Transfer of property by a non-owner and nemo dat rule

Nemo dat quod non habet (Latin): ‘No-one (can) give what he or she has not got.’

TRANSFER OF PROPERTY BY A NON-OWNER

Where someone, who has either no property or whose rights are defective, disposes
of goods, does the buyer acquire title to the exclusion of the true owner? Denning LJ
remarked:

In the development of our law, two principles have striven for mastery. The first is for
the protection of property: no one can give a better title than he himself possesses.
The second is for the protection of commercial transactions: the person who takes in
good faith and for value without notice should get a good title. (Bishopsgate Motor
Finance Corporation Ltd v Transport Brakes Ltd [1949] 1 KB 322 @ 336-337

But, in truth, is there a struggle between two equal principles? The SGA states:
‘where the 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’ (This is known as the nemo dat quod non
habet rule (or simply nemo dat) and Lord Goff, after referring to this rule, said, ‘There
appears to be minor exceptions to that fundamental principle’ (National Employers’
Mutual General Insurance Assocn Ltd v Jones [1990] 1 AC 24). It is important not to lose
sight of this when considering the nature of the exceptions.

ESTOPPEL

Where the true owner of the goods represents to the buyer that the person selling is
the owner or is acting as an agent with authority to sell, the true owner is estopped
from denying that authority to sell and the buyer acquires good title (Henderson & Co
v Williams [1895] 1 QB 521.

This is a long established common law position but SGA 1962 leans support in section
28 (2) that “Nothing in this section affects the operation of the doctrine of estoppel, or
any power of sale which may be conferred by or under any enactment or by a contract
of pledge or otherwise”.

A car owner, who wished to raise money on his car without selling it, was estopped
when he colluded in a transaction with a car dealer under which the car was
represented to a finance company as belonging to the dealer (Eastern Distributors
Ltd v Goldring [1957] 2 QB 600. Although this does not create title in the purchaser, it
prevents the owner from asserting his or her own title and so has the same effect.

There must be a representation, which may be by words and/or conduct. Merely

handing possession of goods and/or documents of title is usually not sufficient, evenif
this has been done in a way that might be regarded as careless because, ‘a man who
owns property is not under any general duty to safeguard it and he may sue forits
recovery against any person into whose hands it has come’ (Moorgate Mercantile Co
Ltd v Twitchings [1977] AC 890, Lord Wilberforce; see also Central Newbury Car
Auctions Ltd v Unity Finance Ltd [1957] 1 QB 371

In Industrial and Corporate Finance Ltd v Wyder Group Ltd t/a Ducati (2008) 152(37)
SJLB 31, it was argued that there was an obligation on a finance company to register
its interest in motorcycles, which meant a failure to register amounted to an
estoppel. Yet, in spite of the defendant’s allegation that it was standard trade
practice to register their interest, the court was not persuaded that the finance
company had any such duty.

In Mercantile Credit Co Ltd v Hamblin [1965] 2 QB 242, the owner of a car signed forms
in blank, without reading them, in the belief that they would enable a car dealer, who
appeared to be respectable, to raise money on the security of the car. In fact, the
dealer fraudulently used the forms to sell the car to a finance company.

The Court of Appeal held that a duty of care existed between the owner and the
finance company, but that there was no breach of that duty because she knew the
dealer and reasonably believed him to be respectable, so that it wasnot negligent for
her to sign the forms in blank. Moreover, two of the judges thought that, even if
there had been negligence, it was not the negligence of the owner but the fraud of
the dealer, which caused the loss.

Central Newbury Car Auction v Unity Finance [1957] 1 QB 371 – a swindler goes to a car
showroom (plaintiffs) and offers to buy one of the cars on hire- purchase terms
leaving them with a part exchange. The swindler signed the hire purchase forms
where by the car was to be sold to a finance company and then hired to the swindler.
He was given the registration book and permitted to drive the car away. The finance
company refused the hire purchase proposal but the swindler had already sold the
car to the defendants who bought it in good faith.

Held by the CA (Lord Denning) that there was no estoppel and that the plaintiffs
were entitled to recover the car. The registration book of a car is not a document of
title and in fact it contains a warning that the person in whose name the car is
registered may or may not be the owner. So it was not possible to say that the
plaintiff had in any way represented the swindler to be the owner, or to have the
owner’s authority to sell.

