LE/Lecture 8

Lecture 8

Sale of Goods Ordinance (Cap. 26)

1.0 Contract for the sale of goods

a. In general, every contract for sale of goods is governed by
1. Common law; and
2. Sale of Goods Ordinance (Cap. 26) (SOGO) (貨品售賣條例)
b. SOGO is to protect the interests of the public, in particular the consumers.
c. A person is a consumer if he purchases goods from a businessman or a company for his
private use (the end user) but not for business/trading purposes (such as resell to another
party for profit making).
d. Under SOGO, certain terms will be automatically implied into the sales contract.
e. As a result, even a contract itself does not provide fair and sufficient protections for the
buyers, SOGO will step in and protect the buyers.

1.1 Scope of SOGO

a. SOGO does not apply to all types of contract of sales of goods.
b. SOGO defines a contract of sale of goods to be a contract whereby the seller transfers or
agrees to transfer the property (產權) in goods to the buyer for a money consideration,
(price).
c. Goods refer to personal property, (e.g. clothes, cars, furniture etc.) but do not include landed
property and things in action (據法權產) like copyright.
d. Goods include pets and animals but do not cover services.
e. For services, see Supply of Services (Implied Terms) Ordinance (Cap. 457) instead of
SOGO.

1.2 Two important components for sale of goods contract

a. transfer of the property in goods
→ It means that the transfer of ownership of goods, not mere transfer of possession of
goods.
b. the transfer must be for money consideration
→ the consideration for the transfer of ownership must be money, (at least $1) (or plus
other condition)
→ SOGO N/A to a situation of exchange of goods where no money is involved.

2.0 Terms implied to contract under SOGO

Sections 14 to 17 of SOGO are important to protect the interests of buyers.

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2.1 s14 – implied terms of title of goods

This section is to ensure that the seller is the genuine owner of the goods sold.
The implied terms include both condition and warranty.
Implied conditions on the seller that:
1. seller has a right to sell the goods
a. it means seller has to be the owner of the goods before he is entitled to sell the goods.
b. If seller is in breach of this implied term, the buyer can rely on s14 to claim compensation.
Implied warranty on the seller:
2. the seller’s goods are free from any charge or encumbrance
a. the title of the goods are clean and not pledged to a third party.
b. The buyer can obtain a clean title of the goods from the seller and no other person can
claim interest in the goods.

3. the buyer will enjoy quiet possession of the goods

a. seller has to give a guarantee to the buyer that the buyer can enjoy the goods without any
disturbance and interference.
b. Implied no other person would claim that he has an interest in the goods.
c. Quiet possession means that the buyer can enjoy using the goods quietly and peacefully.

Case
Rowland v Divall (1923)
a. P bought a car from D, who had bought the car from someone without title.
b. P resold the car to another party.
c. Now another party returned the car to P and P sued D for refund.

Held
a. D had not obtained a good title and could not pass the title to any buyer.
b. The buyer just had the car in his possession but had no right to it.
c. P was entitled to succeed in his claim.

Case
Microbeads AG v Vinhurst Road Markings (1975)
a. D purchased some machinery from P.
b. Later, a third party sought injunction to prevent P from using the machinery because these
machines infringed its patent.

Held
a. The proceedings from the third party constituted a disturbance of D’s possession.
b. There was a breach of the warranty implied by s14(1)(b), SOSA.
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2.2 s15 - Sale by description (憑貨品說明的售賣)

a. Where a sale of goods is by description, there is an implied condition → the goods shall
correspond with the description.
b. If the contract for the sale of goods is by sample and description, → the goods has to
correspond with both the sample and the description.
c. s15(2) states that even if the buyer selected the goods from the shelf, the seller is subject to
the implied term of SOGO.

Case
Beale v Taylor (1967)
a. A seller (D), made an advertisement to sell his car stating that his car was a 1961.
b. But, in fact the car was made up of two halves. The first half was 1961 model (which was
the same description of the advertisement) and the second half was a earlier model.
c. The buyer, P bought the car and now sued D for breach of implied term.

Held
The Court ruled in favour of P.

Case
Samsung Hong Kong Ltd v Keen Time Trading Ltd (1998)
a. Under a contract for sale by description, P sold some goods to D.
b. P bought the goods from another supplier but when the goods reached P, it was found that the
goods was slightly different from the description in the contract.
c. D rejected the goods.

Held
a. It was a breach of condition implied by s15(1) of SOGO.
b. It was non-compliance with description, no matter the difference was very small.

2.3 s16 - implied undertaking as to quality & fitness (有關品質或適用性的隱含責任承擔)

a. where the seller sells goods in the course of a business, there is an implied condition that
the goods supplied are of merchantable quality.
b. However, implied condition of merchantable quality does not apply:
1. Defects specifically drawn to the buyer's attention beforehand;
2. The buyer examines the goods and the defects should be revealed in the examination;
3. if sale by sample, the defects which would have been apparent on a reasonable
examination of the sample.

