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

2. • 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

4. 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.

5. • 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

6. – 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

7. • 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 immovable's 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

8. • 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.

9. • 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.

10. • 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.

11. Deal done!

12. • 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

13. • 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.

14. • 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) )

15. • 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.

16. • 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 )

17. • 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

18. Niblet V. Confectioners Materials Co. ( 1921)
Defendants sold the plaintiffs 1000 cans of condensed milk in tins
bearing the label “ Nissly” Brand. Nestle Condensed Milk Co., then
threatened legal action for the infringement of their trade mark
rights and took an undertaking from the plaintiffs not to dispose of
condensed milk with the label “Nissly”.
In order to clear the goods from customs the plaintiffs had to
remove the labels. Unlabelled cans had to be sold at a much lower
price. They sued defendants for damages
Held : That the plaintiffs were entitle to damages. The court said
that defendants were not only obligated to pass good title but also
should not infringe a trade mark right which interfere with the sale
of goods in the normal course of business.

19. • 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

20. 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

21. • 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.

22. • 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

23. • 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.

24. • 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.
•

25. • 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)

26. – 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.

27. • 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.

28. • 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)

29. • 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.

30. • 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.

31. • 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)

32. • 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.

33. • 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

34. What Next ?

35. • 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

36. • 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

37. Now what ???

38. • 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

39. – 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

40. Who likes this ?

41. • 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)

42. • 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

43. 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

44. • (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

45. • 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.

46. • 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

47. • (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.

48. Good Luck