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TMI Blog1956 (3) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... of money for which each transaction was entered into. There are 17 transactions listed therein to the total tune of over Rs. 10 lakhs. Items 1 to 5 in that document deal with contracts for selling fibre to firms in London and Exhibits A-8 to A-12 also relate to these contracts. Items 6 to 8 are with respect to the sale of goods to firms in Australia and Exhibits A-13 to A-15 deal with them. Items 9 and 10 are purchases by Egyptain firms and Exhibits A-16 and A-17 relate to them. Items 11 to 13 are with respect to sale of goods to New York firms, and Exhibits A-18 to A-20 deal with them. Items 14 to 17 deal with the sale of goods to Colombo and we are not concerned with those transactions in this appeal. It is conceded by the appellant that the appeal does not relate to the three transactions with Colombo and one of the transactions with Egypt. According to P.W. 1, one of the partners of the plaintiff firm, the mode of transactions is in the following manner. Contracts are entered into by correspondence with foreign firms for the sale of quantities of fibre, which are purchased by the plaintiff in open markets in India, or they order manufactured goods. After the goods are shipped ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods on the following conditions which are: Bills to be drawn payable 90 days after sight and to be accompanied by invoices, full sets of on board bills of lading made out to order and blank endorsed representing shipments of various quantities of goods etc., and insurance including war risk with unlimited transhipment covered in London. Such ship- ping documents are to be delivered on payment of the bills which should bear the clause, "Drawn under N.B.I. credit numbers dated so and so." There is a clause in that document to the following effect: "Please note that the bank accepts no liability for the above undertaking and that this advice does not release you from the liability attaching to the drawer of a bill of exchange." There are similar clauses in other documents as well. The learned Subordinate Judge was of the opinion that the title in the goods passed to the purchaser only when they paid the money to the bank, which opened the letter of credit and took delivery of the documents, that is, the sale took place in a foreign country and not in India. According to the learned Judge the foreign banks on whose credit bills are negotiated are not agents of the buyer for the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the seller, who is liable as the drawer of the dishonoured bill to the negotiating bank. The assets of the seller, namely, the bill of lading will be subject to the banker's lien in case the drawee does not pay the endorsee bank, and even if a lien exists the property still remains with the seller. We have, therefore, to see what is the effect of the opening of a letter of credit. According to the learned counsel for the respondent, a letter of credit is giving credit facilities to the seller on the request of the buyer, who is only a surety and to whom in the ultimate instance resort is to be had. That being the case neither the bank, which opens a letter of credit, nor the negotiating bank is the agent of the buyer to pay the money to the seller, especially since the business is the bank's own, but it takes a surety from the buyer before the banking business is done. In these circumstances, we have to clearly understand the legal relationship that exists between the buyer and the issuing banker, as well as the paying banker and the seller. In Halsbury's Laws of England, Simonds' Edn., Vol. 2, at page 213, a letter of credit is defined as an undertaking by a banker to meet draf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the importer, and it is to the effect that the originating banker is employed by the importer on a remuneration to pay money for the importer under certain conditions. The result would be that the bank which opens the letter of credit is an agent of the importer for the payment of the price of the goods to the exporter, when the documents of shipping are handed over to the negotiating bank, which is an agent of the originating banker. The position, therefore, is this. The importer in a foreign country employs a bank in his place by supplying it with funds or securities to be deposited to open a letter of credit and in doing so, the originating banker becomes an agent of the importer. In turn the originating banker may use their agents as negotiating bankers to pay the money to the exporter. The nature of the particular form of the letter of credit, with which we are concerned, has been the subject of a decision in (1) [1943] 1 K.B. 37. Chandanmul Benganey v. National Bank of India, Ltd.