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Nemo Dat Quod Non Habet in Sale of Goods

Updated: May 6


Nemo Dat Quod Non Habet in Sale of Goods
Nemo Dat Quod Non Habet in Sale of Goods


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In cases where the seller lacks ownership or explicit authorization to sell goods, a crucial question surfaces: Should the rightful owner be safeguarded, enabling them to reclaim possession of the goods from the purchaser, or should the buyer, acting in good faith, be shielded and permitted to keep the goods, thus superseding the claims and title of the true owner?


Such inquiries commonly arise in scenarios such as: an individual discovering goods abandoned on a roadside and subsequently selling them; a thief vending stolen goods;


a person selling goods acquired through credit or hire-purchase arrangements; an individual, having already sold goods, continuing to possess and resell them;


or when goods are sold by someone who initially obtained them under approval conditions, stipulating that ownership wouldn't transfer until payment is made.


Section 27


Section 27, as a fundamental principle, aims to uphold the interests of the rightful owner.


Nonetheless, various exceptions to this principle safeguard the rights of buyers, particularly in bona fide commercial transactions, thereby promoting the interests of trade and commerce.


The general rule stipulates:


"Subject to the provisions of 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 consent of the owner, the buyer acquires no better title to goods than the seller had."

This rule finds its roots in the legal maxim "nemo dat quod non habet," which signifies that nobody can transfer a right that they themselves do not possess; in other words, a seller cannot confer a title superior to their own. Therefore, if the seller's title is flawed or defective, the buyer's title will be similarly affected.


Consequently, the buyer cannot obtain a title better than that of the seller. For instance, if a thief sells stolen goods, the buyer of those goods inherits the same title as the seller, regardless of their lack of knowledge regarding the goods' origin.

 
 

Exceptions to the Rule


In certain exceptional circumstances, despite the seller not possessing a good title to the goods, the buyer may still acquire a valid title to them. Hence, the buyer's title will not always be deemed invalid. These exceptions include:


(i) Sale under the implied authority of the owner (or transfer of title by estoppel)


The concluding clause of the rule outlined in Section 27 states: "...unless the owner of goods is by his conduct precluded from denying the seller’s authority to sell."


When the owner of goods, through their actions or inaction, leads the buyer to believe that the seller has the right to sell those goods, the owner cannot subsequently deny the existence of such authority in the seller, even if the seller did not actually possess the right to sell them.


For instance, if a person sells goods belonging to their mother in her presence, and she raises no objection, she is not later permitted to deny her son's authority to sell, and the sale remains binding on her. This principle is known as estoppel, which arises from a representation indicating that the seller has the authority to sell.


(ii) Sale by a mercantile agent (Proviso to Section 27)


To invoke this proviso, the following conditions must be met:

  1. The seller is a mercantile agent, as defined in Section 2(9).

  2. The mercantile agent obtained possession of the goods or documents of title to goods with the owner's consent, and in their capacity as a mercantile agent.

  3. The sale of goods occurred while the mercantile agent was acting in the ordinary course of business of a mercantile agent.

  4. The buyer of the goods acted in good faith without any notice that the mercantile agent lacked authority to sell.


If all these conditions are satisfied, the sale shall be considered valid as if the mercantile agent were expressly authorised by the owner of the goods to make the sale.


Who is a mercantile agent?


A mercantile agent is defined as someone who, in the customary course of business as such agent, possesses authority either to sell goods, consign them for sale, buy goods, or raise money on the security of the goods.


Therefore, a clerk in a merchant's office typically does not qualify as an agent, whereas a broker or auctioneer does.


It's crucial that the mercantile agent is in possession of the goods with the owner's consent, even if they lack the authority to sell them. If the agent obtained possession through unlawful means, such as theft, they cannot confer a valid title.


Similarly, if the agent is in possession in any capacity other than that of a mercantile agent, they cannot transfer a valid title.


For instance, if A leaves valuables with their neighbour B for safekeeping while out of town, and B, who happens to be an auctioneer, auctions off those valuables, the buyer will not acquire a valid title to them because the seller did not obtain possession in their capacity as an agent, but rather as a neighbour or bailee.


