*3009 1. A contract to purchase unascertained goods which were to remain the property of the seller until the goods were certified by the seller, checked by both parties and actually loaded on the cars, held, not to pass title to the goods when the goods were ascertained as specific goods by certification.
2. Where title to merchandise which taxpayer had contracted to purchase had not passed, and payment therefor was not due by the close of the year, held no liability accrued within the year, and the merchandise may not be included in closing inventory.
*209 This is a proceeding for the redetermination of a deficiency in income and profits tax for 1920 in the amount of $148,871.49. The deficiency asserted resulted from the action of the respondent in reducing by $1,741,520.41 the amount of purchases made in 1920, and in excluding from the 1920 closing inventory merchandise valued at $1,204,851.28.
FINDINGS OF FACT.
The petitioner is an Oregon corporation with its principal office at Portland. Under date*3010 of January 9, 1920, after the United States Emergency Fleet Corporation had advertised for bids for its surplus steel, the petitioner entered into the following contract:
CONTRACT PROVIDING FOR SALE OF CERTAIN EXCESS STEEL.
CONTRACT made and entered into this ninth day of January, 1920, by and between BARDE STEEL PRODUCTS CORPORATION, a corporation organized and existing under the laws of the STATE OF DELAWARE, Party of the first part (hereinafter called "BUYER") and the UNITED STATES SHIPPING BOARD EMERGENCY FLEET CORPORATION, a corporation organized and existing under the laws of the District of Columbia, acting for and in behalf of the United States of America, party of the second part, (hereinafter called the "SELLER"). WITNESSETH:
*210 WHEREAS, the Seller has heretofore entered into certain contracts or agreements for the delivery to it of certain steel, to be used in the construction of certain steel ship hulls, hereinafter called "steel", pursuant to contracts or agreements between the Seller and third parties for the construction of ships, in accordance with the War Shipbuilding Program, and
WHEREAS, part of said steel has heretofore been delivered to the Seller*3011 and part is to be hereafter delivered to it pursuant to the aforementioned contracts and agreements with third parties, and
WHEREAS, due to curtailment of the aforesaid War Shipbuilding Program, a portion of said steel is believed to be in excess of the quantity required to complete such ship hulls as are now being constructed, or may hereafter be constructed, for the Seller pursuant to such contracts or agreements as are now, or may hereafter be, in effect between the Seller and third parties, and
WHEREAS, the Seller is willing to sell and the Buyer is willing to buy, subject to the terms and conditions hereinafter set forth, so much of said steel as may be in excess of the quantity required as aforesaid, the quantities of such excess, shapes, sizes and extent of fabrication being now unknown, and
WHEREAS, the Seller will, as speedily as reasonably may be, ascertain the portion of said steel as is in excess of the quantity required for its purposes aforesaid, and will forthwith after ascertaining the same, notify and advise the Buyer of the approximate quantity thereof according to shape, sizes and extent of fabrication.
NOW, THEREFORE, in consideration of the premises, the*3012 mutual premises and obligations herein set forth, the Buyer and the Seller have agreed and by these presents do hereby agree as follows:
ARTICLE I
(1) The Seller agrees to sell and the Buyer agrees to buy, subject to the terms and conditions hereinafter set forth, the following steel:
(a) All excess steel purchased for the contracts between the Seller, and the Merchants Shipbuilding Corporation and the Pensacola Shipbuilding Company, now owned by the Seller, and located at the plants owned or controlled by the American Bridge Company of New York at
Chicago, Illinois.
Gary, Indiana.
Toledo, Ohio.
Canton, Ohio.
Ambridge, Pennsylvania.
Elmira, New York.
Walkerville, Ontario, Canada.
(b) All other excess steel now owned by the Seller, and all other excess steel hereafter to be delivered to the Seller, at any and all points in the United States under now existing contracts between the Seller and third parties, but all of such steel shall be delivered to the Buyer free of claim or lien by third parties.
