COMMERCIAL LAW

(BM062-3-5-2-CMLAW)
Contract of Sale of Goods

Topic & Structure of the lesson

1. Aspects of Sale of Goods contract

2. Transfer of Title
3. Sellers warranties
4. Remedies for Seller
5. Remedies for Buyer

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Learning Outcome
At the end of this lesson, you should be able to:
Identify and explain the characteristics of a sale

of goods contract
Explain the conditions to transfer title to Buyer
Discuss Sellers warranties pursuant to a sale of

goods contract
Elaborate on the remedies available to Buyer

and Seller under the sale of goods contract

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Agenda

Nature of SOG Contracts

The Applicable Law
Scope of Sale of Goods Act 1957 (SOGA)
Formation of Contract of Sale

Parties to Contract of Sale

Offer & Acceptance
Formalities
Price

Implied Terms under SOGA

Passing of Property
Property v. Possession
Risk passes with property
Specific & uncertain goods

Passing of Title
Remedies of Breach of Contract

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The Applicable Law

Reason: due to the operation of sec 5 of

the CLA 1956, any replacing written law
with respect to mercantile law shall be
applied in the West Msia other than
Penang and Malacca.
ABUS026-3.5-2 Business Law

Contract of Sale of Goods

The Contracts Act 1950

is still applicable unless
otherwise expressly
provided in the SOGA

Nature of SOG Contract

A contract of sale of goods is a contract whereby
the seller transfers or agrees to transfer the
property in good to the buyer for a price (s.4(1)).
In other words, a sale occurs when the ownership or
property in goods passes to the buyer.

Differentiate between:
Contract of sale of goods (section 4(1))
Agreement to sell (section 4(3))
i.e. a contract under which a transfer of the property in the
goods will take place at a future time or subject to some
condition.
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Sale of Goods contract (contd)

Goods according to Section 2 SOGA 1957:
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
What is a good?
Type of goods: existing & future goods
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Scope of SOGA
Definition of Goods under section 2 of the SOGA
Actionable claims

Goods

every kind
of movable
property

Money
Land
Excludes:

Goods may be
either existing
or future
goods (s6)

Includes:

Growing
crops &
grass
Stock &
shares
Things attached but
severable to land

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Formation of
the Contract
The parties involved are Seller
and Buyer.
Price is the money
consideration for the sale of
goods.

Their capacity is governed

under the Contracts Act 1950;

Price may be fixed in various

manners:
1.
2.
3.
4.

The contract is made by an

offer to buy or sell goods at a
price + acceptance of such an
offer (s.5(1))

Fixed by contract
Left in a manner to be
agreed, eg by 3rd pty
Determined by course of
dealing of the parties
By subject to a
reasonable price, s.9.

ABUS026-3.5-2 Business Law

The offer & acceptance may

be made in writing or/and by
word of mouth, or implied from
conduct (s.5(2))

Contract of Sale of Goods

Terms of Contract
Terms of contract can be in the form of
CONDITION or WARRANTY s.12(1)
A stipulation which is
essential to the main
purpose of the contract;

A stipulation which is
collateral to the main
purpose of the contract;

Its breach leads to

repudiation of contract

Its breach only leads to a

claim for damages

s.12(2)

s.12(3)

Terms of contract are either express or implied. There

are some implied terms under the SOGA 1957 for the
purpose of protecting the consumers.
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Stipulation of Time

Illustration: A agrees to sell his car to B for RM 15000, to be

paid on 1st of February 2007. The car is to be delivered on 3rd of
February.
Question 1: If B did not pay on the stipulated date, can A repudiate
the contract?
Question 2: If A, after the payment made by B, did not deliver the
car on the stipulated date, can B cancel the contract and demand
the money back?

