank was not maintainable as the contract of the Letters of Credit was made with the Chartered Bank. On the pleadings between the parties, the following issues by consent have been drawn: (1) Did the defendant agree to open two Letters of Credit at the request of the plaintiff, one in respect of 7,000 Ibs. yarn and the other in respect of 3,000 lbs. yarn, as stated in para. 2 of the plaint ? (2) Was the agreement to open Letters of Credit made by the plaintiff with the Chartered Bank of India, Australia and China, Karachi, or with the defendant ? (3) Were the two separate Letters of Credit opened by the defendant as instructed by the plaintiff ? If not what is the consequence ? (4) Were the amounts mentioned in para. 3 of the plaint paid to the Chartered Bank of India, Australia and China, or to the defendant ? (5) Were the defendants acting as guarantors of the plaintiff in the transaction with the Chartered Bank of India, Australia and China at the request of the plaintiff? (6) Was the defendant acting as principal or merely as agent of known parties? (7) Was the defendant authorised dealer in foreign exchange at the time ? If not, what is the consequence ? (8) Was the plaintiff entitled to separate sets of docu ments from Italy for two lots of 7,000 lbs. and 3,000 lbs. Were such separate sets tendered to the plaintiff at any time ? (9) Did the plaintiff agree to accept the consignment if the documents and goods were presented and delivered according to his directions ? If so, what is the effect of this ? (10) Did the Chartered Bank of India, Australia and China do the needful to divide the documents and consignments according to the plaintiff's directions ? (11) Did the market in the goods of the consignment go down and against the plaintiff at the time the documents and goods were received ? (12) Did the plaintiff fail to accept the goods even after his directions had been carried out by the Chartered Bank (13) Does the suit lie against the defendant ? (14) Is the plaintiff entitled to any relief against the defendant ? (15) General, including costs. The learned advocates, Mr. Parmanand for the plaintiff and Mr. Inayat Ali for the defendant, agreed that some of the issues were inter-related, and therefore, they must be heard together and disposed of accordingly. My findings are as under: Issues Nos. 1, 2 and 13.-These issues are inter-related and can be conveniently disposed of together. I have no doubt after going through the various documents filed by the parties; which I could presently deal with, that the defendant Bank had agreed to open two Letters of Credit at the request of the plaintiff in respect of two different quantities of yarn, and that the plaintiff did not make any agreement with the Chartered Bank of India, Australia and China for the opening of the Letters of Credit. The suit against the defendant would consequently be maintainable. Exhs. 6/1 and Exh. E/2 are applications by the plaintiff to the defendant. The Bank of Bahawalpur Limited, Karachi for opening Letters of Credit with " your Agency/Branch in London " in favour of Messrs. Louis Dreyfus & Company Limited. These two applications have been admitted by Mr. Inayat Ali, the learned Advocate for the defendant. The applications are dated the 8th May 1951. On the face of these two applications there can be no doubt that the defendant Bank undertook to open two Letters of Credit, and that there was a privity of contract between the plaintiff and the defendant Bank. The difficulty, however, has arisen because of the plaintiff having signed two applications Exh. 9/1 and Exh. 9/2, dated the 8th May 1951, addressed to the Chartered Bank of India, Australia and China. On the basis of these applica tions, which were in respect of two different quantities of yarn to be supplied by Messrs Louis Dreyfus and Company Limited, the defendant has been encouraged to raise two fold contentions in his written statement. In the first place it has been contended that the defendant had under authority of the plaintiff, appointed the Chartered Bank of India. Australia and China as an Agent, and therefore it was the Chartered Bank which was responsible to the plaintiff, and not the defendant Bank. In the second place it was contended that the defendant Bank was only a guarantor of the plaintiff. I would consider these two contentions separately: Whether the defendant had an implied or express autaority to appoint the Chartered Bank of India, Australia and China as agent to the plaintiff or not, is a question of fact, which must be determined on the particular cir cumstances and the evidence led in the case. In the present case, on the oral and documentary evidence which I would presently deal, I have no doubt that the plaintiff never impliedly or expressly authorised the defendant Bank to appoint the Chartered Bank as his agent. On the contrary, it would appear from the evidence that the Chartered Bank was a sub-agent of the defendant. In this connection, two sections of the Contract Act (IX of 1872) are relevant. They are sections 191 and 194, which run as under: "

191. A 'Sub-agent' is a person employed by, and acting under the control of, the original agent in the business of the agency.

