University of Moratuwa

B.Sc in Transport & Logistic Management

Business Law – 4

Prof. Shanthi Segarajasingham

Department of Commercial Law
Faculty of Law, University of Colombo

S.Shanthi, Faculty of Law

 Law relating to ‘Sale of Goods’
• Sri Lanka – Sale of Goods Ordinance No 11 of
1896
• It is very similar to Sale of Goods Act 1893 of
UK
• Present UK law are Sale of Goods Act 1979 &
Consumer Rights Act 2015
• English Law is ‘applicable law’ for Sri Lanka
• In the absence of case law in Sri Lanka English
case laws are used
 What is Sale of Goods?
• It is a contract between buyer and seller
• Subject matter (goods) is transferred
from the seller to the buyer for a money
value called consideration
• Buyer becomes owner of the goods only
when the property in goods (title or
ownership) is transferred
 Legal definition
• S.2(1) - A contract of sale of goods is a
contract whereby the seller transfers or agrees
to transfer the property in goods (title) to the
buyer for a money consideration called ‘price’
• Contract may be absolute or conditional
• Agreement differs from contact
• Agreement-transfer of title takes place at a
future date when the conditions are fulfilled
• When the title is transferred from the seller to
the buyer, it is called a contract
 Formalities, Enforcement & Price
• Formalities – contract of SoG may be made by word of
mouth, in writing, partly in writing and partly by word
of mouth or implied from the conduct of the parties
• Enforcement - one of the following to be satisfied (S.5)
in order to enforce the provisions of the SoG Ord.
– buyer has accepted part/entire goods
- buyer has made full or part payment
- contract in writing signed by the parties
• Price should be reasonable. It may be fixed by the
contract, left to be fixed in an agreed manner or
determined by the course of dealings by the parties
 Terms of SoG
• Conditions & warranties
• Condition – core term/terms, breach of it will
entitle a party to rescind the contract
• Warranties – subordinate or collateral, breach
of it enable the affected party only to sue for
compensation [s.59]
– Express conditions & express warranties
– Implied conditions & implied warranties – these
have formed part of SoG Ord
Implied Conditions and Warranties
• 1. implied condition as to title [ownership] –
s.13(a) ( that the seller has a right to sell)
• 2. implied warranty as to quiet possession &
free from encumbrances – s.13(b) ( buyer shall
have and enjoy quiet possession of goods)
• Implied condition as to description- s.14
• Implied condition as to fit for purpose; and
merchantable quality - s.15
• Implied condition as to sale by sample – s.16
Implied condition as to description-
s.14
 Transfer of property
• S.17 –In an agreement for sale of
unascertained goods property in goods is
transferred from the seller to the buyer only
when the goods are ascertained.
• S.18 – property in goods is transferred to the
buyer when the parties intend it to be
transferred, which is ascertained as per the
(i) terms of the contract
(ii) conduct of the parties
(iii) circumstances of the case.
 Rules for ascertaining intention
• The following rules are for ascertaining the
intention of the parties as to the time at
which the property in goods is to pass from
the seller to the buyer
Rule 1 – In a contract for the sale of specific
goods that are in deliverable state – title will
pass when the contract is made
According to s. 59(4) goods are in a deliverable
state means that the goods are in such a state
that the buyer is bound to take delivery
• Koppel v. Koppel – There was an agreement
between K and Mrs W which stated that K was
to transfer the entire contents of his house to
Mrs W for her agreeing to leave her home and
stay with K in order to look after K’s children.
Later in a dispute Mrs W claimed ownership to
the contents of K’s house and K denied it. It
was held that the title to the contents of the
house passed to Mrs W as per Rule 1.
 Rule 2
• In a contract for the sale of specific goods
where the seller is bound to do something to
bring the goods to a deliverable state – the
property in good will pass only when that is
done and the buyer is informed of that.
• Example: goods in an unassembled state and
the seller agreed to assemble them
 Underwood v. Burgh Castle Brick &
Cement Syndicate
• In this case defendant (seller) sold an engine that
weighs 30 tons and fixed to the floor of the
defendant. The engine had to be detached from
its base and dismantled by the defendant and it
was expected to take about 2 weeks with a cost
of approximately £100. The seller accidentally
damaged the engine while loading in the railway
and the plaintiff (buyer)refused to take delivery. It
was held that the engine was not in a deliverable
state and that the property had not passed at the
time of making the contract from the seller to the
buyer.
 Rule 3
• In a contract for the sale of specific goods that
are in deliverable state, but the seller is bound
to weigh, measure, test or do something for
the purpose of ascertaining the price,- the
title will pass only when that is done
• Here the passing of title is conditional upon
the performance of an act to determine the
price
 Nanka-Bruce v. Commonwealth Trust
(CT)
• N (seller) agreed with L (buyer) to sell cocoa
at a price determined. It was also agreed that
the price would be ascertained when the
cocoa is weighed at the warehouse of CT to
whom L sold the cocoa. L defaulted payment.
