Full Judgment Text
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PETITIONER:
MAHABIR COMMERCIAL CO. LTD
Vs.
RESPONDENT:
C.I.T. WEST BENGAL, CALCUTTA
DATE OF JUDGMENT08/09/1972
BENCH:
REDDY, P. JAGANMOHAN
BENCH:
REDDY, P. JAGANMOHAN
KHANNA, HANS RAJ
CITATION:
1973 AIR 430 1973 SCR (2) 134
1972 SCC (2) 704
ACT:
Income tax Act (11 of 1922) Place, where property passes.
Sale of Goods Act (3 of 1930), s. 23(2)-Effect of
appropriation on passing of property.
Letter of Credit and C.I.F. contract-Nature of,
explained.
HEADNOTE:
In all transactions of sale of goods the time and place
of appropriation
are important elements for determining when the property in
the goods passes. In the case of a sale of unascertained
goods in a deliverable state, under s.23(2) of the Sale of
Goods Act, 1930, if, in pursuance of the contract the seller
delivers the goods to the buyer or to a carrier or other
bailer, whether named by the buyer or not, for the purpose
of transmission to the buyer, and the seller does not
reserve the right of disposal, he is deemed to have
unconditionally appropriated the goods to the contract and
the buyer’s assent to the passing of the property is
implied. But appropriation of the goods to the contract by
itself would not be such as to pass the property in the
goods if it appears on can be inferred that there was no
actual intention to pass the property. The intention of the
parties therefore determines the situs of the passing of
property to the buyer in pursuance of the contract. [142D-H;
155D]
in the case of transactions of sale of goods between the
buyer and seller living in two different countries the
seller sends the goods through a carrier and the contract
may envisage the payment being made either at the place
where the seller resides or where the buyer resides. In
such a transaction the banks and the bankers, commercial
credit system, which assures payment to the seller on the
one hand and delivery of the goods to the buyer on the other
play an important part. One of the means of effecting
commercial credit is by letters of eredit. The buyer
requets his bank to faciltate credit in the country of the
seler, where the bank or its constituent,for some
consideration, assumes liability for payment of price
againstspecified documents. The buyer agrees also to
indemnity the bankersin respect of such advances and of
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any claim arising out of the credit. On receipt of the
bankers’ application, the bank issues the credit.These
letters of credit are given for the purpose of being shown
to third parties who may act thereon. Such letters are
either revocable or rrevocable and where they are the
latter, they may be confirmed or unconfirmed. If confirmed,
it means that words of confirmation of another banker are
added to it by which that banker also commits himself
irrevocably. The letter of credit notifies the seller that
the issuing banker or his correspondent will accept or
honour drafts drawn for the prim of the goods, provided that
the documents of title and other documents specified in the
letter of credit are simultaneously presented to the banker.
On receipt of the information the seller ships the goods,
insures them and obtains a bill of lading. He then draws a
draft for the price of the goods and presents it Tor
acceptance, payment and negotiation together with the other
documents specified in the letter of credit- such as the
bill of lading, policy, invoice etc. The documents are sent
by the Banker to the
13 5
buyer’s bank and on the bill of exchange being accepted by
him by payment, the bill of lading and the invoice are
delivered to the buyer to enable him to obtain delivery of
the goods. [143A-D; 144G-H; 145A-E]
In a C.I.F. contract, that is, where the contract is for the
sale of goods at a price to cover cost, insurance and
freight and ex-ship, the seller has first to ship at the
port of shipment goods of the description contained in the
contract. He must then procure the shipping documents as
contemplated by the contract upon the terms current covering
the whole transit of the goods. He must arrange for
insurance, must make out an invoice which is a written
account of the particulars of goods delivered and their
price and charges etc. This invoice is made out debiting
the buyer with the agreed price and giving him credit for
the amount of freight which he will pay the shipowners on
actual delivery. The shipper should tender the shipping
documents to enable the buyer to deal with the goods in them
usual way of business. He is also required to tender such
other document& as are specified in the contract and if the
contract is sient, it is. sufficient if the seller tenders
the bill of lading, insurance policy and invoice. Under
such a contract prima facie, the property in the goods,
passes once the documents are tendered by the seller to the
buyer or his agent as required under the contract. But when
the seller retains control over the goods by either
obtaining a bill of lading in his own name or to his order,
the property in the goods does not pass to the buyer until
he endorses the bill to the buyer and delivers the documents
to him. if however the seller’s dealing with the bill of
lading is only to secure the contract price, not with the
intention of withdrawing the good from the contract, and he
does nothing inconsistent with an intention to pass the pro-
perty, the property may pass either forthwith subject to the
seller’s lien or conditional on performance by the buyer of
his part of the contract. Even though the property. in the
goods may pass to the buyer when the documents are handed
over, the buyer may yet retain the right to examine, and
repudiate the goods. But this right generally, which a
buyer has in a C.I.F. Contract, does not by itself indicate
that the property in the goods has not passed to him. The
ascertainment of the obligations under the contract will
determine to what extent the transfer of property is subject
to a condition, or, if the property passes condtionally
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whether the ownership left in the seller is the reversionary
interest in the property in the event of the conditions
subsequent operating to restore it to him. In any case
where the performance of some condition is imposed upon the
buyer but is not made a condition of the transfer of the
property, the’ property once passed s not re-vested in the
seller by the buyer’s subsequent default. [149C-D, E-H;
150A-C; 152D-G]
In the present case, the assessee-company dealt in sale and
purchase of jute in Pakistan and India, and certain sales
were made under a contract executed in Calcutta. The terms
of the contract included delivery free to the buyer’s mill-
siding or at the ghat in India, provisions forweighment and
assay of goods for short weight and quality claimed at the
destination in Calcutta, a-provision that before the goods
were actually shipted the buyers should open an irrevocable
letter of credit with a bank in Calcutta and that the seller
should advise the buyers immediately after the loading
commenced. The buyers opened letters of credit with banks
in Calcutta which had branches, in Pakitan and the banks in
Pakistan informed the assessee that they were prepared to
negotiate drafts as per the terms of the contract. The
assessee thereupon placed the contracted gools on board a
steamer in Pakistan and advised the buyers about the quality
a-id weight of goods. The assessee the" obtained bills of
lading in the name of the buvers, Prepared invoices on the
basis of the bills of lading, drew bills of exchange on the
buyers’ bank where the letters of
136
credit were opened and negotiated the bills of exchange
together with the bill of lading and the invoices and
obtained payment from the bank less freight and insurance
which were payable by the buyers on account of the sellers.
