LAW3201

TOPIC 10: SALE OF GOODS

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Contents 1. Introduction 2. Terms of contract

Conditions and warranties Implied terms

3. Privity of contract 4. Transfer of property in goods 5. passing of risk 6. Transfer of title 7. Performance of contract 8. Remedies for breach of contract of sale

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Learning outcomes

On the completion of this topic students should be able to:- Define and differentiate between a contract of

sale and an agreement to sell. Understand the meaning of implied conditions

and warranties and also discuss the implied conditions and warranties as provided under Sale of Goods Act 1957.

Determine the time when property in the goods passes to buyer.

Discuss the remedies for seller and buyer in case of breach of contract.

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1. Introduction

The contract of sale of goods is governed by the Sale of Goods Act 1957 (SOGA). It is applicable in all states in Peninsular Malaysia except Sabah and Sarawak.

The law of contract of sale of goods in these states is governed by English sale of goods statute.

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1.1. Definition of Goods

s. 2 of SOGA defines goods as follows:-  “… every kind of movable property

other than actionable claims and money and includes:- a) stock and shares; b) growing crops; c) grass; and d) things attached to or forming part of the

land which are agreed to be severed before sale or under the contract of sale.

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1.1. Definition of Goods (cont) Actionable claims normally include rights

under a contract, copyright and stocks and shares. A owes B money. B cannot sell, as goods

the rights to claim the debt from A. In other words, a debt is a debt, not convertible to other forms.

Land is excluded. Goods to include second hand either

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2. Classification of goods (s. 6)

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GOODSExisting goods (s. 6)Goods already owned or possessed by the seller.

Future goods (s. 2 of SOGA)Goods to be manufactured or produced or acquired by the seller after the making of the contract of sale.

Specific Goods (s. 2 of SOGA)Goods identified and agreed upon at the time a contract of sale is made.

Unascertained goods (s. 18)Goods which are identified by description only.

Specific goods (s. 2 of SOGA)Goods identified and agreed upon at the time a contract of sale is made.

Unascertained goods (s. 18)Goods which are identified by description only.

Existing-specific goodsExample:Sale by Ali of his car which is registered as WMM 211 to Muthu.

Existing-unascertained goodsExample:Sale by a car dealer a new Honda Accord 2006 model, until one Particular car of the model is appropriated to the contract.

Future-specific goodsExample:An agreement to sell particular car with both seller and buyer knows belongs to 3rd party at the time of contract is entered which the seller intends to acquire.

Future-unascertained goodsExample:An agreement to sell a unit of Toyota Avanza 1.5 yet to be manufactured by the seller.

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1.3. Definition of contract of sale Sale (s. 4 (1) of 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”.

A contract under which the property in the goods is transferred from the seller to the buyer.

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According to the definition, contract of sale can be in two (2) forms, a SALE or an AGREEMENT TO SALE.

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Sale

Sale (s. 4 (1) of SOGA)A contract under which the property in the goods is transferred from the seller to the buyer.

It means transfer of title in the goods takes place upon conclusion of the contract.

In a case of breach by seller, buyer may claim specific performance to compel delivery of the goods.

In a case of breach by buyer, seller may sue for the contract price.

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Agreement to sell

An agreement to sell (s. 4 (3) of SOGA) A contract under which the transfer of the

property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled.

Conditions may be in respects of time or performance of certain matters.

Breach from buyer – seller can repossess the goods and/or claim damages

Breach from seller – buyer can only claim unliquidated damages. Cannot claim the goods –belongings to seller.

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Case on agreement to sell

Harper Gilfillan (1980) Sdn. Bhd v Kean Toh Amang Factory Sdn. Bhd. & Lee Kwee Hong (claimant) [1986] 1 MLJ 249

The agreement to purchase land and factory with all the movables therein with a condition that it would only be effected if the Menteri Besar gave consent was said an agreement to sell. Thus the property in the movables had not passed to the purchaser since the consent had not been given on the date of seizure of the movables.

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1.4. Formation of a contract of sale S. 5 (1)

Offer and acceptance must take place – offer of selling or buying goods for a price and acceptance of such offer.

Immediate delivery of goods/immediate payment/both.

Can be instalments mode of payment or postponemnet of payment.

Delivery also can be postponed.

