The Journal of Muamalat and Islamic Finance Research

Vol. 16, No. 1, June 2019, Pp. 82-96

ISSN: 1823-075X, e-ISSN: 0126-5954

A PROPOSAL OF AMM (ADAPTED MUDARABAH MODEL) FOR

SHARIAH COMPLIANT HOME FINANCING IN MALAYSIA

Abu Azaheem Ahamed Aswer

Abdullaah Jalil

Nurul Aini Muhamed

Universiti Sains Islam Malaysia

ABSTRACT

This study aims to propose a Shariah compliant mode of house financing named as “Adapted

Mudarabah Model” or abbreviated as AMM. The proposal is made after discussing the most two

common schemes for Islamic home financing i.e. BBA (Bayʿ Bithaman Ajil) dan MM (Musharakah

Mutanaqisah) and their Shariah related issues. Thus, it is exploratory and conceptual in nature. This

Shariah compliant financing model is proposed due to the shortfalls in the BBA and MM models

where there are some unresolved and controversial Shariah and legal issues. This study uses the

concept of mudarabah in this model and suggests that by implementing this model, all of the issues

discussed in BBA and MM can be mitigated as the model does not require the Islamic banks to

fulfill any of the conditions and obligations of counter-values. The proposal discussed in this article

could contribute to the diversification of Shariah contracts for Islamic financing products. It is one

of the celebrated ways in developing Islamic finance practices. The discussions of this paper focus

on the Shariah aspects of the proposed model especially on mudarabah and qard contracts. The

technical applications presented stand as illustrations and require further investigations and

examinations for further application.

Keywords: AMM, home financing, BBA, Musharakah Mutanaqisah, Mudarabah

INTRODUCTION
Islamic banks as financial intermediaries, in addition to their operating costs, are liable to pay a
return to their depositors. Thus, when Islamic banks facilitate home financing using their depositors‟
money, there should be an acceptable legitimate return/profit to the bank. Hence, to attain this
profit in a permitted way, Islamic banks currently use debts or equity-based Islamic concepts to
facilitate home financing as an alternative to interest-bearing mortgage loans. Islamic banks
frequently change their home financing models from one to another, particularly after 2012. Based
on information collected through interview and the banks‟ websites, Table 1 presents various home
financing models used by Islamic banks in Malaysia from 1983 - 2015.

The Journal of Muamalat and Islamic Finance Research

83

Table 1: Current and past models used for home financing in Malaysia

 Name of the
Banks

1983 to 2012 End of 2012 - early
2013

2014-2015
E

x
is

ti
n

g
 m

o
d

e
ls

B
B

A

  M
M

S
h

ar
i’

ah
-c

o
m

p
li

a
n

t

 ij
ar

ah

    B
B

A

 M
M

ta
w

ar
ru

q

S
h

ar
i’

ah
-c

o
m

p
li

a
n

t

    is
ti

sn
a`

ij

ar
ah

 m
u

n
ta

h
ia

 b
i

al
-t

am
li

k

 ij
ar

ah
 M

aw
su

fa
h

 f
i

zi
m

m
ah

  B

B
A

 M
M

ta
w

ar
ru

q

B

B
A

 v
ia

 c
o

m
m

o
d

it
y
m

u
ra

b
a
h

a
h

    is
ti

sn
a`

ij

ar
ah

 m
u

n
ta

h
ia

 b
i

al
-t

am
li

k

ij

ar
ah

 m
aw

su
fa

h
 f

i
zi

m
m

ah

1 Alliance
Islamic

√    √       √

2 Bank Islam  √    √         √

3 Bank
Muamalat

√    √  √  √     √  √

4 Bank Rakyat  √    √         √

5 Public Islamic  √     √       √

6 Affin Islamic  √    √ √       √ √

7 RHB Islamic  √    √       √

8 CIMB Islamic √   √ √     √    √   √

9 Maybank
Islamic

√ √   √ √ √      √

 √

10 Sadiq Islamic   √    √       √

11 Al Rajhi Bank   √     √       √

12 Asian Finance
House

  √     √      √   √

13 Kuwait
Finance
House

 √  √  √   √ √ √  √     √

14 OCBC Islamic   √   √    √       √

        Source: Interview Data and information in webpage of Islamic banks

As Table 1 shows, Islamic banks in Malaysia facilitate home financing based on the concepts

of BBA, MM, tawarruq, ijarah mawsufah fi al-dhimmah, ijarah muntahiyah bi al-tamlik and istisna`.

The Journal of Muamalat and Islamic Finance Research

84

However, since 1983 until early 2012, the majority of the banks used the BBA model, while the MM
model was facilitated only in four Islamic banks since 2006 till early 2012. The application of the
BBA model started to diminish between the middle of 2012 and early 2013, particularly after the
BNM imposed new resolutions on bai`al-ina’h. At present, the BBA seems not to exist in the market
and most banks have replaced it with the tawarruq model, while others have replaced it with the MM
and other models. However, the previous disbursed financing on BBA continues until the end of the
tenure.

Additionally, due to custom and market needs as well as the country‟s regulatory
requirements, Islamic banks are facing difficulties in fulfilling a number of the conditions required
for pillars of the contract and counter-value obligations based on BBA (Bay’ Bithaman Ajil) and MM
(Musharakah Mutanaqisah) schemes of house financing (Arif & Rosly, 2011; Tariq, 2010; Abdus
Samad et al.,2006).

Therefore, this paper aims to propose a Shariah compliant mode of house financing named
as “Adapted Mudarabah Model” or abbreviated as AMM. The proposal is made after discussing the

most two common schemes for Islamic home financing i.e. BBA (Bayʿ Bithaman Ajil) dan MM
(Musharakah Mutanaqisah) and their Shariah related issues. Thus, it is exploratory and conceptual in
nature. This Shariah compliant financing model is proposed due to the shortfalls in the BBA and
MM models where there are some unresolved and controversial Shariah and legal issues. This study
applied interview method and content analysis on the data obtained through interview and previous
literatures. The interviewees comprise of practitioners of Islamic banking in the Malaysian Islamic
Banks.

REVIEW OF THE CRITIQUES ON BBA AND MM MODELS OF HOME FINANCING
BBA home financing was introduced to the Malaysian market in 1983, as an alternative to
conventional interest-bearing mortgage loan. Since then, for more than two decades, it has been the
single dominant model in the market (Razak, Mohamed, & Taib, 2008). Over time, the BBA model
has been largely criticized on Shariah related issues, e.g., on bai`al-ina’h (buy back contract) (Zulkifli
Hasan, 2009; Rosly & Seman, 2003; Shaharuddin, 2012, 2015); bay’ wa sharth (conditional sale)
(Mahmood, 2007); bai` al-ma’dum (sale of something which ceases to exist) (Dahlan, Shuib & Noor,
2017; Dahlan, Zubaidah & Aljunid, 2011); khiyar al-‘ayb (option to rescind the sales contract because
of defect) (Noor et al., 2013; Rosly, Sanusi, & Yasin, 2001); default and early settlement penalty
(Hassan, 2011); uncertainty in ownership of selling object (Dahlan & Syed Abdul Kader 2010);
uncertainty in object‟s price (Meera & Razak, 2009; Shahwan, Mohammad, & Rahman, 2013); and
risk and liability avoidance (Dahlan & Syed Abdul Kader 2010; Rosly, 2011; Rosly & Ariff, 2011).
Then, the public as well as judges in several court cases also criticized this practice on its legitimacy
(Hashim & Hassan, 2011). Besides that, some scholars, particularly those from the Middle East,
have viewed that the current practice of BBA is just a trick used to facilitate interest-bearing loans
(Meera & Abdul Razak, 2005).

As an alternative, and to mitigate Shariah issues in BBA practices, several scholars (Dahlan &
Syed Abdul Kader 2010; Meera & Razak, 2005, 2009; Osmani & Abdullah, 2010; Razak et al., 2008;
Shuib, Borhan, & Bakar, 2011) have suggested implementing the MM home financing model.

In 2006, Kuwait Finance House (KFH) launched the MM model in the Malaysian market.
Subsequently, a few banks, such as HSBC Amanah Malaysia, Maybank Islamic Bank, Citibank
Islamic Bank and RHB Islamic Bank, also launched this facility in the market (Aris et al., 2012).
However, like BBA, the MM model has also been criticized on a number of legal and Shariah issues,
such as the issues of purchase undertaking (Naim, 2011); uncertainty in ownership of the object
(Boon Ka, 2009; Haneef, Kunhibava, & Smolo, 2011; Sadique, 2008); uncertainty in rental

The Journal of Muamalat and Islamic Finance Research

85

amount/price (Zubair Hasan, 2012; Meera & Razak, 2005, 2009); default and early settlement
(Naim, 2011);  forward rental (Sadique, 2008); and risk and liability avoidance in MM and ijarah
contracts (Boon Ka, 2009; Haneef et al., 2011).

Boon Ka (2009), Noor & Abdullah (2010), Hasan (2011 & 2012) and others argued that
even though the MM model theoretically seems fairer than the BBA model, it is similar to riba. Ariff
& Rosly (2011) viewed Islamic financing products in general as the mirror image of conventional
products; in particular, the fixed-rate BBA home financing is similar to the conventional fixed-rate
home loan. Similarly, the variable rate of BBA and MM home financing is similar to the floating-rate
conventional home loan.

However, until the BNM‟s updated Shariah resolutions for bai`al-ina’h on 19th December
2012, the MM model was not favored by the Malaysian market, except by a few Islamic banks. The
bai’ al-‘inah resolution mainly demands that the bankers fulfill the conditions required in the sales
contract and maintain an acceptable gap between both the Property Purchase Agreement (PPA) and
Property Sales Agreement (PSA) in the BBA model. The resolutions also require them to conclude
BBA contracts, free from any invalid conditions. Thus, the bai’ al-‘inah-based BBA model started to
diminish in the market, and some Islamic banks launched the MM model, either concurrently with
BBA or with other models, while some banks moved to tawarruq, ijarah and other models.

