Business Law
Business Law
Business Law
8. INTRODUCTION
The Sale of Goods Act 1957 (SOGA) is the law applicable to sale of goods in Malaysia.
Section 1 states that the Act shall have effect within Peninsular Malaysia only. The Act
does not apply to Sabah and Sarawak.
SOGA applies to contracts for the sale of all types of goods including second-hand goods
and makes no distinction between commercial sales and private sales or between
wholesale and retail. The basis for a contract for the sale of goods is essentially a
contract.
Section 3 SOGA states that the provisions of the Contracts Act 1950 will apply in so far as
they are not inconsistent with the provisions of the SOGA. This means that the laws in
SOGA will supersede that of the Law of Contract, and if something cannot be found in
SOGA then the Contracts Act can be applied to fill in the gap in SOGA.
“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.”
Note:
• Property is ownership. Ownership or title is sometimes use interchangeably.
Property in goods or title in goods means the ownership
• It is clear that the object of the contract of sale is the transfer of ownership of the
goods to the buyer for money consideration.
• If the goods are exchange with other goods without money consideration than
SOGA does not apply – see barter trade below.
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A contract of sale takes place only when the buyer is bound to buy & the seller is bound to
sell.
The legal object of the sale transaction is the transfer of ownership or title in goods from
the owner to the buyer.
Only the party who is the owner can transfer or pass title to the buyer.
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Goods is defined in Section 2 SOGA as ‘every kind of moveable property other than
actionable claims & money; and includes stock & shares, growing crops, grass and things
attached to or forming part the land which are agreed to be severed before sale or under
the contract of sale’
(iv) Price:
Price is the consideration. Section 2 defined ‘PRICE’ as ‘the money consideration’ for a
sale of goods.
a) If no money is involved:
If the transaction is an exchange of goods, then this is not a contract of sale of
goods but a barter trade system.
In a barter trade system, the consideration is goods alone and no money is involved
in the transaction. This is not a contract of sale of goods under SOGA.
However, if the contract of sale is part goods & part money then it is still a contract
of sale of goods.
b) Fixing of Price
A contract of sale is basically an offer to buy or sell goods for a price and the
acceptance of such an offer.
Once all the above 4 requirements (seller & buyer/ transfer of property/ goods/ price) are
satisfied, there is a contract of sale of goods even though:
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Section 6(1): the goods that form the subject of a contract of sale may be either existing
goods, owned or possessed by the seller or future goods.
a. Existing goods
These are goods that are already existing or available at the time of making the contract.
These goods are already owned or in possession of the seller.
b. Specific goods
Goods are specific goods if the goods are identified and agreed upon at the time the
contract of sale is made. These are goods that are identified and you know exactly which
one you are buying or selling.
E.g. A agrees to sell to B his car registered as BCY 121. Here the goods are specific and
identified, as the car is BCY 121.
c. Ascertained Goods
These are goods that are already separated from the bulk and identified.
d. Unascertained Goods
Unascertained goods are goods that are identified by description only. These are goods
that are still together or still in its bulk form. The goods have not been appropriated (set
aside) to the contract after the contract has been made.
e. Future Goods
Defined in Section 2 to mean goods that has yet to be manufactured or produced or
acquired by the seller after the making of the contract of sale.
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These are goods that do not exist at the time of making the contract but will be ready only
in the future.
Future goods are goods to be manufactured, produced, or acquired by the seller after the
contract has been made. Future goods may be specific or unascertained. However, most
future goods are unascertained.
E.g. An agreement to sell a particular car, which both Seller and Buyer knows has yet to
be made in the factory or it belongs to a third party at the time of the contract and the
Seller has yet to acquire it.
A contract for the sale of goods can be in writing or orally, or partly in writing and partly by
oral means or it may even be implied from the conduct of the parties - Section 5 (2)
Section 12 (2) defines that a condition is a stipulation essential to the main purpose of the
contract, the breach of which gives the innocent party the right to treat the contract as
repudiated.