The mercantile agent is required to sell goods in a proper manner, such as during business hours, at an appropriate location, and in the usual course of their normal business operations, to avoid any suspicion of wrongful sale.


Therefore, if the agent sells goods discreetly, at an unusual time, or for a significantly lower price than usual, the buyer will not acquire a valid title. Similarly, if an auctioneer sells goods without conducting an auction, the buyer will not obtain a valid title.


Regarding the burden of proof, it lies upon the buyer to demonstrate that they were acting in good faith and without any notice of the agent's lack of authority.

 
 

Folkes v King


In the case of Folkes v King [(1923) 1 K.B. 282], an agent was entrusted with a car by the owner for sale, with a specified reserve price. Contrary to this authority, the agent sold the car below the reserve price to a bona fide purchaser and embezzled the proceeds.


The court held that since the buyer had purchased the car from the mercantile agent in good faith, they acquired a valid title.


The detailed facts of the case are as follows:


The owner argued that as the agent had committed larceny by a trick, it invalidated the owner's consent and negated the application of the Factors Act, thus the purchaser could not obtain a title.


However, the purchaser argued that since the owner had authorised the agent to transfer the property in the car, albeit with certain limitations, the offence amounted to larceny by a bailee or obtaining goods by false pretences, neither of which annulled the owner's consent, and the Factors Act operated to confer title upon the purchaser.


The court noted that while consent induced by false representation or fraud may not be entirely free, it could still be considered real, and typically, the effect of fraud or misrepresentation renders a transaction voidable rather than void.


In Pearson v Rose (1950) 2 All ER 1027, it was further observed that if an innocent purchaser acquires goods from someone in possession thereof, whose possessory right is defeasible on grounds of fraud but had not been actually defeated at the time of the transaction, there is no reason why the rights of such an innocent purchaser should not be protected.





Pearson v Rose & Young Ltd.


In the case of Pearson v Rose & Young Ltd. [(1950) 2 All E.R. 1027], the plaintiff entrusted their motor car to Hunt, a mercantile agent, to explore the possibility of selling it, without expressly authorising him to do so.


Hunt, by deceit, obtained the car's registration book from the plaintiff and proceeded to sell the car without the plaintiff's knowledge or consent. The car was subsequently sold to various parties, including the defendants.


The plaintiff sued the defendants, seeking damages for conversion on the grounds that Hunt lacked the authority to sell, thus no valid title could be passed to any subsequent transferee.


The court noted that while Hunt obtained possession of the car as a mercantile agent, he did not acquire possession of the registration book.


Selling a second-hand car without the registration book could not be deemed "in the ordinary course of business." Consequently, it was held that for a valid title to be passed, Hunt should have obtained possession of both the car and the registration book with the owner's consent. In the absence of this, Hunt was unable to convey a valid title to the buyers.


In Staff Motors Guarantee Ltd. v British Wagon Ltd. [(1974) All E.R. 322], Heap, a mercantile agent, sold his lorry to the defendants and then entered into a hire-purchase agreement with them for the same lorry.


Subsequently, Heap sold the lorry to the plaintiff, falsely claiming ownership. When Heap defaulted on the instalment payments, the defendants seized the lorry. The plaintiffs sued the defendants to recover the lorry, arguing that they had purchased it from a mercantile agent and thus had a valid title.


However, it was held that since Heap had obtained the lorry from the defendants under a hire-purchase agreement, he was merely a bailee of the lorry and not a mercantile agent. Consequently, the plaintiffs did not acquire a valid title, and their action to recover the lorry failed.


Overarching Principle


The overarching principle is clear: the buyer cannot acquire a title superior to that of the seller. This maxim, rooted in the Latin legal doctrine of "nemo dat quod non habet," underscores the importance of valid ownership in transactions.


However, exceptions to this rule exist, providing protection to buyers who engage in bona fide commercial transactions. These exceptions, such as sales under implied authority or transactions involving mercantile agents, aim to balance the interests of all parties involved while promoting the fluidity of trade and commerce.


In other words, while Section 27 upholds the interests of rightful owners, it also recognizes the practical realities of commercial transactions, ensuring that innocent buyers are not unduly penalised due to the actions of unauthorised sellers.

 
 




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