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c. Another implied condition under s16 – fitness for purpose

→ If the seller is a trader and the buyer 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.

d. Specified purpose

If a buyer asked the seller if the goods is fit for a specified purpose, the seller has the
responsibility (as an implied condition) to inform the buyer if the goods can answer that
purpose.

e. General purpose

If the buyer does not specify a particular purpose, the general purpose for which such goods
are supplied will be presumed.

f. Unreasonably rely on the seller’s skill or judgment

A seller is not all-knowing. The buyer cannot rely on the seller’s skill or judgment to an
unreasonable extent. The buyer has to verify the facts himself as to the suitability of goods
rather than solely relying on the seller’s skill or judgment.

Case
Beecham & Co. Pty Ltd. V Francis Howard & Co Pty Ltd. (1921)
a. P bought high-priced timber from D to make a piano.
b. But the timber sold by D was of low quality.
c. D argued that the timber could be used for wooden box.

Held
a. Nobody would pay high-price to buy timber for making wooden box.
b. The timber was not of merchantable quality (for piano).

Case
Griffiths v Peter Conway Ltd (1939)
P purchased a wool coat from D which caused her to contract a skin disease because of her
sensitive skin.

Held
The coat was fit for its purpose as P had not made known to D of her sensitive skin.

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Case
William Zamara v Shui Hing Co Ltd (1951)
a. P, bought a baby’s rubber comforter from D (seller).
b. The comforter broke when used by P’s infant child.

Held
There was a breach of both s16(2) [merchantable quality] and s16(3) [fitness for purpose] of the
SOGO (Cap. 26).

Case
Oracle Enterprises Ltd v Gosho Co Ltd (1962)
a. P bought from D some clothing materials.
b. P sued D because the materials were not fit for manufacturing of pyjamas.

Held
The materials were fit for its ordinary usage for its price. They were of merchantable quality.

Case
Wong Ng Kai Fung v Yau Lai Chu (2005)
a. P bought a 3 month old puppy from D. The puppy died within one month of purchase.
b. D had drawn P’s attention to the risk of a possible latent disease for the puppy might have.
c. P claimed that the puppy was not of merchantable quality.
d. D applied s16(2)(a) of Cap. 26 -- the defects were specifically drawn to the buyer’s attention
before the contract was made.

Held
Under s16(2)(a), a general reference by the seller to the possibility or risk of the existence of a
latent defect, without stating that it did exist, would not suffice. Finding for P.

Case
Cammell Laird & Co Ltd v Manganese Bronze & Brass Co Ltd (1934))

a. The D agreed to make two propellers for P.

b. However, one of the propellers proved to be defective.

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Held
When the work was left to the skill and judgment of the D, there is breach of the implied condition
that the propeller should be fit for its general purpose of usage.

2.4 s17 -- sale by sample 憑樣本售貨

a. Sale by sample is a sales method where a small quantity or portion of goods is presented to
the buyer as a representative example of the entire batch (bulk)
b. Implied conditions for sale by sample:
1. the bulk shall correspond with the sample in quality;
2. the buyer shall have a reasonable opportunity of comparing the bulk with the sample;
and
3. the goods shall be free from any defect, rendering them unmerchantable, which would
not be apparent on reasonable examination of the sample.
c. Sometimes, it is impossible to find out this defect by examining the sample.
For example, a carton of 200 watches is sold by sample and they correspond with the sample
in whatever quality, but it is later found that the watches run ten minutes faster each day.
The implied condition no. 3 above fills the loophole by making sure that even the goods
correspond with the sample, they must also be of merchantable quality.

3.0 Protections from the Control of Exemption Clauses Ordinance (CECO) (Cap.71)
s11 of the Control of Exemption Clauses Ordinance (“CECO”) regulates exemption clauses
relating to ss14-17 SOGO as follows:
a. s11(1)
provides that breach of the contractual terms relating to the right to sell, freedom from
claims by third parties, and quiet possession (i.e. s14 of SOGO) cannot be excluded or
restricted.

b. s11(2)
provides that liability for breach of the contractual terms relating to correspondence with
description, sample, merchantable quality and fitness for purpose (i.e. s15-17 of SOGO)
cannot be excluded or restricted if one party is a consumer.

c. s11(3)
provides that the terms mentioned in s11(2) can be excluded or restricted if neither party is a
consumer, and the terms are reasonable.

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3.1 Consumer
Consumer is defined as a party to a contract of sale if (s4 of CECO (Cap. 71)):
1. he neither makes the contract in the course of a business nor holds himself out as doing so;
2. the other party does make the contract in the course of a business; and
3. the goods passing under or in pursuance of the contract are of a type ordinarily supplied for
private use or consumption.

3.2 What is reasonable

Regarding what is reasonable, the court will look at the following (Sch 2 of CECO (Cap. 71)):
1. the strength and the bargaining power of the parties, whether an alternative seller is
available;
2. whether one party was induced by the other party to enter into the contract with such clause;
3. whether the buyer was aware or ought to have been aware of the clause because of previous
dealings or the custom of the trade;
4. whether the clause excludes liability for a term of the contract which is likely to be broken;
5. whether the goods were tailor made in accordance with the order of the buyer.