chapter four - law of sale of goods

LAW 2013 – COMMERCIAL LAWCHAPTER 4: LAW OF SALE OF GOODS


1.0 INTRODUCTION TO LAW OF SALE OF GOODS

The law relating to sale of goods in Malaysia is principally governed by the Sale of Goods Act (SOGA), 1957. The general principles that relate to contracts e.g. offer, acceptance, consideration, etc. apply to a contract of sale of goods and the parties are free to agree on the terms which will govern their relationship.

1.1 What is contract for the sale of goods?

Section 4(1) of SOGA 1957

“A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price.”

“Price” means the money consideration for sale of the goods. “Price” is an integral part of a contract of sale. If it is not fixed or is not capable of being fixed, the whole contract is

void ab-initio.

1.2 Essential of contract of sale

From the above definition, the following essentials of a contract of sale may be noted:

There must be at least two parties Transfer or Agreement to transfer the ownership of goods. The subject matter of the contract must necessarily be 'goods'. The consideration is price. A Contract of sale may be absolute or conditional All other essentials of a valid contract must be present.

2.0 DEFINITION OF GOODS

Section 2 of SOGA 1957

“Goods” means every kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale;

Actionable claims and money are not included in the definition of goods. Thus, goods include every kind of moveable property other than actionable claim or money.

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SellerSeller BuyerBuyer PricePrice



Example : Goodwill, copyright, trademark, patents, water, gas, and electricity are all goods and may be the subject matter of a contract of sale.

The test is if the property on shifting its situation does not lose its character, the said property shall be movable and fall within the definition of “Goods”.

2.1 Types of Goods


“The goods which form the subject of a contract of sale may be either existing goods, owned or possessed by the seller, or future goods.”

Classification of Goods Explanations

Existing goods Goods already owned by the seller at the time of the contract.

E.g. : Goods on display in a supermarket

Future goods Goods to be manufactured or produced or acquired by the seller after making the contract of sale.

E.g. : Goods that are ordered when no more stock

Specific goods Goods identified and agreed upon at a time the contract of sale is made.

Unascertained goods Goods know by description only and not identified at the time of the contract.

3.0 DISTINCTIONS BETWEEN CONTRACT OF SALE AND AGREEMENT TO SELL

3.1 Contract of Sale

It is a contract where the ownership in the goods is transferred by seller to the buyer immediately at the conclusion contract. Thus, strictly speaking, sale takes place

when there is a transfer of property in goods from the seller to the buyer. It must be noted here that the payment of price is immaterial to the transfer of property in goods.

Example : Abu sells his Yamaha superbike to Budin for RM 15,000. It is a sale since the ownership of the motorcycle has been transferred from Abu to Budin.

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3.2 Agreement to Sell

It is a contract of sale where the transfer of property in goods is to take place at a future date or subject to some condition thereafter to be fulfilled.

Examples :

(i) A agreed to buy from B a certain quantity of nitrate of soda. The ship carrying the nitrate of soda was yet to arrive. This is an “agreement to sell”. In this case, the ownership of nitrate of soda is to be to transferred to A on the arrival of the ship

containing the specified goods (i.e. nitrate of soda).

(ii) On 1st March 2011, A agreed to sell his car to B for RM 80,000. It was agreed between themselves that the ownership of the car will transfer to B on 31st March 2011 when the car got registered in B`s name. It is an agreement to sell and it will become sale on 31st March 2011 when the car is registered in the name of B.

** Other points of distinctions between a contract of sale and an agreement to sell are:

Contract of Sale Agreement to sell

1. An executed contract.

2. In a contract of sale, since the property has passed to the buyer, the seller can sue the buyer for the price of the goods.

3. In case of loss of goods, the loss will fall on the buyer, even though the goods are in the possession of the seller. It is because 'Risk' is associated with ownership.

4. In case buyer pays the price and the seller thereafter becomes an insolvent, the buyer can claim the goods from the Official Receiver or Assignee.

5. If the buyer becomes an insolvent without paying the price, the ownership having passed to the buyer, the seller shall have to deliver the goods to the Official Assignee or Receiver except where he has a lien over the goods.

1. An executory contract.

2. In an agreement to sell, in case of breach, the seller can only sue for damages, unless the price was payable at a stated date.