At the end of 2012 and early 2013, the official webpage of Islamic banks started to showcase
various Islamic models for home financing, such as: tawarruq, murabahah, istisna`, ijarah mawsufah fi
zimmah (Forward ijarah), ijarah muntahia bi al-tamlik and musharakah mutanaqisah.  In addition, in 2012,
a new model “Zubair Diminishing Balance Model” (ZDBM) was proposed by Zubair Hasan (2012)
as an alternative to all the existing models. This model was developed based on musharakah and
murabahah contracts and it introduced a new structure and calculating formula. However, prior to
Hasan‟s ZDBM, a similar home financing technique was suggested by Dahlan et al. (2011).
Nonetheless, some banks, like Alliance Islamic Bank, are still using the BBA model to facilitate
financing for under-construction projects (Alliance Islamic Bank, 9 September 2016). Even though
various home financing models have been introduced in the market under various labels claiming to
facilitate financing for under-construction projects, issues concerning the fulfillment of the earlier
mentioned conditions on the subject matter of the contract remain.

Although some critical Shari‟ah issues related to the subject matter of the contract exist in
the BBA and MM models that need to be resolved, and due to lack of proper alternative applicable
models, Islamic banks still facilitate home financing through these two models. Besides that, as
stated by Hasan (2011); Meera & Razak (2005); and Dahlan & Abdul Kader (2010), Islamic banks
are not willing to take risks or liabilities, such as constructional risk, defect liability and others, that
might occur in these types of transactions; instead, the customers are expected to bear them.

SHARIAH ISSUES IN BBA AND MM
With due respect to the proponents of BBA and MM models for house financing and their
arguments, this section discusses some of the main issues raised in practices. As discussed in the
previous section, Islamic banks are unable to fulfill some conditions required for the contract and
counter-value obligations in the BBA and MM practices. This is due to custom and market
conditions as well as regulatory requirements of the country. Firstly, in under-construction BBA and
MM practices, it is a tradition that the contract is concluded on non-existent houses, even where the
below ground level and foundation work is yet to start. Therefore, it is impossible for Islamic banks
to fulfill the condition of existence of the subject matter/object as required in the contracts of
murabahah in BBA and musharakah and ijarah in MM. However, the bankers (interviewees) are aware
that concluding contract on a non-existent object is not permissible due to uncertainty, but in order
to meet the needs of market, the facility agreement in MM and BBA is still concluded on non-

The Journal of Muamalat and Islamic Finance Research

86

existent objects. At the same time, bankers opined that taking responsibility of delivery and other
property-related risks and liabilities in an under-construction facility would lead to high-risk weight
and impose extraordinary stress on banking capital.
Moreover, even though the issue of bai’ al-ma’dum could possibly be avoided through istisna` and
Build-Then-Sell (BTS) concept, none of these concepts seems to exist in the market, due to taking
into account financers‟ liabilities in the istisna` concept and some negative impacts on customers and
small developers in BTS.
 Secondly, in a true murabahah sale in BBA, Islamic banks should obtain ownership of the
house directly from developers, while in a partnership MM model, both partners should purchase
the ownership of the house from the developer. Due to custom, country laws and ownership-related
responsibilities, Islamic banks do not get involved in S&P agreement. Besides, in murabahah,
musharakah and ijarah contracts, the property owner is responsible for all the risks and liabilities
related to that particular house. However, the banks are not willing to bear ownership-related risks
or liabilities as according to them, it is not suitable in the banking business. Hence, if the banks
facilitate BBA or MM model in this condition, the fulfillment of Shariah requirements is
questionable.

Thirdly, Islamic banks cannot fix their price or rental in BBA and MM as required in
Shariah-based contracts, because their BFR (Base Financing Rate) is highly dependent on OPR
(Overnight Policy Rate). When they provide long-term financing in a competitive dual banking
market, they have to adjust their returns according to the liabilities that they have to pay their
investors and depositors. Therefore, to transfer inflation risk and early settlement losses to the
customer, Islamic banks are obliged to show the real price in LO (Letter of Offer) and to conclude
the contract at ceiling rate. Similarly, the issues of forward rental are also not avoidable in the MM
practice when the bank collects this rental based on disbursed amount at BFR and uses that as first
month rental or part of the rental.

Based on literature and findings of the interviews study, it is evident that the existing
products have been developed to meet market needs, undermining the Shariah requirements by
using some legal devices. However, to mitigate the issues that arise in BBA and MM models, a
number of home financing models have been suggested by previous studies such as ZDBM and
others. But due to market conditions and other obstacles that arise when these models are applied,
practitioners do not implement any of these models and suggestions. Therefore, the study proposes
an adapted model concerning Shariah norms and taking significant account of the market conditions
and customs of the country.

Based on interviews findings, the study suggests that facilitating home financing for an
under-construction project through BBA and MM is not suitable in the market because in these two
models, the contract must fulfill the following conditions: existence of the object at the time the
contract is concluded; obtaining full ownership and possessing the object; and a fixed price. The
former two conditions are not easy to fulfill in an under-construction project, while the latter is not
possible in the market where the interest rate is not stable. Also, when the banks use these two
models based on murabahah or musharakah or ijarah contracts, they are obliged to bear risks and
liabilities related to these contracts. The interviewees opined that taking risks and liabilities is not
appropriate for the banking business.

PROPOSED ADAPTED MUDARABAH MODEL (AMM) FOR HOME FINANCING
This section constitutes the main objective of this study.

The Journal of Muamalat and Islamic Finance Research

87

Process Flow of the Proposed AMM
Under this AMM facility, banks play the role of the entrepreneur (mudarib) and the customer is the
capital provider (rabb al-mal). Prior to initiating a mudarabah venture between two partners, the
customer obtains an amount of money from the bank based on the concept of qard, and this amount
is used as the mudarabah capital. Once the mudarabah agreement is concluded, the mudarib (bank)
appoints the customer as its agent through the agreement of wakalah to work in the mudarabah
venture. During the construction period, the one who wishes to rent the property pays a fixed
amount as part of future rental under the principle of forward ijarah. After completion, the tenant
pays rental to the mudarabah venture based on the principle of ijarah. These processes are illustrated
in Figure 1.

Figure 1: Illustration of AMM

Source: Interview

Main Applied Shari’ah Principles in the Proposed AMM

The proposed AMM model uses the following Islamic contracts, namely: qarḍ (simple loan),

muḍārabah (profit sharing), wakālah (agency), forward ijarah (forward leasing), ijarah (leasing) and ibrāʾ
(releasement). However, the first two contracts are considered as the main contracts used in AMM,
while others are sub-contracts.

Aqd al-qard-al-hasan (Zero-return loan)
As illustrated in Figure 1, in the initial stage of the AMM facility, Islamic banks provide an interest-
free loan to customer based on the principal of qard. Islam does not permit any kind of qard, except
the charitable act of beneficence loan, which is mainly given for welfare purposes. Based on this, the
current study suggests that providing zero return loans for people in need to fulfill their dire needs
of possessing a house is considered as a moral duty of every Muslim. The beneficence loan is a loan
provided to the needy for an agreed period of time without any condition to pay profit or interest to

The Journal of Muamalat and Islamic Finance Research

88

the lender. It is not permitted in this AMM facility to stipulate any condition that additional amount
should be repaid as profit for the loan amount. However, it is to be noted that a loan beneficial to
creditor is forbidden only when it is stipulated in the contract as a condition or expected by

convention (al-Zuḥaylī, 1997). The contemporary scholars view that Islamic banks can charge
administrative cost and whatever other charges related to loan agreement, but this amount should
not be calculated based on time value or loan amount. Islamic banks are not permitted in AMM to
link the loan agreement with mudarabah contract. Even if they stipulate this condition in the loan
agreement, this condition is void and does not have any legal effect, yet the loan contract would
remain valid.

Taken together, it can be summarized that when Islamic banks conclude loan agreement
under AMM facility, the following important points should be taken into account: first, it must be
free from any inter-conditional clauses and it should be concluded separately from all other
financing agreements; second, banks should not charge any extra payment from customers, except
the actual cost that is required to conclude loan agreement; third, the loan repayment should be paid
separately; fourth, the amount and schedule of loan payment should be stated in the agreement;
fifth, repayment of loan should not take place during construction period because some practitioners
may use collected loan repayment as profit for disbursed amount; and seventh, when Islamic banks
calculate their profit/rental, the loan amount should not be used to determine their profit, but it
should be calculated at 10 percent (as an example) of market value of the house. The method of
calculating monthly installment and banks‟ profit/rental is discussed later.

A question may arise here. To what extent is application of zero return loans possible in
banking business because the banks are not charitable organizations? Firstly, even though bank
creates interest-free loan in AMM model, in fact, at the end of financing tenure, the earning of the
bank remains the same, because bank generates its profit from the rental of mudarabah venture.
Secondly, deposits are major sources of funds in banking business. Islamic banks collect their
deposits from people based on the concepts of safekeeping (wadi’ah yad al-damanah) and partnership
(mudarabah). In the former concept, banks do not have any legal obligation to pay return on deposit.
But in order to motivate depositors to place their surplus, Islamic banks provide hibah, while in the
latter method; the depositors are entitled for contractual return based on the performance of the
business. Hence, the Islamic bank can create long term zero return loans to help people in need to
obtain ownership of their dream house by using appropriate debt-based deposits. However, if
Islamic banks use wadi’ah yad al-damanah as a source to create zero return loans, the bank should pay
hibah from its general profit without referring to the mudarabah venture.

Thirdly, according to Rosly (2011) and Rosly & Ariff (2011), even though Islamic bank
facilitate financing based on various principles, in actual practice, all financing facilities are treated as
collateral loan. This is because according to regulatory framework, financing facilities should be
supported by 8 per cent of banks‟ own capital (economic capital). Besides, the required economic
capital is dependent on risk weight of the financing facility. Accordingly, the collateral loan comes
with 50 per cent of risk weight, while true sales and musharakah financing come with 100 per cent
and 150 per cent risk weight, respectively. So according to regulation, a RM100,000.00 loan should
be supported by RM8,000.00 of bank‟s own capital. Similarly, the same amount of true sales should
be supported by RM16,000.00 and musharakah financing should be supported by RM24,000.00
(Rosly, 2011).

