Sale of Goods is the most common way on which ownership passes from one person to another. That is from a seller to a buyer. Since this is a contract, the law of contract would prevail generally. Additionally, there is a specific law – Sale of Goods Ordinance, no: 11 of 1896. This statute is a total reproduction of the English statute of Sale of Goods Act, 1893. However, the English statute radically changed during the last century. But Sri Lankan Ordinance remained almost unchanged. However, it had some effects due to the introduction of the Unfair Contract Terms Act, no: 26 of 1997.
SALE OF GOODS ORDINANCE, No: 11 of 1896
The Sale of Goods Ordinance, no: 11 of 1896 governs the sale of goods in Sri Lanka. Section 2 (1) of the above ordinance defines the sale of goods as a contract. The Price is the money consideration by which the seller transfer or agrees to transfer the property in goods to the buyer. As per this definition, to fulfill the requirements, there should be a seller, buyer, goods, and price. Also, the property in goods must pass at the time of contract or on a future date.
According to section 2 (3), if the property in goods is passed from the seller to the buyer at the time of forming the contract, it is called a sale. If the property in goods is to pass in the future, it is an agreement to sell.
The parties to the contract of sale of goods are free to incorporate any terms as they mutually agree. Expressed terms are the terms that are mutually agreed upon. Implied terms are the terms that are operative by implication of law. They are not mutually agreed upon.
Conditions and Warranties,
Terms of a contract can be divided as conditions and warranties, depending on the importance. As per section 12 (2), a condition is an important term of a contract. It goes to the root of the contract. The breach of the condition gives a right to reject the goods and treat the contract as repudiated. A stipulation may be a condition although it is called a warranty in the contract.
Warranty is a stipulation in a contract which is not so important as to go to the root of the contract. It is secondary to the main purpose of the contract. The breach of warranty gives rise to a claim for damages. But it does not give the right to reject goods and treat the contract as repudiated. The Sale of Goods Ordinance, no: 11 of 1896 implies several highly important conditions and warranties.
IMPLIED TERMS IN SALE OF GOODS ORDINANCE, No: 11 of 1896
Through the operation of sections 13, 14, 15, and 16 of the Sale of Goods Ordinance, no: 11 of 1896, a number of conditions and warranties are implied in a contract of sale. These range from sale by description, fitness for the purpose, merchantable quality, and sale by sample.
However, section 54 of the Ordinance allows the parties to contract out of the statutory implied terms. It says any right, duty or liability arising under a contract of sale by implication of law may be negatived or varied by the express agreement or by the course of dealing between the parties or by usage if the usage bind both parties to the contract. This shows the laissez-faire policy of the then government. But as far as for the government intervention to protect the innocent parties, this can be interpreted as a weak point in the Ordinance. This has happened due to the direct copying of section 55 of the English Sale of Goods act, 1893 into our ordinance. However, English courts later gave judgments against exemption clauses operated through this section.
Karsales (Harrow) Ltd v Wallis
In Karsales (Harrow) Ltd v Wallis, Lord Denning gave judgment against Strict Construction Rule. This rule says ‘the contract is intended to do what it says it will do and judges can only apply what the contract says within its own terms’. Lord Denning ruled against this since it would not be fair for both parties. Although English courts ensured that a party would not be able to fall back on an exemption clause to safeguard himself from the consequences of a breach so grave as to frustrate the commercial purpose of the contract, our ordinance was not changed up to now. But, section 7(a) and 8(a) of the Unfair Contract Terms Act, no. 26 of 1997 attempted to exclude or restrict the operation of sections 13, 14, 15, and 16 of the Sale of Goods Ordinance.
Section 14 – Correspondence with description
Section 14 of the Ordinance says, if the contract for the sale of goods is by description, the implied condition is that the goods shall correspond with the description. Or, if the sale is by sample as well as by description, it is not sufficient that the bulk of the goods correspond with the sample if the goods do not correspond with the description.
