SALES OF GOODS

Chapter 5 : Sale of Goods

5.1 INTRODUCTION

 The Sale of Good Act 1957 (SOGA) was enacted in 1957 and the statue was
applicable to sale of goods in peninsular Malaysia (East Malaysia), excluding
the states of Penang and Malacca. The Act was later revised in 1990 and it
includes both states.

 Section 3 of the Sale of Goods Act 1957 provides that the provisions of the
Contract Act 1950 will apply to all contracts for the sale of goods unless they
are inconsistent with the express provisions of the Sale of Goods Act.

 The sale of goods legislation only applies to contracts involving the sale of
goods.

 The sale of goods legislation is aimed at offering protection to the consumer
and; the main purpose of a contract involving goods is the transfer of
ownership.

5.2 DEFINITION OF GOODS

Section 2, Sale of “goods” refer to – ‘every kind of moveable
Goods Act 1957 property other than actionable claim and
money; and includes stock and shares,
(SOGA 1957) growing crops, grass and things attached to
or forming part of the land which are agreed
to be served before sale or under the contract

of sale’

 In other words, ‘goods’ are broadly defined and include all chattels personal
other than things in action and money. This generally only includes physical
and moveable things.

 It does not include:
o Land or things attached to land (building, houses and etc.),
o Choses in action or rights (negotiable instrument and patents), or
o Services (labour, repair and etc.)

5.2.1 Types of Goods

 Goods that are the subject of a contract of sale can be classified in a number
of ways under the sale of goods legislation. Types of goods are as follow:

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Types of Goods Description

Existing Goods already owned by the seller, & may be either
specific goods that are agreed upon at the time a contract
Future of sale is made.
Specific
Unascertained Goods to be manufactured or produced or acquired by the
seller after making of the contract of sale.

Goods identified & agreed upon at the time a contract of
sale is made.

Goods that are identified by description only.

Ascertained Goods which in a contract for the sale of unascertained
goods, have become identified & agreed upon the parties.

5.2.2 Contract of Sale

Section 4(1), Sale of Goods Act 1957 (SOGA 1957):

‘A contract of sale is a contract whereby the seller transfers or agrees
to transfer the property in goods (the ownership) to the buyer for a
price’

 A sale occurs when the ownership or property in goods transfer from the seller
to the buyer.

 This means that there must be:
o Goods;
o Price; (money consideration)
o Transfer of property.

5.2.3 Formation of the Contract

 Formation:
o According to Section 5(1) SOGA 1957, a contract of sale is made by an
offer to buy or sell goods at a price and by the acceptance of such an
offer.
o The contract may provide for the immediate delivery of the goods or the
immediate payment of the price or both.
o Delivery or payment may even be by instalments – Section 5(1) SOGA
1957.

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 Formalities:
o According to Section 5(2) SOGA 1957, a contract of sale may be made
in:
 writing; or
 by word of mouth; or
 partly in writing and partly by word of mouth.

 Price:
o ‘Price’ means the money consideration for the sale of goods.
o Price may be fixed in the following manner:
 It may be fixed by the contract.
 It may be left to be fixed in a manner agreed in the contract.
 It may be determined by the course of dealing between the
parties.
 Where the price is not determined in any one of the aforesaid
ways, the buyer must pay a reasonable price. (What is a
reasonable price is a question of fact dependent on the
circumstances of each particular case – Section 9 SOGA 1957).

 Capacity
o The legal principles and the law on contract governing capacity in
ordinary contract law apply to contract for the sale of goods.

5.2.4 Agreement to Sell
 A sale must be distinguished from an agreement to sell.

Section 4(3), Sale of Goods Act 1957 (SOGA 1957):
‘an agreement to sell is a contract under which the transfer of the
property in goods is to take place at a future time or subject to some
condition thereafter to be fulfilled’

Section 4(4), Sale of Goods Act 1957 (SOGA 1957):
‘an agreement to sell becomes a sale when the time elapses or the
conditions are fulfilled subject to which the property in the goods is to
be transferred’

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5.3 TERMS OF CONTRACT
5.3.1 Conditions and Warranties

 The Sale of Goods Act (SOGA) implies a number of terms into contracts as
either conditions or warranties.

