The Sale of Goods Ordinance No 11 of 1896 – A long way to go ?

Introduction

1. In the year 1889 the Sale of Goods bill, drafted by Sir Mackenzie Chalmers was presented to the
English parliament. The bill, having changed considerably emerged as the Sale of Goods Act 1893. The
full title of the Act was, ‘An Act for codifying the Law relating to the Sale of Goods’ and was an attempt to
codify the English Law then existing with regard to the sale of goods. The Act was adopted almost
verbatim in Sri Lanka (Ceylon) as the Sale of Goods Ordinance No 11 of 1896. While the English Act has
been radically transformed over the last century, our Ordinance has remained almost exactly as it was in
1896 except for a degree of qualification as a result of the Unfair Contract Terms Act, No 26 of 1997.

2. It is generally accepted that in spite of much criticism, for its time the Sale of Goods Ordinance
was an excellent piece of draftsmanship, and it is submitted that in comparison with recent legislation is
far more ‘readable’. While the complexity of the normative statutory form is replaced with comparatively
simple language it is submitted that this ‘simplicity is deceptive’[1]

3. Throughout the Ordinance there are numerous instances of ambiguous or undefined definitions,
linguistic pitfalls and categories and situations which it implies to be comprehensive, whereas in reality
certain aspects are often incomplete or completely missed out. This paper will aim critically evaluate the
Sale of Goods Ordinance No 11 of 1896 concurrently with case law, and highlight areas that require to be
addressed in the view of this writer.

Limitation of the applicability of section 7 and 8 to ‘specific goods’

4. Section 7 of the Sale of Goods Ordinance of 1896 states that a contract for the sale of specific
goods, which without the knowledge of the seller have perished at the time the contract is made shall be
void. Section 8 stipulates that an agreement to sell specific goods will be avoided if subsequent to the
contract, with no fault on the part of either buyer or seller, the goods perish before the risk passes to the
buyer.

5. The Ordinance does not make any reference as to what the position would be regarding any other
form of goods, ascertained goods for example. This silence on the part of the ordinance can lead to the
conclusion that in a situation other than for ‘specific’ goods the legal effects laid out in section 7 and 8
would not occur. Would the perishing of goods which were not specific but to be ascertained after the
making of the contract leave a buyer with no remedy to recover the price already paid? The question is
not answered by the SOG Ordinance.

Section 17 to section 21 – Transfer of property as between seller and buyer

6. Section 19 stipulates that ‘unless a different intention appears’ the intention of the parties as to
the time at which the property in the goods is to pass to the buyer is to be ascertained by applying the 5
rules under section 19. Rule 1 of section 19 reads as follows:

‘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 is immaterial whether the
time of payment or the time of delivery, or both, be postponed.’

7. It is submitted that the phrase ‘unconditional contract’ if taken in its logical context, meaning a
contract not subject to a contract precedent or subsequent[2] can lead to complications when read with
section 12(3). As per rule 1 if there are no conditions precedent or subsequent the property will pass at
the time of making the contract. If the contract is for specific goods, the operation of section 12(3) will
deny the buyer the right to reject the goods. Atiyah is of the view that the judges ‘consciously or
unconsciously stove to avoid’ this result in deciding cases[3]. In Varley v Whipp[4] though there were no
conditions precedent or subsequent, it was held that the sale was not an unconditional sale, and hence
the property had not passed at the time of making the contract. While the English Misrepresentation Act
of 1967 has solved this problem by repealing parts of the corresponding section to 12(3) in the English
SOG Act[5] in Sri Lanka it is submitted that the problem remains.

Non definition of the phrase ‘unascertained goods’ in the SOG Act

8. Roy Goode points out that the Sale of Goods Act in referring to the phrase ‘unascertained goods’,
fails to distinguish ‘two quite different categories’, with unfortunate results. It is submitted that this
observation is applicable to our own SOG Ordnance of 1896. While our Ordnance too refers to
‘unascertained goods’, it is possible that the goods may be wholly unascertained, meaning that one, the
parties to the contract have not yet designated even a possible supply source, or two, the goods may
have been partially identified that they are to be supplied from an identifiable bulk. A buyer contracting
to purchase 500 tons of cement from a bulk carrying ship named ‘Challenger’ which is know to be en-
route to a port of call loaded with 6000 tons of cement would be an example of a contract of the latter
category. In this case the goods have been ‘partly’ ascertained in that the 500 tons are from a bulk cargo
of cement on a particular ship, and none other. Goode refers to such goods as ‘quasi-specific goods’, and
the difficulties that can arise from grouping such ‘quasi-specific goods’ under a common label of
‘unascertained goods can be seen in cases such as Re wait.