Based on the above, it is apparent that riskier facilities stress on banks‟ capital and reduce
their financing portfolio. Therefore, to create more facilities from their own limited capital, none of
the Islamic banking facilities is reported as bona fide sale or equity financing in their financing book;
all these are treated as collateralized loan (Rosly, 2011; Rosly & Ariff, 2011).

The Journal of Muamalat and Islamic Finance Research

89

Mudarabah (Silent Partnership Contract)
In this Mudarabah/AMM model, the existence of the house is not the condition at all and financing
bank is not responsible for delivery, defects and any other risks or liabilities, since according to this
model, all the risks and liabilities go to the mudarabah venture and all expenses and costs related to
property in mudarabah venture and ijarah agreement fall under the cost of mudarabah venture. Instead,
the bank obtains a portion of profit as mudarib by investing the effort in the business.
Under this new AMM model, Islamic banks play the role of entrepreneur and the customers play the
role of capital provider/investor. As illustrated in Figure 1 of this model, once customer‟s loan

(qarḍ) is approved by bank, customer opens special investment mudarabah deposit account with bank,
by depositing a few thousand Ringgit. This amount is equal to all fees and other expenses related to
purchase of mudarabah asset, in addition to the remaining 8 percent of house price which should be
paid to developer when S&P agreement is concluded. It should be noted that the S&P agreement
requires customers to pay 10 percent of house price, but in this model, customer pays 2 percent of
house price as booking fee prior to applying for financing. Subsequently, bank deposits approved
loan amount into same account progressively as remaining mudarabah capital of the customer.

Capital
First, according to majority opinion, mudarabah capital should be a monetary asset (al-Zuḥaylī, 1997).
Based on this, the money deposited in mudarabah investment account is considered as capital of
mudarabah venture. Second, the capital of mudarabah should be known and defined, because profit is
recognized depending on capital. So, a mudarabah contract cannot be concluded on an unknown
capital, as this may lead to dispute among contracting parties with regards to profit. It is to be noted
that the profit is also considered as subject matter of mudarabah contract. So, lack of knowledge
about profit would render the contract invalid.  Third, all jurists are unanimous that mudarabah
capital must be present/existent. So, a creditor cannot ask a debtor to use the money that he/she
owes to him/her as mudarabah capital. This is because even though it is under the possession of
debtor, the money still belongs to the creditor and it is similar to extending the loan period to get
additional consideration by using mudarabah contract as a legal devise. However, according to
majority opinion (Hanafis, Shafi‟is and Hanbalis), the deposits can be used as mudarabah capital with
the consent of the depositor (al-Kasani, 1986).

A question that may arise here is: how can a bank play the role of mudarib in a transaction in
which a major part of the mudarabah capital is provided by the bank as a benevolent loan to the rab
al-mal? To answer this, banking business is different from individual transactions. Islamic banks do
not facilitate financing or create loans from their own capital. Banks, as financial intermediaries,
mobilize deposits from various sources and use that money to create various financing and loans.
So, on the one hand, banks as financial intermediaries take deposit from customer A and provide
interest-free loan to customer B in an independent contract without stipulating any tying
arrangements in the agreement (See Figure 2). On the other hand, customer B deposits the loan
amount in mudarabah account and the bank invests that money in real estate on the basis of
mudarabah. It is noteworthy to highlight here that in this Mudarabah venture, the bank appoints the
customer as its agent to render services and be paid a fee (Ujrah). The return will be distributed
among partners according to agreed mudarabah profit sharing ratio (See Figure 3).

The Journal of Muamalat and Islamic Finance Research

90

Figure 2: Financing contract

Source: Developed based on Literature

Figure 3: Mudarabah venture and bank‟s profit

Source: Developed based on literature

The fourth condition of mudarabah capital is that the capital should be fully released to
laborer/entrepreneur, in order to establish the trust and enable him/her to work flexibly in order to
attain the objective of the contract. Al-Khatib Al-Shirbīniy, the Shafi‟i jurist, said that this does not
mean to say that he/she has to release the capital at the time when contract is concluded, but the
capital should be available when mudarib wants to initiate the work (Al-Shirbīniy, 1997). Similar to
Al-Khatib Al-Shirbīniy‟s view, the Malikis also permit making multiple contributions to mudarabah
capital (Zuhaili, 2003). In the new AMM model, bank as mudarib, uses customer‟s capital flexibly
whenever it is needed for the mudarabah venture. In addition, Al-Kasani said that any condition
stipulated to keep the capital under rabb al-mal‟s control, renders the contract invalid (Al-Kasani, A.,
1986).

With regards to this condition, the current study suggests that even though in the loan
agreement, the ownership of approved loan amount is transferred to customer, the money remains
with the bank. According to Malikis, even though the debtor does not receive and possess the loan
amount from creditor, once contract of loan is concluded, the ownership of the loan is transferred
to debtor (al-Shawkani, 1993). Though this view contradicts the majority opinion, if one takes into
account the market conditions and urgent needs of customers for having this facility, the study takes
Malikis‟ view of the approved qard amount with bank to be released to mudarabah account
progressively, especially whenever capital is needed.

The Journal of Muamalat and Islamic Finance Research

91

Duties and Power of Contracting Parties
The mudarabah contract can be concluded on an unrestricted or restricted basis. In the former, the
mudarib can freely act based on his/her professional skills, to attain the objective of the contract,
such as: engaging in any kind of permissible trading, trying out a business by himself/herself or
appointing others to work on his/her behalf according to custom, choosing appropriate market to
conduct the business and depositing the capital with trustworthy person or bank. He/she is also
entitled to take expenses related to mudarabah venture. But, it is not permissible for him/her to
provide loans, charity and gift from mudarabah capital (AAOIFI, 2015). Similarly, the capital provider
has the power to stipulate some restrictions on mudarabah operations, such as limiting the time,
place, investment sectors and others. However, the capital provider does not have the right to
stipulate the conditions to take part in mudaraba operations (AAOIFI, 2015).

All jurists are unanimous that mudarabah contract is mutually non-binding and it can be
terminated unilaterally anytime, except in the following two conditions: if mudarib commences the
business or both parties have agreed upon a particular time period. So, based on this ruling, once the
mudarabah agreement is concluded between bank and customer for a particular period of time, and
mudarib has commenced the S&P order with developer in the effort to purchase mudarabah asset, it is
not permissible to terminate the contract without the mutual agreement of the contracting parties
(AAOIFI, 2015; al-Qurtubi, 1964).

In the new AMM model, the mudarabah contract is concluded between customer and bank
with the condition that it is invested in real estate for a specific period of time. In mudarabah venture,
bank appoints the customer as its agent to conclude purchase order and to maintain the house. A
question may arise regarding whether or not the customer (rabb al-mal) is allowed to work in the
mudarabah venture. According to fiqh rule, as long as rabb al-mal does not stipulate the condition to
interfere in mudarabah venture, it is permissible for mudarib to appoint him/her as his/her agent to
carry out some work on his/her behalf. In addition, some classical scholars have viewed that since it
is permitted for mudarib to appoint any one as his/her agent in mudarabah venture, appointing rabb al-
mal as agent is much better, because he/she will be more sincere and concerned about this business
than anyone else.

Moreover, customer, as the appointed agent, concludes the S&P agreement on mudarabah
asset with developer. In fact, S&P agreement is an agreement to purchase an asset, and it does not
provide the ownership to customer. Even though S&P agreement is concluded under customer‟s
name, throughout the tenure, the house belongs to the mudarabah venture. Therefore, the tenant
should pay rental for the house. It is not necessary for customer to rent the house but as appointed
agent, he/she is free to rent it to any third party with the consent of mudarib. However, it is
customer‟s duty to collect rental and settle monthly payment to mudarib. The way of determining
rental and method of payment is discussed in detail in the following section.

Profit
To avoid uncertainty in mudarabah venture, it is a condition that both contracting parties should
know the ratio of profit and it should not be fixed in lump sum or based on a certain percentage of
capital. However, according to majority view, if mudarabah agreement is concluded without
specifying profit sharing ratio, the contract is still considered valid but the profit will be distributed

equally among partners (al-Khaṭīb al-Sharbīnī al-Shāfiʿī, 1994).
Under this model, rental paid to mudarabah asset is considered as the profit of mudarabah

venture. So, with reference to rental, some scholars have viewed that to avoid uncertainty in price,
the rental must be determined for the entire period of the tenure. Also, the lessor should not be

The Journal of Muamalat and Islamic Finance Research

92

given the option to adjust it when needed. However, they viewed that it is permissible if the rental is

fixed at the beginning with different amounts for various phases (al-Zuḥaylī, 1997; Usmani, 1998).
Since cost of fund in Islamic bank is based on variable rate, it is not practical to fix the rental

for the entire tenure, because it may lead to liquidity risk-related problems. Therefore, the rental
amount should be reviewed periodically every five years (Meera & Razak, 2009). The present study
suggests that periodically reviewing rental based on outstanding amount is similar to conventional
practice. Therefore, concerning the principle requirement and market conditions, the current study
determines the rental based on the value of the property at the beginning of the contract at a ceiling
rate and adjusting the profit sharing ratio according to market condition as illustrated in Table 2.
The previous studies also show that some Shariah advisers as well as a number of scholars of Islamic
economics and fiqh, have preferred to fix the rental based on property value than benchmarking with
interest rate (Meera & Razak, 2005).

Forward Ijarah, Ijarah and Ibrāʾ
It is noteworthy that the forward ijarah, ijarah and ibra' principles are not treated in this model as in
BBA and MM models. In BBA and MM models, the forward ijarah and ijarah leasing are calculated
based on disbursed amount and margin of financing at BFR accordingly. But in this model, the
former is a fixed amount, while the latter is 10 percent of the property value. Similarly, in BBA and
MM, the ibra' amount depends on BFR, while in AMM, the ibra' is not given based on BFR, but with
the concern of the rabb al-mal (customer) in mind, the mudarib (bank) increases the proportion of the
profit. It is to be noted that at the initial stage of AMM facility, the rental is fixed with different
amount for various phases and it is not permitted in this facility to do any amendment to the
proportion of the profit in the middle of the agreed phases.