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1.4. Formation of a contract of sale (cont) S. 5 (2) May be in writing or oral or combination

of both, may also be implied by conduct. Capacity of parties is not specified in the

SOGA 1957-general application of law of contract is applicable.

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2. Terms of the contract

According to S.12 (1), the terms may be a condition, a warranty.

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Condition

S. 12 (2) 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.

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Warranty

S. 12 (3) A 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.

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2.2. Implied terms

The SOGA 1957 implies a number of stipulations in every contract for the sale of goods.

These terms are applicable only when the parties to the contract of sale have not excluded or modified them (s. 62)

Implied terms are terms that are usually left unspoken and understood between the parties.

s. 14 to s. 17 of SOGA 1957 have laid down these implied terms. The Act deems these terms to be incorporated into contracts whether the parties state the terms or not.

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a. Implied conditions

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Implied condition as to title in the goods – s. 14 (a) S. 14 (a) – unless different intention is

shown – there is implied condition that: the part of the seller, that, in the case of a

sale, he has a right to sell the goods, and 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.

Case: Rowland v Divall [1923] The court decided the defendant had breached the condition

as title after the buyer knew the true fact that the car bought was the stolen property and entitled to the full price. – total failure of consideration

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Implied condition that the goods correspond with the description (s. 15)

S. 15 Covers different ways of sale of goods by

description: Where the buyer has not seen the goods but

relying on the description Nagurdas Purshotumdas & Co. v. Mitsui Bussan

Kaisha Ltd. (1911) 12 SSLR 67 Where the goods have been seen by the buyer

but the defect may be concealed/hidden Beale v. Taylor [1967] 1 WLR 1193 Moore & Co. and Landauer & Co. [1921] 2 KB

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Implied condition as to time (s. 11) S. 14 (a) - unless a different intention is

shown in the contract, stipulation as to time of payment are not deemed to be of the essence of a contract of sale.

if a buyer fails to pay by an agreed date, it does not automatically entitle the seller to repudiate the contract unless there is any specific terms in the contract allow him to do so.

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Implied condition as to fitness for particular purpose (s. 16 (1)(a)) S. 16 (1)(a) – requires 4 conditions to be

satisfied: the purpose for which the goods are required is

made known, either expressly or impliedly to the seller at or before the time when the contract is made.

the buyer relies on the seller’s skill or judgment. the goods are of a description which it is in the

course of the seller’s business to supply. If the goods are specific, they must not be sold

under their patent or trade name

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Exception

Only one obvious use, it is unnecessary to indicate its purpose.

However, even when goods may have only one obvious use, if the goods are required for a special purpose, the buyer must expressly notify the seller of that purpose and rely on the seller to provide him with a suitable article.

Case:

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Griffiths v. Peter Conway Ltd [1939] 1 All ER 685

Facts: A woman with an unusually sensitive skin who bought a Harris Tweed coat without disclosing that fact to the seller.

Held: The woman could not succeed in her claim because:- She did not disclose to the seller the fact

that her skin is sensitive to the tweed. The coat will not harm a normal person.

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Implied condition that goods must be of merchantable quality (s. 16(1)(b))

Merchantable quality means the goods sold are fit for the particular use to which they were sold. If they are defective for the purpose, they are unmerchantable.

Case: David Jones v. Willis [1934] 52 CLR 110

Held: A pair of shoes whose heels came off on the third occasion was held unmerchantable.

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Implied condition that goods must be of merchantable quality (s. 16(1)(b)) (cont) S. 16 (1)(b): The contracts are subjected to this

condition if: The seller bought the goods by description; It is bought from a seller who deals in

goods of that description UNLESS where the buyer has examined the goods

‘as regards defects which such examination ought to have revealed’

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Case: Thornett & Fehr v. Beers & Sons [1919] 1 KB 486  It was held that though the buyer had

conducted a superficial look at the outside of some barrels of glue, there was an examination and therefore, the condition did not apply.

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This condition is also applicable in the case of goods sold under their patent/trade name.

Case: Wilson v. Ricket, Cockerall & Co. Ltd. [1954] 1 All ER 868 Facts: A lady ordered fuel by its trade name ‘Coalite’

from a fuel merchant. The consignment included a piece of coal in which a detonator was embedded, resulting in an explosion in the fireplace.