The bank forwarded the documents to its office in Calcutta
and the Calcutta office sent them to the purchaser. [138 E-
H; 139 A-DI
The Income-tax Officer, and the Appellate Assistant
Commissioner held that the property in the goods passed to
the buyer in India and hence the assessee was liable to tax
on the profits derived from the sales. The Tribunal held in
favour of the assessee on the ground that the sales were
effected in Pakistan.
The High Court,on reference held against the assessee on the
basis that under cis. 7 and9 of the contract, there was
no unconditional appropriation of the goodsby the buyer as
soon as they were placed on board the steamer on
C.I.F.terms, and that the appropriation took place in India
where the title to the goods passed to the buyers. Clauses
7 and 9 dealt with the non-acceptance of documents and the
buyer’s failure to pay against documents and/or in cases
where buyers make any claim in respect of quality or excess
moisture, in which case, an option is given to the buyer
either of accepting the goods with allowances or of
cancelling the contract in respect of a particular lot or
lots or of rejecting the particular lot or lots and claiming
fresh tender.
Allowing the appeal to this Court,
HELD : A consideration of the terms of the contract and the
letter of credit makes it evident that once the bills of
lading and documents contemplated under the contract were
handed over to the bank to be delivered to the buyer and the
seller received the value thereof as shown in the invoice
and in terms of the contract, he no longer retained any pro-
perty in the goods. [155G-H]
(a)The sale was of unascertained goods in a deliverable
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state the letter of credit is a confirmed irrevocable letter
of credit and the contract is a C.I.F. contract. [149C-D]
(b)The bill of exchange which the assessee had to draw in
accordance with the invoice was for the price of the goods
less the premium and freight which the buyer was paying in
India on account of the seller. On the presentation of the
shipping documents, the bank in Pakistan, under the
irrevocable letter of credit, was to make payment of the
invoice value to the seller. Once the seller has performed
his part and presented the documents for being sent to the
buyer ’for acceptance and received payment in Pakistan he
has no longer any control over the goods and the property in
the goods passes to the buyer. The bill of lading when it
is handed over to the buyer by the bank, on the buyer
accepting the bill of exchange and paying the amount
specified in the invoice, confers on him the right to take
delivery of the goods at the place of disembarkation. [153B-
D]
(c)There is nothing in cls. 7 and 9 of the contract which
Justified the conclusion that the property passed in India.
Under cl.7, where there is a total failure on the part of
the buyer to perform the contract, the seller has a right to
cancel the contract or treat it as cancelled and resort to
the remedies be-eunder. But that is a condition where the
buyer fails or refuses to perform the contract altogether by
not accepting the documents or in not paying against the
documents. Even under cl. 9, the condition as to the
quality and of excessive moisture is not a condition of the
transfer of property. The right of the buyer thereunder is
not a right to cancel the
137
contract in toto but only to adjust claims in respect of the
quality or moisture for which a remedy has been provided for
thereunder. There is nothing in the agreement which
envisages the property in the goods being in the seller even
after the value of the invoice had been paid by the bank
under the letter of credit in Pakistan. Where a purchase is
financed by an irrevocable credit the transaction would not
be affected by rejection of the goods after acceptance of
the documents if the latter were such as were called for by
the credit or where under that credit, the payment of the
invoice value is payable on presentation of the documents.
[152G-H, 154H; [55A-D]
(d) It is well-settled that an appropriation takes place
where the goods are situated at the time of appropriation
and not where the contract of sale is made. There may be an
authority given by one party to the other to appropriate and
that appropriation is presumed to be finally made where by
the terms of the contract the party so authorised has
determined his election by doing such act or thing which
cannot be done until the goods are appropriated. Generally,
Pi seller appropriates the goods by delivery of the bill of
lading-the document giving control over the goods-in
exchange of payment of price, by which, be shows that be
does not intend to retain the right of disposal of the
property in the goods., [155D-G]
(e) The provision in the contract that all drafts drawn
under the letter of credit are to be treated as advance
bills through their Pakistan office does not in any way
affect the nature of the transaction inasmuch as they are
intended as advance notice to the buyer who may want to make
arrangements regarding the taking of delivery or dealing
with the goods. In fact, under the contract, it is provided
that immediate notice should be given to the buyer as soon
as the seller begins to load the goods. [155H]
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(f) In any case, under the letter of credit the bank
informed the seller that it guarantees to protect the
drawers, endorses and bona fide holders from any
consequences which may arise in the event of the non-accep-
tance or non-payment of the drafts drawn in accordance with
the terms of the credit. This clause, in the letter of
credit, assures the seller of the performance of the
contract and does not affect the property in the goods
passing to the buyer in Pakistan. [156 B-C]
Commissioner of Income-tax v. Mysore Chromite Ltd. 27 I.T.R.
128, Guaranty Trust Company of New York v. Hannay & Co.,
[1918] 2 K.B. 623, Biddell Brothers v. E. Clemens Hurst
Company, [1911] 1 K.B. 934, E. Clemens Horst Company v.
Biddeli Brothers, [1912] A.C. 18 and Kwei Tek Chao v.
British Traders and Shippers Ltd. [1954] 2 K.B. 459,
referred to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 450 of 1969.
Appeal by special leave from the judgment and order, dated
November 15, 1967 of the Calcutta High Court in Income-tax
Reference No. 19 of 1958.
A. K. Sen, Leila Seth, O. P. Khaitan and S. P. Maheshwari,
for the appellant.
B. Sen, A. N. Kripal and S. P. Nayar, for the respondent.
The Judgment of the Court was delivered by
JAGANMOHAN REDDY, J. The following question was referred to
the High Court of Calcutta by the Income-tax Appellate Tri-
138
bunal (hereinafter called the ’Tribunal’) under s. 66(1) of
the Income-tax Act, 1922 :
"Whether on the facts and in the circumstances
of the case and on a proper construction of
the terms of the relevant contracts the sales
covered by the bills of lading in the name of
the buyers in five cases took place outside
India and therefore the profits derived from
the said sales arose outside India
The High Court answered the question in the negative and
against the assessee against which this appeal is by special
leave.
The aforesaid question related to the assessment year 1952-
53 of which the accounting year is 1951-52 ending 31st
December 1951. The assessee company deals in sale and
purchase of jute in Pakistan as well as in India. During
the year of account relevant for the assessment year it sold
jute of the value of Rs. 23,93,767/- out of which Rs.