 The distinction between conditions and warranties under the law of contract
is preserved by the sale of goods legislation.

 Whether a stipulation is a condition or warranty depends in each case on the
construction of the contract.

 According to Section 12(4) SOGA 1957, the stipulation may be condition,
though called a warranty in the contract.

Conditions

Section 12(2), Sale of Goods Act 1957 (SOGA 1957):
A condition is ‘a stipulation essential to the main purpose of the
contract’

 A breach of condition entitles the innocent party to repudiate the contract and
to claim for damages.

 However, in the following circumstances under Section 12(2) SOGA 1957, the
innocent party cannot repudiate the contract:
o Where the buyer waives the condition;
o Where the buyer elects to treat the breach of condition as a breach of
warranty and claim damages only;
o Where the contract of sale is not severable and the buyer has accepted
the goods or part thereof, the breach of any condition must be accepted
as a breach of warranty unless otherwise provided in the contract; and
o Where the contract is for specific goods and the property in which has
passed to the buyer, the breach of any condition must be accepted as
a breach of warranty unless otherwise provided in the contract.

Warranties

Section 12(3), Sale of Goods Act 1957 (SOGA 1957):
A warranty is ‘a stipulation collateral to the main purpose of the
contract’

 A breach of warranty give rise to the innocent party to claim for damages but
not a right to reject the goods and treat the contract as repudiated.

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 According to Section 12(4) of the Act – whether a stipulation is a condition or
warranty depends on each case on the construction of the contract. A
stipulation may be a condition, though called a warranty in the contract.

Stipulation as to Time

 Under Section 11 SOGA 1957, unless a different intention appears from the
terms of the contract, stipulations as to time of payment are not deemed to be
essence with respect to the contract of sale.

 This means that unless the contract specifically specifies that the time of
payment shall be essence of the contract, if a buyer fails to pay by an agreed
date, it does not entitle the seller to repudiate the contract.

 Under the same section, whether any other stipulation as to time, (for
example, time of delivery) is of essence of the contract or not depends on the
terms of the contract.

5.3.2 Implied Terms

 Implied terms are terms not stated but understood from parties’ conduct,
circumstances and prevailing practice.

 The Sale of Goods Act 1957 implies a number of stipulations in every contract
of sale of goods.

 However, these implied terms apply only when the parties to the contract of
sale have not excluded or implied them.

 These implied terms, laid down in Section 14 to 17 of the Sales of Goods Act
are as follows:

Title Sale goods by Sale goods by
description sample

Fitness for Goods must be of
purposes merchantable
quality

Implied Conditions

Quiet possession of Goods are
the goods unemcumbered

Implied Warranties

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Implied Condition as to Title – Section 14(a) SOGA 1957

 According to the Act, a seller must have the right to sell the goods and when
to pass the property when it is time to do so.

 A breach of this condition entitles the buyer to repudiate the contract, i.e. to
treat the contract as an end and recover the price in full even though the buyer
has used the goods.

Rowland v Divall [1923]

Facts: Plaintiff bought a car from defendant and used it for several months. He

then realized that defendant has no title to the car and the plaintiff is bound to return it

back to the rightful owner. Plaintiff then sued defendant to recover the money paid to the

defendant.

Held: Although Rowland had use of the car for some time, he was entitled to

recover the full price he had paid because Divall had no right to sell the car. Divall had

breached the contract and it give Rowland right to repudiate the contract and claim the

money from Divall.

Implied Condition as to Sale Goods by Description – Section 15 SOGA 1957

 Sale of goods by description covers all cases where the buyer has not seen the
goods but is relying on the description alone.

 According to Section 15 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.

 Breach of this implied condition entitled the innocent party to repudiate the
contract and treat the contract as an end.

Varley v Whipp [1900]

Facts: The buyer purchased a second hand reaping machine without ever having

seen it. The seller had described it as new the previous year and used it to cut only 50

or 60 acres. In fact, the machine was very old.

Held: This was a sale by description and since the machine did not correspond

to its description, the seller was in breach.