This situation depends on whether or not the stipulation of time

is made of an ESSENCE to the contract.
The above questions can be answered YES if the time is made an
essence of the contract (i.e. the time is essential part of the
contract).
If the contract is silent about it, then the time is not to be considered
of essence (section 11) Himatsing & Co v. PR Joitaram [1970]

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Implied Conditions & Warranties

Section 14(a)

Section 17

Section 14(b)

Section 14(c)

Section 16(1)(b)

Section 16(1)(a)
ABUS026-3.5-2 Business Law

ABUS026-3.5-2

Section 15
Contract of Sale of Goods

Implied condition as to title s.14(a)

In a contract of sale, unless the
circumstances of the contract are such as to
show a different intention, there is
an implied condition on the part of the seller,
that, in the case of a sale, he has a right to
sell the goods, and that in the case of an
agreement to sell, he will have a right to sell
the goods at the time when the property is
to pass.

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Implied warranty to Quiet Possession

of the Goods s.14(b)
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 and enjoy quiet possession of the
goods.

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Implied warranty against encumbrance

or charge s.14(c)
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 goods shall be
free from any charge or encumbrance in
favor of any third party not declared or
known to the buyer before or at the time
when the contract is made.

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Implied condition on the sale by

description s.15
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.
Where 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.

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Nagurdas v. Mitsui Bussan [1911]

In Nagurdas Purshotumdas & Co. v. Mitsui Bussan Kaisha Ltd
(1911) 12 SSLR 67, there is a previous contract exists between the
parties about the sale of flour during last time when the buyer
ordered from the seller. The flour with the well-known trade mark
had been sold in the bags to the buyers in the previous time. When
the buyer plans to order the flour from the seller again, the order
was described as the same as our previous contracts in the new
contract. So, the flour which is identical in the quality was delivered
to the buyer but it did not bear the same well-known trade mark as
previous flour, so it was said that the goods that has been sold to
the buyer did not correspond with the description.

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Associated Metal v. Tham [1971]

Facts of the case -In Associated Metal Smelters Ltd. versus Tham Cheow
Toh case, the defendants had agreed to sell the furnace to the plaintiff and
had given an undertaking that the melting furnace will reach a temperature
of not lower than 2,600F. Unfortunately, the furnace supplied by the
defendants did not meet the required temperature. The plaintiffs, a limited
company incorporated in Malaysia and carrying on business at No. 9, Jalan
Tengah, Kuala Lumpur, are claiming damages for breach of warranty of a
metal melting furnace.

The failure on the part of the defendant to supply a furnace which would
meet the required temperature constituted a breach of the condition of the
contract entitling the plaintiffs to treat such breach as a breach of warranty.
The court awarded a sum of $7,500 as damages to the respondent and
dismissed the appellant counterclaim

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Implied condition of fitness for purpose

s.16(1)(a)
Subject to the provisions of this Act and of any other law for the
time being in force, there is no implied warranty or condition as
to the quality or fitness for any particular purpose of goods
supplied under a contract of sale, except
Where the buyer, expressly or by implication makes known to
the seller the particular purpose for which the goods are
required, so as to show that the buyer relies on the sellers skill
or judgment, and the goods are of a description which it is in
the course of the sellers business to supply
There is an implied condition that the goods shall be
reasonably fit for such purpose.
Case: Deutz Far East v. Pacific Navigation [1990]

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Implied condition of merchantable

quality s.16(1)(b)
Subject to the provisions of this Act and of any
other law for the time being in force, there is no
implied warranty or condition as to the quality or
fitness for any particular purpose of goods supplied
under a contract of sale, except
Where goods are bought by description from a
seller whod eals in goods of that description
there is an implied condition that the goods shall be
of merchantable quality.
Case: Wilson v. Ricket [1954]

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Wilson v. Ricket, Cockerall & Co. Ltd (1954) 1 All ER 868

Plaintiff who is a housewife has ordered a trade name Coalite coal

from the defendant, coal merchants. When the coal was put on fire
in an open grate in plaintiffs house, plaintiff was injured due to the
explosion that occurred in plaintiffs house. So, plaintiff want to claim
for the damages that caused by the breach of warranty in the Sale
of Goods Act 1893(c71)(repealed) s 14.

Therefore, the court held that the defendant was liable for this
consignment where by the whole consignment including the
explosive piece are not of merchantable quality as required by
Section 16(1)(b).