3. The loss in this case shall be borne by the seller, even though the goods are in the pos-session of the buyer.

4. In these circumstances, the buyer cannot claim the goods but only a rateable dividend for the money paid.

5. In these circumstances, the seller can refuse to deliver the goods to the Official Assignee or Receiver.

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4.0 TERMS OF CONTRACT

Section 12 (1) of SOGA 1957

“A stipulation in a contract of sale with reference to goods which are the subject thereof may be a condition or warranty.”

4.1 Express Terms

4.1.1 Conditions


“A condition is a stipulation essential to the main purpose of the contract, the breach of which gives rise to a right to treat the contract as repudiated.”

In a contract of sale, parties make certain stipulations, i.e. agree to certain terms. Some of them may be intended by the parties to be of a fundamental nature,

e.g. quality of the goods to be supplied. The stipulation essential to the main purpose of the contract, the breach of which gives rise to a right to treat the contract as repudiated. Such stipulations are known as “conditions”.

4.1.2 Warranties


“Warranty is a stipulation collateral to the main purpose of the contract, the breach of which gives rise to a claim for damages but not to a right to reject the

goods and treat the contract as repudiated.”

In contrast, some may be intended by the parties to be binding, but of a subsidiary or inferior character, e.g., time of payment. Thus, stipulation collateral to the

main purpose of the contract which the breach of which gives rise to a right to claim for damages only, not to a right to reject the goods. Here the stipulations are known as “warranties”.

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Conditions and WarrantiesConditions and Warranties

Express Terms Implied Terms



4.2 Distinction between Conditions and Warranties

Conditions Warranties

1. A condition is a stipulation (in a contract), which is essential to the main purpose of the contract.

2. A breach of condition gives the aggrieved party a right to sue for damages as well as the right to repudiate the contract.

3. A breach of condition may be treated as a breach of warranty in certain circumstances.

1. A warranty is a stipulation, which is only collateral or subsidiary to the main purpose of the contract.

2. A breach of warranty gives only the right to sue for damages. The contract cannot be repudiated.

3. A breach of warranty cannot be treated as a breach of condition.

** Example : A man buys a particular horse, which is warranted quiet to ride and drive. If the horse turns out to be vicious, the buyer's only remedy is to claim

damages.

But if instead of buying a particular horse, a man asks a dealer to supply him with a quiet horse and the horse turns out to be vicious, the stipulation

is a condition and the buyer can reject the horse, or keep the horse and claim damages.

4.3 When Condition is treated as Warranty?

Under the following circumstances a breach of condition is to be treated as a breach of warranty, i.e., the right to repudiate the contract is deemed to have been lost:

(i) Section 13 (1) of SOGA 1957 - Waiver of Condition (ii) Section 13 (2) of SOGA 1957 - Compulsory treatment of breach of condition as

breach of Warranty.

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4.4 Implied Terms

The SOGA implies a number of stipulations (implied terms) in every contract for the sale of goods. The stipulations applicable only if the parties did not exclude or modified the

terms/stipulation. (Section 62 of SOGA)

4.4.1 Implied Conditions

(a) Implied condition as to title

S.14 (a) SOGA 1957 - Seller must be the owner of the goods.

In the case of sale, the seller must have a right to sell the goods & in the caseof agreement to sell, he must have a right to sell at the time when the property is to pass.

(b) Implied condition that sale by description

S. 15 of SOGA 1957 - The goods must correspond with the description.

If the contract is for the sale of goods by description, there is an implied condition that the goods must correspond with the description. Sale

of goods by description covers all cases where the buyer has not seen the goods but is relying on the description alone (the contract is made through telephone, mail order or sale for catalogue).

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Case : Rowland v. Divall

Facts : Ptf. bought a car & after using it for months discovered that it was stolen. He had to return it to true owner. Defendant had breach the condition as to title

Case : Beale v. Taylor

Facts : The seller of a car advertised it as a “Herald Convertible, White, 1961…”. The buyer viewed the car before agree to buy it. Later he discovered that while the rear halve of the car was part of a 1961 Herald Convertible, the front part was part of an earlier model.