On the other hand, by analogy with a case on the sale of land (Spiro v Lintern [1973] 1
WLR 1002), unreasonable behaviour by the owner in failing to correct a
misrepresentation that the owner knows has been made to the seller by an agent
could create an estoppel, if the seller acts on the basis of the misrepresentation and
suffers loss as a consequence.

In Shaw v Metropolitan Police Commissioner [1987] 1 WLR 1332, the Court of Appeal
took a rather narrow view of the use of the word ‘sold’ as meaning that the estoppel
principle did not apply where there was only an agreement to sell.

EXCEPTION 3: Section 28(2) Act 137: …any power of sale, which may be conferred by
or under any enactment: Revenue administration Act, 2016 (Act 915): collection by
distress or Section 23—Sale by Auction of Pledge Above 10s under the Pawnbrokers
Ordinance Cap 1951 (Cap 189)

SALE UNDER A VOIDABLE TITLE

A sale of goods by fraud is no sale. When a seller sells without ownership with the
authority of the owner expressly, the seller can transfer owner but it may be voidable
under some circumstances if the owner acts in a certain way.

The concept of voidable title is a device designed to protect the interest of the title of
the owner of the goods against interest of commercial transactions. Thus where an
owner of goods hands over his goods to somebody to keep, he gives that person
voidable authority to deal with the goods because third parties do not know he has
been given the goods to keep for a specific period.

Under s.29 Act 137 ‘When the seller of goods has a voidable title to them, but his title
has not been avoided at the time of the sale, the buyer acquires a good title,
provided he buys them in good faith and without notice of the seller’s defect of title
(see also, Cundy v Lindsay [1878] 3 App Cas 459

In the common law expression on the above, a person taking the goods must be a
bona fide owner of the goods without notice. In the BISHOPSGATE case, the hirer of
a hire purchase sold the car before the ownership was transferred to him. The
purchaser sold the car to the defendants and made part payment of the cost and
disappeared without making full payment. The owners of the car sued the BROKERS
to recover their property. The Plaintiffs lost at the High Court and appealed to the
Court of Appeal. It was held that, the BISHOPSGATE put the hire purchaser in a
position to acquire a voidable interest and he therefore had the authority or right of
ownership to sell.
In the case of HENDERSON v WILLIAM [1895] 1 QB 521, a company with goods in a
warehouse directed purchasers to collect their goods after the completion of the
transaction. A person went to collect goods and the company, without checking
whether he had paid for the goods, issued them to him. He disappeared without
payment and went ahead to sell to another person. The second purchaser was sued
by the company to recover the goods and it was held that, by releasing the goods to
the first purchaser, the company gave him a right of title to sell. The plaintiffs were
therefore stopped from recovering the goods from the second purchaser who was a
bona fide purchaser and was thus protected under the law.

HENDERSON is contrasted by the case of FARQUHARSON BROS & CO. v KING & CO
[1902] AC 325. This also involved a company with goods in a warehouse. The
Company assigned a clerk to prepare delivery chits to buyers before they went for
the goods from the warehouse. The clerk prepared chits under fictitious names and
went ahead to take delivery of goods from the warehouse under the pretext that
some purchasers have contracted to buy same. He sold the goods after the delivery
and the company detected this later. The Company therefore sued Kings & Co,
whom the clerk had sold some of the goods to, for recovery. The House of Lords
held that, the buyers were not protected because the clerk, who was an employee,
had no authority from his employers (expressly or otherwise) to dispose of the
goods. The clerk had not been put in a position to issue chits to himself to sell. His
conduct therefore amounts to fraud.

In a dictum on this case, the Lord Chancellor Earl Halsbury stated that:
“A servant has stolen his master’s goods and the question arises whether the person
who has received those goods innocently can set up title against the matter. I believe
this is enough to dispose off this case”.
The principle is therefore established that, theft does not create an agency
relationship between the owner and the thief.

Lord Macnaghten, commenting on the same issue said:

“The right of the true owner is not prejudiced or affected by his carelessness in losing
his chattel however gross it may have been. If I lose a valuable dog and find it
afterwards in the possession of a gentleman who bought it from somebody whom he
believed to be the owner, it is no answer to me to say that he would never have been
cheated into buying the dog if I have chained it up”.
Carelessness of the owner therefore does not matter in the case of theft. The
innocent purchaser cannot question why the owner did not protect the goods. The
thief has no title whatsoever, to dispose of the goods.

