Nemo Dat Quod Non Habet

The Indian Contract act 1872 contained 266 sections originally which was divided in to various chapters. 1 to 75 dealt with general principles of the contract, section 76 to 123 of the original enactment dealt with sale of goods. Later in 1930 it was repealed and a new enactment called Sale of Goods act 1930 was introduced due to the advancement and increase in trade and transactions. It is a piece meal legislation containing 66 sections divided in to 7 chapters. The principles enshrined are basically those that included in the British sale of goods act which was later amended in 1979.

Chapter III of the sale of goods act 1930 containing sections 18 to 30 deals with effects of the contract with regards to transfer of property between seller and buyer. According to Denning LJ1, “In the development of law two principle have striven for mastery, the first is the protection of property; no one can give a better title than he himself possesses. The second is the protection of the commercial transactions; the person who takes in good faith and for value without notice should get a good title”.

Meaning

The first of this principle is enshrined in the Latin maxim, nemo dat quod non habet, which literally means no one can give what they do not have. In the context of sale of goods it means no one can transfer a better title than he himself has.

Section 27 of the Indian contract act embodies this principle mentioned above, the same is enshrined in section 21 of the British sale of goods act 1979. Buyer gets no title when sale is by a person not the owner. This generally happens in case of finder of lost goods sells the goods or in case of stolen goods or goods in procession by an agent, it tries to misappropriate. In the sale of immovable property and in contract of pledge also we can see the application of this Latin maxim. So the essence of the maxim is only the real owner can pass a real good title to the buyer in sale.

 

Section 27 of the sale of goods act 1930

Sale by person not the owner.-

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 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 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 act is good faith and has not at the time of the contract of sale notice that the seller has not authority to sell.

The first part of the section embodies the explanation of the Latin maxim and the second part of the section provides 2 exceptions to the original principle. If a person leaves a watch or a ring on a seat in the park or on a table in a café, and it ultimately gets in to the hands of a bonafide purchaser, it is no answer to the true owner to say that it was his carelessness and nothing else that it enabled the finder to pass it off as his own2. The owner of a car delivered it to a repairer for repairs, but he carried out no repairs and kept using the car until it crashed. Then he sold it in damaged condition for a nominal price to an innocent buyer, the buyer got the car repaired for 226 pounds. The owner was held entitled to recover the car from him by paying the expense of the repair3.

Exceptions
Section 27 itself gives 2 exceptions and further exceptions are mentioned in section 28, 29 and 30 of the sale of goods act.

1) Estoppel

The expression estoppels is derived from a French word ‘Estoup’ which means “shut the mouth”. A person, who does an act in good faith at the words/conduct of another, should not be suffered or deceived. When the owner of the goods by his act or omission or conduct allows the buyer to believe that the seller has a right to sell the goods, he (the true owner) cannot deny such sale subsequently. For example when a person sold his mother’s goods in her presence, she making no objection, she was not subsequently permitted to deny her son’s authority to sell and the sale was binding on her. Estoppel arises from a representation that the seller had the authority to sell.

And when that representation is innocently acted up on by the buyer, it becomes too late to deny the seller’s authority . Representation may arise from words or declarations or it may arise from an act or omission. An omission to perform one’s duty may create an estoppel.

Estoppel arises from;

a.      act or omission - but it should be a legal obligation

b.      Negligence – not mere negligence but it should be in regard to the person.

 

Estoppel by act or omission

A firm of merchants pledged certain railway receipts with a bank against a loan. Subsequently they took back the receipts for clearing the goods and storing them in the bank’s warehouse. But they fraudulently re-pledged the receipts with another bank for another loan. The second bank contented that the first bank should not have returned the receipts without impressing up on then them their stamp of pledge. Their omission to do so enabled the merchants to re-pledge the receipts and therefore the first bank should be stopped from denying the validity of the second pledge. But the Privy Council ruled otherwise. The court held that the duty to impress the stamp of pledge was not a legal duty. It was a duty of commercial origin and its omission did not create a legal estoppel.