9. As per section 17, if the contract is for the sale of unascertained goods ‘no property in the goods
is transferred to the buyer unless and until the goods are ascertained’. In this context, even if the
contract goods are part of an identified bulk – ‘quasi-specific goods’, it will be categorized as
‘unascertained’[6] and property will not have passed. In such a case if the goods are not delivered to the
buyer (due to the sellers’ bankruptcy or sale of the goods to a third party for example) the buyer will be
unable to sue for conversion since the property has not passed, neither seek specific performance
through section 51, since specific performance requires the goods to be specific or ascertained. This rule,
that a buyer who contracts to buy an unidentified part of a bulk acquires no property rights, even if he
has paid the price in advance has been remedied in England by the SOG (Amendment Act) 1995 through
sections 20A and 20B.[7] The effect of the amendment is that a buyer who has paid for some or all goods
forming part of an identified bulk (quasi-specific goods) becomes an owner in common of the bulk. Such
an approach would have avoided the situation that arose in Re Wait. In our own ordinance however this
common umbrella of ‘unascertained good’ being applied to both wholly unascertained goods as well as
‘quasi-specific goods’ leaves this issue unaddressed.

Exclusion of liability for terms implied under section 13,14,15 and 16 of the Sale of Goods Ordinance

10. Through the operation of sections 13,14,15 and 16 a number of conditions and warranties are
implied in to a contract of sale. These range from the implied condition that the goods shall correspond
with the contract description[8], as to fitness for purpose and merchantable quality[9] and implied
conditions pertaining to sale by sample[10]. However the Sale of Goods Ordinance itself allows the
parties to contract out of the statutory implied terms through the operation of section 54 which reads:

‘Where any right, duty or liability would arise under a contract of sale by implication of law, it may be
negatived or varied by the express agreement or by the course of dealing between the parties, or by
usage, if the usage be such as to bind both parties to the contract.’

11. This weakness in the original act, is aptly summed up by Professor Goode when he says ‘the
laissez-faire policy of the Sale of Goods Act 1893, with its express encouragement to contract out of the
statutory implied terms, was allowed to hold sway for a remarkably long time.’[11] referring to section
55 of the English SOG Act of 1893. Due to lack of legislative action the English courts developed a series
of judicial tools to be employed against exemption clauses operating through this section. This trend
came to it culmination in cases such as Karsales (Harrow) Ltd v Wallis[12] , Harbutt’s Plasticine’ Ltd v
Wayne Tank & Pump Co. Ltd[13] where Lord Denning MR referred to the doctrine of ‘fundamental
breach’. This doctrine served to ensure 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’[14]. Following the belated English response to this problem, in Sri Lanka, the
Unfair Contract Terms Act, No 26 of 1997 sought to remedy the difficulty caused by the operation of
section 54. Sections 7(a) and 8(a) of this Act renders ineffective any contract term which attempts to
exclude or restrict the operation of section 13,14,15 or 16 of the Sale of Goods Ordinance.[15]

12. It is submitted that our own rectification of this difficulty in 1997, 20 years after the similar Unfair
Contract Terms Act of 1977 in England is proof of the very slow pace at which many of the inherent
weaknesses of our SOG Ordinance are being addressed.

Section 14 – Correspondence with description

13. The draftsman of the English SOG Act of 1893, through his use of the word ‘condition’ as a
synonym for a major term of the contract, combined with laying down as an ‘implied condition’ the
need for goods supplied by the seller to conform to the contract description served to lower the status
of correspondence with description which is in fact a ‘factual and express’[16] undertaking (a core
element of the contract), to be on par with a term implied by law such as fitness for purpose or
merchantable quality. While the implications of this in terms of exemption clauses has been dealt with
under another heading[17], in the era before the Unfair Contract Terms Act in England the courts sought
to remedy the implication of this drafting ambiguity by recognizing that correspondence with description
was a ‘fundamental obligation’[18].

14. This approach by the courts led to a strict interpretation of the wording of section 14[19] leading
to an insistence that any disconformity, however minor will be in violation of the section ‘unless purely
microscopic’[20]. In Re Moore & Co and Landauer & Co[21] the buyers agreed to buy 3000 tins of
Australian canned fruit packed in cases of 30 tins. When the goods were delivered to the seller, it was
found that approximately fifty percent of the cases held only 24 tins. Though the total number of tins
amounted to 3000 the Court of Appeal held on the basis of the ‘perfect tender’ rule that the buyer was
entitled to reject the goods on the grounds of a breach of correspondence with description. Atiyah is of
the view that this case provides an example of the ‘perfect tender’ rule in an extreme sense.