(2) The excess steel referred to in the preceding Section (1) of this Article, shall not include:
(a) Steel that the Seller, on or prior to November 20, 1919, has*3013 agreed to sell to third parties.
(b) Steel that has been completely or partly fabricated, for use in the construction of any steel buildings.
(c) Scrap steel.
*211 (d) All steel required to complete such ship hulls as are now being constructed, or may hereafter be constructed for the Seller pursuant to such contracts and agreements as are now, or may hereafter be, in effect between the Seller and third parties;
(e) Fabricated units which the Seller is desirous of withholding from this agreement for the purpose of selling the same as units, but if not so sold as units the same shall be included in this sale to the Buyer.
(f) In adjustments between the Seller and third parties growing out of the cancellation of contracts or agreements between the Seller and third parties, the Seller reserves the right to deliver to such parties as a part of such adjustments any excess steel hereinbefore mentioned, which such third parties may have in their possession pursuant to contracts or requirements to be cancelled, but such steel shall not be disposed of to others than the third parties interested.
It is understood and agreed, however, that as hereinafter more fully set*3014 forth, the Seller shall, from time to time, certify to the Buyer the steel allotted as excess steel, and that after such certification from time to time, any and all steel thus certified which shall have been resold by the Buyer shall, irrespective of the foregoing exceptions, be included in the steel sold hereunder.
ARTICLE II.
(1) The Buyer agrees to accept and pay for, in accordance with the terms of this agreement, the aforesaid excess steel delivered to it by the Seller pursuant to the terms hereof, at the times and in the manner hereinafter set forth, and at the following prices:
(a) For all excess steel that has not been fabricated, Forty-five ($45.00) Dollars per net ton of two thousand pounds.
(b) For all the excess steel that has been fabricated or partly fabricated, Twenty-five ($25.00) Dollars per net ton of two thousand pounds.
The prices above set forth shall be subject to the following conditions:
(a) All prices shall be F.O.B. cars, at the places where said steel is now located or may hereafter be delivered by the Seller to the Buyer, except such steel as is now located at Pottstown, Pa., Leetsdale, Pa., and Hays Station, Pa.
(b) The buyer shall pay*3015 and assume the cost of loading on cars in accordance with the rates provided for in the present contracts between the Seller and third parties, such steel as is now located at Pottstown, Pa., Leetsdale, Pa. and Hays Station, Pa., but shall not pay or assume or be liable for any other costs or expenses in respect to said steel, except that the Buyer shall pay and assume all storage charges accruing on said steel now located at Pottstown, Pa. and Leetsdale, Pa. from and after June 20, 1921, and on such excess steel now located at Hays Station, Pa. from and after January 15, 1920.
(c) The excess steel now located at the plant owned or controlled by the American Bridge Company of New York at Walkerville, Ontario, Canada, as aforesaid, shall be delivered by the Seller to the Buyer, F.O.B. cars Walkerville, Ontario, and the Seller shall assume and pay any and all duties that may be payable as a condition to importing the same into the United States, and if not so paid by the Seller the amount thereof may be paid by the Buyer and charged against the next instalment or instalments of the purchase price until the Buyer shall have been fully reimbursed for such payments.
*212 (3) *3016 All of said steel shall be paid for upon the basis of railroad scale weights on a net tonnage basis.
(4) The Seller shall be held free from any demurrage charges accruing on steel after same is delivered to the Buyer under this agreement.
(5) Shipments shall be subject to check and supervision by representatives of the Buyer and the Seller. For such purpose, the direction for loading from the Buyer to the Seller, as provided in Article V hereof, shall automatically be a notice to the Seller to have its representatives present to check and supervise the shipments. In the event that the Seller shall fail (except by reason of strikes, fire, riot, acts of God or public enemy) or refuse to have its representatives so check such shipments within five days from the date of the receipt of such notice by the Seller, the Seller shall be deemed to have waived its privilege of checking and supervising, as aforesaid.