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Implied condition on the sale

by sample s.17(2)
In the case of a contract by sample ther is an implied condition:
That the bulk shall correspond with the sample in quality
That the buyer shall have a reasonable opportunity of comparing
the bulk with the sample
That the goods shall be free from any defect rendering them
unmerchantable whicih would not be apparent on the reasonable
examintation of the sample.
Case: Godley v. Perry [1960]-A six year old boy G, bought a
plastic catapult from a stationer P. G used the catapult properly but
it broke in his hands and injured his eye.
Held The use of the catapult was implied and as the catapult was
not fit for its purpose G could recover damages.

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Passing of Property
Distinguish the concept:
PROPERTY vs. POSSESSION
In a sale of goods contract, the two must pass
from the seller to the buyer.
The passing of property determines who to bear
the risks of such property
Only when the property passes to the buyer, the
risk will also pass to him irrespective whether or
not the good has been physically delivered to the
buyer. (sec. 26)

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Sec. 26: Risk prima facie passes with

property
Unless otherwise agreed, the goods remain at the
sellers risk until the property therein is transferred to the
buyer
But when the property therein is transferred to the buyer,
the goods are the buyers risk whether delivery has been
made or not.
Provided that where delivery has been delayed through
the fault of either the buyer or seller, the goods are at the
risk of the party in fault as regards any loss which might
not have occurred but for such fault.
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Specific & Uncertain Goods

Unascertained goods:
The property passes to the buyer only after the goods are
ascertained (s.18)
E.g. when A buys from B the latest Honda car to be consigned
from Japan. Only when B has set aside the car for A, the
property passes to A.

Ascertained/specific goods:
The property in goods passes to the buyer at such time as the
parties to the contract intend it to be transferred (s.19)
This intention can be identified by looking at: TERM of contract
and/or the CONDUCT of parties & CIRCUMSTANCES of the
case.

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Transfer of Title s.27

Consider the following
This is Mamat.. He is happy to have recently bought a racing car
from Jack. But later on found out that the car did not belong to Jack,
but instead it belonged to Paul Jack had sold it to him without
Pauls knowledge, authority or approval. Does Mamat acquire the
title of that car?

The answer is NO.

The legal principle:

Nemo dat Quod non habet means, no one can give a better title
than (form) what he has himself.

The rationale of this rule is to protect the right of

ownership. Without this rule, the interest of the true
owner of the goods which were stolen from him would be
jeopardized.
This old English rule is adopted in section 27 SOGA 1957
Case: Lim Chui Lai v. Zeno Ltd [1964]

ABUS026-3.5-2 Business Law

Contract of Sale of Goods

Exceptions to The Rule

The operation of estoppel

Sale by mercantile agent
Sale by one of joint owners
Sale under a voidable title
Sale by a seller in possession after sale
Sale by a buyer in possession

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Exception to the nemo dat quod non

habet rule:
The Operation of Estoppel (s.27)
Mamat can have the title of the car if Paul (the owner) by
his conduct makes it appear to Mamat that Jack has his
authority to sell such car and the buyer (Mamat) relies on
that conduct. Here Paul is estopped or precluded from
denying Jacks authority to sell.

ABUS026-3.5-2 Business Law

Contract of Sale of Goods

Exception to the nemo dat quod non habet

rule:
Sale by Mercantile Agent
(s.27)
Mamat can have the title of the car ifJack in this case is
Pauls mercantile agent, having possession of the car with
the consent of Paul, and had sold it to Mamat in the ordinary
cause of business as mercantile agent. (definition of
mercantile agent in s.2)
mercantile agent means a mercantile agent having in the
customary course of business as such agent authority either
to sell goods, or to consign goods for the purposes of sale,
or to buy goods, or to raise money on the security of goods;

ABUS026-3.5-2 Business Law

Contract of Sale of Goods

Exception to the nemo dat quod non habet

rule:
Sale by One of Joint
Owners (s.28)
Mamat can have the title of the car ifJack and Paul are
joint owners of the car, and he has the sole possession of
the car by permission of the co-owner provided that
Mamat bought from jack on good faith, and had no notice
that the seller has no authority to sell.