Held, that weighing at the warehouse of CT
was not a condition precedent to the sale and
the title passed to L at the time of contract.
 Risk (s.21)
• Risk to the goods prima facie passes with the title.
• It means the owner should bear the loss or damages to
the goods
• However, if the delivery had been delayed due to the
fault of one party, the party at fault should bear the
loss
Dempy Hamilton Co. Ltd.v. Bardon – As per an
agreement for the supply of 30 tons of apple juice, the
seller crushed the apple juice in casks pending delivery
which was delayed by the buyer and the juice was
spoilt. It was held that the buyer who was at fault
should be responsible.
 Basic rule as to transfer of title
• Nemo dat quod non habet
(no one can transfer a good title other than what he has. It means
only the owner can pass good title. If a transfer takes place by a
person who has no title, then the title is said to be defective)
• Exceptions
• 1) An agent with authority from the principal can transfer good title
– s.22(1)
• 2)Sale under voidable title – s.23
• 3) After the sale, seller in possession of the goods or document of
title, transfers the goods and the new purchaser who receives
goods without notice of prior sale will get good title.
Illustration: S sells a television to B, but retains possession of it and
later transfers it to C. C will obtain good title to the television if C
acts in good faith, that is C is unaware of the previous sale to B.
• 4) A person after having agreed to purchase, in
possession of the goods or document of title, transfers
to another who has no knowledge of defect in title.
Transferee will obtain good title.
Illustration: B agrees to buy a television from S, but
obtains possession of it, but the actual transfer has not
taken place. Later B transfers it to C. C will obtain good
title to the television if C acts in good faith, that is C is
unaware of the previous sale to B.
• 5) when the goods are sold in the open market, the
buyer acquires good title if he buys in good faith
without notice to any defect in title
 Acceptance – s.35
• Buyer is deemed to have accepted when –
- he intimates to the seller that he has
accepted
- after the lapse of reasonable time he
retains the goods without intimating the
seller that he has rejected them
- buyer does an act that is inconsistent with
the ownership of the seller (Ex: buyer sells them
to a third party)
 Remedies
Remedies available to the
un-paid seller: Remedies available to the buyer:
• 1) Right of lien • 1) damages for non-
• 2) Stoppage in delivery
transit • 2)Specific
• 3) Right of re-sale performance
• 4) Action for price • 3) Remedy for
• Damages for non- breach of warranty
acceptance
 Lien & Stoppage in transit
• Lien means right to retain the goods until price is paid.
Seller should be in possession of the goods – s.42
• Stoppage in transit – s.43
If the goods are on the way to the buyer’s destination
seller can exercise this right, stop the goods & take
possession if-
- the seller was not paid (buyer gives a cheque and if
the cheque is dishonoured) &
- Seller has parted with the possession of the goods
- good are in the course of transit
 Right of re-sale – s.47
• An un-paid seller who has exercised the right of lien or
stoppage in transit can re-sell the goods.
• The subsequent buyer will acquire a good title as
against the original buyer
• Illustration: S sells the goods to B who did not pay, but
S re-gained possession of the goods by way of stopping
the goods while in transit to B’s warehouse. S re-sells
the goods to C who will get good title.
• Action for price – s.48 -When the property in goods has
passed to the buyer in a contract for SoG and the buyer
wrongfully neglects to pay the price according to the
accepted terms, the seller can exercise this right
Damages for non-acceptance - s.49
• Where the buyer wrongfully neglects or
refuses to accept the goods, the seller may
maintain this action
• Measure of damages is estimated loss
• If there is ‘available market for the goods in
question, the measure of damages will be the
difference between the contract price and the
market price.
 Damages for non-delivery – s.50
• Where the seller wrongfully neglects or refuses to
deliver the goods, the buyer may maintain this
action
• Measure of damages is estimated loss
• Specific performance - If there is breach of
contract on the part of the seller to deliver
specific goods, court may order specific
performance without giving him the option to
retain the goods for damages.
 What is product liability or
Liability for Defective/Dangerous products?
• The responsibility of a manufacturer or vendor of
goods to compensate for injury caused by
defective merchandise that it has provided for
sale.
• It is about damages an injured person (in most
cases it is the consumer) can claim for injuries
sustained due to defective or dangerous products
• It is a tort liability for personal injuries and
damages to property caused by products
S.Shanthi, Faculty of Law
Illustrations
• Liebeck v. McDonald’s case of
1994
• In this case, Stella Liebeck
accidentally poured hot coffee,
purchased from McDonald’s, on
her lower body and suffered third
degree burns on her thighs, groin
and buttocks. Liebeck’s lawyers
argued that the company served
coffee at a temperature of 180 to
190 degrees F while other
companies served coffee only at a
reasonable 140 degrees. Liebeck
was awarded a jury verdict of
$2.7 million in punitive damages
and $160,000 for medical
expenses.