It is agreed that a United States Post Office Registry return receipt shall be conclusive evidence that the Seller received the notices provided in this Section (5) of this Article II and in Article V hereof upon the dates specified in such registry receipts.
(6) All*3017 such excess steel, including that now on hand at Pottstown, Pa., Leetsdale, Pa., and Hays Station, Pa., shall remain the property of the Seller until delivered to the Buyer as hereinafter mentioned. It is agreed that, for the purpose of this contract, delivery of said steel shall not occur until the same has been certified, checked and actually loaded onto cars.
(7) The seller shall be the sole judge as to what shall constitute excess steel under the terms of this contract.
ARTICLE III.
(1) Payments for the steel purchased shall be made as follows:
When any shipment or shipments or steel are delivered as herein set forth, they shall be invoiced to the Buyer. The amounts shown to be due from the Buyer to the Seller from time to time for all such steel so invoiced, at the prices and upon the weights determined as above set forth, shall be paid for by the Buyer upon the first and fifteenth days of each month, such days to be known as "remittance days," and the Buyer shall remit to the Seller for all invoices received by it up to and including the fifth day prior to such remittance days.
(2) The Buyer shall, upon the execution of this agreement, pay to the Seller the sum*3018 of Four Hundred Thousand Dollars ($400,000), hereinafter called "Guaranty Fund," which sum shall be held by the Seller as security for the faithful performance by the Buyer of its obligation hereunder. If and when the Buyer shall have well and truly performed all of its obligations hereunder, said Guaranty Fund shall be repaid to the Buyer by the Seller.
If the Buyer should default in the faithful performance of any of its obligations under this agreement or fail to pay, when due, any amount or amounts herein provided to be paid by the Buyer to the Seller, the Seller may, at its option, deduct from said Guaranty Fund the actual damages sustained and/or the amount or amounts which the Buyer so fails to pay. In the event the Seller makes any deductions from said Guaranty Fund, as in this Section (2) provided the Buyer shall, and before the delivery of any further steel by the Seller, pay to the Seller such sums as may be necessary to cover all such deductions and bring said Guaranty Fund up to the original amount, namely $400,000. Any interest paid on said Guaranty Fund while in the possession of the Seller shall belong to and be the property of the Seller.
*213 (3) Simultaneously*3019 with the execution hereof the Buyer shall deliver to the Seller a bond guaranteeing the full and faithful performance of this contract by the Buyer in accordance with the terms hereof, and as security for the payment by the Buyer of the amounts due to be paid by it from time to time. The said bond shall be in the principal sum of Five Hundred Thousand Dollars ($500,000) and shall terminate and become null and void at the time when this contract shall have been fully and faithfully performed by the Buyer. The form of the bond and the guarantors thereon shall be subject to approval and acceptance by the Seller.
ARTICLE IV.
(1) The Seller shall, as soon as reasonably may be, ascertain the quantity of steel herein described as excess steel sold to the Buyer hereunder, and shall, from time to time, certify to the Buyer the approximate amount, location, quality, size and general specifications thereof, which certifications shall be statements or reports of said excess steel received by the Seller from third parties, and/or from the Seller's representatives. It is agreed that the Seller does not guarantee the accuracy of the information contained on such certifications, and that*3020 the Seller undertakes to sell only so much of the steel shown upon such certifications as the Seller may be able to deliver to the Buyer.
(2) For all such excess steel now situated at the yards of the American Bridge Company and at Hays Station, Pa., Leetsdale, Pa., and Pottstown, Pa., the Buyer shall, within thirty (30) days after receiving certifications covering the same, begin to give the Seller loading instructions therefor and shall proceed diligently thereafter to sell and give loading instructions to the Seller until all of said steel shall have been delivered to the Buyer as mentioned in this contract.
