Law relating to sale of goods in Sri Lanka

Introduction to law elating to Sale of Goods in Sri Lanka By Maxwell Ranasinghe

• Following areas will be discussed under this topic – Understanding and the elements and formalities of Sale of Goods – The terms of contract of sale of goods – The general rule on transfer of title – Duties of the seller – Duties of the buyer – Remedies

Understanding the elements and formalities of Sale of Goods - Contracts of Sale of Goods are governed by the Sale of Goods Ordinance No 11 of 1896 and its amendments - S 58 (2) provides that subject to the express provisions of the Ordinance, the rules of English Law will apply to the Sale of Goods except where English Law is inconsistent to the express provisions of the Ordinance.

• S 2(1) Defines a Sale of Goods as follows – Sale of goods is a contract by which the seller transfer or agrees to transfer the property in goods to the buyer for a money consideration, called the “Price”. – The property in goods means ownership of goods or title to the goods

– As per the above definition, a particular transaction to be considered as a Sale of Goods contract following four elements are required • 1. There should be a seller and a buyer • 2. There should be goods • 3. There should be a consideration ( price) • 4. Passing of property in goods at the time of contract or in a future date

• 1. Seller and buyer- There should be a person to sell goods now or in a future date. There should be a person to buy the goods now or on a future date• 2. Goods include all movable property except money. It includes growing crops and things attached to or forming part of the land which are gathered to be severed before sale or under the sale of contract• Brodie Vs. Attorney General ( 7 NLR)– It was held that fixtures like counters, water tanks, electric bells, batteries and indicators, baths lavatory furniture are immovables and in absence of a special agreement they also pass with the building.• Old coins not sold for the face value but for some other values (such as metal or antique )can be considered as goods not as money

• Classification of goods• Existing goods- These are the goods owned or possessed by the seller at the time making the contract – It could be further classified as • Specific Goods – Goods that have been identified and agreed upon by the parties as the subject matter of the contract by the time it was agreed upon • Unascertained Goods- Goods defined by only description e.g.. Half of the lot “A”.• Future Goods- these are the goods which are not in existence at the time of making the contract. They are goods to be manufactured or acquired by the seller after the making of the contract of sale.

• 3. The should be price ( consideration) – Consideration for the sale must be money. Therefore exchange of goods will not be a sale of Goods Contract ( it is called barter agreement) – However, consideration could be done partly in money and partly in goods or some other articles of value – Aldridge Vs. Johnson ( 1857) – A contract to sell buffaloes were to be paid by barley ( goods) and money was considered as contract of sale.

• 4. There should be an immediate transfer of property in goods ( ownership) or an agreement to transfer the property in goods( ownership ) in future• “Sale” and “Agreement to sell”• As per the sec 2(3)• When the property in goods is passed from the seller to buyer the contract is called a ‘ sale”• When the property in goods is to pass in the future from the seller to buyer the contract is called an “ agreement to sell” – Agreement to sell become a sale when the time lapses or the conditions in which the property in the goods is to be transferred is fulfilled.

Deal done!

• The Terms of Contract of Sale of Goods – The parties to the contract of sale of goods are free to incorporate any term as they mutually agree – The terms that are mutually agreed upon are called expressed terms – The terms that are not mutually agreed upon but operative by implication of law are called implied terms

• Terms of a contract can be divided into two, depending on the importance• Conditions• Warranties• A condition is a important term of a contract going to the root of the contract, the breach of which gives a right to reject the goods and treat the contract as repudiated ( sec 12(2))• A stipulation may be a condition although it is called a warranty in the contract.

• Where a contract of sale is not severable , and the buyer has accepted the goods or part of it, or where the contract is for specific goods and the property in goods has passed to the buyer, – even a breach of condition by the seller can only be treated as a breach of warranty ( can claim only damages) – And therefore buyer cannot reject the goods and treat the contract as repudiated unless there is a specific term in the contract, expressed or implied to that effect. ( sec 12 (3) )

• Warranty• Warranty is a stipulation in a contract which is not so important as to go to the root of the contract, but is collateral ( subordinate) to the main purpose of the contract, the breach of which gives rise to a claim for damages, but not the right to reject goods and treat the contract as repudiated.