Held : It was held that he could sue under Section 15 of Sale of Goods Act, 1957 because even though the buyer can try the good, defects may be concealed from the buyer.



(c) Implied condition that goods must be reasonably fit for the purpose it is bought

S. 16 of SOGA 1957 - Fit for purpose.

S. 16 provide that an implied condition that goods are reasonably fit for a particular purpose. For this section to apply, there are FIVE (5)

conditions need to be satisfied :

i. The sale must be in the ordinary course of business. ii. It must be fit for normal purpose or particular purpose. If the goods

are for normal purpose, buyer needs not to expressly inform the seller.iii. The buyer must rely on the seller’s skill or judgment.iv. The goods are of a description, which it is in the course of the seller’s

business to supply. v. If the goods are specific, they must not be bought under their patent or

brand name.

(d) Implied condition that goods must be of merchantable quality

S. 16 (1) of SOGA 1957 - Merchantable quality.

There is an implied condition that the goods shall be of merchantable quality. Merchantable quality means that the goods must meet the

standard which a reasonable person would regard as satisfactory i.e. with reference to the expectations of the average buyer.

Exceptions : Where the buyer has examined the goods, there shall be no implied condition as regards defects which such

examined ought to have revealed .

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Case : Griffiths v. Peter Conway Ltd.

Facts : A woman bought a coat without implicating to the seller that she has sensitive skin.

Held : She fails to claim damages after experience skin problems. The coat is fit for purpose to a normal person only



(If there was an examination before or at the time of contract, the buyer cannot later complain of defects which a proper examination would

have reavealed).

4.4.2 Implied Warranties

(a) Implied warranty as to “time”.

S. 11 of SOGA 1957 Time of payment is NOT deemed to be of the essence. But whether time is

of essence of the contract or not depend on the terms of the contract.

Example : When time (for delivery)is the essence of the contract which has been determined & agreed by the parties, if the

seller fails to perform according to the term, it would entitle the buyer to repudiate the contract.

(b) Implied warranty as to “quite possession”.

S.14 (b) of SOGA 1957

In a contract of sale, unless the circumstances of the contract are such as to show a different intention, there is an implied warranty that the

buyer shall have & enjoy quite possession of the goods.

(c) Implied warranty that the goods are free from “encumbrances”.

S. 14 (c) of SOGA 1957 The goods must be free from any charge in favour of any third party.

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Case : Thornett & Fehr v. Beers & Sons.

Facts : In this case, the buyer is given the opportunity to check the goods but he did not check. Later, when the defects are detected, he cannot complain.

Case : Harrington v. Browne

Held : In commercial transaction involving livestock, time of delivery is the essence of the contract. If the goods are to be shipped within a particular time then time of shipment is important & should be strictly adhered to.



Example : Syarikat ABC sold a machine to XYZ company. XYZ did not know that Syarikat ABC had charged the machine to

Bank X. Syarikat ABC had breach the warranty.

4.5 Sale by Sample and Sale by Description

Sale by Sample (in bulk) Sale by Description


In the case of contract for sale by sample there is an implied condition that:

i. The bulk shall correspond with the sample in quality.

ii. Buyer has reasonable opportunity of comparing the bulk with the sample.

iii. The goods shall be free from any defect which would not be apparent on reasonable examination of the sample.

* If the goods is inferior to the sample, the buyer may elect to reject all the goods. If the goods is partly inferior to the sample the buyer may elect to accept the goods and for damages.

Section 15 of SOGA 1957

Where there is a contract for the sale of goods by description there is an implied condition that the goods shall correspond with the description; and, if the sale is by sample as well as by description, it is not sufficient that the bulk of the goods corresponds with the sample if the goods do not also correspond with the description.

5.0 TRANSFER OF POSSESSION AND OWNERSHIP

5.1 Transfer of Possession

The General Rule states that the property in goods passes when the parties to a contract of sale intend that it should pass. Mere possession of goods does not mean the person

has the title.

Section 18 of SOGA 1957 States that the property in goods passes when the unascertained goods are ascertained.

Section 19 of SOGA 1957 States that the property in goods passes when the specific or ascertained goods is intended

to pass.

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To find out the intention of the parties, you must look at the terms of the contract, the conduct of the parties, and the circumstances of the case.