S.Shanthi, Faculty of Law

 • Blitz was the largest producer of
portable gas cans in the United
States. Headquartered in Miami,
Oklahoma, this company filed for
bankruptcy in mid-2012 because
of a barrage of product liability
lawsuits against it. Many
consumers from different parts of
the country have filed cases
against the company because the
cans would explode when used to
pour gas to start a fire. Each of
these claims cost the company an
average of $4 million and more
than 30 cases were filed in 2012
alone causing the company to
close its operations.

S.Shanthi, Faculty of Law

A state court jury in Missouri had returned a verdict in
favor of J&J in the latest trial to arise out of many
lawsuits alleging the company’s talc-based products
can increase the risk of ovarian cancer. The jury sided
with J&J and talc supplier Imerys Talc in a lawsuit by
Tennessee resident Nora Daniels, who alleged that she
used J&J Baby Powder for 36 years and was diagnosed
with ovarian cancer in 2013.
The verdict came after 3 straight prior jury verdicts in
St. Louis against J&J awarding plaintiffs a combined
$195 million. More than 2,500 lawsuits are pending in
state court in St. Louis.
The jury’s decision is consistent with the research,
clinical evidence by medical experts around the world
that continue to support the safety of cosmetic talc,
J&J said in a statement.
Bylsma v. Burger King Corp [2013]
• Bylsma patronized a restaurant in Washington that was
franchised by Burger King Corporation. 2 employees served
Bylsma a hamburger that was apparently tainted with saliva
that was later traced back to one of the employees. Bylsma
sued Burger King in federal court for product liability, claiming
among other things emotional distress as a result of the
incident.
• The DC dismissed Bylsma’s action, reasoned that the
Washington Product Liability Act (WPLA) does not permit relief
for emotional distress in the absence of physical injury caused
by being served and touching, but not consuming, a
contaminated food product. On appeal, the Washington SC
determined, that the WPLA does permit relief for emotional
distress damages, in the absence of physical injury, caused to
the direct purchaser by being served and touching, but not
consuming, a contaminated food product, bit only if the
emotional distress is a reasonable reaction and manifest by
objective symptomatology.
• The court of appeals reversed and remanded, holding that
Bylsma had to be allowed to amend his complaint to conform
to Washington law. The court directed that, after Bylsma
amended his complaint, the DC should determine in the first
instance whether Bylsma pleaded the necessary facts to
support his emotional damages claim under the WPLA as
interpreted by the Washington SC