Held: The consignment as a whole was unmerchantable. It had defects making it unfit for burning.

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Implied condition that the goods must be in accordance to the sample when there is sale by sample (s. 17)

s. 17 (1) of SOGA states that a contract of sale by sample is where there is a term in the contract express or implied to that effect.

Samples are usually used in the sale of bulk goods like rice, wheat or flour and in household item like tiles, floor covering, carpets and so forth.

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Implied condition that the goods must be in accordance to the sample when there is sale by sample (s. 17) (cont)

s. 17 (2) of SOGA provides that there is an implied condition for a contract of sale when:- a) the bulk shall correspond with the sample in

quality; b) the buyer shall have reasonable opportunity of

comparing the bulk with sample. c) the goods are free from any defect rendering

them unmerchantable, which would not be apparent on reasonable examination of the sample.

A breach of anyone of the three conditions entitles the buyer to reject the goods and treat the contract as at an end.

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Case: 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 back 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.

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b. Implied warranties

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Implied warranty as to the enjoyment of quiet possession of goods (s. 14 (b))

Also covers the future quiet enjoyment of the goods.

Case: Microbeads A.G. v. Vinhurst Road Markings Ltd. [1975] 1 WLR 218

Facts: The patentee, a third party, had brought an action against the buyer alleging the use of certain road marking machines was in breach of their patent, two years after the sale of the machines by the Plaintiff to the Defendant.

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Implied warranty that the goods sold are free from any charge or encumbrance (s. 14 (c) ) Example: A company sold a machine to B

company. The latter did not know that A company had charged the machine to Bank C. A company has breached the warranty unless if B company knew about the charge and still decided to go ahead with the sale, there would be no breach.

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3. Privity of Contract

General rule: The terms of a contract are only binding on

the parties to such contract. Example: 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 the contract. His remedy would be to sue the manufacturer under tort.

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4. Transfer of property in the goods Property vs possession

Property in goods refers to title or ownership. Possession refers to physical control. Property in goods must be distinguished from

possession, because the passing of – property in goods does not necessarily means that possession also passes with it and vice-versa.

Example: A uses his father’s car daily to go to his college. The

car is now in A’s possession but it does not mean that the property in the car passes to A.

 

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Why it is important to ascertain when the property in goods passes to buyer?

# if the goods are accidentally damaged or destroyed, as the risk may depend on who has the property (ownership)

# if either the seller or the buyer becomes bankrupt – because a bankrupt’s property vests in his trustee in bankruptcy; or

# if the goods are damaged or destroyed through the negligence or other fault of a third party, as the rights of an owner to claim for loss are different from those of a person who merely has possession.

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General rule on transfer of risk S. 26 - Before property passes to the

buyer, the goods remain at the seller’s risk. When property passes to the buyer, the goods are at the buyer’s risk irrespective of whether the goods have been actually delivered to the buyer or not.

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Passing of property in the goods It depends on the types of goods i.e.

specific goods and unascertained goods

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Contract for specific goods

S. 19 (1) – transferable to buyer at such time as the parties intend it to be transferred.

How to ascertain the intention of parties? Terms of the contract Conduct of the parties Circumstances of the case

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Contract for specific goods

3 rules pertaining to time of passing of property of specific goods specific goods in a deliverable state Specific goods and the seller is bound to do

something to the goods for the purpose of putting them into a deliverable state

Specific goods in a deliverable state but require seller to measure, weight, test or do certain act to the goods in order to ascertain the price

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specific goods in a deliverable state (s. 20)

Delivery state - s. 2 says goods are in a deliverable state when they are in such state that the buyer would under the contract be bound to take delivery of them. If they are ready for delivery and they are

ready for delivery when they do not require any further work of processing.

Delivery-s. 2 defines it as voluntary transfer of possession from one person to another.

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specific goods in a deliverable state (s. 20) Property in the goods passes to the

buyer when the contract is made immaterial whether the time of payment of the price, or the time of delivery of the goods, or both is postponed.

Case: Underwood Ltd. V. Burgh Castle Brick and Cement Syndicate [1922] 1 KB 343

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Specific goods and the seller is bound to do something to the goods for the purpose of putting them into a deliverable state (s. 21)

the property does not pass until such thing is done and buyer has notice (knowledge) of it.

