ABBL3033 Business Law – Chapter 8: Sale of Goods Act 1957 (Part 1)

8. INTRODUCTION

The Sale of Goods Act 1957 (SOGA) is the law applicable to sale of goods in Malaysia.
Section 1 states that the Act shall have effect within Peninsular Malaysia only. The Act
does not apply to Sabah and Sarawak.

SOGA applies to contracts for the sale of all types of goods including second-hand goods
and makes no distinction between commercial sales and private sales or between
wholesale and retail. The basis for a contract for the sale of goods is essentially a
contract.

Section 3 SOGA states that the provisions of the Contracts Act 1950 will apply in so far as
they are not inconsistent with the provisions of the SOGA. This means that the laws in
SOGA will supersede that of the Law of Contract, and if something cannot be found in
SOGA then the Contracts Act can be applied to fill in the gap in SOGA.

8.1 CONTRACT OF SALE OF GOODS

A contract for the sale of goods is defined in Section 4(1) as:

“A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer
the property in goods to the buyer for a price.”

Note:
• Property is ownership. Ownership or title is sometimes use interchangeably.
Property in goods or title in goods means the ownership

• It is clear that the object of the contract of sale is the transfer of ownership of the
goods to the buyer for money consideration.

• If the goods are exchange with other goods without money consideration than
SOGA does not apply – see barter trade below.

8.1.1 Difference between a Sale and an Agreement to Sell

Section 4(3) states that where under a contract of sale the property in the goods is
transferred from the seller to the buyer, the contract is called a sale, but where 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, the contract is called an agreement to sell.

Section 4(3) shows two forms of Contract of Sale:-

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ABBL3033 Business Law – Chapter 8: Sale of Goods Act 1957 (Part 1)

1. A sale is a contract under which the property (ownership) in the goods is

transferred immediately from the seller to the buyer.

2. An agreement to sell is a contract by which the transfer of the property (ownership)

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

Therefore, a sale must be distinguished from an agreement to sell.

8.1.2 Requirements of a Contract of Sale of Goods

A contract for the sale of goods has four (4) requirements:
i) Seller & buyer
ii) Transfer of property
iii) Goods
iv) Price

(i) There must be a seller and a buyer:

‘Seller’ means person who sells or agrees to sell and

‘Buyer’ means person who buys or agrees to buy.

A contract of sale takes place only when the buyer is bound to buy & the seller is bound to
sell.

(ii) The sale involves transfer of property:

The legal object of the sale transaction is the transfer of ownership or title in goods from
the owner to the buyer.

Ownership is to be distinguished from possession. A party may be in possession of the

goods but he is not the owner.

Only the party who is the owner can transfer or pass title to the buyer.

However, a seller is not necessarily the owner.

E.g: Any sale made by mercantile agent when acting in the ordinary course of business of
a mercantile agent shall be as valid as if he was expressly authorized by the owner of the
goods to make the sales – Section 27.

(iii) The contract to sell must be in relation to goods:

What are Goods?

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Goods is defined in Section 2 SOGA as ‘every kind of moveable property other than
actionable claims & money; and includes stock & shares, growing crops, grass and things
attached to or forming part the land which are agreed to be severed before sale or under
the contract of sale’

What are not goods under Section 2?

These are not goods -
• Money
• Selling of services are not goods.
• Immovable properties such as land and buildings (house / factory)
• Actionable items –e.g. chose in action i.e. a right to sue another person for a debt.
• Trees are part of the land but logs that have been severed are goods.

(iv) Price:
Price is the consideration. Section 2 defined ‘PRICE’ as ‘the money consideration’ for a
sale of goods.

a) If no money is involved:
If the transaction is an exchange of goods, then this is not a contract of sale of
goods but a barter trade system.

In a barter trade system, the consideration is goods alone and no money is involved
in the transaction. This is not a contract of sale of goods under SOGA.

However, if the contract of sale is part goods & part money then it is still a contract
of sale of goods.

b) Fixing of Price
A contract of sale is basically an offer to buy or sell goods for a price and the
acceptance of such an offer.