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Implied Condition as to Sale Goods by Sample – Section 17 SOGA 1957

 According to Section 17 SOGA 1957, a contract is a contract of sale by sample
where there is an express or implied term to that effect in the contract.

 In addition to the earlier implied condition that the sale is by sample as well
as description (the bulk of the goods must correspond with both sample and
description), there are three implied conditions in contracts of sale by sample:
o The bulk shall correspond with the sample in quality;
o If the differences are only of a minor nature and the quality of the goods
is still the same, this condition will not be breached; and
o The buyer shall have a reasonable opportunity of comparing the bulk
with the sample.

 The buyer has a reasonable time to compare the bulk with the sample. Once
this has been done, acceptance is deemed to have taken place. The right to
reject the goods is then lost, although the buyer may still sue for damages for
breach of warranty if the bulk does not correspond with the sample.

 Breach of this implied condition entitled the innocent party to repudiate the
contract and treat the contract as an end.

Godley v Perry [1960] 1 WLR 9

Facts: A boy bought a catapult. While using it, the catapult broke and he lost the

sight of an eye. The shopkeeper had bought it from a wholesaler by sample and tested

it by pulling out back of the elastic. The shopkeeper was sued and the court held that the

catapult was not fit for the purpose for which the buyer wanted it and that it was of

unmerchantable quality. The shopkeeper then filed an action against the wholesaler.

Held: Although the shopkeeper had made reasonable examination, the defect

was not one which was apparent on such examination. Thus, he had an action against

the wholesaler.

Implied Condition as to Fitness for the Purposes – Section 16 SOGA 1957

 Where the buyer, expressly or impliedly, makes known to the seller the
particular purpose for which the goods are required so as to show that he
relies on the seller’s skill or judgement, and the goods are of a description
which is in the course of the seller’s business to supply, there is an implied
condition that the goods shall be reasonably fit for the purpose.

 There are implied conditions as to fitness of the goods:
o A disclosure of purpose.
o Reliance on seller’s skills and judgement.
o The goods supplied are of the description of the seller’s business to
supply.
o Not bought under patent or tradename.

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 Breach of this implied condition entitled the innocent party to repudiate the
contract and treat the contract as an end.

Griffiths v Peter Conway Ltd

Facts: A woman with abnormally sensitive skin bought a coat without telling the

salesman that she had sensitive skin. She subsequently contracted dermatitis from

wearing the coat.

Held: She was unable to recover for breach of fitness for purpose because there

was nothing in the cloth that would have affected the skin of a normal person. She had

failed to disclose that she suffered from skin problems.

Implied Condition as to Goods Must Be of Merchantable Quality – Section
16(1)(a) SOGA 1957

 Where the goods are brought by description from a seller who deals in goods
of that description, there is an implied condition that the goods shall be of
merchantable quality provided that of the buyer has examined the goods,
there shall be no implied condition as regards defects which such examination
ought to reveal.

David Jones Ltd. v Willis [1934]

Facts: Willis went to the shoe department of David Jones and told the

saleswoman that she wanted a comfortable pair of walking shoes because she had a

bunion on her foot. After trying on a number of pairs, she bought a pair which was

recommended by the saleswoman. The third time that she wore the shoes the hell broke

off one of them, causing her to fall and break her leg. The evidence showed that the

shoes were not well made and that the heels had not been properly attached to the

shoes.

Held: As the shoes had been bought by description, there had been a breach of

the implied condition of merchantable quality.

Implied Warranty as to Quiet Possession of the Goods – Section 14(b) SOGA
1957

 There is an implied warranty that the buyer shall have and enjoy quiet
(undisturbed) possession of the goods.

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 Buyer have exclusive privacy and enjoyment with the goods. Seller cannot
interfere in any manner unless with express consent from buyer.

 The breach of this stipulation will not entitle the innocent party to repudiate
the contract.

 E.g.: Ali Baba is the owner of Ali Baba Carpets Sdn. Bhd. He needs a van for
the business purposes. Ali Baba bought a van from his friend, Karim. Karim
loves the van very much, he often persuaded Ali Baba to lend him the van.
Karim had a set of keys to the van and he used the van whenever he liked
regardless of whether Ali Baba needed the van or not. Karim has breached the
implied warranty that Mr. Ali Baba should have enjoy the quiet possession of
the van.