Section 20 of SOGA 1957 For contract of sale for specific goods in a deliverable state, the property in goods passes

when the contract is made.

Section 21 of SOGA 1957 For contract of sale for specific goods and seller is bound to do something to put the goods

in deliverable state, the property in goods passes when the seller has done it and the buyer has noticed of it.

Section 22 of SOGA 1957 States that for contract of sale for specific goods in deliverable state, but the seller is bound

to weigh, measure, the property in goods passes when such act is done and the buyer has noticed of it.

Section 23 of SOGA 1957 Provides that for contract of sale for unascertained of future goods by description and in a

deliverable state, the property in goods passes when the contract is made.

Section 24 of SOGA 1957 For goods are delivered to the buyer on approval or "sale on return", the property in goods

passes when the buyer signifies his acceptance or the retains the goods without giving notice of rejection, on expiration of such fixed return time or reasonable time.

Section 26 of SOGA 1957 The significance of determining the time when property in goods passes to the buyer

because the general rule says that the seller bears the risk. However, there is exception. When the property in goods passes to the buyer, buyer bears the risk.

5.2 Transfer of Ownership : The “Nemo Dat Quod Non Habet” Rule

5.2.1 Definition

“No one can give a better title than he has himself”.

5.2.2 General Rule

According to Section 14(a) of SOGA 1957, there is an implied condition that the seller must be the owner of the goods sold. Further, Section 27(1) of SOGA

1957 provides that, a seller who does not own the goods, or who sells them without the owner’s authority CANNOT transfer ownership to the buyer. If the seller sold the goods without the seller’s authority, then there will be a breach of condition as to title or ownership. According to Section 12(2) of SOGA 1957, if

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there was a breach of condition, the parties to the contract may terminate the contract and as well as claim for damages.

In Rowland v. Divall, ptf. had bought a car from def. and after using it for four months, it was discovered that it was a stolen car. He had to return it to the

true owner.

It was held that the def. had breached the condition as to title & allowed recovery by the ptf. of full price on the basis of a total failure of

consideration.

In Lim Chui Lai v. Zeno Ltd., Z had an agreement with A (contractor) who had contract with PJ Authority to construct culvert. Z was to provide A with all

material for the construction. Z delivered all the materials to the construction site. However, A’s contract with PJ was cancelled; Z thereupon informed PJ that the materials on site belonged to them. When Z attempted to sell the material, they discovered the materials had been sold by A to Lim.

It was held that, A was merely the bailee & not the owner of the goods at the time he sold them to the Appellant. Because A had no title to the goods or authority to sell

them, he could not pass any title to Lim.

5.2.3 Exceptions to Nemo Dat Quod Non Habet rule

In a certain circumstances, the “Nemo dat quod non habet” does not apply. It is the situation where the buyer still get the title of owner even seller was not the

ultimate owner or do not have authority at all to sell.

(a) Estoppel

According to Section 27 of SOGA 1957, where the owner conduct makes it appear to the buyer that the person who sells the gods has his

authority to do and the buyer relies on that conduct, the buyer obtains a good title because the owner is precluded by his conduct from denying the seller’s authority to sell.

Example : Sarah tells Linda in front of Dila that Sarah wants to sell Dila’s car to her and Dila nods his head and keeps

quiet. If Sarah sells the books to Linda, Dila cannot complain that Sarah has sold her car without her authority.

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Refer to the case of N.Z Securities v. Wright Cars Ltd., where B was given a dishonored cheque to the A for buying his car. A try to get back his

loses. The car was sold by B to C. Then, A repossessed the car and C sue A for conversion. It was held by the court that, C has successful in

claiming that A was precluded by his conduct from denying B’s authority to sell. Therefore, the title has passed to C.

(b) Sale by Mercantile Agent

Section 27 of SOGA 1957 provides that where a mercantile agent is, with the consent of the owner, in possession of the goods or of a

document of title of goods, any sale made by him when acting in the ordinary course of business of a mercantile agent shall be as valid as if he were expressly authorized by the owner of the goods to make the same. However, the buyer must have acted in good faith and at the time of the contract of sale, had not received notice that the seller has no authority to sell.