10,06,772 were sales in foreign countries and Rs. 2,44,015/-
in India. The balance of sales worth Rs. 11,42,979/-
according to the assessee were effected in Pakistan. The
Income-tax Officer over-ruled the contention of the assessee
and found that the quandary sales in India amounted to Rs.
13,86,995 which included Rs. 11,42,979 alleged to have been
sold in Pakistan and assessed the appellant accordingly. It
appears from the statement of the case that the sales were
made under a contract executed in Calcutta between the buyer
and the seller. The terms of the contract included delivery
free to the buyer’s mill-siding or at the what in India. It
further contained provisions for weighment and assay of
goods for their short weight and quality claimed at the
destination in Calcutta. It was also a term of the contract
that before the goods were actually shipped the buyers were
required to open an irrevocable letter of credit with a bank
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in Calcutta and accordingly the buyers opened letters of
credit with the Imperial Bank of India, the Chartered Bank
of Australia and China and Hind Bank Ltd., Calcutta. All
these banks had their branches in Pakistan, at Chitterlings
and at Narayangunj. The fact that letters of credit had
been opened was communicated by the respective banks to
their branches in Pakistan and the banks in Pakistan in
their turn informed the assessee that they were prepared to
negotiate the draft aperture of the contract. On receiving
information from the bank in Pakistan that they were
prepared to negotiate the draft drawn as per the terms of
the contract, the assessee placed the contracted goods on
board the steamer at Ashurgani in Pakistan. Immediately the
loadine on the shin had commenced the seller had further to
advice the buvers about the ouality ascertainment and the
weight of goods in maunds. The assessee had to then obtain
a
139
complete set of shipping documents and present them to the
bank for payment of invoices’ value in terms of the contract
in the equivalent Pakistan currency at the exchange rate
prevailing on the presentation of the documents at the bank
less freight and insurance which were payable in India by
the buyers on account of the sellers. The manner in which
this was done was that as soon as the goods were placed on
board the steamer the seller obtained the bills of lading in
the name of the buyers in five cases and in two cases in the
name of Mahabir Trading Co. Ltd., an agent of the assessee
company. The assessee then prepared invoices for contracted
bills on the basis of the bills of lading and drew bills of
exchange on the buyers’ bank where the letters of credit had
been opened. The bill of exchange together with the bill of
lading and the invoices were negotiated with the bank and
the bank forwarded the documents to their offices in
Calcutta which in their turn sent the documents to the
purchaser.
According to the Income-tax officer these transactions dis-
closed that the property in the good,, had passed to the
assessee in India and on this basis he assessed the
appellant.
In the appeal before the Appellate Assistant Commissioner,
the assessee further contended that the Income-tax Officer
in Pakistan held that a sum of Rs. 18,06,772 represented the
sales effected in Pakistan because of the fact that the
delivery of the goods had been made to the common carrier
and the consideration money was also paid in Pakistan
through the State Bank of Pakistan. In this view, the
Income-tax Officer assessed the appelllant in Pakistan on
the ground that he had taken constructive delivery in
Pakistan where according to him the sales were made. This
finding the assessee submitted was correct. The Appellate
Assistant Commissioner however rejected the contention and
dismissed the appeal. When the matter was agitated in
appeal before the Tribunal the, assessee filed an affidavit
disputing the findings. The Tribunal, having regard to the
facts stated therein remanded the matter to the Income-tax
Officer and directed him to enquire and send a report on the
facts disputed by the assessee. After the remand report was
received, the Tribunal having considered the terms of the
contract, the course of the dealings between , the parties
and applying the principles laid down in Commissioner of
Income-tax v. Mysore Chromite Ltd.(1) held that in respect
of the five cases in which the assessee drew the bills in
favour of the buyers the sales were effected in Pakistan
whereas in the two cases in which the bills were drawn in
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favour of the assessee’s agent at Calcutta, the sales were
effected in India.
(1) 27 I.T.R. 128.
140
On hearing the reference the High Court directed the Tribu-
nal to submit a supplementary statement of case because in
its view, in order to deal with a rather complicated
question raised in that reference in respect of which there
was a great divergence of authority, it was absolutely
essential for giving an effective answer to it to have
before it the exact form of acceptance by Pakistan banks re
arding negotiations of the draft drawn as per the terms of
the contract. It therefore required the Tribunal to set out
"the exact wording and content of the documents", namely,
the particular contracts that have to be construed, the
exact form of acceptance by Pakistan banks regarding
negotiation of the draft drawn as per the terms of the
contract and to annex therewith true copies of the
contracts, the bills of exchange, bills of lading and the
letters of credit. It was also asked to indicate on what
bases it came to the conclusion that the Pakistan banks were
prepared to negotiate the drafts drawn as per the terms of
the contract. The High Court considered and rejected the
two contentions urged on behalf of the Revenue that (1)
until assay and weighment of the goods at the destination
the buyers would not unconditionally appropriate the goods
and (2) that the bank was not the banker but merely an agent
of Thomas Duff & Co. (India) Ltd. and as such the
presentation of the documents were made to the principals in
Calcutta. The first of these which were said to have been
supported by the case of this Court in Commissioner of
Income-tax v.’ Mysore Chromite Ltd. (supra) was rejected on
the ground that this Court did not desire to express any
opinion on the "extreme contention" and the second on the
ground that there is little to establish an agency and even
if there is any such agency that it is limited to the extent
that the banker stands as agent to the person whose banker
it is. After having rejected these contentions it observed
"but all these notwithstanding" cls. (1) and (9) in the
contract go to show that there was no unconditional
appropriation of the goods by the buyer as soon as they were
placed on board the steamer on c.i.f. terms which
appropriation took place in India where the title to the
goods passed to the buyers. It may be mentioned that cls.
(7) and (9) deal with the non-acceptance of documents in the
event of the buyer’s failure to accept or pay against
documents and/or in cases where buyers make any claim in
respect of quality or excess moisture in which case an
option was given to the buyer either of accepting the goods
with allowances or of canceling the contract in respect of
particular lot or lots or of rejecting the particular lot or
lots and claiming fresh tender. What is to be considered in
this case therefore is, under the terms of the contract and
the dealings between the parties, where did the property in
the goods pass ? Is it in Pakistan where the seller pursuant
to an irrevocable letter of credit placed the goods on board
the ship, drew the bills of exchange and invoices and along
with the
141
bill of lading etc. negotiated them through a constituent of
the buyer’s ban& in Pakistan or as held by the High Court
having regard to cls. (7) and (9) of the contract no
unconditional appropriation of the goods was effected in
India even though the goods were placed on board the steamer
on c.i.f. terms.
