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Sale of Goods Act Case Study

Business law (Universiti Utara Malaysia)

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NO TITTLE PAGE
1 PREFACE 3
2 INTRODUCTION 4
3 CASE
 NAME
 FACT 5
 ISSUES
 JUDGEMENT
4 FORMATION OF A CONTRACT 6
5 HOW A CONTRACT OF SALE CAN BE MADE
 SUBJECT MATTER
6-7
 PRICING
 CAPASITY
6 TERMS OF THE CONTRACT
 CONDITIONS AND WARRANTIES
 IMPLIED TERMS
 IMPLIED TERMS AS TO TIME
 IMPLIED TERMS AS TO TITTLE
 IMPLIED WARRANTY AS TO QUITE
POSSESSION
 IMPLIED CONDITIONS THAT THE GOODS
7-13
SHOULD BE IN ACCORDANCE TO THE
DESCRIPTION
 IMPLIED CONDITIONS AS TO QUALITY OR
FITNESS
 IMPLIED CONDITIONS THAT THE GOODS
MUST BE IN ACCORDANCE TO SAMPLE
 IMPLIED CONDITIONS IN OTHER ACTS
 EXCLUSION OF IMPLIED TERMS
7 TRANSFER OF PROPERTY
13-15
 RISK PRIMA FACIE PASSES WITH PROPERTY
8 TRANSFER OF TITLE 15-18
 ESTOPPEL
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 SALE BY A MERCANTILE AGENT

 SALE BY ONE OF JOINT-OWNER
 SALE UNDER VOIDABLE CONTRACT
 SALE BY A SELLER IN POSSESSION AFTER SALE
 SALE BY A BUYER IN POSSESSION
9 EFFECT OF CONTRACT 18-19
10 PERFORMANCE OF THE CONTRACT
 TO DELIVERY THE GOODS
 TO SUPPLY GOODS WHICH COMPLY WITH THE
19-23
TERMS OF THE CONTRACT
 TO ACCEPT DELIVERY OF THE GOODS
 TO PAY FOR THE GOODS
11 REMEDIES FOR BREACH OF THE SALE OF GOODS
CONTRACT
 THE BUYER’S REMEDIES
 THE RIGHT TO REJECT THE GOODS AND
REFUSE PAYMENT
 THE RIGHT TO REQUEST SPECIFIC
PERFORMANCE 23-26
 THE RIGHT TO DAMAGES
 THE SELLER’S REMEDIES
 THE RIGHT OF LIEN
 THE RIGHT TO STOP THE GOODS IN
TRANSIT
 THE RIGHT OF RESALE
12 CONCLUSION 26
13 REFERENCES 26-27

INTRODUCTION

The law that governs the Sale of Goods is the Sale of Goods Act 1957. The Act was enacted in
1957 and revised in 1989. The revised Act was enforceable on 21 st September 1989. This Act
was extended to States of Malacca and Penang. Previously, this Act is applicable for all States in
West Malaysia except Penang and Malacca. As for the East Malaysia, Penang and Malacca apply
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English Sale of Goods Act 1893. Presently, these states apply English Sale of Goods Act 1979,
which consolidates with original Sale of Goods Act 1893 and Unfair Contract Terms Act
1977. Sale of Goods Act 1957 provides the rules and regulation pertaining to goods that covered
under this Act. The transaction, which involves these goods, will be regulated under this Act.

Sale of Goods is related to the business law is because mostly all the businesses are offering a
product to be sold to the customers. This law is important due to make the businesses run
smoothly with the sale of goods.

Goods is defined in Section 2 of the Act as every kind of movable property other that 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.
Based on the definition, the goods that are covered under this Act are as follows:

 Movable property, which is not under actionable claims or money such as bankruptcy
property.
 Stock and shares.
 Growing crops and grass.
 Things attached to the land and became a part of the land.

When there is a contract between two parties, which involved the above-mentioned goods,
that contract will be governed under the Sale of Goods Act 1957 besides the main principles
of law of contract.1

A contract for the sale of goods is a contract by which the seller transfers or agrees to transfer
the property in goods to the buyer for a money consideration called price. Section 2(1) Sale
of Goods Act 1979).2

CASE

Name: Dealer Management Systems, Inc. v. Design Automotive Group, Inc. 822 N.E.2d 566
(App. Ct. Ill. 2005)

1
Muhammad Rizal bin Razman. Syahirah Binti Abdul Shukor. Malaysian Commercial Law. April 2001. PP. 129-130.

2
Lam Sinn Hui. Law Of Business Students. (2008). PP. 1.
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Fact: In 2000, Design Automotive Group, Inc., issued a purchase order to Dealer Management
Systems, Inc. (DMS), for “Accounting Information Management” system consisting of various
separately priced software components. The price of the individual components totaled $24,000,
but DMS agreed to provide them as a package for $20,000 plus an additional $795 for an item
described a “RMCOBALRUNTIME SYSTEM FOR UNIX 16.” The purchase order also
contained the following language:

Software changes to AIM System to provide the same or better function as compared with
current system. Develop a MRP subsystem to meet manufacturing needs. Also, includes data file
conversion program from our current system and load programs in the AIM system. Also
includes user training and support for 1 year.

@$15,000

Includes source code license for internal use only and not for resale to anyone or any company.