(1) where both the learned Judges define the import and effect of ordinary letters of credit. Rankin, J., (as he then was) at page 58 lays down the law in the following terms: "In order that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find out, after applying the provisions of the Sale of Goods Act as to when the property in the goods passed to the purchaser. According to section 19 of the Sale of Goods Act, where there is a (1) [1923] I.L.R. 51 Cal. 43. contract for the sale of specific or ascertained goods, the property in them is transferred to the buyer at such time as the parties to the contract intend to be transferred, and for the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case. Sections 20 to 24 deal with the rules for ascertaining the intention of the parties as to the time at which the property in the goods passed to the buyer. Section 23, sub-clause (2), of the Act lays down that where in pursuance to the contract the seller delivers the goods to the buyer or to a carrier or other bailee for the purpose of transmission to the buyer, and does not reserve the right of disposal, he is deemed to have unconditionally appropriated the goods. We are concerned in this case with section 25, sub-clauses (2) and (3). Sub-clause (2) lays down that where goods are shipped and by the bill of lading go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordships of the Supreme Court had to consider. The nature of a C.I.F. contract is discussed in extenso by McCardie, J., in Manbre Saccharine Co. v. Corn Products Co.(1). In that case the learned Judge held that a vendor under a C.I.F. contract for the sale of goods who has shipped the appropriate goods under a proper contract of carriage and obtained the proper documents, can effectively tender those documents to the purchaser notwithstanding that he knows at the time of such tender the loss of the goods. The principle that can be gathered from this decision is that when the vendor ships the goods he has done everything expected of him, and for the loss of the goods during carriage he is not responsible, which would mean that the title in the goods passed to the buyer as and when the goods are shipped. Considerable help can also be got from the judgment of Rowlatt, J., in Urquhart Lindsay and Co. v. Eastern Bank, Ltd.(2) for finding out as to when the title in the goods passed. In that case the facts are succinctly stated in the headnote as follows: "The plaintiffs entered into a contract with buyers in Calcutta to manufacture and ship machinery by instalments over several mont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther hand, what they would have further provided, and, on the manufactured machinery from the buyers, the whole being limited to the amount they could in fact have tendered before the expiry of the letter of credit." This also shows that under such conditions, the title in the goods passed to the buyer. We may also refer to the observations of the Privy Council in The Prinze Adalbert(1). It is unnecessary to refer to the facts, but the observations of Lord Sumner at page 590 are apposite. They are as follows: "Particular arrangements made between shipper and consignee may modify or rebut these inferences, but in the absence of evidence to the contrary, and apart from rules which arise only out of a state of was existing or imminent at the beginning of the transaction, the general law infers under these circumstances that the ownership in the goods is transferred when the draft drawn against them is accepted." Thus it is the duty of the plaintiffs to show that there are circumstances, which would show that the title in the goods has not passed. Our attention was invited to the decision in In re Cargo S. S. Rappenfels(2), where Jenkins, C.J., had to consider the question about the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous. But in more complicated transactions for the sale of goods to be produced or manufactured these stages may be spaced in time in various ways." (1) A.I.R. 1947 P.C. 94; 2 S.T.C. 67. The definition of "sale" in section 4(1) of the Sale of Goods Act is much simpler and more narrow. It runs as follows: "A contract of sale of goods is a contract whereby the seller trans- fers or agrees to transfer the property in goods to the buyer for a price...................." Govinda Menon, J., observed in Jayarama Chettiar In re(1): "The definition of 'sale' in the General Sales Tax Act is, in my opinion, much wider in scope and amplitude than in the Sale of Goods Act. According to this latter Act, a contract of sale of goods is a contract whereby a seller transfers property in goods for a price. The word 'price' is defined as money consideration for a sale of goods, so that in the case of a sale or contract of sale under the Sale of Goods Act it is an essential requisite that the consideration should be money. But in order to bring a transaction within the definition of the word 'sale' in the Madras General Sales Tax Act, it need not necessarily be that money alone should be the consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the conduct of the parties, usages