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BUSINESS LAW (ZCZB 6013) GROUP ASSIGNMENT GROUP NO. 5 08.10.

2010

MBA PROGRAMME

GROUP ASSIGNMENT 1
CLASS: COURSE: COURSE CODE: LECTURER: Business Law & Ethics MBA ZCZB 6013 Associate Professor Dr Hasani bin Mohd Ali

NO. 1. 2. 3.

NAME Mohd Hatta Ahmad Azizul Azrin Mahmor Hazri Zan Abu Kassim

I.C. NO. 641225-05-5601 761117-04-5189

STUDENT NO. ZP00664 ZP00580 ZP00398

Date: 08.10.10

BUSINESS LAW (ZCZB 6013) GROUP ASSIGNMENT GROUP NO. 5 08.10.2010

Question

5.

(a) Parties are generally free to stipulate terms of agreements in their contract. However with regards to sale of goods, certain terms are automatically included. These terms are implied to safeguards the interest of buyers and sellers. State the implied terms as stipulated under the Sale Of Goods Act 1957.

Answer

Terms of contract are important for they allow the aggrieved party to seek remedies in cases where the other party fails to fulfill any of the terms. Under Sale of Goods Act 1957, a breach may amount to a breach of a condition or a breach of a warranty. However there may be cases where the buyer may not be able to know the terms due to ignorance or having insufficient time and resources to do inspection over the goods prior to accepting the goods. Thus there are implied terms in the contract afforded by Sale of Goods Act 1957 to protect the rights of the aggrieved party mainly the buyer. These implied terms are laid down in Sections 14-17 in the Sale of Goods Act, These terms are applied only when the parties to the contract of sale have not excluded or modified them. Some of the important implied terms are explained below.

SECTION 14(a) IMPLIED CONDITION AS TO TITLE There is an implied condition that the seller has the right to sell and pass all ownership rights to the buyer at the time of the performance of the contract. The general rule is nemo dat quod non habet or no one can give a better title than he has where the implied condition of title will be breached if the seller does not have the right to sell the goods.

BUSINESS LAW (ZCZB 6013) GROUP ASSIGNMENT GROUP NO. 5 08.10.2010

The point above is illustrated in Rowland v Divall (1923) where A buyer (B) purchased a car from a seller (S), neither of them knowing that it had previously been stolen. Four months later when it was discovered that it had been stolen, B had to return it to the true owner. B sued S to recover the price paid. The action was successful and B recovered the full price, without any deduction for 4 months use of the car.

SECTION 14(b) IMPLIED WARRANTY FOR A PEACEFUL POSSESSION OF THE GOODS. This is best illustrated in Heng Long Motor v Osman (1994), a van was bought by the buyer from the seller where the buyer took a loan from a financial institution to finance the purchase. Some time later, the van was confiscated by the Royal Custom and Excise for an investigation. Both the buyer and the financial institution then initiated legal action against the seller on the ground disturbance of use. The court ruled against the seller on the basis that the seller had failed in his duty to fulfill peaceful possession of the goods and found the seller liable to pay damages to the buyer and the financial institution.

SECTION 14(c) IIMPLIED WARRANTY FOR THE GOODS TO BE FREE FROM ANY CHARGES OR ENCUMBRANCES. In Steinke v Edwards (1935), a used car was sold by A to B who in turn then sold it to C and then finally C sold the car to D. D later found out the road tax of the car was not paid by A. Unfortunately the car was confiscated by the authority and D had to make substantial penalty payment to have the car released. The court held that D may claim for damages from C whuuch in turn may issue claim to the previous owner as each seller should ensure the goods sold must be free from any charges or encumbrances.