Method of Payment

Table 2: Installment of mudarabah‟s profit and qard repayment

Existing BBA and MM AMM Model

Financing Amount RM180,000.00
Property Value RM200,000.00
Financing rate: 4.65%
Number of payment (Month): 240
Paid During Construction: RM10,075.00
Paid After Completion: RM96,815.50
Total profit to bank: RM106,890.50

Qard Amount RM180,000.00
Property Value RM200,000.00
Mudarabah Share: 4.65%
Number of payment (Month): 240
Paid during construction: RM10,756.91
Paid After completion: RM96,815.40
Total profit to Bank: RM107,571.91

AMM Model: Payment During Construction period

Year 1 448.21 per Month × 12 = 5378.52

Year 2 448.21 per Month × 12 = 5378.52

AMM Model: Payment After Completion

 Phases  Monthly
fixed
payment

Rental 10 per
cent from
property value

Mudarib's
Share 4.65
per cent

Rabb al-mal 's
Share 5.35 per
cent

Payment for
Qard

Year 1 1160 1479.69 687.66 792.03 472.34

Year 2 1160 1448.14 665.53 782.61 494.47

Year 3 1160 1409.61 642.36 767.25 517.64

The Journal of Muamalat and Islamic Finance Research

93

Year 4 1160 1368.36 618.08 750.28 541.92

Year 5 1160 1324.19 592.65 731.54 567.35

Year 6 1160 1276.85 566.02 710.83 593.98

Year 7 1160 1226.06 538.11 687.95 621.89

Year 8 1160 1171.56 508.88 662.68 651.12

Year 9 1160 1113.03 478.27 634.76 681.73

Year 10 1160 1050.11 446.2 603.91 713.8

Year 11 1160 982.44 412.6 569.84 747.4

Year 12 1160 909.61 377.41 532.2 782.59

Year 13 1160 831.16 340.55 490.61 819.45

Year 14 1160 746.61 301.94 444.67 858.06

Year 15 1160 655.41 261.49 393.92 898.51

Year 16 1160 556.98 219.12 337.86 940.88

Year 17 1160 450.67 174.74 275.93 985.26

Year 18 1160 335.76 128.25 207.51 1031.75

Year 19 1160 211.48 79.55 131.93 1080.45

Year 20 1160 76.97 28.54 48.43 1131.46

Total 23200×12 18624.69×12 8067.95×12  10,556.74×12 15169.91×12

Total
Paymen
t

278,400 223,496.28 96,815.40 126,680.88 182,038.92

  Source: Based on interview and standard scheduled payment in variable rate of financing.
  (Note: The amount shown in the Table 2 is not accurate but based on forecast)

As the above Table 2 illustrates, the AMM model does not refer to financing amount to
determine profit. But at the initial stage of the facility, the house rental is calculated based on
property value. For example, if the property value is RM200,000.00, the rental of mudarabah asset is
set at 10 per cent of the house value per annum and this amount is shared between rabb al-mal
(customer) and mudarib (bank) at 4.65 per cent and 5.35 per cent, respectively.

During construction period, part of calculated rental is paid to bank as forward rental for
future use of the property. The difference between forward rentals paid in existing models and
AMM model is that in the existing models, Islamic banks collect forward rental based on disbursed
amount which is equal to progressive interest payment in conventional banks. Besides, the collected
forward rental is not redeemed at any point throughout the financing tenure. On the contrary, in the
suggested new model, the forward rental is part of the rental which should be paid in future.
Similarly, the amount paid as forward rental is not dependent on the disbursed amount, but it is
equal to the fixed amount regardless of how much the bank has disbursed to developer. For
example, if the house value is RM200,000.00 and the banks‟ portion in mudarabah profit is 4.65 per
cent, after completion, the tenant has to pay a total rental of RM107,571.91. So, the portion of total
rental amount paid to mudarabah venture during construction period would reduce the burden of
high repayment obligation upon completion of the project. Accordingly, tenant pays RM448.21
every month during construction period.

The present study acknowledges that the AMM model only uses market BFR as benchmark
to determine competitive market price. But, the model does not depend on interest rate and
outstanding balance of the debt in the entire financing tenure. If there is any change in the market

The Journal of Muamalat and Islamic Finance Research

94

BFR, the profit sharing ratio will be adjusted without referring to the remaining outstanding balance.
According to AAOIFI (2010), it is permissible to change profit sharing ratio at any time and fix the
profit at particular ceiling with the agreement that the amount below or equal to ceiling is distributed
among the partners according to agreed ratio (AAOIFI, 2010).
Moreover, in the AMM model, it not permissible for Islamic banks to collect loan repayment from
customer during construction period, to avoid the doubt of using this amount as progressive interest
payment for the disbursed amount, which is not acceptable in Shariah.

In general, the middle-class customers‟ income is very limited and fixed (Meera & Razak,
2009). Settling debt obligation and loan payment at once is a big burden for them. On the other
hand, in banking practice, a major part of monthly installments in the early stage of financing tenure
goes to payment of profit and to settle banks‟ liabilities towards their depositors. Even though
paying two different fixed amounts is more preferable to show the true nature of loan and mudarabah
rental, considering the financial situation of needy customers and considering the market condition,
the AMM model also uses the excel formula (automated calculations) to divide monthly installments
for rental and loan. Even though AMM uses excel formula, the profit of the bank is not dependent
on outstanding balance of loan amount as in BBA and MM models, because the rental in AMM is
periodically fixed and making changes in mid-phases are not allowed.

The Non-Existence and Non-Completion of the House
In this AMM model, the existence of the house is not the condition at all and financing bank is not
responsible for delivery, defects and any other risks or liabilities, since according to this model, all
the risks and liabilities go to the mudarabah venture and all expenses and costs related to property in
mudarabah venture and ijarah agreement fall under the cost of mudarabah venture. Instead, the bank
obtains a portion of profit as mudarib by investing the effort in the business. This model also does
not require any sale or joint ownership agreement in which the condition of full ownership is
required and where owners should bear risks and liabilities. Additionally, the house is purchased as
mudarabah asset and S&P agreement concluded in customer‟s name to avoid double legal charges,
but the house still belongs to the mudarabah venture. In addition, all the risks and liabilities related to
this house are considered as a loss in mudarabah venture.

CONCLUSION
In this condition, considering market condition, urgent need for Shariah compliance in under-
construction home financing facility to fulfill dire needs of the people to possess a home, the study
has come up with an adapted mudarabah model (AMM). The study uses the concept of mudarabah in
this model and the study suggests that by implementing this model, all of the issues discussed in
BBA and MM can be mitigated as the model does not require the Islamic banks to fulfill any of the
conditions and obligations of counter-values which have been criticized by some scholars. However,
some critics that have been raised against this AMM model are: (i) the practice of qard combined
with mudarabah is a form of prohibited qard as it derives extra benefit to the lender and (ii) the issues
of bay’ (sale) and salaf/qard (loan) combination where the lender is appointed as mudarib in other
contract between them. These two issues are actually related to the combination between sale and
loan contracts which is prohibited by the Shariah. However, mudarabah is a not a sale or exchange
contract. Indeed, it is a partnership contract. The combination between partnership and qard
contracts is allowed by Hanafis and prohibited by the majority of Islamic jurists. Since this
combination is a subject of disagreement between Islamic jurists and not consensually disallowed by
them, the potential of this model does prevail especially if it really fulfills the needs of the society for
Islamic house financing. Finally, since this paper is still exploratory and conceptual in nature; it
needs further investigations and examinations by the industry.

The Journal of Muamalat and Islamic Finance Research

95

REFERENCES
AAOIFI. (2015). Shari'ah standards. Manama: AAOIFI.
Al-Kasani, A. B. M. U. (1986). Bada'i' al-Sana'i' fi Tartib al-Shara'i'. Bayrut: Dar al-Kutub al-'Ilmiyyah.

Al-Khaṭīb al-Sharbīnī al-Shāfiʿī, S. a.-D. M. A. (1994). Mughnī al-Muḥtāj ilā Maʿrifat Maʿānī Alfāẓ al-

Minhāj. Bayrūt: Dār al-Kutub al-ʿIlmiyyah.
Al-Qurtubi, S. a.-D. M. A. (1964). al-Jami' li Ahkam al-Qur'an. al-Qahirah: Dar al-Kutub al-Misriyyah.
Al-Shawkani, M. A. (1993). al-Sayl al-Jarrar al-Mutadaffiq 'ala Hada'iq al-Azhar. Cairo: Wizarat al-

Awqaf.

Al-Zuḥaylī, W. (1997). al-Fiqh al-Islāmī wa Adillatuh. Dimashq: Dār al-Fikr.
Aris, N. A., Othman, R., Azli, R. M., Arshad, R., Sahri, M. & Yaakub, A. R. (2012). Islamic house

financing: Comparison between Bai‟ Bithamin Ajil (BBA) and Musharakah Mutanaqisah
(MM). African Journal of Business Management, 6(1), 266-273. doi:10.5897/ajbm11.2042

Boon Ka, A. N. (2009). Musharakah Mutanaqisah in Malaysia: A taxation perspective. Islamic Finance
News, 18-19.

Dahlan, N. H. M., Shuib, M. S. & Noor, F. M. (2017). Issues in Bay‟ Bithaman Al-Ajil Islamic Home
Finance („BBA‟) in Abandoned Housing Projects In Malaysia: An Examination of „Gharar‟.
Journal of Law, Policy and Globalization, 57.

Dahlan, N. H. & Syed Abdul Kader, S. Z. (2010). Shariah and legal issues in the Bay' Bithaman-al-
Ajil (BBA): a viewpoint. Malayan Law Journal, 6, lxxv-cxiii.
Dahlan, N. H. M., Zubaidah, S. & Aljunid, S. A. K. (2011). Shariah and legal issues in house buying

in Malaysia: The legality of Bay‟Bithaman-Al-Ajil („BBA‟) with special reference to
abandoned housing projects. Pertanika Journal of Social Sciences & Humanities (JSSH), 19(2),
349-361.

Haneef, R., Kunhibava, S. & Smolo, E. (2011). Musharakah mutanaqisah and legal issues: Case study
of Malaysia. ISRA International Journal of Islamic Finance, 3(1), 93-122.