S.Shanthi, Faculty of Law

 The grocery chain Aldi has recalled multiple varieties
of apples that may have been contaminated by listeria.
Chinta Devi v. Glacio Ltd [1985] 1 SLR 265

• Plaintiff-appellant filed this action based on tort and alternatively on contract

seeking to recover from the defendant Company a sum of Rs. 250,000 being
damages sustained by her for injuries suffered by her as a result of the
explosion of a refrigerator manufactured by it and purchased by her father
for household use. The plaintiff was completely deformed, disfigured and
disabled by the injuries sustained in the explosion.
• The plaintiff alleged that there was a failure on the part of the defendant to
take due care in the design and manufacture of the said refrigerator. The
plaintiff pleaded negligence by the defendant-company in fitting a burner
unsuitable and unsafe for a kerosene refrigerator.
• After the trial the DJ held there was negligence on the part of the defendant
but dismissed the action on the ground that plaintiffs claim based on tort was
prescribed in 2 years. The action on contract was not sustainable because the
refrigerator was sold to plaintiff 's father and there was no contract between
plaintiff and defendant. The plaintiff appealed from this judgment and the
defendant filed a cross-appeal against the finding of negligence against it.
• Held that in deciding on prescription, the time taken by proceedings before a
Conciliation Board should be deducted and therefore the action is filed
before the expiry of 2 years and not prescribed.
• There has been a breach of the duty to take care in the design and
manufacture of the refrigerator and the finding of the District Judge on
negligence is supported by the evidence. The damages claimed are not
excessive.

S.Shanthi, Faculty of Law

 Liability under various laws
• RDL - Delict )
• Product liability, strict liability
• English Law – Tort )
• RDL & EL on the Law of contracts
– Breach of condition/warranty
– Exemption clause & unfair contract terms
– Misrepresentation
– Privity to Contract
• EC Directives
S.Shanthi, Faculty of Law
 Law of Sri Lanka
– Common law
– Applicable law
– Some important Statutes
• Sale of Goods Ord
• Consumer Affairs Authority Act No.9 of 2003
• Unfair Contract Terms Act 1997
• Food Act 1980
• Chinta Devi v. Glacio Ltd [1985] 1 SLR 265

S.Shanthi, Faculty of Law

 Cassells (a minor) v. Marks and Spencers plc
[2001] IESC 69 (Ireland)
• http://www.bailii.org/ie/cases/IESC/2001/69.html
• The plaintiff, Rebecca Cassells, was born in 1989. Prior to late 1994 the family
lived in Brixton, London. In September 1994 the plaintiff’s mother purchased a
cotton day dress for the plaintiff at the defendant’s retail store at Brixton. The dress
had a full flared skirt. Because the plaintiff was small for her age the skirt reached
to within three to four inches of her ankles. At 5.30 p.m. on 24th May 1995 the
plaintiff and her mother came home to their house. The plaintiff was wearing the
dress with a light cardigan and normal underclothes. . She complained that she was
cold. When the plaintiff and her mother entered the living room Mrs Cassells lit the
fire which was in a typical open domestic fire place. There was no fire guard. The
plaintiff went to turn on the television and her mother left the room briefly to go
upstairs. The learned trial judge accepts that she was out of the room for at most
three minutes. On her way downstairs she heard the plaintiff screaming. She ran
downstairs and found the child in the kitchen with the back of her dress in flames.
Mrs Cassells put her daughter into the kitchen sink and extinguished the flames by
turning on the cold tap. The child had suffered severe extensive burns involving the
upper leg and buttock on the left side, the back, the left arm pit and left upper arm.
Barr J. was satisfied that Mrs Cassells reached the plaintiff within ten seconds from
hearing her cry out. Held that the defendant was not negligent.