194. Where an agent, holding an express or implied authority to name another person to act for the principal in the business of the agency, has named another person accordingly, such person is not a sub-agent, but an agent of the principal for such part of the business of the agency as is entrusted to him". So far as the question of express authority to appoint the Chartered Bank as agent of the plaintiff is concerned, there is nothing on the record to show that the plaintiff had authorised the defendant to appoint the Chartered Batik as his agent. So far as the implied authority is concerned reliance has been placed on Exh. 9/1 and Exh. 9/2, which are applications for opening Letter of Credit to the Chartered Bank. These applications are dated the 8th of May 1951, and are not only signed by the plaintiff but also by the Manager of the Bank of Bahawalpur. These applications, at best, can be said to be joint applications for opening Letter of Credit addressed to the Chartered Bank. I fail to see how an inference of authorising the defendant-Bank to appoint the Chartered Bank to open a Letter of Credit on behalf of the plaintiff can be drawn from these two applications. On the other hand, the contention of the plaintiff appears to be well supported by documentary as well as oral evidence that he had never authorised the defendant-Bank to appoint the Chartered Bank as agent of the plaintiff, or that any privity of contract as between a principal and agent, or principal and principal existed between the plaintiff and the Chartered Bank. The defendant had, it appears, in the first place got Exhs. 6/1 and 6/2, which also are dated the 8th May 1951, signed by the plaintiff, and then asked the plaintiff to sign the other two applications, Exhs. 9/1 and 9/2, addressed to the Chartered Bank. The plaintiff has stated that, on the date that he signed the applications Exhs. 9/1 and 9/2, he did not know that he had applied to the Chartered Bank for opening Letters of Credit. It is quite believeable that the plaintiff having full faith in the defendant-Bank signed the various applications that he was asked to sign for opening the Letters of Credit. The plaintiff's only interest was that he should be able to have the Letters of Credit opened through some Bank having its branch, in London. He had asked the defendant- Bank to do this for him, and that was the end of the matter. The question whether any privity of contract, such as of principal to agent or principal to principal was established between the plaintiff and the Chartered Bank, is one of fact. In this connection, so far as the oral testimony is concerned the plaintiff has examined himself. He has completely denied the existence of such relationship between himself and the Chartered Bank of India, Australia and China. On behalf of the defendant-Bank, one Mr. L. Pinto, who is an employee of the Chartered Bank, has been examined. His examination- in-chief, to my mind, is very important, Mr, Pinto has stated :-- "We opened Letters of Credit on behalf of Bank of Bahawalpur on the application of Qureshi & Company. We were at that time acting as Agents to Bank of Bahawal pur, as at that time the Bahawalpur Batik was not a dealer in Foreign Exchange. The Bank of Bahawalpur was the applicant for the Letters of Credit so far as our Bank was concerned. Before we open a Letter of Credit for any person we have to be satisfied about the applicant's reputa tion and standing in the market. This Qureshi & Company was not known to the Bank. We opened the Letter of Credit on behalf of the Bank of Bahawalpur because we were their Agents". Mr. Pinto further stated in his examination-in-chief :- "Our dealings were direct with the Bank of Bahawalpur, and we had no contact with Qureshi & Company". From the evidence of Mr. Pinto it is clear that there was no privity of contract, as suggested by the learned Advocate for the defendant, between the plaintiff: and the Chartered Bank. On the other hand the Chartered Bank had their dealings only with the Bank of Bahawalpur, the defendant. The other witness whose evidence I would consider is Muhammad Kalim Chishti, Accountant of the Bank of Bahawalpur. He has stated in cross-examination: "The plaintiff did not meet or negotiate with any person of the Chartered Bank. The plaintiff requested us to open the Letter of Credit and authorised us to open through any Bank who could deal in foreign exchange". From this statement of Mr. Chishti two things are clear : the plaintiff had no negotiations or contact with the Chartered Bank, and the plaintiff had requested the defendant to open the Letters of Credit. So far as the question of the plaintiff authorising the defendant to open the Letters of Credit through any other Bank is concerned, there is only the word of the witness. The documentary evidence would show