15. A similar interpretation of Section 14 of our SOG Ordinance can arrive at the same ‘perfect
tender’ rule which can, it is submitted, lead to injustice. In cases where a minute detail of the description
will have a bearing[22] this interpretation could be justified, however in many cases where the breach
itself may be of little or no significance section 14 may be used by a buyer to reject goods without
adequate justification. Goode highlights that the observations of Lord Wilberforce in Reardon Smith Line
Ltd v. Hansen-Tangen indicates a shift away from this judicial attitude[23] though for all intents and
purposes the statutory provision remains unchanged. It is the opinion of this writer that Atiyah’s view, of
this section requiring revision[24] is warranted, in order to prevent possible ill effects of too strict an
interpretation of the wording.

Implied conditions as to fitness for purpose and merchantable quality – Section 15(1) to 15(4) and
Section 16(2)(c)

Ambiguity caused by the phrase ‘merchantable quality’ – Section 15(2)

16. Section 15(2) operates to impose an implied condition that ‘where goods are bought by
description from a seller who deals in goods of that description (whether he be the manufacturer or
not)’ the goods shall be of merchantable quality. The Ordinance does not however offer a definition of
the term merchantable and one will be required to consider the original meaning of the phrase
‘merchantable quality’ i.e., ‘that one merchant buying from another would have regarded the goods as
suitable’[25] It is submitted that this ambiguity is unsatisfactory, and the wording of the section requires
to be changed on the lines of the amended English SOG Act which imposes an implied term that ‘the
goods supplied under the contract are of satisfactory quality’

Reference to ‘the goods’ in section 15(1) and 15(2)

17. In our Ordinance the condition of fitness for purpose and merchantable quality are imposed on
‘the goods’, thereby leaving it open to the interpretation that any thing supplied along with the goods
proper (not sold as part of the contract) do not come under the operation of the section.

18. In Geddling v Marsh[26] the plaintiff was seriously injured by the bursting of a bottle of lime juice,
supplied in the course of business by the defendant. It was argued (though rejected by the trial judge
and in appeal) that the bottle itself was not subject to the condition that it should be ‘reasonably fit for
the purpose’ since the bottle containing the juice was given on a refundable deposit and was therefore
not equitable to ‘the goods’ (meaning the juice itself). The language of the corresponding sections of the
English SOG Act was amended by the Supply of Goods (implied Terms) Act 1973 to make clear the
judicial interpretation given in such cases to read ‘the goods supplied under the contract of sale’, hence
the condition of fitness for purpose and quality apply not only to the goods agreed to be sold but all that
is supplied in the performance of the contract (including containers etc)

Silence on ‘disclosed defects’

19. Section 15(1), Section 15(2) and Section 16(2)(c) fail to address a situation where the seller might
have disclosed a particular defect or defects to the buyer. This could lead to a situation where a seller has
purchased goods, while aware of a defect (told by the seller) and afterwards seeks the protection of
section 15(1),15(2) or Section 16(2)(c). This difficulty can be overcome by stipulating that the implied
term as to quality and fitness for purpose will not extend to any matter that make the goods
unsatisfactory if such defect has been specifically drawn to the buyers attention prior to the making of
the contract.[27]

Examination by the buyer

20. While section 15(2) implies a condition that goods shall be of merchantable quality, the proviso
to 15(2) qualifies the section by providing ‘that if the buyer has examined the goods there shall be no
implied condition as regards defects which such examination ought to have revealed’ The operation of
this section can be seen in Thornett & Fehr v. Beers & Son[28] where the defendants having the
opportunity to examine some barrels containing glue were satisfied with a cursory inspection of the
outside of some of the barrels. Had they opened the barrels they would have discovered that the glue
was defective. It is submitted that the wording of the provision to section 15(2) of our ordinance i.e.
‘such examination’ implies that if the defect is of a nature that ought to have been detected by a proper
examination (a comprehensive one as opposed to a cursory) irrespective of the actual nature of the
examination conducted.

