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Nemo dat rule

Nemo dat rule

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Published by Ara Ridzuan
Business Law
Business Law

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Categories:Types, School Work
Published by: Ara Ridzuan on May 28, 2013
Copyright:Attribution Non-commercial


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JUNE 2012PART BQUESTION 4The English legal principle of Nemo dat quad non habet is reflected in Section 27 of the Sale of Goods Act 1957. Briefly discuss the main objective of this rule and the exceptions.(25marks)The ultimate purpose of a contract for the sale of goods is to pass ownership of goodsfrom the seller to the buyer. The general rule is that only a person with title can pass good titleto another person. Title represents the interest embodied in a good. Title is also a means bywhich ownership in a good may be established.This unit explains how the title in a good is transferred from the seller to the buyer. Aperson who is a non-owner of goods cannot confer a valid title on a supposed buyer of thegood.This rule is expressed in the Latin
maxim “
nemo dat quod non habet 
”. The English rule of 
nemo dat quod non habet 
is set out in Section 27 of Sale of Goods Act 1957, which reads:
sale by person not the owner
.Section 27 subject to the provision of this Act and of any other law for the time being inforce, where goods are sold by a person who is not the owner thereof, and who does not sellthem under the authority or the consent of the owner, the buyer acquires no better title to thegoods then the seller had, unless the owner of the goods is by his conduct precluded fromdenying the sellers authority to sell.
Provided that where a mercantile agents is, with the consent of the owner in possession of thegoods or of the document of title to the goods, any sale made by him when acting in theordinary course of business of a mercantile agent shall be as valid as if he were expresslyauthorized by the owner of the goods to make the same; provided that the buyer acts in goodfaith and has not at the time of the contract of sale notice that the seller has no authority tosell.In simple terms, this provision means that is good bought from a person who is not theowner, and who does not
sell them under the owner’s authority, the buyer does not acquire
any title. Thus the rightful owner of goods is entitled to recover his or her goods from those
who have no title to them. Therefore, if A’s computer stolen by B, B has possession of the
computer but has no title to it. If B sells the computer to C, C will get the possession of thecomputer and the title that he had (that is no title because B had no title). If A can trace thecomputer to C, A will be able to repossess it because C has no right of ownership. C would beable to sue B for damages if B could be found. Both the unauthorized seller, B and the innocentpurchaser, C may be sued for the tort of conversion which is a civil action against a person fordealing with goods of another in consistent with that person ownership.This rule is to protect the right of ownership. If not, this rule the interest of the true ownerof the goods would be lost if the goods were stolen. This general rule is illustrated in cases suchas Lim Chui Lai v Zeno Ltd. Zeno Ltd contracted with Ahmad for the construction of culvertswith Petaling Jaya Local Authority. Zeno supplied all the materials at the side but latter thecontract was cancelled in June 1961. Zeno Ltd informed PJ authority that the materials at theside belong to them. In September 1961, the respondent discovered that the materials hadbeen sold by Ahmad to the Lim Chui Lai for RM14,000 of which Ahmad had received RM7,000as part payment. The court held that Ahmad was not the owner of the materials at the time hesold them to Lim Chui Lai. Therefore, Ahmad has no title to the goods and he cannot pass thetitle to Lim Chui Lai. Thus, Lim Chui Lai does not have the title upon the materials bought fromAhmad.
There are, however, exceptions to this
nemo dat quod non habet 
rule. We look at theseexceptions and at the rights of the buyer in the event of failure by the seller to transfer title.This is the first exception for
nemo dat 
rule is estoppel. Under section 27 of Sale of Good
Acts, estoppel may arise when “the owner of the goods is by his conduct precluded fromdenying the seller’s authority to sell. The owner of goods by his conduct makes it appear to a
buyer that the person who sells the goods has his authority to do so and the buyer acts in
reliance on it. The owner will be estoped from denying the seller’s authority. The buyer who
takes in good faith and for value will acquire a good title by estoppels.The principle of estoppels may be illustrated in the decision of a New Zealand case N.Z.Securities & Finance Ltd v Wrightcars Ltd [1925] 1 NZLR 77. The owner in that case was held tobe precluded from denying the seller authority to sell to a third party. In that case, A agreed tosell a car to B and B was given possession of the car upon the tender of a cheque as payment. Itwas agreed that property in the car was not to pass until the price had been received. B thensold the car to C, and took it back on a least. However, before the sale to C was finalize, C had
contacted A’s office and response to C’s query was informed by A’s employee that B had paid
for the car. The cheque given to A by B was dishonored whereupon A repossessed the car. Ondiscovery of the events that had occurred, C sued A for conversion relying on the New Zealandequivalent to Section 27. C was successful in claiming that A was precluded by his conduct from
denying B’s authority to sell so that title had passed to C.
 It is said that title by estoppels is binding only against the true owner and those privy to theconduct on which the estoppels is based. It has no application in respect of strangers to theconduct.Second exception of general rule can be seen in the term sale by mercantile agent. UnderSection 27, Sale of Goods Act 1957 provides that where a mercantile agent is, with the consentof the owner, in possession of the goods or of a document of title to the goods, any sale made

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