Section 12 (3) defines that a warranty is a stipulation collateral to the main purpose of the
contract, the breach of which gives the innocent party the right to a claim for damages but
not a right to reject the goods and treat the contract as repudiated.
Other than the expressed terms that are agreed upon by the parties, there are certain
implied terms. These implied terms are provided and regulated by SOGA.
Thus, even if the parties to the contract did not expressly state the conditions of the
goods, the SOGA implies certain terms into the contract.
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But these implied terms can be excluded or exempted by the seller (Section 62). If the
seller did not exclude them then these implied terms will automatically apply to every
contract for the sale of goods.
The implied terms in the SOGA regulate a number of factors such as (1) time, (2) title, (3)
possession, (4) free from encumbrance, (5) description, (6) fitness for particular purpose,
and (7) sale by sample etc.
The above means stipulation as to time of payment are not deemed to be critical or
important unless it is clearly stated by the parties in the contract of sale that time is
important or critical.
Whether there are any other stipulations as to time (e.g. time of delivery) is of the essence
of the contract or not depends on the terms of the contract. This can be seen in the case
of:
Harrington v Browne: where the contract involves livestock, time of delivery being of the
essence of the contract is appropriate.
Note: This is an implied ‘Condition’. If breach, the innocent party can terminate contract.
Section 14(a) requires the seller to have the ‘right to sell’ when he sells the goods. The
seller need not be the owner of the goods. He is only required to have the right to sell the
goods.
If the seller sells the goods without having the ‘right to sell’ then he is in breach of
condition and the buyer can repudiate or terminate the contract and recover the price in
full even though buyer has used the goods.
The rationale (reasoning) is that the buyer of the goods pays the price in order to enjoy
ownership as well as the use of the goods – Rowland v Divall.
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Rowland v Divall – Plaintiff bought a used car and after using it for 4 months discovered
that it was a stolen car. He had to return it to the owner. He sued the seller. The Court
held that seller had breached the implied condition that the seller must have the right to
sell. P was allowed to recover the full price even though he had used the car.
8.5.4 Implied warranty that goods are free from encumbrances - Section 14(c) There is an
implied warranty that the goods shall be free from any charge or encumbrances in favour
of any third party not declared or known to the buyer before or at the time when the
contract is made.
Notes: This is a ‘warranty’. If breach the innocent party cannot terminate the contract.
Steinke v Edwards
Owner sold car to P without informing that there was still an encumbrance on the car i.e.
government tax was still not paid. The government seize the car. Owner had breach the
warranty. P paid the tax and recovered the money from the owner.
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‘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 goods corresponds with the sample if
the goods do not also correspond with the description.”
Note: All sale of unascertained goods are sale by description. Unascertained goods
especially where the buyer has not seen the goods, e.g. a mail order or sale by catalogue
or goods in a self-service shop where the buyer has seen the goods, selected and
examined it or the goods are describe whether on the label or packaging, these are
categorized as sale by description.
Beale v Taylor
Seller advertised for sale and described the car as a ‘Herald Convertible, white 1961 twin
carb’. Buyer bought the car and later discovered that the back part of the car was a 1961
Herald Convertible but the front part of the car was from an earlier model. The court held
there was a breach of condition of sale by description.
The basic rule here is that buyer must be aware and to exercise care in making purchases
because the law in section 16 does not protect the buyer.
S16 (1) adopts the common law principal of ‘Caveat Emptor’ meaning ‘let the buyer
beware’. The buyer must make sure the goods he buys are of the quality he wants or that
the goods fits the particular purpose that he wants. If he does not do so he must bear the
consequences as S16 (1) does not protect the buyer.
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1st exception: Implied condition that the goods must be reasonably fit for a particular
purpose.
Section 16(1)(a) – where the buyer makes known expressly or impliedly to the seller, the
particular purpose for which the goods are required, so as to show that the buyer relies on
the seller’s skill or judgment, and the goods are of a description which it is in the course of
the seller’s business to supply (whether as manufacturer or producer or not) there is the
implied condition that the goods shall be reasonably fit for such purpose.