A ‘mercantile agent’ has been defined in Section 2 of SOGA1957 as a mercantile agent having in the customary course of business as such

agent authority either to sell goods , or to consign goods for the purpose of sale, or to buy goods, or raise money on the security of goods.

Examples of a mercantile agent would be a second-hand automobile dealer, a broker, or an auctioneer.

In Commercial & Savings Bank of Somalia v. Joo Seng Company, the ptf. were pledges of a cargo of rice on board the “mv Lynna”. The

charterers of the “mv Lynna” brought the rice to Singapore and sold part of the cargo to the def. at half price. This was done without the permission of both ptf. and the buyers of the rice. The ptf. sued the def. for conversion and detinue. The def. claimed that they bought and acquired good title to the rice without any notice of the ptf. title. The court held that the seller’s of the rice were carriers and were not mercantile agents when they sold the rice. Besides that, the def. was getting the rice on the cheap price and the purchase was highly suspicious (Def. was not acted in a good faith). The ptf. was therefore entitled to damages claimed.

(c) Sale by one of the joint owner

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Goods may be owned by more than one person. In Section 28 of SOGA 1957, it provides that if one of several joint owners of goods has the

sole possession of the by permission of the co-workers, the property in the goods is transferred to any person who buys them from such joint owner in good faith and has not at the time of the contract of sale notice that the seller has no authority to sell.

(d) Sale under voidable title

According to Section 29 of SOGA 1957, it provides that where the seller of goods has obtained possession under a contact voidable under

section 19 and 20 of the contract Act 1950, the buyer requires a good title to the goods provided he buys them in good faith and without notice of the seller’s defect of title. A contact is voidable under section 19 and 20 of the contracts Act 1950 when consent of the original owner is caused by coercion, fraud, misrepresentation and undue influence.

Example: Yatie obtains goods from Fika by coercion and sells them to Najwa, who buys them innocently. At the time Najwa

buys the goods, Fika has not rescinded the contact by Yatie. So, Najwa obtain good title of the goods.

(e) Sale by seller in possession after sale

Section 30(1) of SOGA 1957, provides that if a seller resells to a second buyer the good sold by him previously to the first buyer, the second

buyer will obtain the good title to the good if he has received in a good faith and without notice of the previous sale. The first buyer will lose the title but he can take legal action against the seller who would be liable to him.

In Pacific Motor Auctions Pte Ltd. v. Motor Credits (Hire Finance) Ltd., where the plaintiffs became owners of several cars in the possession

of dealer and under a ‘floor plan agreement’, the dealer would retain the cars and sell them in the same way as it sold other cars. Whenever a car covered by the plan was sold, the dealer would account to the plaintiffs for the money received. When the plaintiffs discovered that the dealer was in financial difficulties, they revoked his authority to sell. Nevertheless, the dealer went ahead and sold a number of vehicles. The question was whether the buyer obtained a good title as the dealer had no

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authority to sell. The court held that the situation feel under this exception as the sellers was in continuous possession after the sale.

(f) Sale by buyer in possession

Section 30(2) of SOGA 1957 provides that if a buyer, having a bought or agreed to buy goods, obtain possession of the goods or the document

of title with the consent of the seller, he can pass a good title to a subsequent buyer acting in good faith, even if under the first transaction he has not obtained a good title.

In Newton of Wembley Ltd. v Williams, the plaintiffs sold a car to A, who paid by cheque. Although he was given possession, it was agreed that

the property would not pass until the cheque was honoured. The cheque was dishonoured but A has resold the car to B who bought it without knowledge of the position. B resold it to the defendant. The plaintiffs tried to recover the car from him. The court held that A, could pass a good title to B, who in turn transferred it to the defendant. The defendant was, therefore, entitled to keep the car.

6.0 PERFORMANCE OF CONTRACT

Section 31 of SOGA 1957It’s the duty of seller to deliver the goods whilst the buyer’s duty is to accept and pay for them accordance with the terms of the contract.

6.1 Duties of Buyer and Seller

Buyer Seller

a) Pay for the goods;

b) Accept delivery; and

c) Pay compensation to the seller in case he wrongfully refuses to accept delivery.

a) To deliver the goods, in accordance with the terms of the contract of sale.

b) Delivery and payment of price are concurrent conditions.

c) The seller of goods has the duty of giving delivery according to the terms of the contract.

