The general rule of nemo dat says that one cannot give what he does not have. A person cannot transfer a title to another person if he never had one to start with. If a thief steals some article from one person, if another person buys that article from the thief he cannot legally own it because its title still belongs to the original owner. In most cases the question which arises is which of the two innocent people is to suffer the fraud of a third. Balance has to be made between the protection of property of the owner, and the protection of commercial transaction as the person who takes in good faith for value without notice should get a good title. For this reason many exception have developed to protect a buyer in good faith against the original owner.
The general rule is placed in s21(1) of the Sale of Goods Act: where goods are sold by a person who is not their owner, 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.
The general rule itself in s21 points out the first exception of the rule of nemo dat, if the seller himself by his conduct precluded from denying the seller’s authority to sell a title can pass the buyer in goods faith. This is what we call an estoppel.
1 – Estoppel: There are two distinct cases where the owner is precluded from denying the seller’s authority to sell: (1) where by his words or conduct represented to the buyer that the seller is the true owner or has authority to sell. (Estoppel by representation). (2) Where the owner, by his failure to act, allows the seller to appear as the owner or as having the owner’s authority to sell. (Estoppel by negligence). For the exception to apply there must be an unambiguous representation of fact that was acted upon. And for estoppel by negligence, the buyer must be under some duty to correct the misstatement.
- Estoppel by words: Case Henderson & Co v Williams – C Represented that F was the owner by ordering D to transfer the goods into his name in their books. C was estopped.
- Estoppel by conduct: Case Eastern Distributors Ltd v Goldring - M signed and delivered forms to C which enabled C to represent that he had M’s authority to sell. M was estopped.
- It is important to distinguish between representations that seller has authority to sell and those that make that represent the seller as the owner. If it was ostensible authority, he would only be authority to sell in the ordinary course of business, otherwise the true owner cannot be estopped. Case Motor Credits Ltd v Pacific Motor Auctions Pty Ltd The sale fell outside the ordinary course of because it took place in later hours and agreed to sell back on certain conditions. Estopped could not take place. In the other hand, if the seller had ostensible ownership it would not matter if it took place outside the ordinary course of dealing, unless if this can be a proof of lack of good faith. Case Lloyds and Scottish Finance Ltd v Williamson – did not sell in the course of business, but it did not matter.
- Estoppel by negligence: This may be established where the owner of goods has by his negligence allowed a 3rd party to represent himself as owner or as having the owner’s authority to sell. The application of this estoppel is limited by the requirement of a duty to take care. Case Coventry Shepherd & Co v Great Eastern Rly Co - D negligently issued 2 delivery orders relating to the same load of goods; was estopped. Case Mercantile Credit Co V Hamblin The dealer cheated, but the original owner was not negligent by trusting the dealer. IMPORTANT CASE: Moorgate Mercantile Co Ltd v Twitchings - Failure to register with HPI did not ive rise to an estoppel by negligence as there was no duty to D to register with HPI. {In this case the guy got the car on HP then sold it back, the 2nd buyer checked with HPI and it said that this car was not registered with them, original owner still got the car back} Moral of the story: A duty must exist for someone to be negligent.
2 – The second exception: S2 of the Factors Act, Sale by a mercantile agent, this exception applies where a mercantile agent is, with the consent of the owner, in possession of goods or documents of title to goods, any sale, pledge, or other disposition of the goods, made by him when acting in the ordinary course of business of a mercantile agent, shall, subject to the provisions of this act, be as valid as if he were expressly authorise by the owner of the goods to make the same, provided that the person taking under the disposition acts in good faith, and has not at the time of the disposition noticed that the person making the disposition has no authority to make the same.
This section of the act has to be examined in great detail, a mercantile agent is defined in the act, he is a sales agent or some agent that can raise money on the security of goods. He can work exclusively for P, but has to be more than a mere employee. “A” must be in possession ‘at the time of the sale, etc’, not at the time when the buyers saw the goods, case Beverly Acceptances v Oakley > Possession has long ended at the time of the sale. The possession of the goods must be with the consent of the owner, a trick will not work (I think) the case is Pearson v Rose & Young, they took the logbook of the car by some trick. The goods must be entrusted to the agent for the purpose of the agency in that it must be connected wit the business somehow. The sale must be in the ordinary course of business, this is a question of fact, and it involves the facts that might make the 3rd p think that something is wrong with the transaction, eg. outside work hours, outside premises. Finally, the buyer must act in goods faith and without notice that the sale was made without authority.