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Before we examine the terms of the contract and the dealings
between the parties to ascertain where exactly the
unconditional appropriation of the goods under the contract
was effected, it is, we think appropriate to set out the
principles which are applicable for the determination of
that question. It would also be useful to an understanding
of the terms of the contract and the intention of the
parties, if we were to ascertain what exactly is the
significance of an irrevocable letter of credit. In this
case we are dealing with the sale of unascertained goods in
a deliverable state in respect of which where the property
in the goods passes is the question to be determined.
Sections 23 and 39 of the Sale of Goods Act which are in
identical terms with rule 5 of s. 18 and s. 32 of the
English Sale of Goods Act lay down the principles for
ascertaining where the property in the goods passes. They
are in these terms :-
"23.(1) Where there is a contract for the sale
of unascertained or further goods by
description and goods of that description and
in a deliverable state are unconditionally
appropriated to the contract, either by the
seller with the assent of the buyer or by the
buyer with the assent of the seller, the
property in the goods thereupon passes to the
buyer. Such assent may be express or implied,
and may be given either before or after the
appropriation is made.
(2) Where, in pursuance of the contract, the
seller delivers the goods to the buyer or to a
carrier or other bailer (whether named by the
buyer or not) for the purpose of transmission
to the buyer, and does not reserve the right
of disposal, he is deemed to have un-
conditionally appropriated the goods to the
contract.
39.(1) Where, in pursuance of a contract of
sale, the seller is authorised or required to
send the goods to the buyer, delivery of the
goods to a carrier, whether named by the buyer
or not, for the purpose of transmission to the
buyer, or delivery of the goods to a
wharfinger for safe custody, is prima facie
deemed to be delivery of the goods to the
buyer.
(2) Unless otherwise authorised by the
buyer, the seller shall make such contract
with the carrier or wharfinger on behalf of
the buyer as may be reasonable
142
having regard to the nature of the goods and
the other circumstances of the case. If the
seller omits so to do, and the goods are lost
or damaged in course of transit or while in
the custody of the wharfinger, the buyer may
decline to treat the delivery to the carrier
or wharfinger as a delivery to himself, or may
hold the seller responsible in damages.
(3) Unless otherwise agreed, where goods are
sent by the seller to the buyer by a route
involving sea transit, in circumstances in
which it is usual to insure, the seller shall
give such notice to the buyer as may enable
him to insure them during their sea transit,
and if the seller fails so to do, the goods
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shall be deemed to be at his risk during such
sea transit."
It is apparent that for the purposes of sub-s. (1) of s. 23
there should be an unconditional appropriation with the
assent of the parties as indicated before the property in
the goods passes to the buyer. This sub-section is quite
independent of sub-s. (2) and does not contemplate an
unconditional appropriation in pursuance of the contract.
Sub-s. (2) on the other hand requires the delivery to a
carrier in pursuance of a contract which operates or is
deemed to operate as an unconditional appropriation. Where
in pursuance of the contract the seller delivers the goods
to the buyer or to a carrier or other bailee whether named
by the buyer or not for the purposes of transmission to the
buyer and does not reserve the right of disposal he is
deemed to have unconditionally appropriated the goods to the
contract. The buyer’s assent to the passing of the property
in the said circumstances is implied and that when the
seller despatches the goods and delivers them to the common
carrier for purposes of transit to the buyer, the common
carrier not only receives the goods as agent of the buyer
but also assents to the appropriation made by the seller.
Where however the intention is clearly indicated and the
carrier assents it is immaterial by what document the
consignment is effected. In cases where the seller bears
the freight for the transmission of the goods free of cost
to the buyer, the property in the goods passes to the buyer
as soon as they are sent to the carrier, though there may be
a provision that they are to be paid for by the buyer on
behalf of the seller after the arrival of the goods. But
where however the seller exercises a right of disposal or
where he agrees to deliver the goods at their destination,
the carrier is the seller’s agent and the delivery is not a
final appropriation. The intention of the parties is
therefore one of the important elements in determining the
situs where the property passes to the buyer in pursuance of
the contract. The decided cases are of little help and are
only
143
illustrative of the principles which are applicable for
determining when the goods are unconditionally appropriated
to the contract.
In the case of transactions of sale of goods between the
buyer and seller living in two different countries, the
contract may envisage, the seller sending the goods through
a carrier and the payment being made either at that place or
at the place where the buyer resides. In such a transaction
the banks have come to play an important part and the
bankers’ commercial credit system facilitates merchants
domiciled in different countries and assures payment to the
seller on the one hand and delivery of the goods contracted
for to the buyer on the other. This is done by means of
what are known as letters of credit which under the terms of
the contract the seller may insist on the buyer to provide
for in a bank doing business in the place of the seller’s
domicile. This may be effected by the buyer requesting the
bank to facilitate a letter of credit in the country of the
seller where the bank or its constituent assumes liability
for payment of the price for some consideration which may
either be by loan or an over-draft arrangement or perhaps on
the security by the pledge of documents of title to the
goods or by some other arrangement arrived at between them.
An understanding of the mechanism of credit made available
to the buyer and the seller by the banks in the sale of
goods and the manner in which these transactions take place
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through the banking institutions will greatly facilitate the
ascertainment of the question when and at what place the
property in ,the goods passes from the buyer to the seller.
Inasmuch as those innovation of commercial credit have been
developed by the maritime powers of which England was the
leader a reference to English decisions will be of
assistance. In Guaranty Trust Company of New York v. Hannay
& Co.(1) Lord Justice Scrutton set out at p. 659 the manner
in which commercial credit operates. He said :-
"The enormous volume of sales of produce by a
vendor in one country to a purchaser in
another has led to the creation of an equally
great financial system intervening between
vendor and purchaser, and designed to enable
commercial transactions to be carried out with
the greatest money convenience to both
parties. The vendor, to help the finance of
his business, desires to get his purchase
price as soon as possible after he has des-
patched the goods to his purchaser; with this
object he draws a bill of exchange for the
price, attaches to the draft the documents of
carriage and insurance of the goods sold and
sometimes an movie for the price, and
discounts the bill-that is, sells the bill
with documents
(1) [1918] 2K. B. 623.