6.2 Delivery

Definition : Section 33 of SOGA 1957A voluntary transfer of possession from one person to another.

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6.2.1 Rules for Delivery

S. 57 of SOGA 1957 Non-delivery – Buyer may sue the seller for damages for non delivery

S. 36(1) of SOGA 1957 Place of delivery – Whether the seller is required to send the goods to the buyer or

the buyer has to take possession of the goods depends on what has been agreed upon between them. Unless the parties agree otherwise, the expenses of and incidental to putting the goods into a deliverable state shall be borne by the seller.

S. 36(2) of SOGA 1957 Time of Delivery - Where under the contract of sale the seller is bound to send the

goods to the buyer, but NO TIME for sending them is fixed, the seller is bound to send them within a reasonable time.

S. 37(1), (2), (3) & (4) of SOGA 1957 Delivery of wrong quantity – THREE (3) situations :

(i) Seller delivers to the buyer a quantity of goods less than which he contracted to sell:-

a) The buyer may reject all the goods so delivered, orb) If the buyer accepts the goods so delivered, he is bound to pay for them

at the contract rate. (S. 37(1) of SOGA 1957)

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Case : Harland & Wolff Ltd v. J. Burstall & Co

Facts : A contract for 500 loads of timber.

Held : That delivery of 470 loads would have been non-performance of the contract entitling buyer to reject



(ii) Seller delivers to the buyer a larger quantity of goods than that which he contracted to sell, the buyer may:-

a) Accept the goods included in the contract & reject the rest; orb) Reject all the goodsc) Accept all the goods

(if buyer accepts all the goods, he has to pay for the goods at the contract rate) - S.37(2) of SOGA 1957

(iii) Seller delivers to the buyer the goods he contracted to sell mixed with goods of a different description not included in the contract, the buyer

may:-

a) Accept the goods which are in accordance with the contract & reject the rest; or

b) Reject the whole. (S. 37(3) of SOGA 1957)

7.0 REMEDIES FOR BREACH OF CONTRACT

7.1 Rights of Unpaid Seller Against the Goods

Types of Right Explanation(i) Right of lien The unpaid seller who is in possession of the goods

is entitled to retain them until payment is made.(ii) Right of stoppage in transit An unpaid seller who has parted with the

possession of the goods has a right of stopping them in transit when the buyer of the goods becomes insolvent

(iii) Right of resale By regaining possession of the goods through stoppage, the seller is preparing the grounds for terminating the contract.The unpaid seller who resell the goods can give a good title to a second buyer as against the original buyer

7.2 Right of the Seller to Sue for Breach of Contract

Seller can sue for the price of the goods where:

1. The property in the goods has passed to buyer and buyer wrongfully neglects or refuses to pay for the goods

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2. Section 55 (2) of SOGA 1957It is contracted that the price be paid on a certain date irrespective of delivery & the

buyer wrongfully neglects or refuses to pay such price even though the property in the goods has not passed & the goods have not been appropriate to the contract.

7.3 Right of Buyer to Bring an Action for Non-delivery

Section 57 of SOGA 1957Where seller wrongfully neglects / refuses to deliver the goods to buyer, the buyer may sue

the seller for damages for non-delivery.

7.4 Right of Buyer to Bring an Action for Specific Performance

Section 58 of SOGA 1957 “Specific performance” – refers to court order to a party to carry out his obligations in a

contract. Buyer may bring an action for specific performance of the contract by the delivery of specific or ascertained goods

Note: The remedy is available only at the discretion of the courts. E.g. When goods are of a special or peculiar kind.

7.5 Buyer can sue the seller in tort by bringing an action in :

Action Explanation

(i) Detinue Means the wrongful detention of chattels belonging to the plaintiff after their return has been demanded.

E.g. : Where the property in goods has passed to the buyer & seller withholds the goods although the buyer demands for them

(ii) Conversion Means the dealing with the goods in a manner inconsistent with the ownership of the buyer.

E.g. : If the seller wrongfully sells that goods to a third party although the property in the goods has passed to the buyer.

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chapter four - law of sale of goods

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