• Implied conditions and warranties• The “implied” means that these terms are not expressly written or agreed, but by operation of law, it is incorporated to the contracts.• There are six implied conditions and two implied warranties in the sale of Goods Ordinance.* ( Consumer Credit ( Hire Purchase) agreements and Consumer Protection Act too has these kind of implied terms )

• Implied Conditions• A. Implied conditions as to title 1. That the seller has a right to sell the goods. If the seller has no title, he is liable in damages to the buyer. Rowland Vs. Divall 1923 R bought a car from D and used it for 4 months. D had no title to the car, and consequently R had to surrender it to the true owner. R sued to recover the total purchase money he had paid to D. Held: He was entitled to recover the money paid in full although he had used the car for 4 months Courts have decided : Even if the goods delivered can be sold only by infringing a trade mark right of another, the seller has broken the condition that he had a right to sell the goods

Niblet V. Confectioners Materials Co. ( 1921) Defendants sold the plaintiffs 1000 cans of condensed milk in tinsbearing the label “ Nissly” Brand. Nestle Condensed Milk Co., thenthreatened legal action for the infringement of their trade markrights and took an undertaking from the plaintiffs not to dispose ofcondensed milk with the label “Nissly”.In order to clear the goods from customs the plaintiffs had toremove the labels. Unlabelled cans had to be sold at a much lowerprice. They sued defendants for damagesHeld : That the plaintiffs were entitle to damages. The court saidthat defendants were not only obligated to pass good title but alsoshould not infringe a trade mark right which interfere with the saleof goods in the normal course of business.

• B. Implied term as to quality of goods 2. Implied condition regarding description ( sec 14) Where there is a contract sale of goods by description, there is an implied condition that the goods shall correspond with the description. Goods are said to be sold by description when they are described in the contract either by the buyer or by the seller and the buyer contracts in reliance of the description

In Re Moore & Co. and Landauer Co ( 1921)M sold to L, 3100 cases of Australian Canned fruits, the cases to contain 30 tins each. M delivered the total quantity, but about half the cases contained 24 tins, and the rest 30 tins. L rejected the goods. There was no difference in market value between goods packed in 24 tins and goods packed in 30 tins. However, the court held as the goods delivered did not correspond with the description( packing) of those ordered, L could reject the whole lot.Beal vs. Taylor – Buyer purchased a car described as 1961 model. The front part was pre 1961 model and it had welded to an old car. Held that the goods did not comply with the description

• 3. Implied condition as to description and sample ( section 14)• If the sale by sample as well as description it should correspond to both.• Nichol vs. Godts ( 1854)• N agreed to sell G some oil described as “ foreign refined rape oil” as per the sample. Although the goods were as per the sample but it was not foreign refined rape oil. Therefore buyer was entitled to reject the goods as it should correspond not only with the sample but with the description as well.

• 4. Implied condition regarding merchantable quality• Where good are purchased from a seller who deals in goods in that description ( whether he is a manufacturer or not) there is an implied condition that the goods should be of merchantable quality.• In other words goods must be fit for the purpose for which goods of that kind are commonly purchased and it must be free from any defect which is not apparent on the reasonable examination of the goods

• Frost Vs. Aylesbury Dairy Co ( 1905)• The diary milk sold was infected with typhoid germ and a consumer died of consuming it. The Diary proved that they have taken all possible and reasonable precautions in the manufacturing process to ensure its safety for consumption. But court held that the seller is liable to pay damages as the milk was not in merchantable quality.