BUSINESS LAW (ZCZB 6013) GROUP ASSIGNMENT GROUP NO. 5 08.10.2010

SECTION 15 IMPLIED CONDITION THAT IN A SALE OF GOODS BY DESCRIPTION, THE GOODS MUST CORRESPOND WITH THE DESCRIPTION Where there is a sale of goods by description, there is an implied condition that the goods must match the description. Whether or not a sale is by description is a question of fact in each case. A sale may be by description even if the buyer has seen the goods before buying them, provided the buyer relied on the description and any discrepancy between the description and the goods is not apparent. Thus, a sale of a prepacked shirt would be a sale by description, even if chosen from a display. The issue above can be illustrated by Varley v Whipp (1900) where a private individual who was selling a second-hand reaping machine said that it had only cut 50 acres. On delivery, it proved to be much older and was in a bad condition. The court found for the buyer where the buyer could sue for the recovery of the price. Another case is Moore & Co v Landauer & Co [1921] to illustrate an implied condition that the goods must match the description. The plaintiffs entered into a contract to sell to the defendants a certain quantity of Australian canned fruit, the goods to be packed in cases containing 30 cans each. When the goods arrived, it was found that about half of the goods were packed in cases containing 24 cans only, instead of 30. The correct total amount of cans were delivered, and the market value of the goods supplied was unaffected. However the buyer refused to accept them. The court held its decision that although the method of packing made no difference to the market value of the goods, the sale was by description and the description had not been complied with. Thus the buyers were entitled to reject the whole lot of the goods.

SECTION 16(1a) GOODS MUST BE REASONABLY FIT FOR PURPOSES FOR WHICH THE BUYER WANTS THEM

BUSINESS LAW (ZCZB 6013) GROUP ASSIGNMENT GROUP NO. 5 08.10.2010

Section 16(1) states that, in general, 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. This rule, however, has two exceptions provided by subsections (a) and (b).

By section 16(1a), 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 supplied will be reasonably fit for that purpose, even if it is a purpose for which such goods are not commonly bought. This section does not apply if the buyer does not rely, or if it is unreasonable for him to rely, on the sellers skill and judgement

The issue above is best illustrated in Preist v Last [1903]. The plaintiff, who had no knowledge of hot-water bottles, bought such a bottle from the defendant who was a chemist. It was in the ordinary course of the defendants business to sell hot-water bottles. The plaintiff asked whether the bottle he was shown would stand boiling water. He was told that it would not , but that it would stand hot water. He did not state the purpose for which the bottle was required. In the event, the bottle was filled with hot water and used by the plaintiffs wife for bodily application to relieve cramp. On the fifth time of using, the bottle burst and the wife was severely scalded. Evidence showed that the bottle was not fit for use as a hot-water bottle. The court found for the plaintiff to recover the expenses he had incurred in the treatment of his wifes injuries for the defendants breach of the implied condition of fitness in the Sale of Goods Act. The plaintiff had relied on the defendants skill and judgment, and although he did not mention the purpose for which he required the bottle, he had in fact used it for the usual and obvious purpose

BUSINESS LAW (ZCZB 6013) GROUP ASSIGNMENT GROUP NO. 5 08.10.2010

SECTION 16(1B) GOODS MUST BE OF MERCHANTABLE QUALITY By section 16(1)(b), where goods are sold in the course of a business, there is an implied condition that the goods supplied must be of merchantable quality. However, if the buyer has examined the goods, there shall be no such implied condition as regards defects which ought to be revealed by the examination. This section means that goods must be as fit for the purpose for which they are commonly used as it is reasonable to expect, taking into account any description attached to them, their price and all the other circumstances. Thus, food must be fit to eat, clothes must be fit to wear, and cars must be fit to drive. The terms above can be illustrated by Grant v Australian Knitting Mills (1936) where Gant bought cellophane-packaged, woollen underwear from a speciality shop. Afetr wearing the garment for a short while, Gant developed a severe rash because of the residual chemical contained in the underwear, left over from the wool processing. The court held that the goods was not reasonably fit for their only proper use. The purchaser was relying on the sellers choice of quality product that could be worn without prior washing. As this was the case, there was a breach of the implied condition of fitness for purpose.