 

Estoppel by negligence

Mere carelessness may not create an estoppels, negligence in order to give rise to a defence under this section must be more than mere carelessness on the part of a person in the conduct of his own affairs, and must amount to a disregard of his obligations towards the person who is setting up the defence. In Conventary Shepherd & Co v. Great Eastern Rly.Co5, the defendant carelessly issued two delivery orders relating to the same consignment of goods, thus enabling the person to whom they were issued to obtain an advance from the plaintiff and the defendants were held to be estopped as against him from denying the fact that the goods mentioned in the order were held on behalf of the assignor someone who puts documents of this nature into circulation owes a duty to those into whose hands they may come.

2) Sale by Mercantile Agent

A buyer of goods from a mercantile agent acquires good title if the conditions laid down in section 27(2) are satisfied.

a) He should be a mercantile agent

b) In possession as Mercantile agent

c) With owners consent

d) Must sell while acting as mercantile agent

e) Good faith and without notice

Mercantile agent

Section 2(9) defines mercantile agent. A mercantile agent having in the customary course of business as such agent authority wither to sell goods, or to consign goods for the purpose of sale, or to buy goods or to raise money on the security of goods. In other words mercantile agent is an agent who is entrusted with the possession of goods or documents. He has an authority to sell the goods or consign them for sale. Eg. Factor, Broker, Auctioneer etc.

In Folker V. King 6, the plaintiff delivered his car to a mercantile agent to sell it for not less than 575 pounds. But the mercantile agent sold it to the defendant for pound 140 and misappropriated the amount. In an action by the plaintiff it was held that the defendant (buyer) had a good title to the goods.

In possession as mercantile agent

The mercantile agent should be in possession of the goods as mercantile agent, if the goods are entrusted to him in any other capacity, he cannot convey a good title. This was held in Staffs Motor guarantee Ltd v. British wagon Ltd7. A dealer in secondhand cars sold his lorry to a company and then immediately took it back from the company under a hire-purchase agreement. He then resold the lorry to another company, which claimed that it had good title to the lorry having brought it from a mercantile agent in good faith. But the court refused to sustain this claim, the lorry had been handed back to the dealer not as an agent but as a hirer and therefore as its bailee, so the buyer cannot get a good title.

With owner’s consent

The goods must be in the possession of the mercantile agent with the consent of the owner. This requirement is satisfied when it is shown that the true owner did intentionally deposit in the hands of the mercantile agent the goods in question. In such case it is immaterial whether the consent is obtained by fraud.

In Pearson v. Rose and Young Ltd 8, a car was left with a mercantile agent and authorized him only to receive offers and not to sell. The agent obtained the registration book from the owner with out consent and sold to the defendant. It was held that the sale with out registration book would not have been a good sale and the registration book was obtained with out consent of the owner, therefore the buyer did not acquire a good title.

Must sell while acting as mercantile agent

The mercantile agent must sell the goods when acting in the ordinary course of business of a mercantile agent. That is to say within business hours at a proper place of business and in other respects in the ordinary way in which a mercantile agent would act. In De Gorster v. George Attenborough & son9 a broker was entrusted with certain diamonds for sale, he did so through a friend, and the transaction was held invalid as he cannot ask a friend to do the transaction which he was entrusted with.

Good faith and without notice

The buyer must act in good faith and should not have notice that the seller had no authority to sell.

Section 28 - Sale by one of the joint owners

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 in transferred to any person how 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 not authority to sell.

Section 29 - Sale by person in possession under voidable contract
When the seller of gods has obtained possession thereof under a contract voidable under Section 19 or Section 19A of the Indian Contract Act, 1872, but the contract has not rescinded at the time of the sale, the buyer acquires a god title to the goods, provided he buys them in good faith and without notice of the seller’s defect of title.