Price is the money consideration for the sale of goods.

Price may be fixed in various manners: Section 9

a. it may be fixed by the contract, e.g. X agrees to sell a dress to Y for RM100.
b. it may be determine by the course of dealing between parties
c. If the price is not fixed or determine, then the buyer must pay a reasonable
price. What is a reasonable price is a question of fact dependent on the
circumstances of each particular case:

Once all the above 4 requirements (seller & buyer/ transfer of property/ goods/ price) are
satisfied, there is a contract of sale of goods even though:

i. Payment may be immediate or in installments, or

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ii. Delivery of the goods may be in installments or

iii. The goods –
a) Do not exist at the time of the contract but the goods is to be acquired in the
future (future goods) or
b) Have yet to be identified or ascertained (unascertained goods).

8.2 CATEGORIES OF GOODS

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

a. Existing goods
These are goods that are already existing or available at the time of making the contract.
These goods are already owned or in possession of the seller.

Existing goods may be specific or identified as the goods to be sold, or it may be

unascertained.

b. Specific goods
Goods are specific goods if the goods are identified and agreed upon at the time the
contract of sale is made. These are goods that are identified and you know exactly which
one you are buying or selling.

E.g. A agrees to sell to B his car registered as BCY 121. Here the goods are specific and
identified, as the car is BCY 121.

c. Ascertained Goods
These are goods that are already separated from the bulk and identified.

d. Unascertained Goods
Unascertained goods are goods that are identified by description only. These are goods
that are still together or still in its bulk form. The goods have not been appropriated (set
aside) to the contract after the contract has been made.

Example of ‘goods identified by description’.

A has 10 bags of rice and agrees to sell 6 bags. The question is ‘which 6 bags?’ Once the
6 bags have been set aside or set apart, then the goods have become specific and
ascertained goods. (Note: Unascertained goods is mentioned but not defined in Section 18)

e. Future Goods
Defined in Section 2 to mean goods that has yet to be manufactured or produced or
acquired by the seller after the making of the contract of sale.

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These are goods that do not exist at the time of making the contract but will be ready only
in the future.

Future goods are goods to be manufactured, produced, or acquired by the seller after the
contract has been made. Future goods may be specific or unascertained. However, most
future goods are unascertained.

E.g. An agreement to sell a particular car, which both Seller and Buyer knows has yet to
be made in the factory or it belongs to a third party at the time of the contract and the
Seller has yet to acquire it.

8.3 FORMATION OF THE CONTRACT

A contract of sale is made by an offer to buy or sell goods at a price and by the
acceptance of such an offer – Section 5(1)

A contract for the sale of goods can be in writing or orally, or partly in writing and partly by
oral means or it may even be implied from the conduct of the parties - Section 5 (2)

8.4 TERMS OF THE CONTRACT

Terms of the contract can be expressed or implied.

The terms in SOGA, as in contract, is divided into ‘Conditions’ & ‘Warranties’.

Section 12 (2) defines that a condition is a stipulation essential to the main purpose of the
contract, the breach of which gives the innocent party the right to treat the contract as
repudiated.

Section 12 (3) defines that a warranty is a stipulation collateral to the main purpose of the
contract, the breach of which gives the innocent party the right to a claim for damages but
not a right to reject the goods and treat the contract as repudiated.

Other than the expressed terms that are agreed upon by the parties, there are certain
implied terms. These implied terms are provided and regulated by SOGA.

8.5 IMPLIED TERMS

There are several important terms that are implied into a contract for the sale of goods
under SOGA. These implied terms are meant to protect the buyer or consumer (not the
seller).

Thus, even if the parties to the contract did not expressly state the conditions of the
goods, the SOGA implies certain terms into the contract.

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But these implied terms can be excluded or exempted by the seller (Section 62). If the
seller did not exclude them then these implied terms will automatically apply to every
contract for the sale of goods.

The implied terms in the SOGA regulate a number of factors such as (1) time, (2) title, (3)
possession, (4) free from encumbrance, (5) description, (6) fitness for particular purpose,
and (7) sale by sample etc.

