Implied Terms in Sales of Goods in Malaysia.

Issues for Seller and

Buyers?

Introduction
The Sale of Good Act 1957 (SOGA herein forth) was enacted in 1957 and the statue was applicable
to sale of goods in peninsular Malaysia (East Malaysia), excluding the states of Penang and
Malacca. The Act was later revised in 1990 and it includes both states. The states of Sabah and
Sarawak (West Malaysia) are not governed by this act instead they are governed by section 5(2)
of the Civil Law Act of 1956, which provides, among others, that the law to be administered in
England in the like case at the correspondent period.
The English statue applied is the Sale of Goods Act 1979, which is a revision of the Sales of Goods
Act 1893.As a result Sabah and Sarawak are bound by statute to continue to apply principles of
English law relating to the sale of goods.
The Act contains definitions or interpretations which clarify what the wording used in it refers to
and the context. Below are some of the definitions of key terms in the SOGA.
i. Buyer
a person who buys or agrees to buy goods.

ii. Seller
a person who sells or agrees to sell goods.

iii. Goods
means every kind of movable property other than actionable claims and money; and
includes stock and shares, growing crops, grass and things attached to or forming part of
the land which are agreed to be severed before sale or under the contract of sale.

iv. Specific goods

means goods identified and agreed upon at the time a contract of sale is made; and any
expression used but not defined in this Act which is defined in the Contracts Act 1950 [Act
136], shall have the meaning assigned to it in that Act.

v. Future goods
means goods to be manufacture or produced or acquired by the seller after the making
of the contract of sale.
Implied Terms of The Sale of Goods Act, 1957

The statutory of implied terms main function is to protect the rights to every buyer or consumer.
These statutory implied terms are in Section 14- 17 of the Sales of Goods Act, 1957 and are the
implied terms in every contract of sale of goods.
Section 14 of the SOGA is divided into three parts.
I. The first part states that 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. This in short means
that it is an implied condition to the seller to ensure that the buyer will enjoy the
ownership as well as possession and use of the goods, failure to do so gives the buyer the
right to reject the contract as the issue constitutes an implied condition.
II. The next part states that there is an implied warranty that the buyer shall enjoy quit
possession of the goods, and if the seller fails to comply, the buyer is entitled to claim for
damages since the matter is being constituted as an implied warranty.
III. The last part of Section 14 of SOGA, states that there is an implied warranty that the goods
shall be free from any charge or encumbrance in favor of any third party not declared or
known to the buyer before or at the time when the contract is made. If the seller fails to
comply, the buyer is entitled to claim for damages since the matter is being constituted
as an implied warranty.
Implied term & Case study

I. Implied term as to time

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. If
a buyer fails to pay by an agreed date, it does not automatically entitle the seller to
repudiate the contract unless some terms of the contract allow him to do so.

1. Case study

On 22 February 1994, a Heads of Agreement was entered into between the parties
that provided for the development of a resort on the land. Clause 3.1 specified
that the developer shall use its reasonable endeavors to comply with the
Development Schedule which was in Annexure 1. The development schedule
required Longboat to obtain a building approval (BA) by 21 January 1995 and to
commence construction by the 30 April 1995. Clause 3.2 set out that the
developer shall not be responsible for delays due to actions of Government.

On 14 October 1996, Restoration Island entered into a sublease with Longboat

Investments until February 2039. Longboat successfully made an application for
development approval in February 1996 upon the condition that $11,000 be paid
to the Council. By 1 March 2000, the Restoration Island gave Longboat 30 days’
notice to remedy the failure to obtain a BA. By this time, 6 years had passed since
the signing of the Heads of Agreement and over 5 years since the date identified
in the development schedule for the lodging of the BA.

However, a repercussion of not paying the $11,000 within two years of the
conditional DA being issued resulted in the application being void. Since there was
no express provision as to when an act required by the terms of the contract was
to be performed by, then it was to be performed within a reasonable time. This
view was to give business efficacy to the agreement.

2. Decision

Therefore, Longboat had breached this implied term to perform its obligations
within a reasonable time and the Heads of Agreement was terminated.
Consequently, the sublease was also terminated due to the operation of a clause
in the Heads of Agreement. As such, Restoration Island was able to recover
possession of the leased land.
II. 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.

1. Case study

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.

2. Decision

As a conclusion, since Afifah didn’t have any idea on the charges that have been made on
the car by Qistina to RHB Bank, no breach of terms can be made on Afifah.
III. Implied warranty that the goods are free from encumbrance

Free from any charge/encumbrances in favor of any 3rd party not declared. This is an implied
warranty. Free from any encumbrances means the goods should not have any prior charge in
favor of any third party not known to the buyer.

1. Case study

For example, a person A pledges his computer to another person B against a loan of Rs.
30,000. “A” also promises B that A will produce the laptop and give it to B the next day.
Later that day, A goes on to sell the laptop to C who is unaware of the course of dealings
between A and B. In this case, C can ask A to clear the loan immediately or clear the loan
by himself or herself and then proceed to file a suit against A for the recovery of the
money spent including the interest.