Hasan, Z. (2009). Shari’ah and legal issues in al-Bay’ Bithaman Ajil Facility in the case of Arab-Malaysian
Finance Bhd V Taman Ihsan Jaya Sdn Bhd & Ors [2008] 5 MLJ. Paper presented at the Islamic
Economic System Conference, Nilai, USIM.

Hasan, Z. (2012). Islamic norms, the excel formula and home financing models. Munich Personal
RePEc Archive. Retrieved from
https://mpra.ub.unimuenchen.de/47955/1/MPRA_paper_47955.pdf.

Hashim, W. M. W., & Hassan, M. (2011). The Bai' Bithaman Ajil contract as a mode of Islamic
financing facility: Issues and dilemma. Journal of Academic Minds, 5(1), 35-52.

Hassan, H. (2011). Islamic property financing in Malaysia: Critical appraisals and practical
recommendations. International Journal of Business and Social Science, 2(2), 249-253.

Mahmood, A. T. A. M. (2007). Bay' Bithaman Ajil (BBA) in House Financing as Implemented by Malaysia
Financial Institutions: A Critical Analysis of Its Procedures and Application from the Fiqh Point of View
(Master dissertation). International Islamic University Malaysia, Gombak, Selangor.

Meera, A. K. M. & Razak, D. A. (2005). Islamic home financing through Musharakah Mutanaqisah
and al-Bay‟ Bithaman Ajil contracts: a comparative analysis. Review of Islamic Economics, 9(2), 5-
30.

Meera, A. K. M. & Razak, D. A. (2009). Home financing through the musharakah mutanaqisah
contracts: Some practical issues. Journal of King Abdulaziz University: Islamic Economics, Vol. 22,
No. 1, 2009, 22(1), 121-143.

Naim, A. M. (2011). Purchase undertaking issues in musharakah mutanaqisah home financing. ISRA
International Journal of Islamic Finance, 3(1), 25-47.

The Journal of Muamalat and Islamic Finance Research

96

Noor, M. M. M., Sulaiman, I., Ahmad, K., Deraman, F., Abdullah, M., Shah, F. A.& Nor, M. R. M.
(2013). The rights of khiyar (option) in the issue of consumerism in Malaysia. Middle-East
Journal of Scientific Research, 13(2), 154-161. doi:10.5829/idosi.mejsr.2013.13.2.1766

Osmani, N. M. & Abdullah, M. F. (2010). Musharakah mutanaqisah home financing: A review of
literatures and practices of Islamic banks in Malaysia. International Review of Business Research
Papers, 6(2), 272-282.

Razak, D. A., Mohamed, M. O. & Taib, F. M. (2008). The performance measures of Islamic banking based on
the maqasid framework. Paper presented at the IIUM International Accounting Conference IV
(INTAC IV), Marriot Putrajaya Hotel.

Rosly, S. A. (2011). Risk-Based Pricing in al-Bay' Bithaman Ajil (BBA)/ murabaha sales: Fiscal liability with
business and credit risk exposures. Paper presented at the 14th International Business Research
Conference, Dubai.

Rosly, S. A. & Ariff, M. (2011). Islamic banking in Malaysia: Unchartered waters. Asian Economic
Policy Review, 6(2), 301-319.

Rosly, S. A., Sanusi, M. & Yasin, N. M. (2001). The role of khiyar al-'ayb in al-bay' bithaman ajil
financing. International Journal of Islamic Financial Services, 2(3), 1-9.

Rosly, S. A. & Seman, A. C. (2003). Juristic viewpoints on bay' al-'inah in Malaysia: A survey. IIUM
Journal of Economics and Management, 11(1), 87-111.

Sadique, M. A. (2008). Financing trade asset procurement and disposal on joint equity basis for
MMES: An analysis of some vital shariah and operational aspects. Journal of Islamic Economics,
Banking and Finance, 6(1), 127-142.

Shaharuddin, A. (2012). The bay' al-'inah controversy in Malaysian Islamic banking. Arab Law
Quarterly, 26(4), 499-511.

Shaharuddin, A. (2015). Harmonizing shari'ah rulings in Islamic finance: Strategies and challenges.
The Journal of Muamalat and Islamic Finance Research (JMIFR), 12(1), 1-12.

Shahwan, S., Mohammad, M. O. & Rahman, Z. A. (2013). Home financing pricing issues in the Bay‟
Bithaman Ajil (BBA) and Musharakah Mutanaqisah (MMP). Global Journal of Al-Thaqafah,
3(2), 23-36.

Shuib, M. S. b., Borhan, J. T. & Bakar, A. A. (2011). Musharakah mutanaqisah home financing
products: An implementation analysis, product advantages and issues at Citibank (Malaysia)
Berhad. Journal of Techno-Social, 3(2), 43-54.

Usmani, M. T. (1998). An introduction to Islamic finance. Karachi.

Received Date: 22th November 2018
Acceptance Date: 22th April 2019


Sale of Goods 1

LAWS OF MALAYSIA

REPRINT

Act 382

SALE OF GOODS ACT 1957

Incorporating all amendments up to 1 January 2006

PUBLISHED BY
THE COMMISSIONER OF LAW REVISION, MALAYSIA

UNDER THE AUTHORITY OF THE REVISION OF LAWS ACT 1968
IN COLLABORATION WITH

PERCETAKAN NASIONAL MALAYSIA BHD
2006

SALE OF GOODS ACT 1957

First enacted … ... ... ... ... … 1957 (F.M. Ord. No. 1
of 1957)

Revised … … … … … ... … 1989 (Act 382 w.e.f.
21 September 1989)

PREVIOUS REPRINT

First Reprint ... ... ... ... ... 2001

2

3

LAWS OF MALAYSIA

Act 382

SALE OF GOODS ACT 1957

ARRANGEMENT OF SECTIONS

CHAPTER I

PRELIMINARY

Section

1. Short title and application

2. Interpretation

3. Application of Contracts Act 1950

CHAPTER II

FORMATION OF THE CONTRACT

Contract of sale

4. Sale and agreement to sell

Formalities of the contract

5. Contract of how sale made

Subject Matter of Contract

6. Existing or future goods

7. Goods perishing before making of contract

8. Goods perishing before sale but after agreement to sell

The price

9. Ascertainment of price

10. Agreement to sell at valuation

4 Laws of Malaysia ACT 382

Conditions and warranties

Section

11. Stipulations as to time

12. Condition and warranty

13. When condition to be treated as warranty

14. Implied undertaking as to tittle, etc.

15. Sale by description

16. Implied condition as to quality or fitness

17. Sale by sample

CHAPTER III

EFFECTS OF THE CONTRACT

Transfer of property as between seller and buyer

18. Goods must be ascertained

19. Property passes when intended to pass

20. Specific goods in a deliverable state

21. Specific goods to be put into a deliverable state

22. Specific goods in a deliverable state when the seller has to do anything
thereto in order to ascertain price

23. Sale of unascertained goods and appropriation

24. Goods sent on approval or “on sale or return”

25. Reservation of right of disposal

26. Risk prima facie passes with property

27. Sale by person not the owner

28. Sale by one of joint owners

29. Sale by person in possession under voidable contract

30. Seller or buyer in possession after sale

CHAPTER IV

PERFORMANCE OF THE CONTRACT

31. Duties of seller and buyer

32. Payment and delivery are concurrent conditions

33. Delivery

Sale of Goods 5

Section

34. Effect of part delivery

35. Buyer to apply for delivery

36. Rules as to delivery

37. Delivery of wrong quantity

38. Instalment deliveries

39. Delivery to carrier or wharfinger

40. Risk where goods are delivered at distant place

41. Buyer's right of examining the goods

42. Acceptance

43. Buyer not bound to return rejected goods

44. Liability of buyer for neglecting or refusing delivery of goods

CHAPTER V

RIGHTS OF UNPAID SELLER AGAINST THE GOODS

45. Unpaid seller defined

46. Unpaid seller’s rights

Unpaid seller’s lien

47. Seller’s lien

48. Part delivery

49. Termination of lien

Stoppage in transit

50. Right of stoppage in transit

51. Duration of transit

52. How stoppage in transit is effected

Transfer by buyer and seller

53. Effect of sub-sale or pledge by buyer

54. Sale not generally rescinded by lien stoppage in transit

6 Laws of Malaysia ACT 382

CHAPTER VI

SUITS FOR BREACH OF THE CONTRACT

Section

55. Suit for price

56. Damages for non-acceptance

57. Damages for non-delivery

58. Specific performance

59. Remedy for breach of warranty

60. Repudiation of contract before due date

61. Interest by way of damages and special damages

CHAPTER VII

MISCELLANEOUS

62. Exclusion of implied terms and conditions

63. Reasonable time a question of fact

64. Savings

Sale of Goods 7

LAWS OF MALAYSIA

Act 382

SALE OF GOODS ACT 1957

An Act relating to the sale of goods.

[Federal Territory, Johore, Kedah, Kelantan, Negeri Sembilan,
Pahang, Perak, Perlis, Selangor and Terengganu

—23 April 1957,
Malacca and Penang—23 February 1990]

CHAPTER I

PRELIMINARY

Short title and application

1. (1) This Act may be cited as the Sale of Goods Act 1957.

(2) This Act shall apply to the States of *Penisular Malaysia.

Interpretation

2. In this Act, unless the context otherwise requires—

“buyer” means a person who buys or agrees to buy goods;

“delivery” means voluntary transfer of possession from one
person to another; goods are said to be in a “deliverable state”
when they are in such state that the buyer would under the contract
be bound to take delivery of them;

“document of title to goods” includes a bill of lading, dock
warrant, warehouse keeper’s certificate, wharfinger’s certificate,
railway receipt, warrant or order for delivery of goods and any
other document used in the ordinary course of business as proof
of the possession or control of goods, or authorizing or purporting
to authorize, either by endorsement or by delivery, the possessor
of the document to transfer or receive goods thereby represented;
*NOTE—All references to “West Malaysia” shall be construed as reference to “Peninsular Malaysia”
–see the Interpretation (Amendment) Act 1997 [Act A996], subsection 5(2).