8.5.1 Stipulation as to Time – Section 11

Section 11 state that unless a different intention appears from the terms of the contract,
stipulation as to time of payment are not deemed to be of the essence of a contract of
sale. Whether any other stipulation as to time is of essence of a contract or not depends
on the terms of the contract.

The above means stipulation as to time of payment are not deemed to be critical or
important unless it is clearly stated by the parties in the contract of sale that time is
important or critical.

Whether there are any other stipulations as to time (e.g. time of delivery) is of the essence
of the contract or not depends on the terms of the contract. This can be seen in the case
of:

Harrington v Browne: where the contract involves livestock, time of delivery being of the
essence of the contract is appropriate.

8.5.2 Implied condition as to Title – Section 14(a)

Section 14(a) states ‘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’.

Note: This is an implied ‘Condition’. If breach, the innocent party can terminate contract.

Section 14(a) requires the seller to have the ‘right to sell’ when he sells the goods. The
seller need not be the owner of the goods. He is only required to have the right to sell the
goods.

If the seller sells the goods without having the ‘right to sell’ then he is in breach of
condition and the buyer can repudiate or terminate the contract and recover the price in
full even though buyer has used the goods.

The rationale (reasoning) is that the buyer of the goods pays the price in order to enjoy
ownership as well as the use of the goods – Rowland v Divall.

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Rowland v Divall – Plaintiff bought a used car and after using it for 4 months discovered
that it was a stolen car. He had to return it to the owner. He sued the seller. The Court
held that seller had breached the implied condition that the seller must have the right to
sell. P was allowed to recover the full price even though he had used the car.

8.5.3 Implied warranty as to Quiet Possession - Section 14(b)

Section 14(b) - Unless a different intention is shown, there is an implied warranty that the
buyer shall have and enjoy quiet possession of the goods.”

Note: This is a ‘Warranty’. If breached innocent party cannot terminate contract.

Meaning of Quiet Possession

The rationale (reason) is that after the buyer had bought the goods he must be allowed to
use the goods without interference from the seller.

Illustration of Quiet Possession

E.g. X sold his car to Y. But X likes the car so much that he often persuade Y to lend him
the car. X also had a set of keys to the car and he used the car whenever he liked
regardless of whether Y needed the car or not. X has breached the implied warranty that
Y should have and enjoy quiet possession of the car.

Healing (Sales) Pty Ltd v Inglis Electrix Pty Ltd:

The seller who has not been fully paid by the buyer may not wrongfully interfere with the
goods sold by repossessing it.

8.5.4 Implied warranty that goods are free from encumbrances - Section 14(c) There is an
implied warranty that the goods shall be free from any charge or encumbrances in favour
of any third party not declared or known to the buyer before or at the time when the
contract is made.

Notes: This is a ‘warranty’. If breach the innocent party cannot terminate the contract.

Steinke v Edwards
Owner sold car to P without informing that there was still an encumbrance on the car i.e.
government tax was still not paid. The government seize the car. Owner had breach the
warranty. P paid the tax and recovered the money from the owner.

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8.5.5 Implied condition that goods correspond with description - Section 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, and if the sale is by sample as well
as by description, it is not sufficient that the bulk of goods corresponds with the sample if
the goods do not also correspond with the description.”

This is a ‘Condition’. If breached innocent party can terminate contract.

Note: All sale of unascertained goods are sale by description. Unascertained goods
especially where the buyer has not seen the goods, e.g. a mail order or sale by catalogue
or goods in a self-service shop where the buyer has seen the goods, selected and
examined it or the goods are describe whether on the label or packaging, these are
categorized as sale by description.

a) Sale of goods by Description

If the contract for the sale of goods by description, the goods must correspond with the
description.

Description includes any physical attributes of the goods.

Beale v Taylor
Seller advertised for sale and described the car as a ‘Herald Convertible, white 1961 twin
carb’. Buyer bought the car and later discovered that the back part of the car was a 1961
Herald Convertible but the front part of the car was from an earlier model. The court held
there was a breach of condition of sale by description.

b) Sale of goods by Sample & Description

If the sale is by sample and description, then the bulk of the goods must correspond with
the sample and the description.