Issues: DMS bought suit against Design Automotive alleging that it had breached the contract
for failing to pay the $20,000 purchase price for the software. And also seeking recovery in
quantum meruit for other computer programs that it claimed to have written for Design
Automotive. Design Automotive moved to dismiss the contract claim on the grounds that
because it had not signed the purchase order; the agreement was unenforceable under section 2-
2Q1(1) of the Uniform Commercial Code-Sales- the statute of frauds-which provides in pertinent
part:

Judgement: A contract for the sale of goods for the price of $500 or more is not enforceable by
way of action or defense unless there is some writing sufficient to indicate that a contract for sale
has been made between the parties and signed by the party against whom enforcement is sought.3

FORMATION OF A CONTRACT

A contract of sale is made by an offer to buy or sell goods for a price and the acceptance of such
offer. The contract may provide for the immediate delivery of the goods or immediate payment
of the price or both, or for the delivery or payment by installments. Delivery or payment or both

3
Jane P. Mallor. A. James Barnes. Thomas Bowers. Arlen W. Langvardt. Business Law, The Ethical, Global, and E-Commerce Enviroment.
(1996). PP. 481-482.

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may even be made at a future date Section 5(1). In the absence of a specific agreement on
delivery and payment, Section 32 applies, providing that delivery of the goods and payment of
the price are circumstantial. It is clear that the essence in the formation of a contract is the
acceptance of the offer on terms mutually agreed between the contracting parties.4

HOW A CONTRACT OF SALE CAN BE MADE

 SUBJECT MATTER

Section 6(1) provides that: The goods, which form the subject of a contract of sale, may be either
in existing form or future goods owned by the seller.

There are two types of goods, goods that owned by the seller that is existing goods. For example,
Audi A5 car, which is owned by the seller. Secondly, a future good. The term “future goods” is
defined in Section 2 of the Act as goods to be manufactured or produced or captured by the
seller after the making of the contract of sale.

 PRICING

Section 9 provides the determination of price. Section 2 provides the meaning of the word
“price” as the money consideration for a sale of goods. In some contract of sale, the price may be
fixed. If the parties in the contract agree on the price at future time, Section 9 does not apply.

Section 10 provides the agreement to sell at valuation. The valuer is used to determine the price.
If the valuer fails to act, for example the valuer passed away, the agreement is avoided. Besides
that, Section 10(2) provides that the party whether the seller or the buyer who is considered to
have wrongfully prevented the valuer to make the valuation may be sued by the innocent party
for damages.

 CAPACITY

The Sale of Goods Act is silent on the question of capacity. Hence the general application of law
contract will be applied.

TERMS OF THE CONTRACT

4
Beatrix Vohrah. Wu Min Aun. The Commercial Law of Malaysia. (1991). PP. 193-194.
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The terms of the contract need to be understood by parties, the seller and the buyer. The terms of
the contract can be an express term or implied term. Therefore, the terms of the sale of contract
are very important to determine the intention of both parties. The terms of contract may be
divided into conditions, warranties, prerequisite as to time and implied terms.

 CONDITIONS AND WARRANTIES

Section 12(1) provides that a prerequisite in the sale of contract with the goods in question can
be either as condition or a warranty.

Section 12(2) defines condition as a prerequisite essential to the main purpose of the contract;
the breach of condition may give the right to retract the contract.

Section 12(3) warranty is prerequisite ancillary to the main purpose of the contract, the breach of
warranty may give the right to claim for damages but not the right to reject the goods and
repudiate the contract.

Section 12(4) to determine whether the prerequisite is a condition or warranty, it depend in each
case of the construction of the contract. In some circumstances, the prerequisite maybe a
condition through called a warranty in the contract.

 IMPLIED TERMS

Under the contact of sale, it is important to determine the intention of both parties. Hence, it
indicates the duty of the seller to pass a good title to the buyer. There are several types of implied
terms: Implied terms as to time, implied terms as to title, implied warranty as to quite
possession, implied conditions that the goods must be in accordance to the description,
implied conditions as to quality and fitness, implied condition that the goods must be in
accordance to the sample.

 IMPLIED TERMS AS TO TIME

Section 11 of the Sale of Good Act state that:

Unless a different attention appears from the terms of the contract, stipulation as to time of
payment are not deemed to be the essence of a contract of sale. Whether any other stipulation as
to time is the essence of the contract depends on the terms of contract.
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Based on above section, the terms in the contract of sale or not. The stipulation of time may be
deriving from the contract of sale. It is presume that in the absence of a contrary intention in the
terms of contract, time shall be not regarded as the essence of the contract sale.

 IMPLIED TERMS AS TO TITLE, ETC.

Under Section 14 (a) sets out that the seller has a right to sell the good and to pass the property
when it is time to do so. A breach of condition will give the right to the buyer to repudiate the
contract and recover the price in full even through the buyer has used the good. In the case of
Rowland v Divall the buyer got the full price without deducting the period he use the car.

 IMPLIED WARRANTY AS TO QUIET POSSESSION

Section 14(b) provides that unless the contrary show in the contract, there is an implied
condition that the buyer shall have and enjoy quiet possession of the goods. This sub section
provides a wider scope compared to Section 14(a). Section 14(b) covers sale with defective title
as well as a subsequent brawl as to the tittle in the future.