ABUS026-3.5-2 Business Law

Contract of Sale of Goods

Exception to the nemo dat quod non habet

rule:
Sale Under Voidable Title
(s.29)
Mamat can have the title of the car ifJack had acquired the
car from Paul under a voidable contract (refer to s. 19-20
Contract Act 1950), and at that time, Paul had not rescinded
the contract. Provided that Mamat bought it in good faith and
had no notice about the defect of Jacks title on the car.

ABUS026-3.5-2 Business Law

Contract of Sale of Goods

Exception to the nemo dat quod non

habet rule:
Sale by a seller in possession
after sale (s.30(1))

Mamat can have the title of the car ifJack (seller) had
previously sold the car to Paul, but then he continues or is in
possession of the car or of the document of title to the car
after the first sale.. So here Jack sold it to second buyer after
selling it to first buyer. Provided that Mamat bought in good
faith. And here Jack is liable to compensate Paul.

ABUS026-3.5-2 Business Law

Contract of Sale of Goods

Exception to the nemo dat quod non

habet rule:
Sale by a Buyer in
Possession (s.30(2))

Mamat can have the title of the car ifJack, after buying the
same car from Paul, had possession of the car, even though
such contract is not yet completed and Jack had not
obtained a good title yet.

ABUS026-3.5-2 Business Law

Contract of Sale of Goods

Remedies for Breach of Sale

of Goods Contract
Remedies for Sellers
Rights of unpaid sellers
In case the goods are not yet delivered
In case the goods are in the process of delivery
In case the goods have been delivered (see next)

Rights to sue for breach of contract

Remedies for Buyers

Rights to sue for damages for non-delivery

Rights to sue for specific performance
Remedies for breach of warranty (compensation)
Rights to sue under law of tort:
Detinue
Conversion

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Sellers Remedies
Sellers remedies against the goods: Section
46(1) SOGA
(a) Lien-a right to keep possession of property
belonging to another person until a debt owed by
that person is discharged.
(b) Stoppage of goods in transit
(c) Right of re-sale

Sellers remedies against the Buyer:

(a) price of goods (s 55 SOGA)
(b) damages for non-acceptance (s 56 SOGA)
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Buyers Remedies
Damages for non-delivery: s 57 SOGA
Specific performance: s 58 SOGA
Remedy for breach of warranty: s 59 SOGA

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Quick Review Questions

1. What is the main sale of good legislation in Malaysia?

2. Does the Contracts Act 1950 apply to sale of goods
contracts?
3. State the types of goods mentioned in the Malaysian
sale of goods legislation.

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Quick Review Question 1

Healy v Howlett (1917)
FACTS:- 190 cases of fish transported by railway
- Seller informed railway company (bailee) to set
aside 20 cases for Buyer
- fish became rotten before bailee set them aside
for Buyer
Q:

Who bears the risk of loss?

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Quick Review Question 2

Galbraith & Grant Ltd v Block (1922)
Facts:
(1) S delivered some champagne to Bs premise
(2) Goods were collected by a person in Bs premise who
signed for them in the Buyers name
(3) It was found out later that the person was not
authorized to collect goods
Q: Does the Sellers duty to deliver extend to ensuring
recipients authority?
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Quick Review Question 3

1) Define the Nemo Dat rule. What are the exceptions?

2) What is meant by implied condition of good title?
3) State the warranties associated with good title.
4) Explain the components of quality of goods.
5) What can a Buyer expect in a sale by sample?

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Quick Review Questions 4

1. What remedies are available to a Seller who still has
possession of the goods?
2. What remedies are available to a Seller who has lost
possession of the goods?
3. State the remedies a Buyer is entitled to when a Seller
breaches the warranties in SOGA.

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Summary of Main Teaching Points

1. Sale of goods contract & scope
2. Title is transferred to Buyer with the transfer of
ownership and possession.
3. In a sale of goods contract, the Sellers implied
warranties include quality, fitness, description and
sample.
4. Seller may take action against the goods or against
the Buyer
5. Buyer may take action against Sellers failure to
deliver or for breach of warranty. Specific performance
may be awarded where damages is insufficient.

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Question and Answer Session

Q&A
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