8.5.6 Implied condition as to quality or fitness - Section 16

Section 16(1) states that there is no implied warranty or condition as to quality or fitness
for any particular purpose of goods supplied under a contract of sale.

The basic rule here is that buyer must be aware and to exercise care in making purchases
because the law in section 16 does not protect the buyer.

S16 (1) adopts the common law principal of ‘Caveat Emptor’ meaning ‘let the buyer
beware’. The buyer must make sure the goods he buys are of the quality he wants or that
the goods fits the particular purpose that he wants. If he does not do so he must bear the
consequences as S16 (1) does not protect the buyer.

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There are 2 exceptions i.e. S16 (1) (a) & (b).

1st exception: Implied condition that the goods must be reasonably fit for a particular
purpose.

Section 16(1)(a) – where the buyer makes known expressly or impliedly to the seller, the
particular purpose for which the goods are required, so as to show that the buyer relies on
the seller’s skill or judgment, and the goods are of a description which it is in the course of
the seller’s business to supply (whether as manufacturer or producer or not) there is the
implied condition that the goods shall be reasonably fit for such purpose.

Provided that, in the case of a contract for the sale of a specified article under its patent or
other trade name there is no implied condition as to its fitness for any particular purpose.

There are 4 requirements in Section 16(1)(a):-

i. The buyer must make known, expressly or impliedly, to the seller at or before the
time when the contract is made, the particular purpose for which the goods are
required.

ii. And the buyer is relying on the seller’s skill or judgment.

iii. The goods are of a description which it is in the course of the seller’s business to
supply, and reasonably fit for its purpose

iv. If the goods are specific, they must not be bought under their patent or trade name
– because there will be no implied condition as to its fitness for any particular
purpose.

i. Buyer makes known to seller the particular purpose of the goods

Disclosure of purpose of the goods

Where the goods have only one particular purpose, there is no requirement to indicate the
purpose it is bought – Priest v Last.

Good bought for it normal purpose

In Priest v Last, when the buyer poured hot water into a thermos flask, it exploded and
injured the buyer. The normal purpose of the thermos flask is to keep hot water.
Therefore, when it exploded, there is breach of its implied condition i.e. it showed that the
flask was not reasonably fit for its normal purpose i.e. to hold hot water.

Goods bought for a special purpose

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If the goods is to be used for a special purpose, then the buyer must make known to the
seller the special purpose.

Griffiths v Peter Conway Ltd.

A woman bought a Tweed coat without disclosing that she had unusually sensitive skin.
She sued but the court held that there was no breach of implied condition as to fitness of
purpose of the coat because she had not made known to the seller of her sensitive skin.
The coat would not harm a normal person.

ii. The buyer is relying on the seller’s skill and judgment

It is necessary to show that the buyer relied on the seller’s skill and judgment, either
expressly or impliedly.
Grant v Australian Knitting Mills laid the principle that it was necessary to show that there
was reliance on the seller’s skill and judgment and that the reliance can be inferred from
the fact that a buyer goes to the shop in the confidence that the seller has selected the
goods with skill and judgment.

iii. The goods are of description, which it is in the course of the seller’s business to
supply…and reasonably fit for a particular purpose.
This means the seller is in that kind of trade or business e.g. if seller is in the cigarette
business, it is no defense for the seller of cigarettes to argue that he had not previously
sold or supply cigarettes of that brand.

Ashington Piggeries Ltd V Christopher Hill Ltd

A seller of animal foods, was asked and supplied mink food even though seller had never
previously supplied such kind of food.
Held: It is no defense for an animal food seller to argue that he had not previously
supplied such brand, because making and selling animal feed is in the course of the
sellers business. As long as seller dealt with the goods of that particular kind it does not
matter that he had not dealt in goods of the contract description i.e. the mink food.

…and reasonably fit the particular purpose

This means the condition of the goods does not have to be absolutely fit for the
buyer’s purpose, but only that it should be reasonably so.