Section 14 (c) state that there is an implied warranty that the good shall free from any charge of
encumbrance in favor of any third party not declares or known to the buyer before or at the time
when the contract is made. For example, Qistina sold the car to Afifah. Afifah did not know that
Qistina had charged the car to RHB Bank. Qistina had breached the warranty. If Afifah before
the contract knew about the charge and proceed with the sale, there would be no breach.

 IMPLIED CONDITION THAT THE GOODS MUST BE IN ACCORDANCE TO

THE DESCRIPTION

Section 15 provides that if the contract of sale of good by description; there is an implied
condition that the good shall correspond with the description. If the sale is by sample as well as
description, it is no sufficient that the bulk of goods correspond with the sample if the goods do
not also correspond with the description.

Channel J in the case of Valley v Whipp said that the term “ sale of goods by description “
must apply to all cases where the purchaser has not seen the goods but is relying on description
alone “. Hence, when the purchaser buy the goods based on the description that is available for
him, it is considered that sale of good was effected by description.
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In Grant v Australian Knitting Mills Ltd. , Lord Wright said that there is a sale by description
even though the buyer is buying something displayed before him on the counter: a thing is sold
by description, though it is specific, so long as it sold not merely as the specific thing, but as a
thing corresponding to a description, e.g. woolen underwear, a hot-water bottle, a second-hand
reaping machine to select a few obvious illustrations.

 IMPLIED CONDITION AS TO QUALITY OR FITNESS.

The seller must ensure that the goods supplied to the buyer must be fulfilled the condition
requested by the buyer. The seller can ascertain the condition from the buyer itself. Section 16(1)
(a) provides four condition, namely:

1. The buyer must make known to the particular purpose, which the goods are required.
2. The buyer relied on the seller’s skill and judgement to supply suitable goods.
3. The good must be of a description, which it is in the course of the seller’s business to
supply.
4. If the goods are specific, the must be sold under their patent or trade name.

The buyer should describe the purpose of buying the goods. It is important as to ensure that
quality of the goods as what has been expected by the buyer, In some circumstance, the buyer
relied on the skill of the seller to supply him with suitable goods. Generally, there is no implied
warranty or condition as to quality or fitness for any particular purpose of goods under the
contract of sale. However, there are two exceptions for this general rule, namely:

1. Goods must be reasonably fit for the purpose, which the buyer acquires them. So, in cases
where the buyer asks the seller to supply with the good which is specified, the condition
of the good must be as requested by the buyer.
2. Goods must be merchantable quality.

Section 16(1)(a) provides that the goods must be fit for the purpose required by the buyer. On
the other hand, Section 16(1)(b) provides that the purpose of the goods is according to the
description from the seller.

There are several views on the meaning of word “merchantable quality”. Several cases have
attempted define the words.

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For example, in cristol v Tramways Co Ltd v Fiat Motors Ltd Farewell LJ was in the opinion
that the word “merchantable quality” refers to such quality in such quality in such condition that
are reasonable man acting reasonable would after full examination accept it under the
circumstances of the case in performances of the case in performance of his offer to buy that
goods.

On the other hand, in the case of Henry Kendall & Sons v William Lilli Co, Lord Reid stated
that the goods would be considered as merchantable quality if the buyer who had fully known of
their condition could buy them without abatement of price.

Section 16(2) provides that an implied warranty or condition may be annexed to a contract of
sale. In the word of Raja Azlan Shah J in the case of Cheng Keng Hong v Government of
Federation of Malaysia. Raja Alan Shah J stated that, in practice from the trade usage or
custom, the implied warranty or condition may be possible to form part of a contract although
not expressly incorporated in the written agreement, however, it is subject to the principles of
law must reasonable and do not contradict the tenor of the contract.

In some circumstances, the parties may include the implied warranty and condition the contract
of sale as long as it does not contravene to the principles of law.

 IMPLIED CONDITION THAT THE GOODS MUST BE IN ACCORDANCE TO

SAMPLE.

Sample is used to describe the goods to the buyer. Under Section 17(1), the court has to
determine whether there is a sale by sample or not. Reference can be made to the terms of the
contract whether the sale was based on a sample or not.

According to Lord MacNaghten in Drummond v Van Ingen said “the office of a sample is to
present to the eye the real meaning and intention of the parties with the regard to the subject
matter of the contract, which owing to the imperfection of the language, it may be difficult or
impossible to express in words. The sample speaks for itself,” Hence, in some circumstances the
sample of the goods is needed to visualize the subject matter.

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Section 17(1) provides that the mere fact that a sample is provided for the buyer’s inspection
does not make the sale a sale by sample. There is a sample if there is evidence of an intention
that is should be such.

In Section 17(2) states that there is an implied condition for a contract of sale when

(a) The bulk shall correspond with sample in quality

(b) The buyer shall have reasonable opportunity of comparing the bulk with the sample.
(c) The goods are free from any defect rendering them unmerchantable, which would not
apparent on reasonable examination of sample.

The courts have to determine whether there is a sale by sample or not. This can be seen from the
constitutional term used in the contract. If the written agreement does not indicate to a sample,
therefore it is not a sale by sample. However, there are some exceptions to this general rule. The
exceptions are as follow:

(1) When the constitutional description has no definite commercial meaning, the extrinsic
evidence may be introduced to prove that sale is by sample.
(2) There is a collateral contract under which goods are warranted to be equal to sample that
contract may be proved by introducing extrinsic evidence.
(3) Extrinsic evidence may be introduced to show there is a trade usage to the affect that the
sale is by sample.