8 Laws of Malaysia ACT 382

“fault” means wrongful act or default;

“future goods” means goods to be manufacture or produced or
acquired by the seller after the making of the contract of sale;

“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;

a person is said to be “insolvent” who has ceased to pay his
debts in the ordinary course of business, or cannot pay his debts
as they become due, whether he has committed an act of bankruptcy
or not;

“mercantile agent” means a mercantile agent having in the
customary course of business as such agent authority either to sell
goods, or to consign goods for the purposes of sale, or to buy
goods, or to raise money on the security of goods;

“price” means the money consideration for a sale of goods;

“property” means the general property in goods, and not merely
a special property;

“quality of goods” includes their state or condition;

“seller” means a person who sells or agrees to sell goods;

“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.

Application of Contracts Act 1950

3. The Contracts Act 1950, in so far as they are not inconsistent
with the express provisions of this Act shall continue to apply to
contracts for the sale of goods.

Sale of Goods 9

CHAPTER II

FORMATION OF THE CONTRACT

Contract of sale

Sale and agreement to sell

4. (1) 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. There may be a contract of sale between one part-
owner and another.

(2) A contract of sale may be absolute or conditional.

(3) 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.

(4) An agreement to sell becomes a sale when the time elapses
or the conditions are fulfilled subject to which the property in the
goods is to be transferred.

Formalities of the contract

Contract of how sale made

5. (1) A contract of sale is made by an offer to buy or sell
goods for a price and the acceptance of such offer. The contract
may provide for the immediate delivery of the goods or
immediate payment of the price or both, for the delivery or
payment by instalments, or that the delivery or payment or both
shall be postponed.

(2) Subject to any law for the time being in force, a contract
of sale may be made writing or by word of mouth, or partly in
writing and partly by word of mouth or may be implied from the
conduct of the parties.

10 Laws of Malaysia ACT 382

Subject matter of contract

Existing or future goods

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

(2) There may be a contract for the sale of goods the acquisition
of which by the seller depends upon a contingency which may or
may not happen.

(3) Where by a contract of sale the seller purports to effect a
present sale of future goods, the contract operates as an agreement
to sell the goods.

Goods perishing before making of contract

7. Where there is a contract for the sale of specific goods, the
contract is void if the goods without the knowledge of the seller
have, at the time when the contract was made, perished or become
so damaged as no longer to answer to their description in the
contract.

Goods perishing before sale but after agreement to sell

8. Where is an agreement to sell specific goods, and subsequently
the good, without any fault on the part of the seller or buyer,
perish, or become so damaged as no longer to answer to their
description in the agreement, before the risk passes to the buyer,
the agreement is thereby avoided.

The price

Ascertainment of price

9. (1) The price in a contract of sale may be fixed by the contract
or may be left to be fixed in manner thereby agreed or may be
determined by the course of dealing between the parties.

Sale of Goods 11

(2) Where the price is not determined in accordance with the
foregoing provisions, the buyer shall pay the seller a reasonable
price. What is a reasonable price is a question of fact dependent
on the circumstances of each particular case.

Agreement to sell at valuation

10. (1) Where there is an agreement to sell goods on the terms
that the price is to be fixed by the valuation of a third party and
such third party cannot or does not make such valuation, the
agreement is thereby avoided:

Provided that if the goods or any part thereof have been delivered
to, and appropriated by, the buyer, he shall pay a reasonable price
therefor.

(2) Where such third party is prevented from making the valuation
by the fault of the seller or buyer, the party not in fault may
maintain a suit for damages against the party in fault.

Conditions and warranties

Stipulations as to time

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

Condition and warranty

12. (1) A stipulation in a contract of sale with reference to goods
which are the subject thereof may be a condition or warranty.

(2) A condition is a stipulation essential to the main purpose
of the contract, the breach of which gives rise to a right to treat
the contract as repudiated.

(3) A warranty is a stipulation collateral to the main purpose
of the contract, the breach of which gives rise to a claim for
damages but not to a right to reject the goods and treat the contract
as repudiated.

12 Laws of Malaysia ACT 382

(4) Whether a stipulation in a contract of sale is a condition or
a warranty depends in each case on the construction of the contract.

The stipulation may be a condition, though called a warranty in
the contract.

When condition to be treated as warranty

13. (1) Where a contract of sale is subject to any condition to be
fulfilled by the seller the buyer may waive the condition or elect
to treat the breach of the condition as a breach of warranty and
not as a ground for treating the contract as repudiated.

(2) Where a contract of sale is not severable and the buyer has
accepted the goods or part thereof, or where the contract is for
specific goods the property in which has passed to the buyer, the
breach of any condition to be fulfilled by the seller can only be
treated as a breach of warranty, and not as a ground for rejecting
the goods and treating the contract as repudiated, unless there is
a term of the contract express or implied to that effect.

(3) Nothing in this section shall affect the case of any condition
or warranty the fulfilment of which is excused by law by reason
of impossibility or otherwise.

Implied undertaking as to title, etc.

14. In a contract of sale, unless the circumstances of the contract
are such as to show a different intention, there is—

(a) 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;

(b) an implied warranty that the buyer shall have and enjoy
quiet possession of the goods;

(c) an implied warranty that the goods shall be free from any
charge or encumbrance in favour of any third party not
declared or known to the buyer before or at the time
when the contract is made.

Sale of Goods 13

Sale by description

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 the goods corresponds with the
sample if the goods do not also correspond with the description.

Implied condition as to quality or fitness

16. (1) Subject to this Act and of any other law for the time being
in force, 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, except as follows:

(a) Where the buyer, expressly or by implication makes known
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 he is the manufacturer or producer or not) there
is an 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.

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

Provided that if the buyer has examined the goods,
there shall be no implied condition as regards defects
which such examined ought to have revealed.

(2) An implied warranty or condition as to quality or fitness for
a particular purpose may be annexed by the usage of trade.

(3) An express warranty or condition does not negative a warranty
or condition implied by this Act unless inconsistent therewith.

14 Laws of Malaysia ACT 382

Sale by sample

17. (1) 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.

(2) In the case of a contract for sale by sample there is an
implied condition—

(a) that the bulk shall correspond with the sample in quality;

(b) that the buyer shall have a reasonable opportunity of
comparing the bulk with the sample;

(c) that the goods shall be free from any defect rendering
them unmerchantable which would not be apparent on
reasonable examination of the sample.

CHAPTER III

EFFECTS OF THE CONTRACT

Transfer of property as between seller and buyer

Goods must be ascertained

18. Where there is a contract for the sale of unascertained goods,
no property in the goods is transferred to the buyer unless and until
the goods are ascertained.

Property passes when intended to pass

19. (1) Where there is a contract for the sale of specific or ascertained
goods the property in them is transferred to the buyer at such time
as the parties to the contract intend it to be transferred.

(2) For the purpose of ascertaining the intention of the parties
regard shall be had to the terms of the contract, the conduct of the
parties and the circumstances of the case.

(3) Unless a different intention appears the rules contained in
sections 20 to 24 are rules for ascertaining the intention of the
parties as to the time at which the property in the goods is to pass
to the buyer.

Sale of Goods 15

Specific goods in a deliverable state

20. Where there is an unconditional contract for the sale of specific
goods in a deliverable state the property in the goods passes to the
buyer when the contract is made, and it is immaterial whether the
time of payment of the price, or the time of delivery of the goods,
or both, is postponed.

Specific goods to be put into a deliverable state

21. Where there is a contract for the sale of specific goods and
the seller is bound to do something to the goods for the purpose
of putting them into a deliverable state, the property does not pass
until such thing is done and the buyer has notice thereof.

Specific goods in a deliverable state when the seller has to do
anything thereto in order to ascertain price

22. Where there is a contract for the sale of specific goods in a
deliverable state, but the seller is bound to weigh, measure, test,
or do some other act or thing with reference to the goods for the
purpose of ascertaining the price, the property does not pass until
such act or thing is done and the buyer has notice thereof.

Sale of unascertained goods and appropriation

23. (1) Where there is a contract for the sale of unascertained or
future goods by description and goods of that description and in
a deliverable state are unconditionally appropriated to the contract,
either by the seller with the assent of the buyer or by the buyer
with the assent of the seller, the property in the goods thereupon
passes to the buyer.

Such assent may be express or implied, and may be given either
before or after the appropriation is made.

Delivery to carrier

(2) Where, in pursuance of the contract, the seller delivers the
goods to the buyer or to a carrier or other bailee (whether named
by the buyer or not) for the purpose of transmission to the buyer,
and does not reserve the right of disposal, he is deemed to have
unconditionally appropriated the goods to the contract.

16 Laws of Malaysia ACT 382

Goods sent on approval or “on sale or return”

24. When goods are delivered to the buyer on approval or “on
sale or return”, or other similar terms, the property therein passes
to the buyer—

(a) when he signifies his approval or acceptance to the seller
or does any other act adopting the transaction;

(b) if he does not signify his approval or acceptance to the
seller but retains the goods without giving notice of
rejection, then, if a time has been fixed for the return of
goods, on the expiration of such time, and if no time has
been fixed, on the expiration of a reasonable time.

Reservation of right of disposal

25. (1) Where there is a contract for the sale of specific goods
or where goods are subsequently appropriated to the contract the
seller may by the terms of the contract or appropriation reserve
the right of disposal of the goods until certain conditions are
fulfilled. In such case, notwithstanding the delivery of the goods
to the buyer or to a carrier or other bailee for the purpose of
transmission to the buyer, the property in the goods does not pass
to the buyer until the conditions imposed by the seller are fulfilled.

(2) Where goods are shipped and by the bill of lading the
goods are deliverable to the order of the seller or his agent, the
seller is prima facie deemed to reserve the right of disposal.

(3) Where the seller of goods draws on the buyer for the price
and transmits the bill of exchange and bill of lading to the buyer
together, to secure acceptance or payment of the bill of exchange,
the buyer is bound to return the bill of lading if he does not honour
the bill of exchange, and if he wrongfully retains the bill of lading
the property in the goods does not pass to him.

Risk prima facie passes with property

26. Unless otherwise agreed, the goods remain at the seller’s risk
until the property therein is transferred to the buyer, but when the
property therein is transferred to the buyer, the goods are at the
buyer’s risk whether delivery has been made or not:

Provided that where delivery has been delayed through the fault
of either buyer or seller, the goods are at the risk of the party in
fault as regards any loss which might not have occurred but for
such fault:

Sale of Goods 17

Provided also that nothing in this section shall affect the duties
or liabilities of either seller or buyer as a bailee of the goods of
the other party.