The English courts’ approach to similar sections in the English act was very strict. They have interpreted the wording of the section leading to an insistence that any disconformity regarded as a violation under the section. In Re Moore & Co v Landauer & Co, the contract was for the sale of 3,100 tins of Australian canned fruit packed in cases of 30. When delivered, the tins were in cases of 24. However, the agreed overall number of tins was correct. But the Court of Appeal held that the buyer was entitled to reject the goods. It was on the ground of breach of correspondence with description.
In cases where a minute detail of the description has a bearing, this interpretation could be justified. For example, in the above case, if the need to have 30 tins to the pack was to re-sell without re-packing, non-conformity could be justified. But, if the tins were to be unpacked and placed on a self, non-conformance with the description would not be a justification to reject goods.
In some cases, even the breach itself may be little or no significance. The buyer can use section 14 to reject the goods without adequate justification.
For all intents and purposes, the statutory provision remains unchanged. Therefore, this section needs revision in order to prevent possible ill effects of the too strict interpretation of the wording.
Section 15 and 16 – Fitness for the purpose and Merchantable quality
Section 15(2) imposes an implied condition that ‘where goods are bought by description from a seller who deals in goods of that description (whether he is the manufacturer or not) the goods shall be merchantable quality. But the ordinance does not offer a definition of the term merchantable. The original meaning of the merchantable quality is that one merchant buying from another would have regarded the good as suitable. Since there is an ambiguity, the wording must be changed. In the amended English Sale of Goods Act, the wordings were changed. It says that ‘the goods supplied under the contract are of satisfactory quality’.
In section 15(1) and 15(2) of our Ordinance, the condition of fitness for the purpose and merchantable quality is imposed on the ‘goods’. This leaves to interpret that anything supplied along with the goods does not come under the operation of this section. In Geddling v March, the plaintiff was seriously injured by the bursting of a bottle of lime juice. The defendant’s argument was that the bottle itself was not subject to the condition that it should be ‘reasonably fit for the purpose’. Also, they argued the bottle containing the juice given on a refundable deposit. Therefore it is not a good. However, the trial judge rejected these arguments in the appeal.
The similar wordings in the English Sale of Goods Act were later changed in the Supply of Goods (implied terms) Act, 1973 as ‘the goods supplied under the contract of sale’. Therefore it clearly implies the condition of fitness for purpose and quality applies not only to the goods agreed to. In addition, it implies all that supplied in the performance of the contract, which includes containers, etc. The wordings in our Ordinance also must have similar changes.
Silence on disclosed defects
Section 15 or Section 16 does not address a situation where the seller might have disclosed a particular defect or defects to the buyer. This could lead to a situation where the buyer buys goods knowingly about defects as informed by the seller. And later, the buyer seeks protection under section 15 or 16. This situation can be overcome by adding a clause. It should say ‘the implied terms as to quality and fitness for purpose will not extend to any matter that makes the goods unsatisfactory if such defects have been specifically drawn to the buyer’s attention prior to the making of the contract’.
Examination by the buyer
The proviso to Section 15(2) says there shall be no implied condition for merchantable quality if the buyer has examined the goods. In the Thornett & Fehr v Beers & Son, defendants having cursory inspection outside of barrels containing glue were satisfied with the quality of glue. But, defendants subsequently discovered that glue was defective. This situation could be avoided if they had a proper inspection of barrels. Therefore, the wording of ‘inspection’ should be replaced with ‘proper inspection’.
The Sale of Goods Ordinance, no. 11 of 1896 is now nearly 120 years old. It is unfair to expect legislators of 120 years ago to foresee all the possible permutations and combinations that can arise then and now to answer the difficulties highlighted above.
However, problem arisen in the United Kingdom was solved by way of case laws and by reforming the original act. However, our Ordinance survived intact nearly 120 years.
The needs, society, and way of transactions have changed drastically compared to the society that existed a century ago. So, a new statute must be enacted considering the shortcomings mentioned above and also to fulfill the present-day needs of the society.
- (1956) 2 A11 ER
- (1921) 1 KB 73
- (1920) 1 KB 68
- (1919) 1 KB 486