In some situation, evidence could be produced to show the sale was affected based on the sample
of the goods. There are some companies, which used sample to sell their products. For example,
in the cases of direct selling product to the customers. The customers depend on the sample
being representation or demo by the sale agent to foresee the goods. Therefore, if there is a
conflict whether the sale was based on sample or not depends on the interpretation of the court.5

 IMPLIED CONDITIONS IN OTHER ACTS

THE SUPPLY OF GOODS AND SERVICES ACT 1982

The following term, which are designated as conditions under the Supply of Goods and Services,
and barter contracts:
5
Muhammad Rizal bin Razman. Syahirah Binti Abdul Shukor. Malaysian Commercial Law. April 2001. PP. 132-144.
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 Title : s 2
 Description : s 3
 Satisfactory quality and suitable for purpose : s 4
 Sample : s 5

The following terms are implied in all contracts involving a supply of services:

 The work will be performed with all reasonable care and skill ; s 13
 The work will be carried out within a reasonable time : s 14
 The price charged will be reasonable : s 15

Note that the 1982 Act specifies that these are term only: they are not designated as conditions or
warranties. Their status depends on what, if anything, was agreed in the contract. Sometimes the
amount of damage caused by the breach will be used as evidence of their importance. They are
good example of innominate terms.

Many contracts involve delivery of both goods and services: for example, fitting a new central
heating system. If the system fails to work properly, this may be due to defective goods or
defective workmanship. The buyer will have to prove which of these two possibilities is causing
the problem. If the goods are defective, the buyer may repudiate the sale and refuse to pay since
liability under ss 2-5 is strict. If the problem arises from the standard of workmanship, the buyer
must prove failure to carry it out with reasonable care and skill. Even if this can be done, the
buyer will not be able to refuse payment unless the breached obligation amounts to breach of
condition. If the contract does not make the status of the term clear, the extent of the damage
may be indicative. If the damage was caused by one dripping radiator which has stained part of
your carpet, you will be entitled to compensation only, which will be discounted against the
price. If there have been a major flood involving collapsed ceilings and ruined furniture, carpets
and fittings, you will be able to refuse payment.

THE SUPPLY OF GOODS (IMPLIED TERMS) ACT 1973

The same conditions concerning goods are implied in hire-purchase contacts.

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The Sale and Supply of Goods to consumers Regulations 2002 amended these two Acts. They
now give the same protection to the buyer regarding public statements as that enjoyed by the
buyer under s 14(2D) of the Sale of Goods Act 1979.

THE UNFAIR CONTRACT TERMS ACT 1977

Liability for breach of implied terms as to title in sale of goods contract, or a supply of goods and
services contract or a hire-purchase contract, cannot be excluded or limited at all. Liability for
breach of implied terms concerning description, quality and purpose cannot be excluded in any
consumer sale, but may exclude in sale or hire to a person buying in the course of a business if
this is reasonable.

THE UNFAIR IN CONSUMER CONTRACT REGULATION 1999

The regulations are also relevant to the entire above contract if the buyer is a consumer and the
seller a business.6

 EXCLUSION OF THE IMPLIED TERMS

Section 62 of the Sale of Goods Act provides that the parties to the contact of sale of goods may
have exclusion of implied terms and condition by having an express agreement or by previous
dealing or by usage.7

TRANSFER OF PROPERTY

Generally, the title of the property passes together with the property to the
intended buyer. In other words, the ownership of the property will be
transferred to another party when the goods have been sold.

It is essential to differentiate ownership and possession. When the goods

sold have passed to buyer, the title remains with the seller. This usually
occurs in cases of hire purchase. The banker who gives the car loan to the
buyer may hold the title of the car until the buyer settled all the payments
due to the bank. Our Malaysian Sale of Goods Act provides rules pertaining
to the general rule.
6
Alix Adams. Law For Business Studens. (2008). PP.233-234
7
Muhammad Rizal bin Razman. Syahirah Binti Abdul Shukor. Malaysian Commercial Law. April 2001. PP. 144
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Section 2 defines the word property as the general property, in goods and
not merely a special property. Generally, the titles of the goods pass when
the parties to a contract intend that the title should pass.

Section 18 of the Act relates with the sales of unascertained goods that no
property in the goods is transferred to the buyer unless and until the goods
are ascertained. Hence, it is important for parties, the seller and buyer to
determine the goods.

Section 19 provides that for sale of specific or ascertained good, the

property passes when the parties intend to pass it and the intention can be
known from the terms of the contract and the circumstances of the case. In
this Section, it provides that the foods may be ascertained based on the
intention of the parties, terms of the contract and the circumstances of the
case.

Section 21 provides that when the seller is bound to do something to the

goods for the purpose of putting them in a deliverable state in a contract of
sale of specific goods. The property does not pass until such thing is done
and the buyer takes note on this matter. For example, before the car that is
Nissan Almera being delivered to the buyer, the seller needs to add some
accessories as required by the buyer before deliver it to the buyer. After
adding the accessories, the car is considered as in a deliverable state.

Similarly in Section 22 the seller is required to do something in order to

deliver the goods in a deliverable state to the buyer but this time in order to
ascertain the price.