that the plaintiff was, for all intents and purposes, dealing only with the defendant in the matter of the opening of the Letters of Credit and not with the Chartered Bank. I shall now consider the documentary evidence: The two most important documents which establish the privity of contract between the plaintiff and the defendant so far as the opening of Letters of Credit is concerned, are Exh. 5/1 and Exh. 5/2, which are notes dated the 11th of May 1951, addressed by the Bank of Bahawalpur to the plaintiff' informing him that the defendant-Bank had debited his account to the extent of Rs. 4,495 in respect of one Letter of Credit, and Rs. 10,495 in respect of the other Letter of Credit. The relevant portion of the two notes, except the amount is as under :- "We beg to advise having debited your account with the Bank with Rs . . . . . . . . per particulars below : O/A Margin held on L/C for

." The plaintiff has now filed the suit for the recovery of this margin money, together with interest thereon. Exhs. 5/6 and 5/7 are letters by the defendant to the plaintiff informing him that the defendant-Bank had debited the plaintiff's account for commission and postage in respect of the two L. C's. Another very important document is Exh. 5/4, dated the 14th May 1951, which is a certificate addressed by the Bank of Bahawalpur to the plaintiff. The relevant portion runs as under :- "We confirm having sold to you currency and amount 1,933. (Pounds one thousand nine hundred and thirty three stg.)". The only inference that can be drawn from the letters Exhs. 5/6 and 5/7, referred to above, is that the defendant -Bank was dealing directly with the plaintiff, and that the plaintiff had no connection with the Chartered Bank. Exh. 7/65 is a letter addressed by the Chartered Bank of India, Australia and China, dated the 12th May 1951, to the Bank of Bahawalpur. This to my mind is a very important letter. It has in fact been filed by the defendant-Bank itself. The relevant portion of this letter runs as under :- "Messrs. Bank of Bahawalpur Ltd , Karachi. Dear Sirs, Our L/C No. 46/2108 p X1,933 fvg. Louis Dreyfus & Co., Ltd. Expiring 15-8-51. Qureshi & Co. As requested we have advised by Air Mail the terms of the above Letters of Credit to our London Office. In this connection we give below details of our charges and the amount of margin held". This letter, as already mentioned, is dated the 12th May 1951, and was written only 10 days after opening the Letters of Credit, to the Bank of Bahawalpur. This would show that the Bank of Bahawalpur was the principal so far as the Chartered Bank of India, Australia and China was concerned, and that A the Chartered Bank was dealing with the Bank of Bahawailpur, and not the plaintiff. The Chartered Bank, it would appear from this Letter, Exh. 7/65, was the sub-agent of the defendant-Bank, and not the agent of the plaintiff. The Chartered Bank had never any dealings with the plaintiff and had never charged anything from him for doing anything in respect of the Letters of Credit in question. The Chartered Bank was dealing only with the defendant-Bank and was charging it for the services rendered as regards the opening of the Letters of Credit. The letter Exh. 7/32 addressed by the defendant-Bank to the Chartered Bank on the 20th of August 1952, would also show that it was the defendant-Bank who had opened the Letters of Credit. It is immaterial whether it did so on its own behalf or for Qureshi & Co. so long as it was the defendant-Bank that had done it. The relevant portion of the letter reads as under :- "With reference to your letter of the 9th instant we have to inform you that the relative goods were imported under L/C No. 46/2108 & 2109 opened by us on account of M/s. Qureshi & Co, and as such the required particulars can be had from the quadruplicate copy of the I M P which you have submitted to the State Bank of Pakistan against your B. R. 6858-PDBC 46/25 of 26th October 1951". I have marked the relevant words, which speak for themselves so far as the relationship between the defendant-Bank and Chartered Bank is concerned. The plaintiff requested the Chartered Bank to supply him copies of the Letters of Credit opened by them in his favour. Exh. 5/47, dated the 27th August 1952, is the reply of the Chartered Bank to the plaintiff, the relevant portion of which runs as under :- "Dear Sirs. Letters of Credit No. 46/2108 & 46/2109 With reference to your letter of the 26th instant as the above Credits were opened by us at the request of the Bank of Bahawalpur Limited, Karachi, we regret we are unable to comply with your request. Kindly approach them in this matter. It would appear from the above that the Chartered Bank never treated the plaintiff as their principal and repudiated all contractual relationship. The Chartered Bank recognised the