(3) The Seller shall, within a period of one year from date, certify the amount of the excess steel, not provided for in Section (2) of this Article IV, to be sold the Buyer under the provisions of this contract. Upon receipt of the respective certificates from the Seller, the Buyer shall (except as herein otherwise specifically provided), whthin a reasonable time but not later than one year from the receipt of each respective certificate, give the Seller loading instructions in respect to the excess steel covered by each respective certificate.
(4) In no event shall*3021 any shipments be tendered for delivery by the Seller to the Buyer except in accordance with loading instructions to be given by the Buyer in accordance with the preceding provisions, unless the period during which the Buyer may give such loading instructions shall have expired, whereupon the Seller shall invoice to the Buyer all steel remaining undelivered as aforesaid.
ARTICLE V.
The Seller shall furnish to the Buyer such letters or other credentials as may be necessary to authorize the representatives of the Buyer to examine and give directions for loading on cars such steel as shall from time to time be certified as hereinabove provided. Said directions for loading shall be given in writing by the duly authorized representative of the Buyer to the duly authorized representative of the Seller at the place where the steel to be loaded is located, or, if in any case there should be no such representative of the Seller, then such directions for loading may be given by mailing by registered mail same to the Seller at Philadelphia, Pa., or Washington, D.C., whichever may then be the address of the Seller, or to such District Offices of the Seller as the *214 Seller may hereafter*3022 designate. In any case where the Seller shall fall (except by reason of strikes, fire, riots, acts of God or public enemy) or refuse to begin and continue diligently to comply with said directions for loading within five days from the receipt of said notice by the Seller, the Buyer may, in its discretion, load said steel specified in said directions and deduct the actual cost of loading from the amount due the Seller for the steel so loaded, provided the amount to be deducted shall not exceed in any case Five Dollars ($5.00) per net ton. All steel to be loaded by the Seller shall be taken by the Buyer "as is" in carload lots.
ARTICLE VI.
For the purpose of this agreement, fabricated and unfabricated steel shall be as defined by a ruling which shall be made by the Chairman of the United States Shipping Board, obtained for that purpose.
At the close of the day in which the petitioner was the successful bidder, it deposited a certified check for $250,000 and, when the bid was accepted, deposited an additional amount of $150,000 in cash. The $400,000 deposit was kept intact throughout the period during which the contract was in force. The petitioner also duly executed and*3023 filed a bond for $500,000.
Petitioner then established headquarters in New York City and placed representatives in each yard where steel was located. The contract was carried out in actual practice by the certification of steel by the Shipping Board to the petitioner, consisting of a list of steel, giving quantity, size, description and location, as covered by the terms of the contract. The petitioner, upon the receipt of such certification, set it up on its own books as a liability, advertised it as its own steel and as "spot" steel (i.e., available for immediate delivery). The Shipping Board was supposed to have checked the amount of the steel before making the certification, but as soon as the petitioner could, after receiving the certification, it sent a representative to the yard who took charge of the steel, checked it, cared for it, attended to the shipping and made any possible yard sales. This practice was, with the knowledge of the Shipping Board, carried out with respect to all the steel certified during the year 1920 by the United States Emergency Fleet Corporation to the petitioner. A typical certification was as follows:
UNITED STATES SHIPPING BOARD, EMERGENCY*3024 FLEET CORPORATION,
Philadelphia, Pa., November 16, 1920.
CERT'N - B.S.P.C. No. 104.
Sheet Nos. 1 to 4.
C 423.
BARDE STEEL PRODUCTS CORPORATION,
114 Liberty Street, New York City, N.Y.
According to Section 1 of Article 4 of Article 4 of contract entered into with the Emergency Fleet Corporation on the 9th day of January 1920, for the purchase of *215 steel; we are today certifying to you, steel listed below and located at: Baltimore, D.D. & S.B. Co.
| DESCRIPTION OF MATERIAL | CERTIFICATION SHEETS | QUANTITY |
| Plates | 1-3 | 320,950 |
| Bulb Angles | 3 | 26,886 |
| Flat Iron for liners | 3-4 | 26,740 |
| Beams | 3-4 | 5,875 |
| Total | 380,451 | |
| 190.2 |
(Signed) JOS. P. BIRNIE,
Head, Material Section.