144
attached to an exchange house. The vendor
thus gets his money before the purchaser
would, in ordinary course, pay; the exchange
house duly presents the bill for acceptance,
and has, until the bill is accepted, the
security of a pledge of the documents attached
and the goods they represent. The buyer on
the other hand may not desire to pay the price
till he has resold the goods. If the draft is
drawn on him, the vendor or exchange house may
not wish to part with the documents of title
till the acceptance given by the purchaser is
met at maturity. But if the purchaser can
arrange that a bank of high standing
shall accept the draft, the exchange house may
be willing to part with the documents on
receiving the acceptance of the bank. The
exchange house will then have the promise of
the bank to pay, which, if in the form of a
bill of exchange, is negotiable, and can be
discounted at once. The bank will have the
documents of title as security for the
liability on the acceptance, and the purchaser
can make arrangements to sell and deliver the
goods. Before acceptance the documents of
title are the security, and an unaccepted bill
without documents attached is not readily
negotiable. After acceptance the credit of
the bank is the security............"
The operation of the banker’s commercial credit is
generally and in an increasing manner resorted to
by the exporters stipulating in contracts for the
sale of goods the responsibility for the payment
of price by a banker which is done by means of a
documentary credit. It takes the form of a promise
by the buyer’s bank to accept or honour bills of
exchange if drawn on him or his guarantee of
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payment if drawn on the buyer, the security for
which resides in the pledge of the documents of
title to the goods exported. Where the device of
commercial credit is resorted to as indeed in all
overseas transactions this has become a general
practice-there is to be a prior contract for the
sale of goods the payment of price for which is to
be made by a banker. We are here not concerned for
the purpose of this case, with the various
intricacies and practical technicalities of
different means which are adopted to meet different
situations. But a simple example of the device may
be indicated. The buyer requests his bank and
arranges with it the issuance of credit for payment
at the place of the seller’s domicile specifying
the documents against which it has to make payment.
The buyer agrees also to indemnify the bankers in
respect of such advances and of any claim arising
out of the credit. The letter constitutes the
memorandum of the buyer’s instructions to the
banker. On receipt of this application
145
the banker issues the credit which is addressed to
and sent to the seller or it may take the form of a
request to an intermediary banker who is asked
either merely to advice the seller or advise and to
add his confirmation. The credit may be issued by
cable which is later followed by writing. These
letters may be given for the purpose of being shown
to third parties who may act thereon. Letters of
credit are either revocable or irrevocable and
where it is the latter it may be confirmed or
unconfirmed. If confirmed it means that words of
confirmation of another banker is added to it by
which that banker also commits himself irrevocably.
The letter of credit notifies the seller that the
issuing banker or his correspondent will (if they
are drawn on him) accept or honour drafts drawn for
the price of the goods, provided that the documents
of title and other documents specified in the
credit are simultaneously presented to the banker.
On receipt of the credit the seller ships the goods
and insures them, obtaining a bill of lading
normally made out to his order but perhaps to that
of the banker, and also a policy of marine
insurance. He then draws a draft for the price of
the goods and with the documents i.e. the bill of
lading, policy- and invoice specified in the credit
presents the draft for acceptance, payment and
negotiation.. In this way the exporter gains the
advantage of receiving payment for his goods
without delay. The documents are then sent by the
banker to the buyer’s bank and on the bill of
exchange being accepted by him by payment of the
price the bill of lading and the invoice is
delivered to him; see Halsbury, Vol. 2, p. 213 and
Gutteridge and Megrah on The Law of Commercial
Credits (1968 edition).
The contract that has been entered into between the
buyer and the seller in this case is in the form of
a sold note by the seller’s broker in Calcutta in
the form of the Indian Jute Mills Association for
jute contracts with variations in respect of some
of the terms. Under cl. (1) of this contract the
amount of tax payable under the Bengal Raw Jute
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Taxation Act, 1941 is to be on the seller’s account
and to be deducted by the buyers from the price
quoted for payment, to the Provincial Government in
the prescribed manner unless at the time of
concluding the contract the seller satisfies the
buyer by means of satisfactory evidence that tax is
not payable on the sale. Any increase or decrease
in the existing Bengal Jute Tax or in any other
form of tax by whomsoever levied or any new taxes
on raw jute after the contract also shall be on the
buyer’s account. It also states that the contract
is accepted by the buyers on the seller’s
representation and assurance that the jute as shown
in the margin is under a mark entered in the said
register and that its bailing and packing is in
strict accord with the particulars contained
therein. Should tenders not be in accordance with
it the buyers shall be entitled to reject the goods
and the sellers shall be liable for all losses
sustained in-
1-348SupCI/73
146
cluding the difference between the contract and the
market prices. Cl. (2) provides for delivery to
the
mills specified therein and the carrier or carriers
through which that delivery should be made to the
mills. Cl. (3) which is varied deals with the
transit insurance to be covered by the buyers at
contract value plus 10% under their open cover and
premium to be paid for by sellers in India.
Sellers to advise buyers the contract and
assortment in mounds to be supplied immediately
loading is commenced. Cl. (4) which deals with
reimbursement of cash is again varied by the
following
"
"Bank in favour of seller’s nominee. A
complete set of shipping documents to be
presented to the bank and payment of invoice
valid in terms of the contract to be made to
the shippers in the equivalent of Pakistan
currency at the exchange rate ruling on the
date of presentation of documents at the bank,
less freight, if payable in India."
Cl. 6 deals with non-delivery of documents. Cl. 7 provides
for non-acceptance of documents. Cl. 8 provides for maximum
amount of moisture the jute should contain and cl. 9
provides for claims with the variation that the amount of
short weight value and claim to be paid by sellers to buyers
in Indian currency: The High Court, as we have earlier
stated, relied on cls. 7 and 9(3) for coming to the
conclusion that the appropriation took place in India.
These clauses are given below:-
"7. Non-acceptance of documents should buyers
fail to accept or pay against documents
properly submitted under the terms of the
contract Sellers have the right to exercise
any of the following options
(a) Cancelling the contract.
(b) Cancelling the contract and charging
buyers the market difference between the
contract rate and the market rate of the date
of the breach of contract.
(c) Selling against buyers in the open
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market on the first working day following the
default.
9. (3) In any case where buyers make any claim in respect
of quality and/or excessive moisture and the Award on the
dispute being referred to arbitration as provided for in
Clause 13 provides for an allowance of not less than 50
percent on the market difference between the grades of the
goods contracted for
147
and the goods supplied and/or finds a moisture content in
the goods supplied in excess of the maximum percentage of
moisture allowed under clause 8 by not less than 3 per cent
and stipulates an allowance therefore, buyers shall
thereupon be entitled to exercise any of the following
options :-
(a) Of accepting the goods with the
allowance(s) awarded.