Bank of Bahawalpur only in respect of the two Letters of Credit in question. The last documentary piece of evidence, which I would like to consider as regards the position between the plaintiff and the Bank of Bahawalpur in relation to the Chartered Bank of India, Australia and China, is a letter of Mr. Inayat Ali the learned advocate for the defendant who has appeared before me addressed to the plaintiff's advocate dated the 30th January 1952. This to my mind, clearly indicates the position of the defendant towards the plaintiff. It is said in the letter: "My clients have further to say that they opened the Letters of Credit for your client through the Chartered Bank of I. A. & C, Karachi, and this is known to your client from the very start." No suggestion is made in this letter that the Bank of Bahawal pur had opened the Letters of Credit through the Chartered Bank on the direction of the plaintiff. It is an after-thought to say now that the plaintiff had directed the defendant-Bank to open the Letters of Credit through the Chartered Bank on his behalf. On a consideration of the documentary as well as oral evidence, already dealt with above, I have no doubt that there never was any intention on the part of the plaintiff or on the part of the Chartered Bank of India, Australia and China to B bring about any contractual relationship of principal to agent or principal to principal. The Chartered Bank had no negotiations to enter into any contract with the plaintiff, and had never dealt with him as a principal. The Chartered Bank recognised only the Bank of Bahawalpur and realised the commission from the Batik of Bahawalpur in respect of the two Letters of Credit. On the other hand, the Bank of Bahawalpur was dealing directly with the plaintiff in respect of the two Letters of Credit, and had realised the margin money and the commission for opening the Letters of Credit. It appears that Exh. 9/1 and Exh. 9/2, the two applications for opening the Letters of Credit were signed by the plaintiff only to enable the Chartered Batik to get permission for foreign exchange from the State Bank of Pakistan. I would hold that the defendant-Bank had agreed to open the two Letters of Credit in respect of 7,000 Ibs., yarn and 3,000 lbs. yarn, and that the agreement for opening the Letters of Credit C was with the defendant-Bank, and not with the Chartered Bank of India, Australia and China, and therefore the suit is maintainable against the defendant-Bank. Issue No. 3.-It would appear from the above finding that the defendant-Bank had opened the two Letters of Credit for the plaintiff as his agent. Issue No. 4.-This issue has not been pressed by the learned advocate for the defendant. It is decided against the defendant. In fact, Exhs. 51/1 and 5/2 would show that the defendant-Bank has realised as Margin money Rs. 4,495 and Rs. 10,495 in respect of the two Letters of Credit that it had opened for the plaintiff. Exhs. 5/6 and 5/7 would show that the defendant-Bank has realised a certain amount as commis sion from the plaintiff. Issue No. 5.-So far as this issue is concerned, reliance by Mr. inayat Ali for the defendant-Bank was placed on Exhs. 9/1 and 9/2 which are applications to the Chartered Bank for opening the Letters of Credit. Admittedly, the defendant-Bank had not signed on these applications as guarantor. Reliance was then placed by Mr. Inayat Ali on the statement of Mr. Pinto,- an Accountant of the Chartered Bank. Mr. Pinto stated that whenever an application is countersigned by a Bank, they consider that the Bank is a Guarantor. This statement of Mr. Pinto cannot be accepted in view of what he stated in his examination-in-Chief. Mr. Pinto had stated in his examination-in-chief: "We opened the Letter of Credit on behalf of the Bank of Bahawalpur on the application of Qureshi & Co. We were at that time acting as agents to the Bank of Bahawal pur." I, therefore, hold that the defendant did not act as guarantor of the plaintiff at the request of the plaintiff. Issue No. 6.-In view of my finding that the defendant Bank was an agent of the plaintiff, and that the defendant-Bank had employed the Chartered Bank on their own, no further consideration of this issue is necessary. Issue No, 7.-So far as this issue is concerned, it was contended by Mr. Inayat Ali that the defendant-Bank admittedly was not dealing in foreign exchange, and the agreement to open a Letter of Credit in terms of foreign exchange was void in law. Reading sections 4 and 21 of the Foreign Exchange Regulation Act, 1947 together it is clear that it is not forbidden under the Act to enter into an agree ment in respect of supplying foreign exchange ; what is forbidden is that one cannot apply for foreign exchange without the permission of the State Batik of Pakistan. An agreement to supply foreign exchange is permitted, but before supply the permission has to be obtained. I hold accordingly. Issues No. 8, 9, 10 and 12.