• Thornett and Fehr Vs. Beers Son ( 1919)• When a buyer is given the opportunity to inspect the product and such inspection would have revealed the status and the buyer fails to do so then the implied condition cannot be relied upon by the buyer.• The term merchantable quality will depend on the nature of the good, price and the requirement of the buyer.• Ina decided case a second hand car was purchased and clutch gives trouble and repairs were done and the bill was claimed. Not allowed to rely on merchantable quality as it could be expected from a second hand car.•

• 5. Where buyer expressly or by implication, makes known to the seller the particular purpose for which the goods are required, and thus showing that he relies on the sellers skill or judgment, there is a implied condition that the goods shall be reasonably fit for such purpose• In order to rely on this implied condition the buyer has to prove – He either expressly or impliedly informed the seller the particular purpose for which he wanted the goods – Seller was aware that the buyer had relied on the sellers skill and judgment to select him the required product – Seller is in the general business of selling such goods ( he need not be a manufacturer)

– E.g. A farmer goes to a specialised pesticides dealer and ask him to provide a pesticide for specific pest but it did not eliminating or repel the pest, the farmer should be in a position to claim damages– E.g. A car painter goes to a special paint mixing center with a car and ask them to mix a colour that would suit the existing colour of the car and get a different colour when applied to the car will be able to claim damages under this clause.

• 6. Where the sale is by sample – The bulk must correspond with the sample in quality – The buyer must have a reasonable opportunity to compare the bulk with the sample – The goods must be free from defect rendering them unmerchantable , which a reasonable examination of the sample would not reveal e.g. In wholesale rice market, many traders show a sample of rice for the buyers to select. The buyer should be able to check and compare the sample with the bulk by taking some reasonable amount of samples from the bulk.

• Implied Warranties• These are relevant mainly to the title of goods• 1. That the buyer shall have and enjoy quite possession of the goods purchased. {sec 13 (5)} Therefore, seller will be liable in damages if the buyer is disturbed in the enjoyment of the goods in consequence of seller’s defective title• 2. That the goods are free from any charge or encumbrance in favour of any third party, not declared or known to the buyer before or at the time when the contract is made. ( sec 13 c)

• Implied Terms and Unfair Contract Terms Act No 26 of 1997• There has been many instances where sellers of goods have expressly exempted implied terms to deny the right of buyers to rely on them.• However, under the Unfair Contract Terms Act, any exemption clauses trying to exclude or restrict liability from sec 13,14,15 and 16 of the sale of Goods Ordinance is void as against a person dealing as a consumer.• But sellers may use exemption clauses to implied terms with traders if they expressly agree to do away with them.

• Caveat emptor rule “Buyer be aware”• If no implied terms or Unfair Contract Terms Act, buyer would have been in a difficulty as he does not get legal protection for fundamental defects or deceptive actions of sellers• Other than implied terms, still the buyer has to be careful in buying goods as he may not have any remedy through law if he makes a blunder.

• Nemo dat quod non habet• Buyer gets no better title than the seller had or in other words you cannot pass a better title than what you have.• E.g. If you have stolen goods and transfer that goods to an innocent buyer, he does not get a good title to goods. He also get the tainted title of stolen goods. ( refer contract law)

• Buyers remedies against the seller for breach of contract• 1. Sue the seller for non delivery of goods• ( If the seller wrongfully neglects or refuses to deliver goods to the buyer, the buyer may sue the seller for damages for non delivery)• 2. If he had paid money already, and goods are not delivered to him, he could sue for the recovery of money paid.• 3. Sue for specific performance• If the goods are of special significance of value or it is not readily available in the market and damages may not be sufficient remedy, the buyer could plead court to order “Specific Performance” and compel the seller to deliver the goods as agreed in the contract.

• 4. Sue for breach of condition or warranty• If the seller is in breach of condition, buyer has the right to reject the goods and repudiate the contract and also claim damages if necessary• However, if he waives the breach of contract and elects or is compelled to treat it as a breach of warranty, the contract is not severable and he has accepted the goods or part thereof, the contract is for specific goods and title has already passed to the buyer then the buyer can only claim for damages

What Next ?