In case of where the goods are unascertained but in a deliverable state with
unconditional in the contract, the seller sale of unascertained goods and
unconditionally appropriated. This is provided in Section 23 (1) of the Sale
of Goods Act: The property in the goods thereupon passes to the buyer.
Such assent may be expressed express or implied, and may be given either
before or after the appropriation is made.
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Person J in Carlos Federspied & Co, SAv Charles Twiggy & Co Ltd
explained that to be an appropriation of the goods to the contract, the
parties must have had an intention to attach the contract irrevocably to
those goods, so those goods and no others are subject of the sale and
become the property of the buyer.

 RISK PRIMA FACIE PASSES WITH PROPERTY

The risk passes when the property in the goods passes regardless whether
the good have been delivered or not. The risk will bear by the owner. This
rule depends on the agreement between parties. This principle may be
referred to our Malaysian Sale of Goods Act in Section 26.

However, in cases where there is default in delivery of the goods. Proviso to

Section 26 stated that if the delivery of goods has been delayed through
the fault of the buyer or seller, the risk of the goods would be bear by the
party in fault. This is regarded to any loss, which might have occurred, but
such fault will not affect the duties of the seller and the buyer as a bailee of
the goods to the other party.

TRANSFER OF TITLE

Section 27 of the Sale of Goods Act provides that no one can give what
he has not got. This rule derives from the Latin maxim nemo dat quod non
habet which means no one can transfer a better title than he himself. If
goods are purchased from a person who is not the owner and without the
owner’s authority, the buyer will not get a title even he has paid in good faith
for the price of the goods.

However, there are some exceptions for this general rule. The exceptions are
as follows:

1. Estoppel
2. Sale by a mercantile agent
3. Sale by a joint owner
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4. Sale under a voidable contract

5. Sale by a seller in possession after sale
6. Sale by a buyer in possession

 ESTOPPEL

Section 27 of the Act provides that estoppel occurs when the owner of the
good by its conduct precluded from denying the seller’s authority to sell. The
owner indicates that the person who sells his or her goods has the authority
to do so. The owner is estopped to deny the seller’s authority later.

 SALE BY A MERCANTILE AGENT

Generally, the person who does not own the goods cannot sell the goods
without the owner’s actual or apparent consent. Besides that, the person
also does not have the right to pass a better title to the buyer. This is
mentioned by Willes J in Whistler v forster “ No one can transfer a better
title than ne himself possesses “ Which is also known in Latin “ Nemo dat
Quod non habet “.

However, this general rule is not applicable when the seller appoints an
agent to conduct the sale of the goods. In Section 2 of the Act, it defines
the word “mercantile agent” as 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 to raise money on the security of goods.

An agent who has the authority may pass a good title in selling goods
belonging to his principle provided that he is acting within the scope of hi
actual authority. A person who sells his own goods is not an agent.

Proviso to Section 27 provides that the in cases where the mercantile

agent get the consent from the owner, any sale made by him in the ordinary
course of a business of a mercantile agent shall be valid as if he were
expressly authorized by the owner. In some situation, an agent who is in

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possession of the document tittle of the goods has got then authority from
the owner to sell the goods; the title can be transferred to the buyer.

 SALE BY ONE OF JOINT-OWNERS

Section 28 0f the Sale of Goods Act provide that:

If one of several joint owners of goods has the sole possession of them by
permission of the co-owners, the property in the goods in transferred to any
person who buys them of such joint in good faith and has no time of the
contract of sale notice that the seller has no authority to sell.

In cases when the goods belong to several owners and the sole possession is
which one of the owners, the seller can pass a good title to the buyer.
Provided the buyer buy the goods in good faith and do not have the time to
check whether the buyer has the lack of authority to sell or not. For example,
the rice cooler belongs to Abu, Ali and Amin. Abu takes possession of the rice
cooker with the permission of owners, Ali and Amin. Olive buys the rice
cooker from Abu. Olive is held to act in good faith without notice of Abu’s
lack of authority to sell the rice cooker.

 SALE UNDER A VOIDABLE CONTRACT

Section 29 provides that if the seller obtained the possession of the good
under a voidable contract under Section 19 and Section 20 of the
Contract Act 1950 but the contract has not be rescinded, the buyer gets
the good title of the goods. Provided the buyer buys in good faith and
without notice of the defect with the seller.

Section 19 (1) of the contracts of Act 1950 provides that if the consent
of the agreement is cause by coercion, fraud or misrepresentation, the
agreement is voidable at the option of the party whose consent was so
caused.

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Section 20 provides that the contract is voidable if is effected by undue

influence. Therefore, it is important for the buyer to prove that the goods
were bought in good faith and without notice that the seller does not have
the capacity to sell.

For example, Afifah buys a car from Nabilah. The contact was effect undue
influence. Later, Afifah sells the car to Qistina. Qistina will get a good title if
Qistina buy the car in good faith and without notice of the seller’s defect of
title.

 SALE BY A SELLER IN POSSESSIOM AFTER SALE

Section 30(1) a seller who still have the possession of the goods but have
departed with the title can pass a title to bona fide buyer. The second will get
the good title and the original buyer losses his title. For example, Muiz sells
his car Honda CRZ to Farhan. Muiz still has the car with him but has passed
the title to Farhan. Muiz sells the car to a new buyer, Nasrul. Nasrul will get
good title and Farhan will lose the title.