In Griffiths v Peter Conway Ltd, the Tweed coat was reasonably fit for wearing by
normal persons but not for one who has sensitive skin.

iv. If the goods are specific, they must not be sold (or bought) under their patent or trade
name.

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If a buyer ask for specific goods under a patent or trade name with the impression that he
is not relying on the seller’s skill or judgment, then he cannot later complain if the goods
bought are not fit for the purpose for which he requires them.

But, if the buyer buys under a trade name and relies on the seller to select a suitable item,
an implied condition arises that the buyer is relying on the seller’s skill or judgment.

Baldry v Marshall
The buyer had asked the dealer (seller) for a car suitable for touring and the dealer
recommended a ‘Bugatti’ car. Buyer later found out that the car was not suitable for
touring.
The court held that the said dealer is liable because buyer had relied on the dealer’s
judgment to select a suitable car for his purpose.

2nd exception – Implied condition that the goods must be of merchantable quality

Section 16(1)(b) states that where goods are bought by description from a seller who
deals in goods of that description (whether or not he is the manufacturer or producer)
there is an implied condition that the goods shall be of merchantable quality.

But if the buyer has examined the goods, there shall be no implied condition as regards
defects which such examination ought to have revealed. And it is implied that the goods
shall be of merchantable quality.

i) What is merchantable quality?

Merchantable quality means the goods sold must be fit for the particular use to which they
were describe and sold. It is reasonable to expect the goods to be of certain standard of
quality or fitness. If the goods are defective, it is not of merchantable quality.

Davis Jones v Wills – a pair of shoes where the heels came off on the third occasion of
use was held to be of unmerchantable quality.

ii) Price
Price can sometime be a relevant consideration to determine whether the goods are of
merchantable quality, especially if there is a substantial difference in price.

However, the fact that the goods are sold at substantial reduction in price is not
conclusive that the goods are not of merchantable quality - Cehave v Bremer

iii) Buyer has examined the goods – Proviso to Section 16(1)(b)

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Proviso to S.16(1)(b) states that if the buyer has the opportunity to examine the goods
and such examination would have revealed the defect, then this implied condition will no
longer apply to protect the buyer.

Thornett & Fehr v Beers & Sons - in this case the buyer made a superficial examination
i.e. he only examine the outside of some barrels of glue. A proper examination such as
opening the barrel would have revealed that the glue was defective. It was held that since
there was already an examination, the implied condition of merchantable quality did not
apply anymore and the buyer could not sue the seller.

Thus, if the buyer had made some form of examination on the goods he cannot later
complain of the defects, which on reasonable and proper examination would have
revealed.

Both Section 16(1) (a) & (b) are implied condition, if breach, can lead to termination of the
contract. It would also appear that both sections exclude a private sale.

8.5.7 Sale by Sample - Section 17

Section 17(1) provides that a contract of sale is a contract for sale by sample where there
is a term in the contract express or implied to that effect. This is an implied condition.

Under Section 17(2) there are 3 implied conditions of sale by sample:

1. S17(2)(a) - that the bulk shall correspond with the sample in quality.

2. S17(2)(b) - that the buyer shall have reasonable opportunity of comparing the bulk with
the sample before acceptance, and

3. S17(2)(c) - that the goods shall be free from any defects rendering them
unmerchantable which would not be apparent on reasonable examination of the
sample. (apparent here means ‘not easily seen or detected’)

The three conditions are independent of one another, meaning a breach of any one will
entitle the buyer to reject the goods and terminate the contract.

Drummond v Van Ingen

The manufacturer submitted a sample of material (cloth) to the cloth merchants who later
bought the material. The cloth when made into garments will split at the seams. It was
therefore unsuitable for its purpose.
The cloth supplied was equal to the sample previously examined but because of a latent
defect not discoverable upon reasonable examination, the court found the seller in breach
of section 17(2)(c). (latent here means ‘not visible’).

8.6 EXCLUSION OF IMPLIED TERMS

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Section 62 allows the exclusion of the implied terms and conditions by express
agreement, or by previous dealings or by usage.

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