Sale by person not the owner

27. (1) Subject to this Act and of any other law for the time
being in force, where goods are sold by a person who is not the
owner thereof, and who does not sell them under the authority
or with the consent of the owner, the buyer acquires no better
title to the goods than the seller had, unless the owner of the
goods is by his conduct precluded from denying the seller’s authority
to sell:

Provided that where a mercantile agent is, with the consent of
the owner, in possession of the goods or of a document of title to
the goods, any sale made by him when acting in the ordinary
course of business of a mercantile agent shall be as valid as if he
were expressly authorized by the owner of the goods to make the
same; provided that the buyer acts in good faith and has not at the
time of the contract of sale notice that the seller has no authority
to sell.

Sale by one of joint owners

28. If one of several joint owners of goods has the sole possession
of them by permission of the co-owners, the property in the goods
is transferred to any person who buys them of such joint owner
in good faith and has not at the time of the contract of sale notice
that the seller has no authority to sell.

Sale by person in possession under voidable contract

29. Where the seller of goods has obtained possession thereof
under a contract voidable under section 19 or 20 of the Contracts
Act 1950, but the contract has not been rescinded at the time of
the sale, the buyer acquires a good title to the goods provided he
buys them in good faith and without notice of the seller’s defect
of title.

Seller or buyer in possession after sale

30. (1) Where a person, having sold goods, continues or is in
possession of the goods or of the documents of title to the goods,
the delivery or transfer by that person or by a mercantile agent
acting for him, of the goods or documents of title under any sale,

18 Laws of Malaysia ACT 382

pledge or other disposition thereof to any person receiving the
same in good faith and without notice of the previous sale shall
have the same effect as if the person making the delivery or
transfer were expressly authorized by the owner of the goods to
make the same.

(2) Where a person, having bought or agreed to buy goods,
obtains, with the consent of the seller, possession of the goods or
the documents of title to the goods, the delivery or transfer by that
person or by a mercantile agent acting for him of the goods or
documents of title under any sale, pledge, or other disposition
thereof to any person receiving the same in good faith and without
notice of any lien or other right of the original seller in respect
of the goods shall have effect as if such lien or right did not exist.

CHAPTER IV

PERFORMANCE OF THE CONTRACT

Duties of seller and buyer

31. It is the duty of the seller to deliver the goods and of the
buyer to accept and pay for them in accordance with the terms of
the contract of sale.

Payment and delivery are concurrent conditions

32. Unless otherwise agreed, delivery of the goods and payment
of the price are concurrent conditions, that is to say, the seller shall
be ready and willing to give possession of the goods to the buyer
in exchange for the price, and the buyer shall be ready and willing
to pay the price in exchange for possession of the goods.

Delivery

33. Delivery of goods sold may be made by doing anything
which the parties agree shall be treated as delivery or which has
the effect of putting the goods in the possession of the buyer or
of any person authorized to hold them on his behalf.

Sale of Goods 19

Effect of part delivery

34. A delivery of part of goods, in progress of the delivery of
the whole, has the same effect for the purpose of passing the
property in such goods, as a delivery of the whole; but a delivery
of part of the goods with an intention of severing it from the whole
does not operate as a delivery of the remainder.

Buyer to apply for delivery

35. Apart from any express contract, the seller of goods is not
bound to deliver them until the buyer applies for delivery.

Rules as to delivery

36. (1) Whether it is for the buyer to take possession of the goods
or for the seller to send them to the buyer is a question depending
in each case on the contract, express or implied, between the
parties. Apart from any such contract, goods sold are to be delivered
at the place at which they are at the time of the sale, and goods
agreed to be sold are to be delivered at the place at which they
are at the time of the agreement to sell, or, if not then in existence,
at the place at which they are manufactured or produced.

(2) Where under the contract of sale the seller is bound to send
the goods to the buyer, but no time for sending them is fixed, the
seller is bound to send them within a reasonable time.

(3) Where the goods at the time of sale are in the possession
of a third person, there is no delivery by seller to buyer unless and
until such third person acknowledges to the buyer that he holds
the goods on his behalf:

Provided that nothing in this section shall affect the operation
of the issue or transfer of any document of title to goods.

(4) Demand or tender of delivery may be treated as ineffectual
unless made at a reasonable hour. What is a reasonable hour is a
question of fact.

(5) Unless otherwise agreed, the expenses of and incidental to
putting the goods into a deliverable state shall be borne by the
seller.

20 Laws of Malaysia ACT 382

Delivery of wrong quantity

37. (1) Where the seller delivers to the buyer a quantity of goods
less than he contracted to sell, the buyer may reject them, but if
the buyer accepts the goods so delivered he shall pay for them at
the contract rate.

(2) Where the seller delivers to the buyer a quantity of goods
larger than he contracted to sell, the buyer may accept the goods
included in the contract and reject the rest, or he may reject the
whole. If the buyer accepts the whole of the goods so delivered
he shall pay for them at the contract rate.

(3) Where the seller delivers to the buyer the goods he contracted
to sell mixed with goods of a different description not included
in the contract, the buyer may accept the goods which are in
accordance with the contract and reject the rest, or may reject the
whole.

(4) This section is subject to any usage of trade, special agreement
or course of dealing between the parties.

Instalment deliveries

38. (1) Unless otherwise agreed the buyer of goods is not bound
to accept delivery thereof by instalments.

(2) Where there is a contract for the sale of goods to be delivered
by stated instalments which are to be separately paid for, and the
seller makes no delivery or defective delivery in respect of one or
more instalments, or the buyer neglects or refuses to take delivery
of or pay for one or more instalments, it is a question in each case
depending on the terms of the contract and the circumstances of
the case, whether the breach of contract is a repudiation of the
whole contract, or whether it is a severable breach giving rise to
a claim for compensation but not to a right to treat the whole
contract as repudiated.

Delivery to carrier or wharfinger

39. (1) Where in pursuance of a contract of sale, the seller is
authorized or required to send the goods to the buyer, delivery of
the goods to a carrier, whether named by the buyer or not, for the

Sale of Goods 21

purpose of transmission to the buyer, or delivery of the goods to
a wharfinger for safe custody, is prima facie deemed to be a
delivery of the goods to the buyer.

(2) Unless otherwise authorized by the buyer, the seller shall
make such contract with the carrier or wharfinger on behalf of the
buyer as may be reasonable having regard to the nature of the
goods and the other circumstances of the case. If the seller omits
so to do, and the goods are lost or damaged in course of transit
or whilst in the custody of the wharfinger, the buyer may decline
to treat the delivery to the carrier or wharfinger as a delivery to
himself, or may hold the seller responsible in damages.

(3) Unless otherwise agreed, where goods are sent by the seller
to the buyer by a route involving sea transit, in circumstances in
which it is usual to insure, the seller shall give such notice to the
buyer as may enable him to insure them during their sea transit,
and if the seller fails so to do, the goods shall be deemed to be
at his risk during such sea transit.

Risk where goods are delivered at distant place

40. When the seller of goods agrees to deliver them at his own
risk at a place other than that where they are when sold, the buyer
shall, nevertheless, unless otherwise agreed, take any risk of
deterioration in the goods necessarily incident to the course of
transit.

Buyer’s right of examining the goods

41. (1) Where goods are delivered to the buyer which he has not
previously examined, he is not deemed to have accepted them
unless and until he has had a reasonable opportunity of examining
them for the purpose of ascertaining whether they are in conformity
with the contract.

(2) Unless otherwise agreed, when the seller tenders delivery
of goods to the buyer, he is bound, on request, to afford the
buyer a reasonable opportunity of examining the goods for the
purpose of ascertaining whether they are in conformity with the
contract.

22 Laws of Malaysia ACT 382

Acceptance

42. The buyer is deemed to have accepted the goods when he
intimates to the seller that he has accepted them, or when the
goods have been delivered to him and he does any act in relation
to them which is inconsistent with the ownership of the seller, or
when, after the lapse of a reasonable time, he retains the goods
without intimating to the seller that he has rejected them.

Buyer not bound to return rejected goods

43. Unless otherwise agreed, where goods are delivered to the
buyer and he refuses to accept them, having the right so to do, he
is not bound to return them to the seller, but it is sufficient if he
intimates to the seller that he refuses to accept them.

Liability of buyer for neglecting or refusing delivery of goods

44. When the seller is ready and willing to deliver the goods and
requests the buyer to take delivery, and the buyer does not, within
a reasonable time after such request, take delivery of the goods,
he is liable to the seller for any loss occasioned by his neglect or
refusal to take delivery, and also for a reasonable charge for the
care and custody of the goods:

Provided that nothing in this section shall affect the rights of
the seller where the neglect or refusal of the buyer to take delivery
amounts to a repudiation of the contract.

CHAPTER V

RIGHTS OF UNPAID SELLER AGAINST THE GOODS

Unpaid seller defined

45. (1) The seller of goods is deemed to be an “unpaid seller”
within the meaning of this Act—

(a) when the whole of the price has not been paid or tendered;

(b) when a bill of exchange or other negotiable instrument
has been received as conditional payment, and the condition
on which it was received has not been fulfilled by reason
of the dishonour of the instrument or otherwise.

Sale of Goods 23

(2) In this Chapter, the term “seller” includes any person who
is in the position of a seller, as, for instance, an agent of the seller
to whom the bill of lading has been indorsed, or a consignor or
agent who has himself paid, or is directly responsible for, the
price.

Unpaid seller’s rights

46. (1) Subject to this Act and of any law for the time being in
force, notwithstanding that the property in the goods may have
passed to the buyer, the unpaid seller of goods, as such, has, by
implication of law—

(a) a lien on the goods for the price while he is in possession
of them;

(b) in case of the insolvency of the buyer a right of stopping
the goods in transit after he has parted with the possession
of them;

(c) a right of resale as limited by this Act.

(2) Where the property in goods has not passed to the buyer,
the unpaid seller has, in addition to his other remedies, a right of
withholding delivery similar to and co-extensive with his rights of
lien and stoppage in transit where the property has passed to the
buyer.