 SALE BY A BUYER IN POSSESSION

Section 30(2) a buyer who have bought the goods or agreed to buy goods,
obtains possession of the documents of title with the consent of the seller
can pass a good title to innocent dispone under any sale. Based on this
section, the buyer must obtain the goods or the documents of title after the
sale or agreement to buy.

EFFECT OF THE CONTRACT

Chapter III of the Sale of Good of Act discusses on effects of contract.

Section 18 does not mention when property passes where there are
unascertained goods.

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The good in property is transferred to the buyer at time when the parties
agreed and intended to do so. This can be referred to Section 19 (1), which
provides property passes when intended to pass by the parties.

Section 19(2) provides that in order to ascertain the intention of the

parties, reference can be made to the terms of the contract, conduct of the
parties and the circumstances of the case.

Section 19(3) stated that where there is no different intention, the court
may ascertain the parties’ intention by referring to Section 20 until
Section 24 of the Sale of Goods Act.

According to Bankes LJ in the case of Underwood v Burgh castle Brick

and Cement Syndicate a “deliverable state” does not depend upon the
mere completeness of the subject matter in all its parts, but on the actual
state of the goods at the date of contract and the state in which they are to
delivered by the term of the contract.

Section 21 mention on the specific goods to be put in deliverable state,

which was discussed in the case of Mohammad Mydin v Ramiah. In this
case, a lorry was held to be in deliverable state even though its registration
book was not yet delivered.

In some circumstances, the seller could not deliver the goods until some act
has been performed. For example, the seller needs to test the goods first
before it is being delivered to the buyer. This has been stressed out in
Section 22 of the Act that the property does not pass until the required act
or thing is done and the buyer has notice of it.

In case for sale of unascertained or future good by description and goods in a

deliverable state are unconditionally appropriated to the contract may be
referred to the consent of the seller or buyer as mentioned in Section 23(1)
of the Act.

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Pearson J in the case of Carlos Federspied & Co, SZ v Charles Twiggy &
Co Ltd. Stated that “To constitute an appropriation of the goods to the
contract, the pasties must have had an intention to attach to contract
irrevocably to those goods, so that those goods and no other are of the
subject of sale and become the property to the buyer “. Therefore, the
parties must put in clear their intention in the contract of sale to determine
the appropriation of the goods. This duty to appropriate may be done by the
buyer of the seller but in common, separation of weighing from a bilk as 5
kilograms of salt from a big basket. The seller or a buyer may approve such
practice. Appropriation can be done when it gets the approval either implied
or express from the seller or buyer, either before or after appropriation is
made“.

Section 24 (a) provides that in cases where the goods was delivered to the
buyer in approval or on sale or return the property passes to the buyer when
the buyer signified the approval or acceptance to the seller or any act that
the buyer adopt the transaction.

If the buyer does not signify his approval or acceptance to the seller but
retains the goods without notice or rejection, reference can be made
whether the time has been fixed to the return the goods and if there is no
time has been fixed, the expiration is based on reasonable time as stated in
Section 24(b) of the Act.8

PERFROMANCE OF THE CONTRACT

THE DUTIES OF THE SELLER

 TO DELIVER THE GOODS

Delivery in its statutory meaning the voluntary transfer of possession from one person to another
(s 61) does not necessarily involve actual physical transfer of the goods from seller to buyer, it is
includes constructive delivery.

8
Muhammad Rizal bin Razman. Syahirah Binti Abdul Shukor. Malaysian Commercial Law. April 2001. PP. 144-157
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Actual delivery takes place in most consumer contracts, but in many commercial contracts
constructive delivery occurs. Sometimes actual delivery is redundant as the buyer already has
possession of the goods. For example, when a party with possession of goods under hire-
purchase contract exercises its option to purchase. On other occasions it may be sufficient to
notify the buyer that goods are ready for collection, or to give the buyer the means to take control
of the goods, for example by giving the buyer the key to the warehouse in which the goods are
stored.

Goods in the possession of the third party are not delivered until the third party acknowledges
that they are being held on the buyer’s behalf (s 29(4)). This will require notice by the seller. The
buyer may not ever take physical delivery of the goods, which will continue to be stored by the
third party until sold to someone else, but the notice from the seller enables the buyer to dispose
of the goods.

Delivery also takes place when the goods are handed over to a carrier, whether or not the carrier
is the buyer’s agent (s 32). This does not apply to a contract with a consumer buyer under reg
4(3) of the Sale and Supply of Goods to Consumers Regulations 2002. The risk remains with the
seller until delivery to the consumer takes place.

Once delivery has taken place, all risks pass to the buyer, the seller has no further contractual
duties regarding the safety of the goods.

The arrangements for delivery may be found in the contract, but failing this the rules specified in
s 29 apply:

1. The place of delivery. This is the seller’s place of business or the seller’s home if he or
she does not have business premises (s 29(2)). If the contract is for specific goods, which
to the knowledge of the parties are at a different location, that will be the place of
delivery.
2. The time of delivery. If no time is fixed and the contract requires the seller to send the
goods to the buyer, this must be carried out within a reasonable time and at a reasonable
hour (s 29(3)). What is reasonable is determined according to the circumstances of the
contract. An unreasonable time would entitle the buyer to refuse to accept the goods.