(b) Of cancelling the contract in respect of
the particular lot or lots of goods supplied
and charging sellers for the market difference
on the goods as contracted for and those
offered in fulfilment of the contract and on
which the award has been made.
(c) Of rejecting the particular lot or lots
of goods supplied and claiming a fresh tender
in lieu there of to be made within days from
the date on which the option is declared."
The letter of credit which has been referred to in the
contract is by the Chartered Bank of India, Australia and
China and since several contentions have been urged on the
import of this letter we give below its contents in entirety
:-
"THE CHARTERED BANK OF INDIA, AUSTRALIA AND
CHINA
Messrs. Mahabir Commercial Co. Ltd.,
P.O. Ashuganj,
Distt. Tipperah
East Pakistan
Calcutta, 14th August 1951. This letter of Credit was wired
through the Chartered bank, Cittagong on and is only to be
delivered to beneficiaries against surrender of the letter advis
ing
contents of the telegram,
and any negotiations made in the interval are to be
transferred to the original credit before it is handed over.
Confirmed Letter of Credit No. 94/743 Irrevocable.
Dear Sirs,
You are hereby authorised to draw on M/s Thomas Duff & Co.
(India) Ltd. a/c. The Titaghur Jute Factory Co. Ltd., of
Calcutta for a sum not exceeding Rs. 2,00,750/- (Rupees two
lacks seven hundred and fifty) available by your drafts on
them at sight accompanied by :
(1) Complete set of Bills of lading and/or
Railway receipts to order and blank endorsed,
"Shipped on Board". . . . Bills of Lading are
essential and the statement ’freight paid’
must appear thereon.
148
The Bills of Lading must cover shipment as
detailed below.
(2) The Insurance to be covered by buyers
under Open Cover No. 1249 and premium to be
deducted from shipper’s invoice.
(3) Signed Invoices in triplicate.
(4) Freight "To Pay" to be deducted from
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shipper’s invoice.
SHIPMENT
As per overload from Pakistan to Calcuta C.& F. by I.G.N..
R.S.N., B.A.S.S., E.B.R.S.S., I.S. Co.’s steamer and/or Flat
and/ or Rail direct or indirect with or without
transshipment. Partial shipments allowed.
PRO-RATA:
Shipments are permissible.
CONDITION OF SHIPMENT:
Shipment is to be affected not later than 15th August, 1951.
CREDIT EXPIRY DATE:
This credit expires on 30th August, 1951.
Drafts should bear the following clause drawn under the
Chartered Bank of India, Australia & China, Calcutta Credit
No. 94/743, dated 14th August, 1951.
Purchasers are to note the amount of the drafts separately
on the back hereof.
All drafts drawn under this letter of Credit are to be
treated as Advance Bills, through our Chittagong Office.
We hereby guarantee to protect the Drawers, Endorsers and
bonafide holders from any consequences which may arise in
the event of the non-acceptance or non-payment of drafts
drawn in accordance with the terms of this Credit.
SEAL
Yours faithfully.
Sd/ S.C.R. Northocote
P. Manager
Sd/ M.W. Whyte
Accountant
Rs.
,Mid. 1000 Mds. Raw Jute @ 103 per Md. (CIF)1,03,000
Bot, 1,000 Mds. Raw Jute Oa. 98 per Md. (CIF)98,000
2,01,000
Less Jute-tax on 2,000 Mds. @ /12/- per Md. Ind.250
Ind.,
2,00,750
14 9
Under G. Das & Co., Ltd.’s Contract No. 3807 of 4-6-51.
,Under Import Licence Clearance Permit No. 0003. ,Goods of
Pakistan Origin
Sd/- S.C.R. Northcots
P. Manager
Sd/- M.W. Whyte,
Accountant
The above document is a confirmed irrevocable letter of
credit under which the sellers were authorised to draw on
the clearing agents: of the buyer the sums mentioned
therein. It will be seen from the contract between the
parties and the irrevocable confined letter of credit that
the transaction is one known as c.i.f. contract, that is,
carriage, insurance and freight, which in the commercial
parlance, indicates that the contract for the sale of
goods is at a price to cover cost, insurance and freight
and ex-ship. In f.o.b. contract (free on board) in the
absence of a contract to the contrary, the buyer must
nominate the ship and notify the seller when it is likely to
arrive which is a condition precedent to the seller’s duty
to bring the goods to the port. On the ship’s arrival the
seller must deliver the goods on board at his own expense.
Thereafter the goods are at the buyer’s risk and he is
responsible for the freight and any subsequent charges. In
a c.i.f. contract the seller has first to ship at the port
of shipment goods of the description contained in the
contract. He must then procure the shipping documents
(contract of affreighment) as contemplated by the contract
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upon the terms current covering the whole transit of the
goods. He must arrange for an insurance for an amount equal
to their reasonable value of shipment upon the terms current
in the trade which will be available and it should be for
the benefit of the buyer. He must also make out an invoice
which is a written account of the particulars of goods
delivered to the buyer with value of the goods or their
price and charges etc. annexed. This invoice is made out
debiting the buyer with the agreed price and giving him
credit for the amount of freight which he will pay the ship
owner on actual delivery. And lastly the shipper should
tender the shipping documents to enable the buyer to deal
with the goods in the usual way of business. He is also
required to tender such other documents as are specified on
the contract and if the contract is silent, it is sufficient
if the seller tenders the bill of lading, policy of
insurance and invoice. All these documents must be valid on
tender. Under the c.i.f. contract prima facie the property
in the goods passes once the documents are tendered by the
seller to the buyer or his agent as required under the
contract. But where the seller retains control
1 5 0
over the goods by either obtaining a bill of lading in his
name or to his order, the property in the, goods does not
pass to the buyer until he endorses the bill to the buyer
and delivers the documents to him.
The appropriation, of the goods to the contract by itself
would not be such as to pass the property in the goods if it
appears or can be inferred that there was no actual
intention to pass the property. But if however the seller’s
dealing with the bill of lading is only to secure the
contract price not with the intention of withdrawing the
goods from the contract, and he does nothing inconsistent
with an intention to pass the property the property may
paseither forthwith subject to the seller’s lien or
conditional on performance by the buyer of his part of the
contract. Kennedy L. J. in Biddell Brothers v. E. Clemens
Horst Company(1) dissenting with the majority stated the
principles for ascertaining in c.i.f. contract when the
property in the goods passes which was later confirmed in an
appeal against that judgment in E. Clemens Horst Company v.