SECTION 17 SALE BY SAMPLE This section provides that where there is a sale by sample, conditions are implied that a) The bulk will correspond with the sample in quality b) The buyer will have a reasonable opportunity of comparing the two; c) The goods shall be free from any defect making it unmerchantable which would not be apparent by a reasonable examination of the sample. A case that best illustrates the above is Drummond v Van Ingen (1887). The facts of this case are a manufacturing firm sent a sample of material to cloth merchant. Subsequently an order was made for a quantity of material of a weight and quality equal to the sample. However later when the cloth made into

BUSINESS LAW (ZCZB 6013) GROUP ASSIGNMENT GROUP NO. 5 08.10.2010

garments, split at the seams and unsuitable for the purpose for which it was intended, though it was equal to the sample. The court held that the purchase (the manufacturing firm) was not bound to accept the material as the defects could not have been discovered by a reasonable examination.

EXCLUSION OF IMPLIED TERMS Section 62 allows the implied terms and conditions to be excluded by expressed agreement or by previous dealings or by usage. The courts have always been hostile to wards parties relying on exemption clauses, and have, wherever possible use the contra proferentem rule, i.e. exclusion clause are construed strictly against the party seeking to rely on them The exclusion of impled terms as explained above can be illustrated by Wallis Sen and Wells v Pratt & Haynes (1911). There was a sale of common sainfoin seed. A clause in the contract excludes warranties, express or implied, as to growth, description, or any other matters. The seller delivered giant sainfoin, and the buyers having accepted it, claimed damages. It was held by the court that the sellers were not protected by the exemption clause because it referred only to warranties, whereas they had broken a condition.

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BUSINESS LAW (ZCZB 6013) GROUP ASSIGNMENT GROUP NO. 5 08.10.2010

Question 5(b)

Messi advertised a car for sale and in the advertisement described the car as 1995 Mazda. Rooney inspected the car before he bought the car. Later he discovered that the car consisted of a rear half of 1995 Mazda which had been welded together with an earlier model (1991) Rooney is seeking damages against Messi. Advise Rooney.

Answer

The Sale of Goods Act 1957 implies a number of stipulations in every contract for the sale of goods. In this instance, the relevant terms applied is Section 15 which implies that in a sale of goods by description, the goods must correspond with the description Where there is a contract for the sale of goods by description, there is an implied condition that the goods shall corresponds with the description. Whether or not a sale is by description is a question of fact in each case. A sale may be by description even if the buyer has seen the goods before buying them, provided the buyer relied on the description and any discrepancy between the description and the goods is not apparent. Thus, a sale of a pre-packed shirt would be a sale by description, even if chosen from a display. Therefore in Rooney v Messi above, Rooney did rely on Messis description of the car to be of 1995 make which in truth the car was not. The goods did not fir the description. Thus Rooney is advised to seek damages from Rooney legally. This case is best illustrated by Varley v Whipp (1900) where a private individual who was selling a second-hand reaping machine said that it had only cut 50 acres. On delivery, it proved to be much older and was in a bad condition. The court found for the buyer where the buyer could sue for the recovery of the price.

BUSINESS LAW (ZCZB 6013) GROUP ASSIGNMENT GROUP NO. 5 08.10.2010

Another example is the case of Beale v Taylor (1967) where the contract in dispute was for the sale of a car described as Herald Convertible, White, Year 1961.

Unfortunately, the buyer found ou later the car was actually manufactured earlier than 1961,except for the rear part which was indeed manufactured in 1961. The buyer wet to court to set aside the sale. The court held that despite the fact that the buyer had an opportunity to inspect the car, however, the buyer also showed that he depended on the sellers description before decided to buy the car. Thus the court held that the buyer could set
aside the contract.

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References: (i) Lecture Notes, Assoc. Prof. Dr. Hasani, UKM (2010)

(ii) Business Law, Lee Mei Pheng & Ivan Jeron Detta, Oxford (2009) (iii) The commercial Law of Malaysia, Beatrix Vohrah & Wu Min Aun, Longman Malaysia (1996) (iv) General Principles of Malaysian Law, Lee Mei Pheng, Penerbit Fajar Bakti (1996)