Avoidable contract is one that can be avoided at the option of one party but not the option of the other party, the party avoiding should be the aggrieved party. Conditions that can lead to voidable contract are coercion undue influence, fraud and misrepresentation leading to flaw in consent. The conditions to be fulfilled to attract this section is, the sale should be done

a) Under a voidable contract

b) Before repudiation

c) Where the buyer acts in good faith

In Phillips v Brooks10, a fraudulent person posed himself to be a respectable person and obtained from the shop keeper a valuable ring by giving a worthless cheque, before the fraud could be discovered he pledged the ring with a bonafide pledge

(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 gods or documents of title under any sale, pledge o 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 to transfer were expressly authorized by the owner of the gods 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 tile 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 gods shall have effect as if such lien or right did not exist.

Seller in possession after sale - Section 30(1)

When a seller who is in possession of the goods or title even after the sale again sells the goods to another person, the seller can convey a good title to the buyer if the following conditions are satisfied;

a) Seller should continue the goods in possession
b) Buyer should act in good faith without notice of the previous sale

Buyer in possession before sale – Section 30 (2)

When a person brought or agrees to buy certain goods for which possession has been given to him, but the seller has some lien or right over the goods, if the buyer resells the goods, the second buyer will get a good title free from seller’s right of lien. The conditions to be fulfilled to get good title are;

a)      There should be actual transfer of goods or title

b)      Second buyer should act in good faith

c)      Original seller should have the right to sell goods. Possession obtained under hire purchase agreement does not make the possessor a buyer in possession so that a sale made by him will not convey a good title to the buyer.

Other exceptions

Sale by an unpaid seller: Where on unpaid seller who had exercised his right of lien or stoppage in transit resells the goods, the buyer acquires a good title to the goods as against the original buyer [Section 54(3)]. Section 54 (3) is read as follows;

Where an unpaid seller who has exercised his right of lien or stoppage in transit re-sells the goods, the buyer acquires a good title thereto as against the original buyer, notwithstanding that no notice of the re-sale has been given to the original buyer

Sale under the provisions of other Acts:

(i) Sale by an official Receiver or liquidator of the company will give the purchaser a valid title.
(ii) Purchase of goods from a finder of goods will get a valid title under circumstances.
(iii) Sale by a pawnee under default of pawnor will give valid title to the purchaser.

Conclusion
This article tried to explore the effect of a sale conducted by a person who is not the real owner. In normal sense such a sale by the non owner does not pass a good title to the buyer. But there are exceptions where a non owner can pass a good title to the genuine buyer who acts in good faith, the most important among them are the estoppel by the real owner and sale conducted by a mercantile agent.

References
1) Principles of the law of Sale of Goods and Hire Purchase, Dr Avtar Singh, Eastern Book Company, Lucknow

2) Lectures on Contract II, Dr Rega Surya Rao, Asia Law House, Hyderabad.

1) In Bishopsgate Motor finance Corporation Ltd v. Transport brakes Ltd (1949) 1 KB 322.

2) In farquharson Bros v. kings Co (1902) AC 325,336

3) Greenwood v.Bennet (1973) 1 QB 195.

4) Mercantile Bank of India v. central bank of India Ltd. (1938) AC 287

5) Conventary Shepherd & Co v. Great Eastern Rly.Co (1883) 11 QBD 776

6) Folker V. King (1923) 1 KB 282,CA

7) Staffs Motor guarantee Ltd v. British wagon Ltd (1934) 2 KB 305

8) Pearson v. Rose and Young Ltd (1950) 2 All ER 1027,1031

9) De Gorster v. George Attenborough and son (1904) 21 TLR 19

10) Phillips v Brooks (1919) 2 KB 243.

who acted in good faith. It was held that the pledgee obtained a good title, the contract was voidable by the reason of the fraud and before it was rescinded the goods had gone to the hands of a third person.

Section 30 - Seller or buyer in possession after sale

Authored by: Dr Elbe Peter, MDS, LL.B, Dip.Clin.Res