21. The change of the wording to read ‘that examination’ in the English SOG Act has modified its
effect. For example if a person were to examine the exterior of a car, and after purchase finds a fault in
the engine, which could have been detected had he examined the engine ‘that examination’ would not
invalidate the operation of the condition since the fault would not have been detectable in the
examination actually carried out. It is submitted that in our own ordinance the use of the phrase ‘such
examination’ will result in greater emphasis on the ‘caveat emptor’ principle by placing a greater onus of
responsibility on the buyer to ensure that the goods he is purchasing are free of any defects through
proper examination. As to whether the wording should be left unchanged or modified will depend on
the prevalent attitude in Sri Lanka as to the degree to which the ‘caveat emptor’ principle should be
allowed to hold sway

Acceptance – Section 35 of the Sale of Goods Ordinance

Conflict between section 34 and section 35

22. Section 35 stipulates three conditions under which the buyer is deemed to have accepted the
goods tendered by the seller. The second of these is, ‘when goods have been delivered to him and he
does any act in relation to them which is inconsistent with the ownership of the seller’[29]

However section 34(1) stipulates that ‘where goods are delivered to the buyer which he has not
previously examined, he is not deemed to have accepted them unless and until he has had a reasonable
opportunity of examining them for the purpose of ascertaining whether they are in conformity with the
contract’.[30]

23. A conflict thus arises in a situation where a buyer may perform an act which is inconsistent with
the ownership of the seller, though he (the buyer) had not examined the goods on receipt for conformity
with the contract. A comparable situation arose in Hardy & Co v Hillerns and Fowler[31] ; where by and
agreement of c.i.f terms wheat was shipped to certain buyers who received the documents on 20th
March. The following day the goods were unloaded and dispatched to sub-buyers. On 23rd March the
buyer examined the goods and discovered that they did not conform with the terms of the contract. It
was held that the act of dispatching the goods to sub-buyers was inconsistent with the ownership of the
sellers, and though the goods had not been examined by the buyer, section 34 did not apply and the
buyer was deemed to have lost his right of rejection.

24. In England the conflict between the corresponding sections has been remedied by providing that
the conditions under which the buyer is deemed to have accepted the goods are subject to him (the
buyer) having had a reasonable opportunity of ascertaining whether the goods are in conformity with
the contract, or in the case of a sale by sample, of comparing the bulk with the sample.[32] Section 35(6)
b of the English Act specifies that the buyer is not deemed to have accepted the goods merely because
he has delivered to a sub-buyer.

25. In Sri Lanka however the conflict between section 34(1) and section 35 remains.
Unpaid seller’s Lien – Section 40

26. The seller’s lien is a right to retain the goods until the whole of the price has been paid or
tendered. In this context it is submitted that the wording of the Act can lead to ambiguity with regard to
sales on credit. Atiyah is of the view that a seller who allows the buyer credit does not imply that he is
prepared to deliver the goods before the price has been paid, but perhaps only that the seller is not
insisting on immediate payment.[33] The Act however can be interpreted to assume that an agreement
as to credit means an agreement that buyer shall be entitled to the goods before payment. Section 40(1)
reads;

‘Subject to the provisions of this ordinance, the unpaid seller of goods who is in possession of them is
entitled to retain possession of them until payment or tender of the price in the following cases:’

Under section 40(1) subsection 40(1) (a) reads;

‘Where the goods have been sold without any stipulation as to credit;’

27. The result of Section 40(1) and 40(1)(a) is to imply that the seller will not be entitled to the
unpaid seller’s lien in a case where goods have been sold on credit. It is submitted that this is an
unsatisfactory state of affairs and is another instance of ambiguity created through the SOG Ordinance
No 11 of 1896.

Conclusion

28. It is submitted that this paper demonstrates that any attempt to construe the Sale of Goods
Ordinance No 11 of 1896 as a complete and comprehensive piece of legislation is futile. It will be unfair
to expect the draftsman of 1893 (English SOG) to have foreseen all the possible permutations and
combinations that can arise from the Sale of Goods then and now and the answer to the difficulties
faced as a result of the areas highlights in this paper is to expedite law reform in this field as has been
done on several instance in England. It is submitted that, it is most unfortunate and indeed inexplicable
as to why the Sale of Goods Ordinance has been allowed to remain almost unchanged for over 100
years. This is especially so when the areas requiring radical change have been highlighted through the
numerous reforms that have transformed the original English Act in to quite a different entity. In
conclusion I would like to end on the note that if the arguments developed in this paper draw the
attention of the reader to the areas of our law on the sale of goods that require to be addressed urgently
it will have served its purpose.