• Duties of the buyer• 1. To accept the delivery of goods, when the seller is willing to make the delivery as per the contract• 2. To pay the price agreed in exchange of goods• 3. To apply for the delivery of goods• 4. To demand delivery of goods at a reasonable hour

• 5. To accept delivery of goods in installments and pay for them in accordance with the contract if such an arrangement was stipulated in the contract.• 6. To bear the risk of deteoration in the course of transit when the goods are to be delivered at a place other than they are sold.• 7. To inform the seller in case the buyer refuses to accept or reject the goods

Now what ???

• Duties of the seller – Deliver the goods in accordance with the terms of the contract – Willingness to give possession of the goods to the buyer and make arrangements for the transfer of property in goods to the buyer – To ascertain and appropriate the goods to the contract of sale

– To pass and absolute and effective title of the goods to the buyer– To put the goods in a deliverable state and deliver goods as when applied– To deliver goods within the specified time in the contract or within a reasonable time

Who likes this ?

• Unpaid sellers remedies• Unpaid sellers means, seller has not received the whole price or price has been paid partly or in full by a Bill of exchange ( cheque) which is subsequently dishonoured.• Sellers remedies are two fold – Real remedies ( rights against the goods) – Personal remedies ( rights against the buyer)

• Real Remedies• 1. according to the real remedies under sec 39(1) unpaid seller is entitled to the following remedies even where the goods have already passed onto the buyer• (A) Right of lien – The seller’s lien enables the right to retain possession of the goods until payment is received. – According to sec 40, a lien is available when • The goods have been sold without stipulation as to credit (In other words, does not have lien on items sold on credit) • The goods have been sold on credit that has already expired • The buyer becomes insolvent

According to sec 42 a lien is lost when • the goods are delivered to the transporter for the purpose of transportation of goods to the buyer, without reserving the right of disposal • when the buyer or his agent lawfully obtain possession of the goods • By waiver• (B) Right of stoppage in transit – Seller has the right to stop the transit of goods sold under sec 43. Can regain the possession of them until the payment is made. It could be done when • The buyer becomes insolvent • The goods are still in transit

• (C) Limited right of resale – The right of lien and stoppage in transit would not have been of much value if the seller had no right to resell the goods, as seller cannot continue to hold the goods indefinitely. – Unpaid seller may resell the goods when • The goods are of perishable nature, without giving any notice to the buyer of the resale • Where he gives notice to the buyer of his intention to resell and the buyer does not pay within a reasonable time • Where the seller expressly reserves the right to resell if the buyer defaults

• 2. Unpaid sellers right - When the property in goods have not passed to the buyer – Right of withholding the goods until payment is made. – It is similar to right of lien and right of stoppage in transit when the property in the goods has passed to the buyer.

• Personal remedies available for unpaid seller – Action for price • When the property in goods has passed to the buyer and buyer willfully neglects payment or refuses to pay the price, the seller is entitled to sue him for the price. • When the price is payable on a specific day irrespective of the delivery, an action for the price may be brought against the buyer even if the property in goods has not passed or goods have not been appropriated to the contract

• (b) Action for damages for non acceptance ( sec 49) – When buyer wrongfully neglects or refuses to accept the goods buyer can be sued for damages – The measure of damages would be decided upon facts. – When the goods have a fixed price and the supply exceeds demand the damages would be the profit on the product that would have earned by the seller – When there is an available market for the goods, the measure of damages is the difference between the contract price and the market price – Note : If the product does not have a market at all other than the buyer, even the whole cost of the goods could be recovered as damages.

Good Luck

Law relating to sale of goods in Sri Lanka

by Maxwell Ranasinghe on Nov 19, 2011

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Law relating to sale of goods in Sri Lanka Presentation Transcript