Implied Warranty as to Goods Are Unencumbered – Section 14(c) SOGA 1957
 There is an implied warranty that the goods are free from any charge or
encumbrance in favour of a third party who is unknown to the buyer; for
example, storage charges which have to be paid before the goods can be
collected.
 E.g.: XYZ Enterprise sold a machine to Meng Electrical. But Meng Electrical
did not know that XYZ Enterprise had charged the machine to Bank
Kerjasama. XYZ Enterprise has breached the warranty. However, if Meng
Electrical knew about the charged and still decided to go ahead with the sale,
there would be no breach.

5.4 PRIVITY OF CONTRACT
 As any type of contract, the general rule is that terms of a contract are only
binding on the parties to such a contract.
 The terms implied in a contract of sale are only between the contracting
parties, which is buyer and seller
 If a third party uses goods purchased by another and is injured as a result of
some defects in the goods, he cannot sue the seller in an action under
contract.
 His remedy would be to sue the manufacturer under tort – Donoghue v
Stevenson.

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Donoghue v Stevenson [1932]

Facts: A manufacturer of ginger beer had sold to a retailer ginger bear in a

opaque bottle. The retailer resold it to Donoghue who treated her friend to its contents.

The ginger beer bottle also contained the decomposed remains of a snail which had

found its way into the bottle at the factory. Donoghue alleged that she became seriously

ill in consequence and sued the manufacturer for negligence.

Issue: Plaintiff was entitled to claim damages against the manufacturer in

negligence. Any person who manufactures products in such a way that there is no

reasonable possibility of intermediate examination before they reach the ultimate

consumer, and who knows that the absence of reasonable care on their part will result
in an injury to the customer’s life or property, owes a duty to the consumer to take

reasonable care.

5.4.1 Doctrine of Caveat Emptor

 The doctrine of Caveat Emptor is an integral part of sale of goods. It translates
to “let the buyer beware”.

 Caveat Emptor is the principle that the buyer alone is responsible for checking
the quality and suitability of goods before a purchase is made.

 Buyers have only themselves to blame if they fail to make careful inspection
of the goods before they purchase them.

 The buyer could not recover damages from the seller for defects on the
property that rendered the property unfit for ordinary purposes.

 There are a few exceptions in the application of the Caveat Emptor:
o When there is no reasonable opportunity for inspection; and
o When the buyer has to rely on the special knowledge or expert
judgement of the seller.

5.5 TRANSFER OF PROPERTY AND TITLE

 As general rule, when a person takes goods (e.g. a buyer), he or she gets only
the same rights to the goods as the person from whom he or she took them
(e.g. seller)

 This rule is expressed in the Latin maxim nemo dat quod non habet. The rule
is set out in Section 27 SOGA 1957.

 This provision means that if goods are bought from a person who is not the
owner, and who does not sell them under the owner’s authority, the buyer
does not acquire any title.

 Thus the rightful owner of goods is entitled to recover his or her goods from
those who have no title to them.

 But there are exceptions to the nemo dat quod non habet rule. They are as
follows:

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Estoppels Sale by mercantile Sale by 1 of joint
agent owners

Sale under a Sale by a seller in Sale by a buyer in
voidable title possession after sale possession

5.5.1 Estoppels

 Where the owner by his conduct, makes it appear to the buyer that the person
who sells the goods has authority to do so, and then 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 under Section 267 SOGA
1957.

 E.g.: Amir tells Vishnu in the presence of Rowland (the actual owner of the
laptop) the he (Amir) is the owner of the laptop. Upon hearing the statement,
Rowland kept silent. Later on, Amir sells the laptop to Vishnu. Vishnu will get
good title to the laptop, as Rowland will be stopped from denying the position
the he projected to Vishnu by his conduct of keeping silent.

5.5.2 Sale by A Mercantile Agent

 A Mercantile agent is a person whose ordinary business is to sell goods, or
consign them for sale, or to buy goods, or to raise money on the security of
goods.