Provided that, in the case of a contract for the sale of a specified article under its patent or
other trade name there is no implied condition as to its fitness for any particular purpose.
i. The buyer must make known, expressly or impliedly, to the seller at or before the
time when the contract is made, the particular purpose for which the goods are
required.
iii. The goods are of a description which it is in the course of the seller’s business to
supply, and reasonably fit for its purpose
iv. If the goods are specific, they must not be bought under their patent or trade name
– because there will be no implied condition as to its fitness for any particular
purpose.
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If the goods is to be used for a special purpose, then the buyer must make known to the
seller the special purpose.
iii. The goods are of description, which it is in the course of the seller’s business to
supply…and reasonably fit for a particular purpose.
This means the seller is in that kind of trade or business e.g. if seller is in the cigarette
business, it is no defense for the seller of cigarettes to argue that he had not previously
sold or supply cigarettes of that brand.
In Griffiths v Peter Conway Ltd, the Tweed coat was reasonably fit for wearing by
normal persons but not for one who has sensitive skin.
iv. If the goods are specific, they must not be sold (or bought) under their patent or trade
name.
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If a buyer ask for specific goods under a patent or trade name with the impression that he
is not relying on the seller’s skill or judgment, then he cannot later complain if the goods
bought are not fit for the purpose for which he requires them.
But, if the buyer buys under a trade name and relies on the seller to select a suitable item,
an implied condition arises that the buyer is relying on the seller’s skill or judgment.
Baldry v Marshall
The buyer had asked the dealer (seller) for a car suitable for touring and the dealer
recommended a ‘Bugatti’ car. Buyer later found out that the car was not suitable for
touring.
The court held that the said dealer is liable because buyer had relied on the dealer’s
judgment to select a suitable car for his purpose.
2nd exception – Implied condition that the goods must be of merchantable quality
Section 16(1)(b) states that where goods are bought by description from a seller who
deals in goods of that description (whether or not he is the manufacturer or producer)
there is an implied condition that the goods shall be of merchantable quality.
But if the buyer has examined the goods, there shall be no implied condition as regards
defects which such examination ought to have revealed. And it is implied that the goods
shall be of merchantable quality.
Davis Jones v Wills – a pair of shoes where the heels came off on the third occasion of
use was held to be of unmerchantable quality.
ii) Price
Price can sometime be a relevant consideration to determine whether the goods are of
merchantable quality, especially if there is a substantial difference in price.
However, the fact that the goods are sold at substantial reduction in price is not
conclusive that the goods are not of merchantable quality - Cehave v Bremer
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Proviso to S.16(1)(b) states that if the buyer has the opportunity to examine the goods
and such examination would have revealed the defect, then this implied condition will no
longer apply to protect the buyer.
Thornett & Fehr v Beers & Sons - in this case the buyer made a superficial examination
i.e. he only examine the outside of some barrels of glue. A proper examination such as
opening the barrel would have revealed that the glue was defective. It was held that since
there was already an examination, the implied condition of merchantable quality did not
apply anymore and the buyer could not sue the seller.
Thus, if the buyer had made some form of examination on the goods he cannot later
complain of the defects, which on reasonable and proper examination would have
revealed.
Both Section 16(1) (a) & (b) are implied condition, if breach, can lead to termination of the
contract. It would also appear that both sections exclude a private sale.
2. S17(2)(b) - that the buyer shall have reasonable opportunity of comparing the bulk with
the sample before acceptance, and
3. S17(2)(c) - that the goods shall be free from any defects rendering them
unmerchantable which would not be apparent on reasonable examination of the
sample. (apparent here means ‘not easily seen or detected’)
The three conditions are independent of one another, meaning a breach of any one will
entitle the buyer to reject the goods and terminate the contract.
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Section 62 allows the exclusion of the implied terms and conditions by express
agreement, or by previous dealings or by usage.
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