There are many illustrations of a voidable contract involving misrepresentations as to

identity, which will be familiar to students of the law of contract.
To take one example, in Kings Norton Metal Co Ltd v Edridge, Merrett & Co Ltd [1897]
14 TLR 98, a manufacturer of metal received an order from ‘Hallam & Co’ and in
consequence sent goods. It turned out that ‘Hallam & Co’ did not exist. The rogue
resold the goods. It was held that the intention had been to contract with the writer
of the order, and, although this had been induced by a fraudulent misrepresentation,
that only made the contract voidable. Since it had not been avoided before the goods
were resold to a third party, title passed to the latter.

The first issue is whether the seller (S) acquired title to the goods from the original
owner (O), which will not be the case where S represents themselves to O as X and
O’s intention is to sell to X and no one else. Here the contract of sale between O and
S is void for mistake and S cannot pass title to the second buyer (B). But the courts
are reluctant to reach this view and typically conclude that the intention is to sell to
the person who made the purchase whatever his or her identity (Lewis v Averay
[1972] 1 QB 198 (Sealy and Hooley, pp.375-76); contrast with Ingram v Little [1961] 1 QB
31, which is discussed in Lewis and is a rare example where the contract was void).

If the contract is merely voidable, the original owner must communicate their
intention to rescind to the first buyer (S) within a reasonable period of time, andthey
cannot do this if they have done anything to affirm the contract with full knowledge
of the relevant facts. Where S is a rogue, O is likely to face some difficulty in
communicating their intention.

In Car and Universal Finance Co Ltd v Caldwell [1965]1 QB 525, it was held that the true
owner need merely take such steps as the reasonable owner would take to recover
the goods. Caldwell, a car owner who had been the victim of fraud, informed the
police and the Automobile Association. After doing these things, the car was sold by
the rogue to a car dealer.The dealer had had previous dealings with the rogue, which
ought to have enabled them to infer that this transaction was fraudulent. The dealer
then sold the car to a finance company, which bought in good faith and without
notice.

The Court of Appeal concluded that the dealer was not an agent of the finance
company so that the latter did not have the dealer’s knowledge, but that Caldwell
had done sufficient to avoid the contract by informing the police before the sale to
the dealer. Upjohn LJ remarked:

If one party [the rogue], by absconding, deliberately puts it out of the power of the
other to communicate his intention to rescind which he knows the other will almost
certainly want to do, I do not think he can any longer insist on his right to be made
aware of the election to determine the contract. In these circumstances communication
is a useless formality. I think that the law must allow the innocent party to exercise his
right of rescission otherwise than by communication or repossession.

The court must be able to discern that it was the intention of the original ownerto
rescind the contract and that this intention was formed before the resale took place
In Caldwell notification to the police and the Automobile Association provided
sufficient evidence.

The decision in Caldwell was, to some extent, limited by the Court of Appeal in
Newtons of Wembley Ltd v Williams [1965] 1 QB 560. Two of the judges who sat in
Caldwell also heard this appeal). It was held that, even if the owner had avoided the
contract before the resale, title passed because the rogue was a buyer in possession
and the sale had been made in the ordinary course of business of a mercantile agent,
that is, at a market for used cars.

From section 29, it could be inferred that a new buyer will not acquire title if they
bought with notice of the voidable contract, this does not amount to a requirement
that the original owner communicate their intention to rescind to the new buyer
before the contract. In other words, there are two separate possibilities: first, that
the original owner rescinds the contract before the resale; second, that the new
buyer is aware (from whatever source) of the defect in the seller’s title at the time of
the resale.

SELLER IN POSSESSION AFTER SALE

If property in the goods has passed to B, but A remains in possession of the goods or
documents of title and sells them to C who purchases in good faith and without
notice of the sale to B, title passes to C, leaving B with only an action for breach of
contract against A: section 31 SGA 1962.

Possession includes where goods are not in the physical possession of the seller, but
are under their control: for example, goods held by a warehouse owner to the order
of the seller. The seller’s possession does not have to be in any particular capacity or
even lawful: ‘It is sufficient if he remains continuously in possession of the goods that
he has sold to the purchaser’ (Worcester Works Finance Ltd v Cooden Engineering Co
Ltd [1972] 1 QB 210, Lord Denning MR). Lord Denning thought this might not apply
where the seller’s possession had not been continuous (see also Pacific Motor
Auctions Pty Ltd v Motor Credits (Hire Finance) Ltd [1965] AC 867 (Sealy and Hooley,
pp.379-81)).