--Mr. Inayat Ali, the learned advocate for the defendant-Bank raised twofold contentions as regards the question if the plaintiff was entitled to two separate sets of documents or not. He contended in the first of place that, as there was only contract for the supply of 10,000 lbs. yarn the plaintiff was not entitled to two separate sets of documents. In the second place he contended that the same had been complied with. There is no force in either of these contentions. In the first place the defendant-Bank had to comply with the terms on which it undertook to open the Letter of Credit. The Batik had nothing to do with any dispute between the buyer and the seller. So far as the second contention is concerned, I am definitely of the view that the terms of the Letter of Credit had not been complied with. Admittedly, instead of two sets of "Clean 'shipped-on-board' Bill of Lading", the defendant-Bank gave Delivery Orders issued by the Shipping Agents at Karachi. Delivery Orders by the Shipping Agents at Karachi cannot be the same thing as the Bills of Lading. A Bill of Lading would also contain the Insurance Risk, etc., but a Delivery Order could not contain these terms. Mr. Permanand has relied on certain authorities, which I shall presently deal with, in support of his contention that the Bank is bound strictly to comply with the terms on which the Letter of Credit had been opened. Reliance was placed on several passages in the book known as "The Law relating to Commercial Letters of Credit" by A. G. Davis, LL. D., 2nd Edn. The first passage appears at page 17 of the book, and runs as follows "What conditions shall necessarily appear in the letter of credit is a matter of arrangement between the bankers and their customer, and the bankers must take care that, in this respect, their customer's instructions are rigidly observed. Otherwise, they may find that the customer is justified in refusing to meet his obligations under the letter of request". The other passages relied upon by Mr. Parmanand are at page 71 of the said book, and run as follows: " The banker's promise being absolute, he is not concerned with disputes between the buyer and the seller, as the contract between them does not control the Letter of Credit, but must accommodate itself to the Letter of Credit." "Unless express conditions are contained in the Letter of Credit, the performance of the sales contract is not a condition precedent of the credit or of the buyer's agree ment to reimburse. The Letter of Credit is a wholly independent contract". The observations made in the case of Dinald H. Scott & Co. Limited v. Barclay's Bank Limited ((1923) 129 L T R 108-113), would also support the contention of Mr. Parmanand. Keeping in view the principle deducible from the above I have no doubt that the defendant had not fulfilled the conditions on which the Letter of Credit was opened. The plaintiff was entitled to have two separate sets of documents as mentioned in the Letter of Credit. Any variation in those documents would, in my opinion, be a breach of the contract on the part of the defendant. The plaintiff may well have thought of negotiating one Bill of Lading along with the other documents in the market, and after receiving money from the same may have thought of paying for the other in the market. There is, to my mind, great difference between "full set of clean Bill of Lading consigned to order and blank endorsed evidencing 'shipped on board' " as mentioned in the Letter of Credit, which is the basis of contract between the parties, and a mere "delivery order issued by the shipping agents at Karachi". The former is well-recognised in the commercial world and can be negotiated, but not the latter. I would, for the above reasons, hold that the defendant has committed the breach of the contract. Issue-No. 11 -This issue was not pressed by Mr. Parma nand, and it is decided accordingly. I may, however, mention that, whether the market had gone down or not. would be immaterial so far as the question of the breach of the contract is concerned. If the defendant has failed to fulfil the terms of the Letter of Credit, it would be liable irrespective of the fact whether the market had gone down or not. Issue No. 14.-The plaintiff is entitled to the recovery of the amount paid by him to the defendant-Bank together with interest at the rate of six per cent. per annum. ORDER.--I decree the plaintiff's suit for the recovery of Rs. 15,973 together with interest at the rate of six per cent. per annum against the defendant-Bank. Costs of the suit to be borne by the parties as admittedly defendant is an innocent party. The mistake of defendant was to have made the payment to the Chartered Bank. A. H. Suit decreed.