Unpaid seller’s lien

Seller’s lien

47. (1) Subject to this Act, the unpaid seller of goods who is in
possession of them is entitled to retain possession of them until
payment or tender of the price in the following cases, namely:

(a) where the goods have been sold without any stipulation
as to credit;

(b) where the goods have been sold on credit, but the term
of credit has expired;

(c) where the buyer becomes insolvent.

(2) The seller may exercise his right of lien notwithstanding
that he is in possession of the goods as agent or bailee for the
buyer.

24 Laws of Malaysia ACT 382

Part delivery

48. Where an unpaid seller has made part delivery of the goods,
he may exercise his right of lien on the remainder, unless such part
delivery has been made under such circumstances as to show an
agreement to waive the lien.

Termination of lien

49. (1) The unpaid seller of goods loses his lien thereon—

(a) when he delivers the goods to a carrier or other bailee
for the purpose of transmission to the buyer without
reserving the right of disposal of the goods;

(b) when the buyer or his agent lawfully obtains possession
of the goods;

(c) by waiver thereof.

(2) The unpaid seller of goods, having a lien thereon, does not
lose his lien by reason only that he has obtained a decree for the
price of the goods.

Stoppage in transit

Right of stoppage in transit

50. Subject to this Act when the buyer of goods becomes insolvent
the unpaid seller who has parted with the possession of the goods
has the right of stopping them in transit, that is to say, he may
resume possession of the goods as long as they are in the course
of transit, and may retain them until payment or tender of the
price.

Duration of transit

51. (1) Goods are deemed to be in course of transit from the time
when they are delivered to a carrier or other bailee for the purpose
of transmission to the buyer, until the buyer or his agent in that
behalf takes delivery of them from such carrier or other bailee.

Sale of Goods 25

(2) If the buyer or his agent in that behalf obtains delivery of
the goods before their arrival at the appointed destination, the
transit is at an end.

(3) If after the arrival of the goods at the appointed destination,
the carrier or other bailee acknowledges to the buyer or his agent
that he holds the goods on his behalf and continues in possession
of them as bailee for the buyer or his agent, the transit is at an
end and it is immaterial that a further destination for the goods
may have been indicated by the buyer.

(4) If the goods are rejected by the buyer and the carrier or
other bailee continues in possession of them, the transit is not
deemed to be at an end, even if the seller has refused to receive
them back.

(5) When the goods are delivered to a ship chartered by the
buyer, it is a question depending on the circumstances of the
particular case, whether they are in the possession of the master
as a carrier or as agent of the buyer.

(6) Where the carrier or other bailee wrongfully refuses to deliver
the goods to the buyer or his agent in that behalf, the transit is
deemed to be at an end.

(7) Where part delivery of the goods has been made to the
buyer or his agent in that behalf, the remainder of the goods may
be stopped in transit, unless such part delivery has been given in
such circumstances as to show an agreement to give up possession
of the whole of the goods.

How stoppage in transit is effected

52. (1) The unpaid seller may exercise his right of stoppage in
transit either by taking actual possession of the goods, or by giving
notice of his claim to the carrier or other bailee in whose possession
the goods are. Such notice may be given either to the person in
actual possession of the goods or to his principal. In the latter case
the notice, to be effectual, shall be given at such time and in such
circumstances that the principal, by the exercise of reasonable
diligence, may communicate it to his servant or agent in time to
prevent a delivery to the buyer.

26 Laws of Malaysia ACT 382

(2) When notice of stoppage in transit is given by the seller to
the carrier or other bailee in possession of the goods, he shall
redeliver the goods to or according to the directions of the seller.
The expenses of such redelivery shall be borne by the seller.

Transfer by buyer and seller

Effect of sub-sale or pledge by buyer

53. (1) Subject to this Act the unpaid seller’s right of lien or
stoppage in transit is not affected by any sale or other disposition
of the goods which the buyer may have made unless the seller has
assented thereto:

Provided that where a document of title to goods has been issued
or lawfully transferred to any person as buyer or owner of the
goods and that person transfers the document to a person who
takes the document in good faith and for consideration, then, if
such last-mentioned transfer was by way of sale, the unpaid seller’s
right of lien or stoppage in transit is defeated, and, if such
last-mentioned transfer was by way of pledge or other disposition
for value, the unpaid seller’s right of lien or stoppage in transit
can only be exercised subject to the rights of the transferee.

(2) Where the transfer is by way of pledge, the unpaid seller
may require the pledgee to have the amount secured by the pledge
satisfied in the first instance, as far as possible, out of any other
goods or securities of the buyer in the hands of the pledgee and
available against the buyer.

Sale not generally rescinded by lien or stoppage in transit

54. (1) Subject to this section, a contract of sale is not rescinded
by the mere exercise by an unpaid seller of his right of lien or
stoppage in transit.

(2) Where the goods are of a perishable nature, or where the
unpaid seller who has exercised his right of lien or stoppage in
transit gives notice to the buyer of his intention to resell, the
unpaid seller may, if the buyer does not within a reasonable time
pay or tender the price, resell the goods within a reasonable time
and recover from the original buyer damages for any loss occasioned
by his breach of contract; but the buyer shall not be entitled to any

Sale of Goods 27

profit which may occur on the resale. If such notice is not given,
the unpaid seller shall not be entitled to recover such damages and
the buyer shall be entitled to the profit, if any, on the resale.

(3) Where an unpaid seller who has exercised his right of lien
or stoppage in transit resells the goods, the buyer acquires a good
title thereto as against the original buyer, notwithstanding that no
notice of the resale has been given to the original buyer.

(4) Where the seller expressly reserves a right of resale in case
the buyer should make default and, on the buyer making default,
resells the goods, the original contract of sale is thereby rescinded,
but without prejudice to any claim which the seller may have for
damages.

CHAPTER VI

SUITS FOR BREACH OF THE CONTRACT

Suit for price

55. (1) Where under a contract of sale the property in the goods
has passed to the buyer and the buyer wrongfully neglects or
refuses to pay for the goods according to the terms of the contract,
the seller may sue him for the price of the goods.

(2) Where under a contract of sale the price is payable on a day
certain irrespective of delivery and the buyer wrongfully neglects
or refuses to pay such price, the seller may sue him for the price
although the property in the goods has not passed and the goods
have not been appropriated to the contract.

Damages for non-acceptance

56. Where the buyer wrongfully neglects or refuses to accept and
pay for the goods the seller may sue him for damages for
non-acceptance.

Damages for non-delivery

57. Where the seller wrongfully neglects or refuses to deliver the
goods to the buyer, the buyer may sue the seller for damages for
non-delivery.

28 Laws of Malaysia ACT 382

Specific performance

58. Subject to Chapter II of the Specific Relief Act 1950 [Act
137], in any suit for breach of contract to deliver specific or
ascertained goods, the court may, if it thinks fit, on the application
of the plaintiff, by its decree direct that the contract shall be
performed specifically, without giving the defendant the option of
retaining the goods on payment of damages. The decree may be
unconditional, or upon such terms and conditions as to damages,
payment of the price or otherwise, as the court may deem just, and
the application of the plaintiff may be made at any time before the
decree.

Remedy for breach of warranty

59. (1) Where there is a breach of warranty by the seller, or
where the buyer elects or is compelled to treat any breach of a
condition on the part of the seller as a breach of warranty, the
buyer is not by reason only of such breach of warranty entitled to
reject the goods; but he may—

(a) set up against the seller the breach of warranty in diminution
or extinction of the price; or

(b) sue the seller for damages for breach of warranty.

(2) The fact that a buyer has set up a breach of warranty in
diminution of the price does not prevent him suing for the same
breach of warranty if he has suffered further damage.

Repudiation of contract before due date

60. Where either party to a contract of sale repudiates the contract
before the date of delivery, the other party may either treat the
contract as subsisting and wait till the date of delivery, or he may
treat the contract as rescinded and sue for damages for the breach.

Interest by way of damages and special damages

61. (1) Nothing in this Act shall affect the right of the seller or
the buyer to recover interest or special damages in any case where
by law interest or special damages may be recoverable, or to
recover the money paid where the consideration for the payment
of it has failed.

Sale of Goods 29

(2) In the absence of a contract to the contrary, the court may
award interest at such rate as it thinks fit on the amount of the
price—

(a) to the seller in a suit by him for the amount of the price,
from the date of the tender of the goods or from the date
on which the price was payable;

(b) to the buyer in a suit by him for the refund of the price
in a case of breach of the contract on the part of the
seller, from the date on which the payment was made.

CHAPTER VII

MISCELLANEOUS

Exclusion of implied terms and conditions

62. Where any right, duty or liability would arise under a contract
of sale by implication of law, it may be negatived or varied by
express agreement or by the course of dealing between the parties,
or by usage, if the usage is such as to bind both parties to the
contract.

Reasonable time a question of fact

63. Where in this Act any reference is made to a reasonable time,
the question what is a reasonable time is a question of fact.

Savings

64. (1) Nothing in this Act shall affect or be deemed to affect any
rule of law, not inconsistent with this Act.

(2) The rules in bankruptcy relating to contracts for the sale of
goods shall continue to apply thereto notwithstanding anything
contained in this Act.

(3) The provisions of this Act relating to contracts of sale do
not apply to any transaction in the form of a contract of sale which
is intended to operate by way of mortgage, pledge, charge or other
security.

30 Laws of Malaysia ACT 382

LAWS OF MALAYSIA

Act 382

SALE OF GOODS ACT 1957

LIST OF AMENDMENTS

Amending law Short title In force from

L.N. 332/1958 Federal Constitution 13-11-1958
(Modification of Laws)
(Ordinances and
Proclamations) Order 1958

Act A756 Sale of Goods 23-02-1990
(Amendment and Extension)
Act 1990

Sale of Goods 31

LAWS OF MALAYSIA

Act 382

SALE OF GOODS ACT 1957

LIST OF SECTIONS AMENDED

Section Amending authority In force from

1 Act A756 23-02-1990

2 L.N. 332/1958 13-11-1958

DICETAK OLEH
PERCETAKAN NASIONAL MALAYSIA BERHAD,
KUALA LUMPUR
BAGI PIHAK DAN DENGAN PERINTAH KERAJAAN MALAYSIA