3 – Sales under a voidable contract (s23). Under this exception a voidable title that has not been avoided yet could be transferred to a buyer that did not know about the deficiency of the title. If a contract is voidable, but sold before recession, then this would be ‘a bar to recession’ and the 3rd party would have good title. The key question here is whether the contract is void for a fundamental mistake or merely voidable (usually for fraud). The second part of the exception is related to the owner actually rescinding the contract. Recession is a ‘self-help’ remedy for there are no formal procedures required. The only requirement to rescind is the unambiguous intention to rescind communicated to the other party, which is almost impossible to accomplish if you cannot find the buyer if he is deliberately hiding. An important case in this topic is Car & Universal Finance v Caldwell, where the court held that the contract was rescinded even though the seller did not communicate to the other party, in this case the seller instantly went to the police when he discovered that the check was invalid and also went to RAC/AA. Court said that the contract is rescinded if all possible procedures were done. These means that you don’t have to communicate to the other party if the other party this to hid and you have done everything possible. This decision was not followed in Scotland and a report on transfer of title suggested reversing the rule.
4 – Seller in Possession (s24) – basically, a seller who is possession of the goods that he sold, can sell them again to a 2nd buyer and that buyer can acquire a good title if he received them in good faith and without notice of the first sale.
The change in the seller’s legal capacity does not matter now, what matter is the physical possession, case Worcester Works Finance Ltd v Cooden Engineering.
Delivery no longer has to be actual, it can be constructive by keeping the physical possession unaltered and merely transferring the right to possession?
5 – Buyer in Possession (s25) – This exception allows a buyer who possesses the goods to successfully pass a good title to a 2nd buyer if he delivers to the goods to the 2nd buyer and the buyers receives the goods in good faith and without notice.
The first transaction between S and B1 has to be a contract of a sale, not a a sale or return transaction nor a HP transaction. The goods must be with the buyer with consent from the seller, it does not matter if he acquired the goods by a criminal offence as long as the owner consented and does not matter if the owner revoked his consent later. Another requirement is that the buyer must obtain possession of the goods or the documents of title to the goods. Constructive possession is sufficient here if the first buyer requested the seller to deliver the goods directly to the 2nd buyer. Also, the nature of the possession does not matter even temporary would suffice (Marten v Whale) . It also seems possible for delivery to take place in an undivded bulk, although it would seem to conlict with the s16 which does not permit a transfer of property in an undivded bulk of goods except in the circumstances set out in s20 inserted by the 1995 Act.
The 3rd p must take the goods in gooth faith and without notice, and notice here has its usual commercial meaning, which is actual and not constructive. The capacity at which the buyer obtains control of the goods does not matter, provided it is with the consent of the owner, but if the buyer acquires documets of title and not the goods, the seller may have a lien on the goods themselves, but how can this happen if the buyer has ‘possession’?
The difference between s8 and s9, is that s8 makes the seller transfer the title as if he was the owner, while the s9 makes the 1st buyer transfer the goods as if he was a mercantile agent acting for the owner. A mercantile agent can only pass a good title if done in the course of a business. In Lambert v G&C Finance Corporation Ltd, the guy sold the car without the log book, the court said that this was no in the course of a business, so the section did not apply. Under s9, if the first seller is not an owner the section will not apply, because CONSENT is required for the section to apply.
6 – Part 3 of the Hire Purchase Act 1964 - Under this exception a bona fide purchaser for value of a motor vehicle from a person in possession under a hire-purchase agreement or a conditional sale agreement obtains a good title. The only limitation is that it does not apply to a ‘trade or finance purchaser’. This is defined in the act as a person carrying some car business (it is actually something specific in the act), any other trader can rely on the exception. A car trader will not be protected even if he bought the car for his own use, (Stevenson v Beverly Benticle Ltd).
This section can also protect a new hirer, eg. S1 > HP > B1 > HP > B2. This is because HP is ‘another disposition’. The section requires the first agreement to be an HP agrement (NOT NORMAL HIRE), there is no requirement for possession under the agreement, but there must be a disposition by the hirer or the buyer. (The definition of possession is exhausted under this exception). The buyer must also act in good faith and without notice of the HP or the conditional sale agreement.
The onus of proof is on hte purchaser to prove that he bought the car in good faith (Barker v Bell) and wihtout notice, if he succeeds, the HP company might want to show that B1 was not a purchaser in good faith, so that no title can pass from the start, or it might want to claim that the car was not disposed by the hirer at all, but was, for example, stolen from him, or was disposed by someone else.
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