Per E. O. BRATT.
Formal acceptance of the steel certified was not deemed necessary or ever made. The certificate contained sufficient information to permit an exact cost computation.
When the petitioner sold steel that had been certified to it, a representative of the United States Emergency Fleet Corporation sent a copy of the bill of lading to his corporation and the steel so sold was then invoiced to the petitioner.
At the time the contract*3025 was entered into in January, 1920, the steel market was strong and prices were high and they remained so for several months. Then they started weakening and dropping until the latter part of the year, at which time the market was not only very low, but there was almost no demand. This condition continued through 1921 in an aggravated form.
Disputes between the parties arose from time to time during the contract period. Part of such differences developed by reason of petitioner acting as intermediary between the Shipping Board and owners of the yards in which the steel was stored. Other differences were as to classification and assortment of the steel. Complaints were made and the conversations which followed resulted in several supplemental contracts under date of July 6, 1920, and August 5, 1920, by which agreement was reached as to assortment and classification.
Petitioner's principal cause of complaint was the failure of the Materials Manager for the Shipping Board to give certification. This was a special cause of concern because of the falling market. Several such managers were discharged but such changes availed petitioner nothing. As the end of the period within*3026 which certifications might be made approached, i.e., in December of 1920, and the following month, several hurried certifications, which did not conform to contract specifications, were made and rejected. None of the steel referred to in such certifications was ever entered in the books of petitioner, and is not in any wise related to the figures set out in the paragraph below. In January of 1921, negotiations were begun which resulted in a supplemental contract, bearing date *216 of February 9, 1921, canceling the original and supplemental contracts. This later contract or cancellation contract released petitioner in consideration of a payment of $1,220,215.26 and the release and discharge of the Shipping Board from all existing claims.
The total amount of steel certified to the petitioner in 1920, which had not been invoiced to the petitioner by the United States Emergency Fleet Corporation, was 44,248.66 tons, on which the contract price was $1,741,520.41. This steel was never sold nor ordered to be loaded by petitioner. Petitioner included it in closing inventory for the year 1920 at a market price of $1,204,851.28. The petitioner's books were kept and returns made*3027 on an accrual basis. Its books for 1920 were closed at the end of the calendar year. Its inventories were taken on a basis of cost or market whichever was lower. The respondent excluded from the petitioner's purchase during 1920 the said sum of $1,741,520.41 on account of the 44,248.66 tons of steel which had been certified to the petitioner, and also excluded from the petitioner's 1920 closing inventory the amount representing the market value of said steel, or $1,204,851.28.
OPINION.
SEIFKIN: The sole question herein presented for our consideration is whether the respondent properly excluded the steel in controversy from petitioner's inventory. Apparently respondent seeks to justify the exclusion on the ground that the title to such steel had not passed to petitioner by the close of the year. On the other hand, petitioner asserts it had the beneficial title by the close of the year, which required it to take the goods into inventory and to accrue the correlative liability. It is further contended on behalf of petitioner that, irrespective of the question of title, accurate and consistent accounting principles dictate the accrual of the liability for the steel, and that*3028 it was an error to exclude the balancing entries into cost of goods sold and closing inventory.
It will be noted that the contract was for unascertained goods. It is not claimed that title passed when the contract was entered into. Petitioner's contention as to title is that certification of the steel in question was an irrevocable appropriation to the contract, and the contract, as well as the actions of the parties thereunder, show the intent to pass title at the time of such certification.