Example: A agrees to sell a particular second hand

motorcycle to B and promises to change the tyres – the property in the motorcycle does not pass to B until the tyres are changed and B has knowledge of the facts.

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Specific goods in a deliverable state but require seller to measure, weight, test or do certain act to the goods in order to ascertain the price (s. 22)

The property does not pass until such act or thing be done, and the buyer has notice thereof.

Example: Rice contained in a sack is purchased at RM12 per kg at a grocery shop. The property in the rice will not pass until the seller has weighed the sack and told the purchaser how much it will cost.

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Contract for unascertained goods S. 18 - The property in the goods can

only be transferred to the buyer after the goods are ascertained.

Case: Hayman v. M’ Lintock

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Unascertained goods, deliverable state and unconditionally appropriated with the consent of the parties

S. 23 - the property in the goods thereupon passes to the buyer.

General example: A agrees to buy 10 fruits of durian from all of B’s stock, B needs to appropriate 10 fruits which have been bought by A then it can be said that the property in durians pass to A.

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Case: Yap Chin Hock & anor v Cheng Wan Loong [1964] MLJ 276, HC

The defendant contracted to supply to the plaintiffs 400 tons of light red meranti timber. The defendant tendered 50 tons of timber. The plaintiff’s grader then graded 10 tons to be light red meranti and placed the plaintiffs’ shipping mark on them. The Department of Forestry found the parcel to include dark red meranti. The plaintiffs claimed damages for breach of contract and the return of their deposit. The defendant refused the claimed on the ground that the marking of 10 tons graded by the plaintiffs’ gader with the shipping mark cpuld be amounted as unconditional appropriation.

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Held: the marking constituted preparation for shipment not appropriation. It is not suggested in the contract that the risk passed upon the marking of the timber with the shipping marks. There was no passing of title to the buyer.

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When goods are delivered to the buyer on ‘approval’ or ‘on sale or

return’ or other similar term. (s. 24)The property in the goods passed to the

buyer:- a) when the buyer signifies his approval or

acceptance to the seller or does any other act adopting the transaction;

b) if he does not signifies his approval or acceptance to the seller but retains the goods without fixing notice of rejection. - if there has been time fixed for the return of goods

– on the expiration of such time. - if no time fixed – on the expiration of a reasonable

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Case: Inter Diam Pte Ltd v Diamond Centre Sdn Bhd [2002] 7 MLJ 189

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5. Passing of risk

General rule: s. 26 of SOGA - Risk passes when the property in

the goods passes irrespective of whether delivery has been made – unless otherwise agreed.

Exception: s. 26 of SOGA further provides that if the delivery

of goods has been delayed through the fault of the buyer or seller, the risk of the goods would be borne by the party in fault as regards to any loss which might not have occurred but for such fault.

Case: Demby Hamilton & Co. Ltd. V. Barden [1949] 1 All ER 435

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6. Transfer of title when goods are brought from a person who is not the owner General rule: S. 27 - that if goods are brought 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.

It is represented by the rule that is known as “Nemo Dat Quod Non Habet” – no one can give a better title than he himself possesses.

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Rationale

To protect the right of ownership. If not for this rule the interest of the true owner of the goods would be lost if the goods were stolen.

Case: Lim Chui Lai v Zeno Ltd [1964] 3 MLJ 314 R company entered into agreement to Ahmad

who secured contract from PJ authority for construction of culverts under which R provided materials and finance the project. R bought the materials and delivered to the site. Later, the R learned that PJ authority had cancelled the contract. The R then informed the PJ authority that the materials were belonged to them.

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However, the R discovered that the materials had been sold to appellant and part of the payment had been received by Ahmad. The R started action for conversion.

Held: Ahmad was the bailee and not the owner of the chattels at the time he sold them to the appellant. As he had no title to the chattels or authority to sell them, he could not give the appellant any title.