Biddell Brothers (2 ) , the Lord Chancellor describing it as
"the remarkable judgment illuminating as it does, the. whole
field of controversy." In that case the seller was to ship a
cargo of hops was to contract for freight, had to effect
insurance and was, to receive 90 s. per 112 lbs. of hops.
The buyer had to pay cash. The contract did not say when
the price was to be paid. The buyer said that he is to pay
cash against physical delivery and acceptance of the goods
when they come to England. Under s. 28 of the Sale of Goods
Act the payment was to be against delivery. But when was
delivery of the goods which are on board ship said to take
place. The Earl Loreburn L. C. said:
"The answer is that delivery of the bill of
lading when the goods, are at sea can be
treated as delivery of the goods themselves,
this law being so old that I think it is quite
unecessary to refer to authority for it.
Now in this contract there is no time fixed at
which the seller is entitled to tender the
bill of lading. He therefore may do so at any
reasonable time; and it is wrong to say that
he must defer the tender of the bill of lading
until the ship has arrived; and it is still
more wrong to say that he must defer the
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tender of the bill of lading until after the
goods have been landed, inspected and
accepted."
By a reference to s. 32 of the Sale of Goods Act
(corresponding to s. 38 of the Indian Sale of Goods Act)
Kennedy L.J. at p. 956 of the judgment to which we have
referred, observed :
(1) [1911] I.K.B. 934,952.
(2) [1912] A.C. 18, 22-
151
"Two further legal results arise out of the
shipment. The goods are at the risk of the
purchaser, against which he has protected
himself by the stipulation in his c.i.f.
contract that the vendor shall, at his own
cost, provide him with a proper of marine
insurance intended to protect the buyer’s
interest, and available for his use, if the
goods, should be, lost in transit; and the
property in the goods has passed to the
purchaser, either conditionally or
unconditionally. It passes conditionally
where the bill of lading for the goods, for
the purpose of better securing payment of the
price, is, made out in favour of the vendor
or his agent or representative : see the
judgments of Bramwell L. J. and Cotton L. J.
in Mirabita v. Imperial Ottoman Bank 1878-3
Ex.D.164). It passes unconditionally where the
bill of lading is made out in favour of the
purchaser or his agent or represemtative as
consignee. But the vendor, in the absence of
special agreement, is not yet in a position to deman
d payment from the purchaser; his
delivery of the goods to the carrier is,
according to the express terms of s. 32 only
"prima facie deemed to be a delivery of the
goods to the buyer"; and under s. 28 of the
Sale of Goods Act, as under the common law (an
exposition of which win be found in the
judgments of the members of the Exchequer
Chamber in the old case of Startup v.
Macdonald (6 Man, & G. 593), a tender of
delivery entitling the vends to payment of
the, price must, in the absence of contractual
stipulation to the contrary, be a tender of
possession. How is such a tender to be made
of goods afloat under a c.i.f. contract? By
tender of the bill of lading, accompanied in
case the goods have been lost in transit by
the policy of insurance. The bill of lading
in law and in fact represents the goods.
Possession of the bill of lading places the
goods at the disposal of the purchaser."
Again dealing with the argument of the plaintiffs that a
right under the c.i.f. to withhold payment until delivery of
the goods and after having bad an opportunity of examining
them, the learned Judge says that this cannot possibly be
effected except in one of the two ways. At p. 959 he
stated :
"Landing and delivery can rightfully be given
by the shipowner only to the holder of the
bill of lading. Therefore. if the plaintiffs’
contention is Tight, one of two things must
happen. Either the seller must surrender to
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the purchaser the bill of lading, whereunder
the delivery can be obtained, without
receiving payment, which, as
1 5 2
the bill of lading carries with it an absolute
power of disposition, is, in the absence of a
special agreement in the contract of sale, so
unreasonable as to be absurd; or,
alternatively, the,vendor must himself retain
the bill of lading, himself land and take
delivery of the goods, and himself store the
goods on quay (if the rules of the port
permit), or warehouse the goods, for such time
as may elapse before the purchaser has an
opportunity of examining_them. But this
involves a manifest violation of the express
terms of the contract "90 s. per 112 lbs. cost
freight and insurance". The parties have in
terms agreed that for the buyer’s benefit the
price shall include freight and insurance, and
for this benefit nothing beyond freight and
insurance. But if the plaintiff’s contention
were to prevail, the vendor must be saddled
with the further payment of those charges at
the port of discharge which ex necessitate rei
would be added to the freight and insurance
premium which alone he has by the terms of the
contract undertaken to defray."
Even though the property in the goods may pass to the buyer
when the documents are handed over, the buyer may yet retain
the right to examine and repudiate the goods but this right
generally which a buyer has in c.i.f. contract does not by
itself indicate that the, property in the goods has not
passed to him. This supposed incongruity was sought to be
explained per curium in Kwei Tek Chao v. British Traders and
Shippers Ltd.(1) that if property passed when the documents
are transferred that property is subject to the condition
that the goods should re-vest in the seller if on an
examination by the buyer he finds them not to be in
accordance with the contract. It is not necessary to
consider this, aspect because in any case the ascertainment
of the obligations under the contract will determine to what
extent the transfer of property is subject to a condition or
if the property passes conditionally whether the ownership
left in the seller is the reversionary interest in the
property in the event of the conditions subsequent operating
to restore it to him. In any case where the performance of
some condition is imposed upon the buyer but is not made a
condition of the transfer of the property, the property once
passed is not retested in the seller by the buyer’s
subsequent default. But where however the purchase is
financed by an irrevocable credit the transaction would not
be affected ’by rejection of the goods after acceptance of
the documents if the latter were such as were called for by
the credit or where under that credit the payment of the
invoice value is payable on presentation of the documents.
It will
(1) (1954) 2 K.-B. 459.
153
be seen from the course of the transactions between the
parties that all the conditions of a c.i.f. contract are
fulfilled subject to the variations which the parties under
the contract agreed, and to which a reference has been
earlier made. The bill of exchange which he had to draw in
accordance with the invoice was for the price of the goods
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less the premium and freight which the buyer was paying in
India on account of the seller. On the presentation of the
shipping documents as noted already, the bank in Pakistan
under the irrevocable letter of credit was to make payment
of the invoice value in terms of the contract to the sellers
in equivalent Pakistan currency at the exchange rate ruling
on the date of presentation of the documents at the bank.