The proposition that certification constituted an irrevocable appropriation to the contract may well be questioned in view of the contract provision that the seller did not guarantee the accuracy of the certification, and the clear inference from the last paragraph of Article I that excepted steel, though certified, may still be treated as excepted unless it has been resold by the buyer. For purposes *217 of this opinion we may, however, assume that certification served to identify the goods as specific goods. Such assumption brings us to a consideration of the second proposition of petitioner's contention that the contract and actions of the parties show it was the intent of*3029 the parties that title pass upon such certification.
Article II of the contract provides:
(6) All such excess steel * * * shall remain the property of the Seller until delivered to the Buyer as hereinafter mentioned. It is agreed that, for the purpose of this contract, delivery of said steel shall not occur until the same has been certified, checked and actually loaded on the cars.
We thus have the expressed equivalent of the ordinary presumption which arises in the case of f.o.b. contracts, that title does not pass until the seller actually loads the goods on the cars. .
Obviously, there is a marked difference in the weight attaching to an intent thus actually expressed and the weight to be accorded an intent inferentially derived, with the aid of a legal presumption, from the use of the letters f.o.b. Here the parties expressed their intent in unambiguous terms. We find nothing in the definition of the word "property," whether it was used to designate the steel or the rights with respect thereto, indicating that the bare legal title alone was reserved to the seller. We are bound by such expression unless, as petitioner*3030 urges, other provisions of the contract, together with the actions of the parties in carrying out the contract, are in conflict with the import of such expression and operate to pass at least actual beneficial ownership to petitioner upon certification.
To establish this change in beneficial ownership petitioner relies upon (1) the provisions and proof showing it to be within the contemplation of the parties that petitioner was to proceed to resell the steel upon certification, and (2) the provisions in Article V that "where the Seller shall fail (except by reason of strikes, fire, riots, acts of God or public enemy) or refuse to begin and continue diligently to comply with said directions for loading within five days from the receipt of said notice by the Seller, the Buyer may, in its discretion, load said steel specified in said directions and deduct the actual cost of loading from the amount due the Seller" if the amount did not exceed a specified amount. This provision, together with the interpretive acts of the parties, it is urged, shows possession of or dominion over the steel, and that beneficial title passed at the time of certification.
Respecting the contemplation*3031 of resale upon certification, petitioner contends it cannot sell something which it does not own. That is true. But it is also true that one can contract to sell that which one does not own. The latter possibility is equally consistent *218 with the parties contemplating resale and the provision reserving title to the seller. As between a view bringing two provisions of a contract in conflict and one reconciling such provisions, we must adopt the latter.
Having rejected petitioner's theory as to the effect of the alleged right to resell, there remain the provisions of the contract and the acts of the parties which, it is insisted, gave petitioner possession of, or dominion over, the steel once certification was made. It should be noted at this point that the steel was in storage in various yards in the name of the seller. Possession was in the yard owner at the time of the certification and we see nothing in the mere act of certification to transfer such possession. A brief survey of the other facts of record and of the contract as to their bearing upon possession or dominion is timely.
Upon receipt of the certification notice, petitioner sent a representative*3032 to check the goods, care for it, and sell from the yard if he could. We have assumed above that certification ascertained the specific goods. Petitioner checked the goods and found the certification notice correct. But the contract provided for checking by both parties and the seller was granted until five days after the receipt of loading orders to so check. As loading orders were never given with respect to the steel in question, the seller was never called upon to check the goods. Thus the second step preliminary to the passage of title, as expressed in the above quoted subdivision 6 of article II, was never completed.
Petitioner's representative, who was sent to the yard, also, we are informed, cared for the steel and made yard sales whenever possible. We are unadvised as to the nature of the cars or the extent of yard sales, if any. We see nothing in these facts tending to show possession or dominion over the steel in the petitioner. Nor do these facts necessarily conflict with the express reservation of property rights to the seller.