S.Shanthi, Faculty of Law

• “In the light of the foregoing facts the probability is that,
having turned on the television, Rebecca went over to the
fire to warm herself and stood with her left side nearest the
flames as she watched the television. It is evident that the
hem of her flared skirt on that side caught fire and the
flames spread rapidly upwards. It is likely that as soon as
she became aware that her dress was on fire, or at least
when she began to feel pain from burning, the child
screamed and ran towards the kitchen where she was
rescued by her mother a few seconds later. That scenario
establishes that the cotton material comprised in the dress
was highly flammable and a source of immediate danger for
a child to wear if exposed to fire.”

S.Shanthi, Faculty of Law

• The dress which the plaintiff was wearing was made of 100% cotton material. This
cotton material had not been treated with a chemical fire retardant. Inside the dress
there was a hanging label stitched at one end into a seam. On one side of the label
information as to the nature of the material was given together with the customary
washing instructions indicated by symbols. On the other side the age range and size
of the dress was given and in addition there was a warning in red “KEEP AWAY
FROM FIRE” in English and three other languages. This label was a permanent
part of the dress. The normal practice of the defendant was to attach to the dress
two sizeable cardboard tags which hung below the hem of the dress and were
intended to be removed after purchase. One of these tags which was approximately
one and a half inches wide by two inches long contained on one side a warning in
large red “IN THE INTEREST OF SAFETY IT IS ADVISABLE TO KEEP YOUR
CHILD AWAY FROM FIRE”. The same warning was repeated in smaller red
capital letters on the other side of the tag in English and three other languages. Mrs
Cassells agreed in evidence that she saw the permanent tag and was aware of the
warning “KEEP AWAY FROM FIRE”. She did not recall seeing the other
cardboard tag but the learned trial judge accepted that in all probability they would
have been appended to the dress as described.
• Held that the defendant was not negligent.

S.Shanthi, Faculty of Law

 Consumer Affairs Authority Act 2013
& Food Act
Consumer Affairs Authority Act Food Act 26 of 1980 & 20 of 1991
• Objectives- s. 7(a); • S.33 – definition for ‘food’;
• Functions – s.8(d); S.2 & 5-prohibition
• Issuing of directions – • S.6 – warranty as to quality
s.10(1)(b)(ii); of food;
• Determining standards – • S.26 – presumption;
s.12(1);
• S.18 - offence
• Implied warranty – s.32(1)(d);
• Obtaining samples for
ensuring compliance – s.61;
Definition of ‘goods’ – s.75

S.Shanthi, Faculty of Law

 Electronic Transactions Act No. 19 of
2006
• S. 3. No data message, electronic document, electronic
record or other communication shall be denied legal
recognition, effect, validity or enforceability on the
ground that it is in electronic form.
• s. 4. Notwithstanding the fact that the provisions of
written laws for the time being in force in Sri Lanka
attach legal validity to certain instruments, only if such
instruments have been reduced to writing, such
requirement shall be deemed to be satisfied by a data
message, electronic document, electronic record or
other communication in electronic form if the
information contained therein is accessible so as to be
usable for subsequent reference.
Revision question form COMPANY LAW
• Rose is a shareholder of Jasmine Cosmetics Ltd.
Advise her as to the best remedy, giving reasons,
in each of the following circumstances:
• 1) the directors of Jasmine Cosmetics Ltd. Altered
the articles of association of the company and
thereby company changed the business from that
of dealing with cosmetics to a restaurant. Rose
voted against the resolution that was proposed
for the said alteration. However, the resolution
was successfully passed by the majority.
• 2) Roses doesn’t get notices for general
meetings of the company. Notices are usually
posted to all shareholders under registered
cover.
• 3) Jasmine Cosmetics Ltd. Takes steps to
appoint Sunil as a new director of the
company. Sunil has been a director of Central
Finance PLC that suffered a sudden collapse
recently.
• 4) A directors of Jasmine Cosmetics Ltd. Sells
land belonging to the company at a cheap
price to his brother. The profit is shared
among other brothers. Rose gets to know that
directors have been taking company stock for
their personal use without any records.
Company suffers losses as a result of these
transactions.