Once the seller has performed his part and presented the
documents for being sent to seller for acceptance and
received payment in Pakistan he has no longer any control
over the goods and the property in the goods passes to the
buyer. The bill of lading when it is handed over to the
buyer by the bank. on the buyer accepting the bill of
exchange and paying the amount specified in the invoice,
confers on hint the right to take delivery of the goods at
the place of disembarkation.
On the facts as found, C.I.T. v. Mysore Chromite Ltd.
(supra) decided by this Court is clearly distinguishable,
because in that case the assess= company which is the seller
had shipped the goods under a bill of lading issued in its
own name and that under the contract it was not obliged to
part with the. bill of lading until the bill of exchange
drawn by it on the buyer’s bank where the irrevocable letter
of credit was opened was honoured. It is not necessary to
relate all the details of the contracts except to say that
the contracts of sale of chromite by the Mysore Company to
purchasers in Europe were entered into between the buyers
and the assessee agents in London and the contracts of sale
to persons in America were signed by the assessee’s managing
agents in Madras and by a company in America who bought for
undisclosed principals. Under the contracts the price was
F.O.B. Madras. Provision was made for weighment, sampling
and assay of goods at destination. Before the goods were
actually shipped, the buyers opened a confirmed iffevocable
bankers credit with a blank in London. The fact that
letters of credit had been opened was communicated by the
assessee’s bankers in London, Eastern Bank Ltd., to their
branch in Madras who thereupon wrote to the assessee
offering to negotiate the drafts drawn in terms of the
contract provided the documents were in order and concluded
the letter with a warning that the advance was given for the
assessee’s guidance without involving any responsibility on
the part of the bank. On receipt of this intimation the
assessee placed the contracted goods on board the steamer at
Madras and obtained a bill of lading in its own name. The
1 54
Court held that upon the terms of the contract and the
course of dealings between the parties the property in the
goods passed in London where the bill of lading was handed
over to the buyer’s bank against the acceptance of the,
relative bill of exchange. The sales therefore took place
outside British India and ex hypothesis, the profits derived
from such sales arose outside British India.An argument was
advanced before the Court that under the provisions in
the contract for weighment and assay which was ultimately to
fix the price unless the buyer rightly rejected the goods as
not being in terms of the contract, the passing of the
property in the goods could not take place until the buyer
accepted the goods and the price was fully ascertained after
weighing and assay. Dealing with this contention S.R. Das,
J. (as he then was) speaking for the Court said at p. 135 :
"It is submitted that being the position, the
property in the goods passed and the sales
were concluded outside British India, for the
weighment, sampling, assay and the final
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fixation of the price could only take place
under all these contracts outside British
India. It is not necessary for us to express
any opinion on this extreme contention.
Suffice it to say, for the purposes of this
case, that in any event upon the terms of the
contracts in question and the course of
dealings between the parties the property in
the goods could not have passed to the buyer
earlier than the date when the bill of
exchange was accepted by the buyers bank in
London and the documents were delivered by the
assesse˜ company’s agent, the Eastern Bank
Ltd., London, to the buyers’ bank. This
admittedly and as found by the Appellate
Tribunal, always took place in London. It
dust therefore follow that at the earliest the
property in the goods passed in London where
the bill of lading was handed over to the
buyers’ bank against the acceptance of the
relative bill of exchange.’
It will be observed that the terms of the contract and the
course (-if dealings between the parties is not the same as
in this case because in that case the seller clearly
retained the property in the goods by having a bill of
lading issued in his own name and would only part with the
property after the bill of exchange was accepted by the
buyer’s bank in London when the documents would be delivered
by him to the company’s agent in London and that the
fixation of price was dependent on weighment and assay. In
the case before us the High Court relied on cls. (7) and
9(3) of the contract for its conclusions. In our view
nothing in those clauses justifies that conclusion. Under
cl. (7) where there is a total failure on the part of the
buyer to perform the contract, the
1 55
seller has a right to cancel the contract or treat it as
cancelled and resort to the remedies thereunder. But that
is a condition where the buyer fails or refuses to perform
the contract altogether by not accepting the documents or in
not paying against the documents. Even under cl. (9) the
condition as to the quality and of excessive moisture is not
a condition of the transfer of property. The right of the
buyer thereunder is not a right to cancel the contract in
toto but only to adjust claims in respect of the quality or-
moisture for which a remedy has been provided thereunder.
There is nothing in the agreement which envisages the
property in the goods being in the seller even after the
value of the invoice had been paid by the bank under the
letter of credit in Pakistan. It may be further noticed
that the bills of lading railway receipts have to be, made
out to order and endorsed in blank. In all transactions of
sale of goods the time and place of appropriation are
important elements for determining when the property in the
goods passes. It is well settled that an appropriation
takes place where the goods are situate at the time of
appropriation and not where the contract of sale is made.
There may be an authority, given by one party to the other
to appropriate and that appropriation is presumed to be
finally made where by the terms of the contract the party so
authorised has determined his election by doing such act or
thing which cannot be done until the goods are appropriated.
Generally, subject to the limitations already discussed a
seller appropriates the goods by the delivery of the bill of
lading-the document giving control of the goods-in exchange
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for payment of the price by which he that he does not intend
to retain the right of disposal of the property in the
goods.
A consideration of the terms of the contract and the letter
of credit makes it evident that once the bills of lading and
documents contemplated under the contract are handed over to
the bank- to be delivered to the buyer and the seller
rceives the value thereof as shown in the invoice and in
terms of the contract, he no longer retains the property in
the goods. The provision that all drafts drawn under the
letter of credit are to be treated as at lance bills through
their Chittagong office do not in any way affect the nature
of the transaction inasmuch as they are intended as advance
notice to the buyer who may want to make arrange-
156
ments regarding the taking of delivery or dealing with the
goods etc. In fact under the contract it is provided that
immediate notice should be given to the buyer as soon as the
seller begins to load the goods. In any case under the
letter of credit the bank informs the seller that it
"guarantees to protect the drawers, endorsers and bona fide
holders from any consequences which may arise in the event
of the non-acceptance or non-payment of the drafts drawn in
accordance with the terms of this credit." This clause in
the letter of credit further assures the seller of the
performance of the contract and does not affect the property
in the goods passing to the buyer in Pakistan.
In this view, agreeing with the Tribunal, our answer to the
question is in the affirmative and against the department.
The appeal is allowed with costs.
V.P.S. Appeal
allowed.
157