of trade, and the circumstances of the cases. This is also the rule at common law. The parties to a contract of sale may expressly stipulate as to when title shall pass, and such a provision is ordinarily given full effect as between the parties. But since the parties do not always stipulate in such respect, the courts have adopted, and the Uniform Sales Act has provided, certain rules for determining the intention of the parties, which rules are hereinafter discussed in particularity. These rules are designed to arrive at the intention of the parties as to the passing of title where such intention is not expressed clearly and definitely, and must give way when the intention of the parties otherwise appears. Thus, the Uniform Sales Act states that the rules set out for the ascertaining of intention as to the passing of title apply 'unless a different intention appears'. Words in a contract of sale denoting a present or future transfer of title are given effect, but they do not conclusively establish a perfected or executory sale where other provisions or cir- cumstances evidence a contrary intention. Thus, when such is apparently the intention o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property passes and an agreement between the parties postponing it till the price is paid is not valid: Scott v. Keshavlal A.I.R. 1930 Bom. 529., Brij Coomaree v. Salamander[1905] I.L.R. 32 Cal. 816.. The preponderant and the better view taken was that property passes when the parties intend it to pass, notwithstanding the defective and rigid language of that section; Abdul Aziz v. Krishnaroy [1916] I.L.R. 44 Cal. 98., Herbert John Ames v. J.P. VirjiA.I.R. 1924 Bom. 41., Baijnath v. NandramA.I.R. 1926 Pat. 353.. A contract of sale is a consensual act. The parties are free to settle any terms they please. And sub-section (1) of section 19 gives effect to that basic principle of the law of contract. In formulating that intention the parties may fix any time when the property is to pass. It may be the time of delivery, the time of payment of price, the time of the contract or any other point of time. It is for the court to ascertain the intention of the parties. And sub-section (2) lays down a rule of guidance for them. The intention is to be gathered from the terms of the contract, the conduct of the parties and the circumstances of the case. Where the terms of the contract are red ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act or thing remained to be done to or with reference to the goods at the time of the contract it has to be seen by whom it was to be done and the purpose for which it was to be done. Where the act is to be done by the buyer, the property may at once pass at the time of the contract as it is only for the satisfaction of the buyer. Where the act is to be done by the seller, it is to be seen whether it is done by him as seller or only as the agent of the buyer and on his behalf. In the latter case the seller's act is in fact the buyer's and the passing of property is not postponed to the doing of that act. Where the act is to be done by the seller as seller, the purpose of the act is very important. Where it is to be done- (a) for ascertaining the goods and appropriating them to the con- tract, section 23 may apply and its conditions are to be fulfilled; (b) for putting them in a deliverable state, section 21 may apply; or (c) for ascertaining the price, section 22 may apply. (5) Has the seller by the terms of the contract or appropriation reserved the right of disposal of goods until certain conditions are fulfilled? (section 25). (6) Has there been delivery to (i) the buyer, (ii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he lawyer's point of view, and reduced to its simplest terms, the device involves three separate transactions. (1) A clause is inserted in the initial contract of sale, whereby the seller requires payment in a particular manner. The buyer is to ask his bank to open a credit in the seller's favour, which shall remain irrevocable for a given time. (2) The buyer makes an agreement with his bank, whereby the bank undertakes to open such a credit in return for the buyer's promise to reimburse the bank, to pay a small commission, and to give the bank a lien over the shipping documents. (3) The buyer's bank notifies the seller that it has opened an irrevocable credit in his favour, to be drawn on as soon as the seller presents the shipping documents." This is precisely the machinery which has been adopted in the instant case. On the sales by the Tuticorin firm having been settled by the buying London firm the latter opened an irrevocable credit in favour of Ramalingam and Co., Tuticorin, for specified sums in sterling re- presenting 95 per cent. of the net invoice amount with a London bank. That London Bank instructed a branch bank at Madras that they had opened an irrevocable credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he parties was that the transfer of property