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3. Tender of delivery at a reasonable time is equivalent to actual delivery. If the goods are
delivered at a reasonable time and the buyer actively or passively fails to accept them, the
buyer is in breach. The seller, by tendering performance, is freed from any legal
obligation to make further attempts to deliver. Refusal by the buyer to accept the goods
does not generally entitle the seller to repudiate the contract. In practice the issue is
generally resolved by the parties agreeing a fresh delivery time.
4. Time of performance may be of the essence of the contract. It is common for a contract to
state a time for performance. Failure to deliver by that time is a breach of contract
entitling a party to claim damages if they have suffered actionable loss. Late delivery
does not necessarily entitle the buyer to reject the goods. However, this is possible only if
the issue of time is a condition of the contract or, as it is sometimes described, of its
essence. Time will be of the essence of the contract if

a) It’s important is expressly stressed under the terms of the contract

b) It’s important is impliedly indicated by the terms of the contract and/or circumstances
surrounding it which are known to the seller (a contract requiring delivery of a
wedding cake to where the reception is taking place would indicate pretty clearly that
the time of delivery is crucial, without the buyer spelling out that it is required that
day)
c) The contract originally required delivery within a reasonable time but the seller failed
to fulfil this requirement so that a new delivery date was agreed. The new delivery
date is of the essence.
 TO SUPPLY GOODS WHICH COMPLY WITH THE TERMS OF THE CONTRACT

The buyer may be entitled to reject delivery if the goods do not meet the specifications laid down
in the contract, or fail to comply with the implied conditions under ss 12, 13, 14 and 15.

THE DUTIES OF THE BUYER

 TO ACCEPT DELIVERY OF THE GOODS

Under s 27, the buyer has a duty to accept delivery of the goods. The buyer must do this at the
specified time, if time is of the essence; otherwise it must be done within a reasonable time.

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Failure to accept delivery is a breach of contract which makes the buyer liable for any reasonable
costs incurred by the seller as a result for example transport and storage expenses.

Under s 35, acceptance is deemed to occur when the buyer:

1. Tells the seller that he or she accept the delivery

2. Fails to notify rejection within a reasonable time
3. Does something with the goods which is inconsistent with the rights of the seller. This
would include selling the goods to a third party.

The buyer is not generally legally obliged to accept anything less than complete performance of
the contract. The rules are as follows:

1. Variation in quantity of goods supplied (s 30). If specified amount is required by the

contract and more or less delivered, the buyer is not generally bound to accept. If they
choose to do so, the buyer must pay pro rata such as proportionately. In a non-consumer
sale the buyer is not allowed to reject the whole consignment if the shortfall or excess is
so slight that it would be unreasonable for him to do so (s 30A). It is up to the seller to
prove that rejection is unreasonable. Where only approximate amounts have been ordered
about 20 tonners, variations within a reasonable margin must be accepted.
2. Delivery by instalments. The buyer needs to accept delivery by instalments unless this
has been agreed in the terms of the contract (s 31). If the buyer rejects ab instalment or
the seller makes a defective delivery of one, it is a question of fact in each case whether
this gives the innocent party the right to repudiate the contract.
3. The innocent buyer need not return rejected goods. Where the buyer rejects the goods
because of a breach by the seller, the buyer has no obligation to return the goods (s 36).
The seller must make agreements for collection.

 TO PAY FOR THE GOODS

The buyer’s duty to pay for the goods is concurrent with the seller’s duty to deliver. The buyer is
not entitled to take possession of the goods until payment has been made, unless the parties have
made alternative arrangements. Sometimes the parties may agree that payment is to precede
delivery. It is also common for goods to be supplied on credit.

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REMEDIES FOR BREACH OF THE SALE OF GOODS CONTRACT

 THE BUYER REMEDIES

 THE RIGHT TO REJECT THE GOODS AND REFUSE PAYMENT

This is repudiation of the contract and is not possible unless the seller has breached a condition
of the contract by, for example, failing to supply goods of satisfactory quality. If the seller sues
the buyer for refusing to accept and pay for the goods, the buyer may raise the seller’s breach as
a defense and comment for any losses.

If the buyer discovers that part of a distribution of goods delivered by the seller does not comply
with the terms of the contract, the buyer has the right to accept those goods which meet the
contract standards and to reject the rest (s 35A).

The right to reject goods is limited. It is lost as soon as the buyer is deemed to have accepted the
goods (s 35). The courts have often held that acceptance has resulted from the buyer using the
goods for anything more than a very short time and/or retaining and continuing to use the goods
after having complained about them, or agreeing to them being repaired.

Since all cases are judged on their particular facts, apparently conflicting decisions may occur: in
Rogers v Paris (1987) it was held that a top of the market Range Rover could be rejected after
seven month, with 5000 mileage, since it had been a martyr to endless mechanical problems
from the moment of delivery, and had spent much of its life in the garage while many
unsuccessful repairs were attempted.

The buyer must have a reasonable time to examine the goods. When deciding whether the buyer
has accepted the goods, the court must consider whether the buyer had a reasonable opportunity
to examine the goods after delivery (s 35(5)). This amendment was introduced in 1994, largely to
protect the rights of consumers, but as the courts have always taken this into account, it is
uncertain whether it is likely to make much difference.