 According to Section 27 SOGA 1957, where a mercantile agent is, with consent
of the owner, in possession of the goods or of a document of title to the goods,
any sale by him when acting in the ordinary course of business of a mercantile
agent shall be valid as if he were expressly authorized by the owner of the
goods to make the same.

 However, buyer must have acted in good faith and, at the time of the contract
of sale, would have had no notice that the seller had no authority to sell.

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Folkes v King [1923]

Facts: Folkes left his car with a mercantile agent and told him not to sell it below

a certain price. The agent sold the car for less than the minimum price to King who

purchased the car in good faith and for valuable consideration, without any notice of any

fraud. The agent then disappeared with the money. Folks sued to recover his car from

King.

Held: As the mercantile agent was in possession of the car with the consent of

the owner for the purpose of sale, and as the sale had been in the ordinary course of the
agent’s business, the purchaser received good title. Folks therefore could not recover

the car from King.

5.5.3 Sale by One of Joint Owner

 Goods may be owned by one or more than one person.
 Section 28 SOGA 1957 provides that if one of the owners of goods has the sole

possession of them by permission of the co-owners, the property in the goods
is transferred to the buyer who buy with good faith and has no notice that the
seller has no authority to sell.
 E.g.: Mira and Aini jointly purchased a laptop. The laptop then was kept by
Aini with the consent of Mira. After several months, Aini sell the laptop to
Sofea who bought with good faith and have no knowledge that Aini did not
have the authority to sell the laptop. According to Section 28 SOGA 1957,
Sofea will get a good title of the laptop.

5.5.4 Sale under a Voidable Title

 According to Section 29 SOGA 1957, where the seller of goods has obtained
possession thereof under a contract of sale voidable under Section 19 or 20
Contract Act 1950, but the contract has not been rescinded at the time of the
sale, the buyer acquires a good title to the goods provided he buys them in
good faith and without notice of the seller’s defect of title.

 A contract is voidable under Section 19 or 20 Contract 1950 when consent of
the original owner is caused by coercion, fraud, misrepresentation or undue
influence.

 E.g.: Vick purchases a motorcycle from Ruben by fraud. Hence, in this
situation, Vick is holding the possession under a voidable contract. Before the
contract is put to an end by Ruben, Vick sold the motorcycle to Sammy, who
bought it in good faith and without any notice of Vick’s defective title. In this
case, Sammy gets a better title to the motorcycle even if Vick was holding it
under a voidable contract.

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5.5.5 Sale by a Seller in Possession after Sale

 Under Section 30(1) SOGA 1957, if a seller resells to a second buyer the goods
sold by him previously to the first buyer, the second buyer will obtain good
title to the goods if he has received the goods in good faith and without notice
of the previous sale.

 The first buyer will lose the title but he/she can take legal action against the
seller who would be liable to him.

 E.g.: Azira Furniture sold a set of sofa to Sasha and promises to deliver the
sofa the next day. Before the delivery, Azira Furniture sold the same set of sofa
to Vishanti, who buys the sofa in good faith and without the notice of the prior
sale. Vishanti gets a good title to the sofa.

5.5.6 Sale by a Buyer in Possession

 Under Section 30(2) SOGA 1957, if a buyer, having bought or agreed to buy
goods, obtains possession of the goods or the documents 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.

Newtons of Wimbley Ltd v Williams [1965]

Facts: 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 had resold the car to B who bought it

without knowledge of the position. B resold it to defendant. The plaintiffs tried to recover

the car from him.

Held: A, the original buyer, was in possession with the consent of the owner.

Hence, he could pass a good title to B, who in turn transferred it the defendant. The

defendant was, therefore, entitled to keep the car.

5.6 REMEDIES FOR BREACH OF CONTRACT

 Chapters V and VI of the Sale of Goods Act 1957 deal with the following
situation:
o Rights to sue unpaid seller against the goods;
o Rights to sue for breach of contract;
o Rights of the buyer to sue for damages for non-delivery;
o Rights of the buyer to commence an action for specific performance;
o Remedies available to the buyer for breach of warranty; and
o Buyer’s action in tort.

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