2. Decision

Where the seller had not paid the designated amount, was an encumbrance to the buyer.
The owner had breached the warranty.
IV. Implied condition goods correspond with 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.

1. Case study

Channel J in the case of Valley v Whip 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 buys the goods based on the description that is available
for him, it is considered that sale of good was affected by description. 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.

2. Decision

Hence, when the purchaser buys the goods based on the description that is available for him,
it is considered that sale of good was affected by description.
 V. Goods must be Reasonably Fit for Purposes for which the Buyer wants
them

Section 16(1)(a) of the SOGA deals with implied condition as to fitness. The section provides that
where goods are sold in the course of a business and the buyer expressly or by implication makes
known to the seller the purpose for which he is buying the goods, then there is an implied
condition that the goods will be reasonably fit for that purpose, even if it is a purpose for which
such goods are not commonly bought. This section may be invoked where the purpose for which
the goods are required is made known to the seller unless it is implied, but where a buyer
purchases goods without saying anything, the situation may be covered by section 16(1)(b). It
appears that section 16(1)(a) excludes a private sale.

1. Sample case

This protection which is accorded to a buyer/consumer can be illustrated by way of

making reference to the case of Deutz Far East (Pte) Ltd v Pacific Navigation Co Pte Ltd ,
where the plaintiffs were the manufacturers and suppliers of Deutz marine engines and
spare parts. They claimed for the sum being the price of a new top part of the injector
jump („NTP‟) supplied to be used on the main engine of the defendants‟ ship. The
defendants maintained that the NTP was defective as it had four oversized springs. The
main engine was badly damaged and the vessel was crippled and was repaired at
considerable expense. The defendants counterclaimed that the equipment supplied by
the plaintiffs for the engine of their ship was not fit for the purpose and was not of
merchantable quality. The court held that the defendants relied entirely on the plaintiffs
to supply the NTP which could be used with the engine on the ship. Section 14(3) of the
UK Sale of Goods Act 1979 (which is materially the same as section 16(1)(a) of the
Malaysian SOGA 1957) provides that where the seller sell goods in the course of a
business and the buyer, expressly or by implication, makes known to the seller any
particular purpose for which the goods are being bought, there is an implied condition
that the goods supplied under the contract are reasonably fit for that purpose, except
where the circumstances show that the buyer does not rely, or that it is unreasonable for
him to rely, on the skill and judgment of the seller. There is an implied condition that the
goods are supplied under the contract are of merchantable quality, except that there is
no condition as regards defects specifically drawn to the buyer’s attention before the
contract is made; or if the buyer examines the goods before the contract is made, as
regards defects which that examination ought to reveal.

2. Decision
As the plaintiffs in this case are both the sellers and manufacturers of the NTP supplied to
the defendants, they are liable to the defendants both in contract for breach of contract
and in tort for negligence in the manufacture of the NTP.
VI. Goods must be of Merchantable Quality

Generally, 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.

1. Sample case

For example, a pair of shoes whose heels came off on the third occasion was held
unmerchantable in David Jones v Willis. Basically, the test of „merchantable quality‟ needs to
be examined in relation to the description of the goods sold. Having said that, it is important
to make reference to section 16(1)(b) of the SOGA. The section provides the other exception
to the general rule that there is no implied warranty or condition as to the quality or fitness
for any particular purpose of goods supplied under a contract of sale. In order to understand
the operation of this section, reference can further be made to the case of Reveex
International S.A v MacLaine Watson Trading (M) Sdn Bhd [14], where the plaintiffs sold
various pharmaceutical veterinary products to the defendants. The defendants did not honor
the bill of exchange used to pay for the goods. The plaintiffs claimed as holders in due course
of the bill. The defendants counterclaimed against the plaintiffs contending that the goods
were not reasonably fit for the
purpose for which they were intended and were not merchantable, therefore breaching a
condition of the contract as statutorily implied by section 16 of the SOGA 1957.

2. Decision

The court ruled in favor of the defendants. In other words, the defendants succeeded in their
counter-claim.
Conclusion
The sale of goods act was made with a main reason to protect the consumer. So, the
objective was to make sure that the consumer in protected in terms of usability of the product,
quality of the merchandise. In the above cases we see how the act still fulfils its primary
requirement of giving a basis for legal clarity, when legal vagueness arises. We also see in the
second case; a ruling that was in support of the plaintiff even though the plaintiff had checked
the contents at close of the contract which is the constituent of section 16(b), We see how there
was a violation of contract because the whole delivery was not of merchantable value and hence
when it was used for the intention of which it was bought for, it was unsuccessful to accomplish
this use with tremendously grievous effect.
So, we note once again how the SOGA has provided legal security for the consumer. Both
these cases are showing that the importance of the section 16 Sales of Goods Act in the rule of
law. We have managed to discuss in the previous cases how the SOGA actually helped in the
reaching of such decisions.
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