To show the alleged possession or dominion, petitioner dwells upon the contract provision purporting to give petitioner the right*3033 to load the steel in case the seller fails or refuses to comply with an order to do so. The petitioner apparently considers the provision either as a grant of power, which, in its ultimate effect, is somewhat similar to that recognized by the courts in granting specific performance of a contract, or as giving them such title as would enable them to replevin the goods. In view of what is said below the alleged right to replevin, which depends upon title, is clearly untenable. By such interpretation petitioner seeks to bolster its claim that beneficial ownership had, contrary to the expressed intent, passed at the time of certification. One pertinent objection to such *219 interpretation is that the contract is very different in character from those in which specific performance is ordinarily recognized. So far as appears the seller is concerned only in selling the steel at a specified price while the petitioner, as buyer, is interested only in acquiring the profit which might be anticipated from resale. Compensation in the form of damages would be adequate relief to either party in such circumstances. Since this is usually ground for denying relief in the form of specific*3034 performance or its equivalent, it seems odd, that, had the parties contemplated anything approaching such extraordinary relief in case of the seller's default, they did not at least attempt by express terms to grant such right to the buyer. This is especially true in view of the detailed terms of agreement in other regards.
More important still, we think there is a plausible explanation for inserting the provision in question, and a purpose to be thereby accomplished which was consistent with the contract as a whole. Petitioner expected to contract for the resale of the excess steel. It was essential that it have some assurance as to when such steel could be delivered upon resale, so that it could contract accordingly. The provision thus served not only as a basis for contracting but as a protection to petitioner in case it was unable to meet its resale contract by reason of the seller's delay or default. Any damage liability which accrued to it because of such delay or default would give a cause of action against the seller to recover such damage liability, if the petitioner was prevented by the seller from exercising its option to load at the seller's expense. Not only is*3035 such purpose entirely consistent with the contemplated resale, but it explains the clause limiting default of the seller to delay or default not due to strikes, fire, riots, etc., which limitation would seem to be senseless under the interpretation urged by the petitioner.
The supplemental contract which was drafted by the seller and entered into on July 6, 1920, refers to the original contract "by the terms of which the Seller sold to the Buyer certain excess steel * * *." Petitioner contends this evidences the state of mind of the parties to be that the sale was completed by that time. As was pointed out above, the original contract was for unascertained goods and, therefore, could not effect a completed sale. In , we stated that little reliance could be placed upon the use of the words "sold" or "to sell" as they are used interchangeably. This is borne out here by the much less definite terminology in a later supplemental contract referring to the original contract as "providing for the sale." In a doubtful case such supplemental expressions might be significant as to the then intent of the parties, but we do not attach much weight*3036 to them in the instant case. Petitioner also cites a number of consignment cases in support of its contention. As these *220 cases turn largely upon the fact of shipment, a fact altogether absent in this case, we do not consider them as pertinent authority.
We consider that there is nothing in the contract, or in its interpretation by the parties, that justifies our setting aside the expressed intent of the parties as to when title passed. We have found the provisions relied upon by the petitioner to be wholly consistent therewith. The parties were free to make such terms as they chose and they are bound thereby. We may also add that, though equitable title has passed in a case in which specific performance may be granted, it does not follow that a liability accrues at that time. See the discussion below in .
There remains the question whether, irrespective of title, the alleged liability was a proper accrual as of the close of the year. Petitioner accrued such liability promptly when certification notice was received and insists that, under sound accounting principles, the adoption of such method fairly reflected*3037 its financial condition, and that such method should be approved as in accord with section 212 of the Revenue Act of 1918, and article 23 of Regulations 45.
Before discussing the question raised, it is essential to point out a confusion of terms. Section 212 and article 23 provide that approved methods of accounting will ordinarily be regarded as clearly reflecting income. The income-tax law is concerned only with the income and its reflection in the proper accounting period which determines the tax to be levied for such period. On the other hand, petitioner speaks of reflecting its condition as a banker would view it. Obviously, yearly income is very different from financial condition. A banker would be unwise to disregard conditions which bear upon the future prospects of a business. From his point of view business is a continuous endeavor which may not be judged as of a single calendar year. A clear reflection of yearly income and not of financial condition is the subject matter of our inquiry.