should take place within the State of Madras. The case put forward by the seller is that the credit opening bank acted as an agent of the seller and not as an agent of the buyer, that therefore until the transaction was completed by the London bank receiving the bills of lading etc., and cleared the goods in London, there would be no transfer of property completed and that the reservation in the letter of the Madras bank acting on the instructions of the London bank, that the bank accepted no liability for the above undertaking, namely, that of the London buyer to honour the bills of the Tuticorin seller covered by the irrevocable letter of credit representing 95 per cent of the invoice value and that this advice did not release the Tuticorin seller from the liability attaching to the drawer showed a reservation of the right of disposal and this affected the pass- ing of property within the limits of the State of Madras. In order to find out whether the London bank operated as an agent of the London buyer or as an agent of the Tuticorin seller, we must bear in mind the following considerations. I have already set out by means of an ext ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Printers Association v. Barclays(1931) 145 L.T. 51 C.A. The contract between the issuing or opening banker and the paying or negotiating (intermediary) banker partakes of a dual nature. The relationship is partly that of principal and principal, partly of principal and agent, mandator and mandatory. In order that the intermediary bank may claim to be reimbursed for any payment he makes under the credit, the paying banker must obey strictly the instructions he receives, for by acting on them he accepts them and thus enters into contractual relations with the opening or issuing banker. In the case of an irrevocable credit which has been confirmed by the intermediary or paying banker, the contract between the paying banker and the beneficiary becomes binding as soon as the beneficiary acts on the strength of the irrevocable credit. A banker issuing an irrevocable credit or a confirmed credit usually undertakes to honour the drafts negotiated, or to reimburse in respect of drafts paid by the paying or negotiating banker, and is thus in the hands of the beneficiary binding against that banker. The credit contract is inde- pendent of the sales contract on which it is based [Halsbury's La ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he intermediary banker notifies the beneficiary that negotiation of bills under this credit is entirely optional on his part and this advice does not release the beneficiary from the liability attaching to the drawer of a bill of exchange. This reservation therefore does not affect the transfer of property within the State of Madras in the instant case. On the facts of this case looked at from any point of view there has been no reservation in the right of disposal as viewed in the light of the analysis of Benjamin on Sale (8th Edn.) at page 382. The learned author sums up the eight principles established by authorities. The leading decisions referred to are: Mirabita v. Imperial Ottoman Bank(1878) 47 L.J. Ex. 418., Wait v. Baker(1848) 17 L.J. Ex. 307., Gabarron v. Kreeft(1875) L.R. 10 Ex. 274; 44 L.J. Ex. 238., Turner v. Liverpool Docks(1851) 6 Ex. 543; 20 L.J. Ex. 393., Shepherd v. Harrison(1871) L.R. 5 H.L. 116 at 127; 47 L.J.Q.B. 148., Tappenbeck: Ex. P. Banner(1876) 2 Ch. D. 278., Ogg v. Shuter(1875) 45 L.J.Q.B. 44., Vancasteel v. Brooke(1848) 18 L.J. Ex. 9., Browne v. Hare(1858) 29 L.J. Ex. 6., Joyce v. Swann(1864) 17 C.B. (N.S.) 84; 14 E.R. 258., Prinze Adalbert[1917] A.C. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the symbol. And the seller may exercise his right of disposal by selling or otherwise disposing of the goods, so long at least as the buyer remains in default. 7.. Where the seller transmits direct to the buyer a bill of lading making the goods deliverable to the buyer's order, unaccompanied by a bill of exchange, whether drawn by the seller or not, the property in the goods prima facie vests unconditionally in the buyer, and does not revert on dishonour of the bill. The same result follows where the buyer is in return for the bill of lading to pay cash, or to send a banker's draft, or to make a promissory note. The fact that, on the transmission of the bill of lading, the buyer is advised of the drawing of the bill of exchange does not suspend the passing of the property. 8.. When the seller deals with the bill of lading only to secure the contract price and not with the intention of entirely withdrawing the goods from the contract, as e.g., by depositing it with bankers who have discounted the bill of exchange, then the property vests in the buyer, upon the payment or tender by him of the contract price." The facts of the instant case already set out show that all the principle ..... X X X X Extracts X X X X X X X X Extracts X X X X
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