International Contract

Passing of Property in International Contracts in India

The significance of passing of property may be summed up as below

The right to sue is determined.
The ability to pass a good title is confirmed.
The security of payment of a party in case of insolvency of other party.

In the international scenario issues relating to passing of property is important to analyse whether the goods can be treated as security for payment of the price. There is an assumption that the seller will not deliver possession of the goods until he secures payment of the price.

The following sections deal with the general principles of passing of property under the Sale of Goods Act :

18. Goods must be ascertained

Where there is a contract for the sale of unascertained goods, no property in the goods is transferred to the buyer unlessand until the goods are sanctioned.

19. Property passes when intended to pass

Where there is a 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 it to be transferred.
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.
) Unless a different intention appears, the rules contained in Section 20 to 24 are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer.

20. Specific goods in a deliverable state

Where there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment of the price or the time of delivery of the goods, or both, is postponed.

International Contract For Sales

In International sales it is assumed that unless the seller is certain that he will get the price for the goods he will keep possession of the goods. The law in India envisages that the seller who conveys the goods to a transporter is presumed to have “unconditionally appropriated them to the contract.” unless he reserves the right of disposal ( which must be determined from the contract between the parties). Where goods are shipped or delivered to a railway administration for carriage by railway and by the bill of landing or railway receipt, as the case may be, the goods are deliverable to the order of the seller or his agent, the seller is prima facie deemed to reserve the right of disposal. In such circumstances mere shipment shall not be “unconditional appropriation”. In case the Bill of Lading is blank the property will pass to the buyer.

FOB

FOB means free on board. In FOB contracts the goods are deemed to be delivered once the goods have crossed the ships rail at the agreed port of shipment. In such cases the buyers are to find the shipping area for the goods and insurance.

However in practice sellers generally reserve their right of disposal and hence in most cases the rule seems to be that the property does not pass on shipment even if the payment for the goods have been made by the buyer in full

CIF

A CIF contract is an agreement to sell good at a price that includes other incidentals apart from the cost of the goods such as insurance and freight. In a CIF contract the seller gives the buyer the complete shipping documents which completes his obligations and will not be in breach of contract even if the goods do not reach the buyer.

Passing of Risk

The presumptive rule is that risk passes from the seller to the buyer along with the property. However this rule is subject to the agreement between the parties. And the passing of property and the passing of risk may be separated.

For the purpose of determining the passing of the risk the intention of the parties is to be determined. In all cases the passing of risk is determined by the contract between the parties. Thus the seller tries to minimize the risk of non-payment by inserting clauses in the contract which restrict the passing of the property.