GLUL 2023 –Business Law

GROUP 6: Law of Sales of Goods

Associated Metal Smelters Ltd. v Tham Cheow Toh (1971) 1 MLJ 271

Issue of the case

A warranty on the other hand is referred to in the Sale of Goods Act 1957 as ‘a stipulation

collateral to the main purpose of the contract, the breach of which gives rise to a claim for

damages but not a right to reject the goods and treat the contract as repudiated.’ Hence a

warranty may be said to be a term of a contract which is not so important to the main purpose

of the contract. A breach of a warranty will entitle the innocent party to claim damages only.

It must be noted that a party who is entitled to terminate the contract for breach of a

condition, may choose to continue the contract and treat the breach as a breach of warranty

only. In such cases he will only be entitled to damages.

Facts of the case

In Associated Metal Smelters Ltd. versus Tham Cheow Toh case, the defendants had agreed

to sell the furnace to the plaintiff and had given an undertaking that the melting furnace will

reach a temperature of not lower than 2,600ºF. Unfortunately, the furnace supplied by the

defendants did not meet the required temperature.

The plaintiffs, a limited company incorporated in Malaysia and carrying on business

at No. 9, Jalan Tengah, Kuala Lumpur, are claiming damages for breach of warranty of a

metal melting furnace.

The defendants are the sole-proprietors of Tham Engineering Works carrying on

business at No. 3, Jalan Ampat off Jalan Chan Sow Lin, Kuala Lumpur.

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The defendants admit the agreement which is it was agreed that the defendants should

sell to the plaintiff a high temperature tilting Metal Melting Furnace fired by gas. But

defendants deny that there was a breach of any warranty and that it was an express condition

of the agreement that the furnace should be able to reach a temperature of 2,600ºF. The

defendants contended that it was agreed the furnace should withstand a temperature of

2,600ºF and maintained that the furnace as supplied was capable of doing so.

The defendants also denied the plaintiffs which was the plaintiffs said that the furnace

delivered by the defendants was not suitable for smelting lead, and in particular the furnace

was not able to reach the required temperature of 2,600ºF.

The defendants counter-claimed a sum of $15,600 being the balance due to them for

the price of the furnace and the cost of supplying one unit Honeywell Model 5500101-1-02-

01 Servtronik Horizontal Indicating Controller Radiamatic Actuator.

On August 13th 1966, the defendants sent a quotation, the relevant part of which is

reproduced hereunder-

“ To supply one high temperature metal melting furnace according to your

specification as per drawing supplied. The furnace will be constructed with ¼

inch mild steel plate as outer casing and fully insulated with 4 ½ best quality

insulating bricks. The refractory used in the melting hearth will be Alumina

Silica which can withstand temperature up to 2600 degrees F. The gas burner

used will be of gas-air premix type which can produce to 2,000,000 Btu per hour

with the aid of a H.P. blower.”

Baillie Reynolds (P.W.1) said that a drawing giving the specification of the furnace was

submitted to him together with the quotation. After discussing it with the other directors of

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the company, it was decided that the quotation was not exactly according to their

requirement. What they required was an operating temperature of 2,600ºF whereas the

quotation merely stated that the lining can withstand that temperature.

The Court Held

The Court Was Held as below:

Date : 22 January 1972

Location : Federal Court, Kuala Lumpur

Detail : Civil Appeal No. 22 of 1971

The failure on the part of the defendant to supply a furnace which would meet the required

temperature constituted a breach of the condition of the contract entitling the plaintiffs to treat

such breach as a breach of warranty. The court awarded a sum of $7,500 as damages to the

respondent and dismissed the appellant counterclaim.

The court decided that the defendant has defaulted contract for sale of goods not meet

the description given. The federal court pointed out the fact that the appellant was knew

about the requirement of producing the specific temperature of the furnace and the urgency of

delivery. As a result, the appellant were liable to pay for the certain loss of profits suffered

by the respondent.

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The Principle Which Is Applicable To The Case

Refer to:

a) Section 15 Sale of Goods Act 1957 – Sale By Description

Principles that are applied to solving this problem is if there is a contract to

sell goods by description, there is an implied condition that the goods shall correspond

with the description and if the sale is also a description of an example, it was not

enough that the quantity of goods equal to the sample if the goods are

not equivalent to the description. There are certain broad principles which are quite

well settled. The principle is that, as far as possible, he who has proved a breach of a

bargain to supply what he contracted to get is to be placed, as far as money can do it,

in as good a situation as if the contract had been performed. In this situation, since the

plaintiffs are not asking that the price of the furnace supplied be extinguished, the

capital cost of that furnace less payment which the plaintiffs had already made, should

be a set-off against the price of the new furnace paid by the plaintiffs.

b) Section 13 Sale of Goods Act 1957 – When Condition to be Treated as Warranty

At the hearing, there was considerable dispute over the question whether or not the

ability of the furnace to reach a temperature of 2,600 ºF was term of the contract, thus

the learned trial Judge found that there was a breach of an expressed condition. This

entitled the respondent to waive it and to elect to treat the breach as a breach of

warranty. According to S.13 (1), Sale of Goods Act 1957, where a contract of sale is

subject to any condition to be fulfilled by the seller; as in this case the melting furnace

should reach a temperature of 2,600 ºF; the buyer may waive the condition or elect to

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treat the breach of the condition as a breach of warranty. Therefore, the buyer was

entitled to claim for the damages.

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