A buyer who is sold defective goods may agree to have them repaired instead of rejecting them.
If this is threated as acceptance, the buyer loses the right to reject the goods and recover the
price. The reality is that many consumers do not initially realize that they have the right to reject
defective goods, so that they agree to the seller’s apparently kind offer to repair the goods. At

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best this causes inconvenience to the buyer, who is temporarily deprived of the use of the goods:
sometimes a whole saga of delay and incompetence starts to unfold. At this point the buyer may
find out that he or she need not have agreed to the repair in the first place and seek to reject the
goods. To safeguard the buyer in such situations a 1994 amendment to the Sale Goods Act 1979
states that the buyer is not to be assumed to have accepted the goods merely by agreeing to their
being repaired (s 35(6)). This may increase the opportunities for a buyer to reject the goods.

However, where the buyer is deemed to have delayed rejection unreasonably he or she will lose
their right.

When goods are returned to a buyer for inspection with a view to repair this constitutes a
separate agreement from the contract of sale itself. It puts the seller under an implied duty to
inform the buyer of the nature of the defect so that the seller can then decide whether or not to
repudiate the sale of goods contract.

Right of rejection is less comprehensive in a non-consumer sale (s 15A). If there is a breach of

condition under ss 13-15, a consumer buyer may reject the goods prior to acceptance, however
trivial the damage. A buyer who is not a consumer (not buying for personal use) is not entitled to
reject the goods if the breach is so trivial that it would be unreasonable to allow the buyer to
reject.

 THE RIGHT TO REQUEST SPECIFIC PERFORMANCE

If the seller refuses to deliver the goods and this amounts to breach of condition because time is
of the essence, specific performance may exceptionally be available to the buyer if the goods are
adequately unique.

 THE RIGHT TO DAMAGES

A breach of conditions entitles the buyer to claim damages, as well repudiating the contract.
Damages are the only remedy for breach of warranty. How far damage is recoverable is partly
governed by the rules relating to remoteness and quantum explained in 1979 Act also regulates
the process:

1. Damages for non-delivery (s 51). If there is a market for the goods, the buyer may
recover the difference if any between the price agreed with the seller and the current
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market price, if the price has increased between formation of the contract and its breach,
damages will be payable. The buyer is also able to recover any losses directly and
naturally resulting in the ordinary course of events from the failure to deliver.
2. Damages when goods have been accepted (s 53). If the seller has breached a condition,
but the buyer has by acceptance of the goods lost the right to reject, the breach will be
treated as one of warranty and damages will be recoverable for all actionable loss.

 THE SELLER’S REMEDIES

 THE RIGHT OF LIEN

If the seller has retained possession of the goods, the seller may be able to hold on to them until
the buyer pays the price in full, even if title has passed to the buyer (s 41). The right exists if:

1. The goods have not yet been paid for and there are no arrangements for credit
2. The goods were supplied on credit which has now expired
3. The buyer becomes insolvent which is unable to pay its debts in the ordinary course of
business, or as they come due (s 61).
Under s 43, the right of lien is lost if:
1. The price is paid
2. The seller loses possession of the goods to a third partly for delivery to the buyer and
does not reserve the right to dispose of them
3. The seller waives the right, which is agrees not to exercise it.

 THE RIGHT TO STOP THE GOODS IN TRANSIT

This right under ss 44 and 45 can be exercised only if the buyer becomes insolvent. It may be
exercised even though the buyer has title. Transit begins when the goods are in the hands of
carrier and ends when the buyer or their agent takes delivery. There is no right to stop the goods
if the carrier is the agent of the buyer.

The right will be lost if the buyer or its agent intercepts the goods and obtains possession before
the goods reach their destination.
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The unpaid seller exercises the right by taking physical control of the goods, or by notice to the
carrier or other custodian of the goods.

 THE RIGHT OF RESALE

Under s 48, this right may be exercised if the buyer has failed to pay and:

1. The goods are perishable

2. The seller has notified the buyer of their intention to resell if payment is not made and the
buyer fails to pay within a reasonable time.

On resale the new buyer acquires ownership of the goods. If the seller makes a loss on resale he
or she may sue the buyer for damages to cover this. If the seller makes profits, he or she can keep
it.9

CONCLUSION

This law reviews some Code rules that govern the formation of sales contracts previously
discussed. It also covers some key terms in sales contracts, such as delivery terms, title, and risk
of loss. Finally, it discusses the rules governing sales on trial, such as sales on approval and
consignments. A contract for the sale of immovable property is a contract laying down that the
'Sale' of such property shall take place on the terms settled between the parties in the said
contract. Such contract for sale does not create any interest in or charge on such immovable
property. The contract for sale does not result in any transfer of ownership. However a sort of
obligation is created in respect of the ownership of the property.

REFERENCES

Muhammad Rizal bin Razman. Syahirah binti Abdul Shukor. Malaysian Commercial Law. April
2001.

Alix Adams. Law of Business Students. (2008).

Lam Sinn Hui. Commercial Law (1996).

Beatrix Vohrah. Wu Min Aun. The Commercial Law Of Malaysia. (1991).

9
Alix Adams. Law For Business Students. (2008). PP.247-254
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Jane P. Mallor. A. James Barnes. Thomas Bowers. Arlen W. Langvardt. Business Law, The
Ethical, Global, and E-Commerce Environment. (1966).

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