The facts and contract provisions pertinent to the question may be briefly stated. On January 9, 1920, petitioner entered into a contract to buy certain steel which might be*3038 ascertained by the seller at any time before January 9, 1921. Petitioner had one year from the date of ascertainment within which to sell and take delivery of the goods. Petitioner could not be invoiced prior to delivery (except where the time limit had expired) and delivery could not be tendered by the seller until orders for loading were given and complied with. Payment was due upon the next first and/or fifteenth of the month of invoice. The steel in question was not invoiced in 1920 and could not be invoiced (because loading orders were not given) until one year after its certification, which extended into the petitioner's calendar year 1921. Reduced to its essentials, the question presented *221 is whether a liability for goods (title to which was retained by the seller throughout the year), contracted for in 1920, for which payment was not due until sometime in 1921, was a proper accrual by the close of the year 1920.
We think the question raised is governed by the rule applied in , in which this Board excluded goods from closing inventory because title had not passed. That decision held in effect that no liability accrued*3039 where title had not passed. By reason of the nature of the several contentions advanced by the petitioner, the decision in the , is of special interest. In that case we said:
* * * The undisputed evidence is that on December 27, 1916, the parties arrived at an agreement as to the value of the land and the purchaser expressed satisfaction with the title. No contract of sale was made on that date, however, for the purchaser found it necessary to make arrangements for financing the purchase price. A ten-day option was granted the Southern Pine Lumber Co. On December 30, 1916, it gave notice of its intention to exercise such option, thereby creating an enforceable contract between the parties for the sale of the property. It is contended that at that time the sale of the property became executed, that the purchaser acquired title and that the purchase price became due to the petitioner. The deed to the property was delivered and the purchase price paid on January 5, 1917.
In support of its contention, petitioner points out that on December 30, 1916, the purchaser was ready, able, and willing to perform the contract, that it had*3040 already passed upon the title of the petitioner as satisfactory, that the petitioner withdrew from the property the workmen who had theretofore been engaged in the construction of a mill, that upon the closing of the title adjustments were made as of January 1, 1917, and that the purchaser paid taxes after January 1, 1917. None of these factors, however, seem sufficient to vest title to the property in the purchaser or to entitle the seller to have maintained an action in 1916 for the purchase price.
We do not question that equitable title passed to the purchaser at the time the option was exercised and a contract to sell came into effect, so that any loss or damage to the property would have been the loss or damage of the purchaser. We do not understand, however, that because equitable title may have vested, the vender then has a legal right to recover the purchase price, which is the principal question here involved the books of the petitioner were kept upon an accrual basis.
Ordinarily one who has entered into a contract for the sale of property, whether real or personal, has no right to recover the purchase price until the delivery of the property sold. In the case of*3041 real property a right to recover by way of an action for specific performance may exist when a proper tender has been made. Here there was no delivery of the property to the purchaser either by giving it possession of the property, by delivery of a deed, or otherwise, until January 5, 1917, and no tender of delivery, and it was not until 1917 that any right to demand or receive payment of the purchase price arose.
The decisions cited by petitioner may readily be distinguished from this proceeding. Petitioner relies principally upon the case of . There it was held that title had *222 passed when the liability accrued. However, both the concurring opinion and several statements in the majority opinion indicate that the liability accrued irrespective of the title passing. Such statements were based on a consistent accounting practice established over a long period of dealing, a normal year, and trade customs. No such facts are presented in the instant case. The proof as to alleged consistency in accounting practice of petitioner is limited to the treatment accorded the goods involved in this single contract which was*3042 entered into during the year in question. We have no evidence showing this to be a normal year, and as far as the record shows, there were no trade customs interpreting such contracts.
Reviewed by the Board.
Judgment will be entered for the respondent.
MILLIKEN and MURDOCK concur in the result.