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EXCEPTIONS

i) Estoppel (s. 27) Ii) sale by mercantile agent (s. 27) Iii) sale by one of joint owners (s. 28) Iv) sale under a voidable title (s. 29) V) sale by a seller in possession after

sale (s. 30) Vi)sale by buyer in possession

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i) Estoppel (s. 27)

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Ii) sale by mercantile agent (s. 27) Folkes v King [1923] 1 KB 282 Facts: F left his car with a mercantile agent an

told him not to sell below a certain price. The agent did sold at the lower price to K. K bough in good faith with valid consideration without any notice of fraud. Agent disappeared, F sued to recover his car from K.

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

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Iii) sale by one of joint owners (s. 28)

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V) sale by a seller in possession after sale (s. 30) Pacific Motor Auctions Pty Ltd v Motor Credit

(Hire Finance) Ltd (1965) 112 CLR 192 A car dealer entered into display agreement with

Motor Credits whereby cars bought by dealer were sold to the finance co. for 90% of their purchase price. The car dealer retained possession for purpose of display. Later, the finance co. terminated its agreement with him. On the same day, the car dealer sold al his stock to Pacific Motor Auctions Pty Ltd. The car dealer signed a declaration that the cars were all his sole properties.

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Held: PMA had title to the cars as they had bought them in good faith and without any notice of the sale from a seller who had continued in possession of the goods after sale.

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Vi)sale by buyer in possession (s. 30 (2) Case: Newtons of Wembley Ltd v

Williams [1965] 1 QB 560 The P sold a car to A who paid by

cheque. A was given the possession but the propetry was agreed not to be transferred until the cheque was honoured. The cheque was dishonoured. A already resold the car to B and B resold to D. The P tried to recover the car from D.

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Held: A, the original buyer was in possession of the car with the consent of the owner. Hence, he could pass a good title to B, who in turn transferred it to the D. The D was therefore entitled to keep the car.

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7. Performance of the contract The contract of sale of goods is performed

by delivery and acceptance (s. 30). S. 2 defines it as voluntary transfer of

possession from one person to another. 2 forms of delivery – physically deliver the

goods or constructively deliver the goods i.e. by handing over the car key

Negligently or purposely refuse delivery-buyer may sue the seller for damages of non-delivery.

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Place, time and wrong quantity Place? S. 36(1) sending/collecting will depend

on the agreement between the parties. Time? S. 36 (2) no time is fixed then must be

delivered at a reasonable time. Delivery if wrong quantity?

S. 37 (1) Lesser than agreement – may reject all the goods delivered. Larger amount – accept the agreed part and reject the

rest or reject all or accept all but with appropriate payment

S. 37 (2) Mixed – accept the goods agreed or reject all.

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Acceptance

S. 42: The buyer is deemed to have accepted the

goods in following circumstances:- when he intimates to the seller that he has

accepted them when the goods have been delivered to him and he

does any act in relation to them that is inconsistent with the ownership of the seller, e.g. reselling the goods to the third party.

When after the lapse of a reasonable time, he retains the goods without intimating to the seller that he has rejected them

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8. Remedies for breach

Seller’s remedies Buyer’s remedies

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Seller’s remedies

Rights of unpaid seller Right of lien Stoppage in transit Right to resell

Failure of buyer to take delivery Failure of buyer to accept goods Failure of buyer to pay for goods

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Buyer’s remedies

Right to sue for non-delivery Specific performance Breach of warranty Action under tort – action in detinue and

conversion

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Tutorial questions

1. According to section 2 of the Sale of Goods Act, 1957, goods can be classified into existing and future goods. Draw a distinction between these two types of goods.

  2. The maxim ‘nemo dat quod non habet’

simply means that no one can give a better title than he himself possesses. Explain TWO (2) exceptions to this principle.

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Tutorial questions

3. State TWO (2) remedies which are available for an unpaid seller in a breach of contract of sale by the buyer. Support your answer with relevant provisions of the Sales of Goods Act, 1957.

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Tutorial questions

4. Suri wishes to buy her son a car as a birthday present. She approaches Wheeler, a retailer of car spares, who she knows sells cars for his customers from time to time. Wheeler offers to sell Suri a second-hand car, explains that the brakes require attention and reduces the price to take account of this. He also says that he will take no responsibility for this or any other defect. Suri accepts the offer without examining the car. If she had done so she would have seen that the tyres are badly worn and cause the car to be unroadworthy.

Advise Suri as regards her right to sue Wheeler for failure to ensure the car is roadworthy.

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Past year examination question (May 2010)

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