For the second buyer to acquire good title, the seller must deliver possession ofthe
goods or documents of title: merely contracting a second sale is not sufficientto give
title to the second buyer. In Michael Gerson (Leasing) Ltd v Wilkinson [2001]QB 514,
machinery was sold to a finance company and leased back to the seller,who then sold
it to a second finance company and leased it back. At all times the machinery
remained in the possession of the seller, but it was held that the seller’s
acknowledgement to the finance company that the machines were being held on its
behalf amounted to a delivery to that company.

By ‘documents of title’ is meant those documents ‘used in the ordinary course of

business as proof of the possession or control of goods, or authorising or purporting
to authorise, either by indorsement or delivery, the possessor of the document to
transfer or receive goods’

BUYER IN POSSESSION AFTER SALE

In this situation the buyer has acquired possession of the goods and sells to a second
buyer.

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, has the same effect as if the person
making the delivery or transfer were a mercantile agent in possession of the goods or
documents of title with the consent of the owner (Sections 30 and 32 SGA 1962).

In P4 Ltd v Unite Integrated Solutions plc [2006] EWHC 2640 (TCC) Ramsey J summed
up the requirements of these provisions as:

a. A delivery under a disposition or agreement for a disposition

b. the recipient had no notice of any right of the true owner

c. the recipient acted in good faith.

The goods or documents of title must have been obtained by the buyer under a sale
or agreement to sell (‘bought or agreed to buy’), so this provision will apply where
the original sale contract is obtained under a bailment or hire-purchase or sale-or-
return contract. The provision that the transaction will have ‘the same effect as if the
person making the delivery... were a mercantile agent’ means that the buyer in
possession is placed in the position of a mercantile agent and the second buyer must
show that the circumstances of the sale would have been in the ordinary course of
business of a mercantile agent (Newtons of Wembley Ltd v Williams [1965] 1 QB 560.

The words ‘with the consent of the owner’ in section 32 prevents the nonsense of a
thief starting the whole chain of events and still passing good title.

There can only be a buyer in possession where possession of the goods or

documents of title has been obtained with the consent of the owner (National
Employers’ Mutual General Insurance Assocn Ltd v Jones [1990] 1 AC 24 (Sealy and
Hooley, pp.385-87)). Yet, it matters not how that consent was obtained – fraud is
enough even though this may amount to theft (Pearson v Rose & Young Ltd [1951] 1
KB 275 (Sealy and Hooley, p.368)).

On the meaning of ‘disposition’ to a third party: P4 Ltd v Unite Integrated Solutions plc
[2006] EWHC 2640 (TCC), where Ramsey J pointed out that it did not require ‘a full
transfer of property in the goods’ (at [116]).

DISPOSITION BY A MERCANTILE AGENT

A mercantile agent is defined by Section 81 as:

“An agent having in the ordinary course of his business as an agent, authority to sell
goods or to consign goods for sale, or to buy goods, or raise money on the security of
goods”.

Examples are auctioneers, car dealers, etc. Section 30 deals with the disposition by
such persons.

Section 30 (1) provides that:

“Where a mercantile agent is in possession of goods or of the documents of title to
good, any sale, pledge or other disposition for value of the goods or documents of
title made by him apparently in the ordinary course of his business as a mercantile
agent, shall be valid as if he were expressly authorized by the owner of the goods to
make the same, if the person taking under the disposition acts in good faith, and has
not at the time of the disposition notice that the mercantile agent has no authority to
make the same”.

Sale of Goods Act, 1962 s 81

 This means an agent having in the ordinary course of his business as an agent,
the authority either to sell or to consign goods for the purpose of sale, or to
buy goods, or to raise money on the security of goods.’

NB: it makes no difference if a person is a mercantile agent or has merely obtained

goods on sale or return, because a sale or other disposition by the party entrusted
with the goods will be valid in either event.

Section 30 (2) deals with situations where the authority was revoked. Where the
consent given by the owner is revoked before the mercantile sells, but the buyer is
not aware, the sale will still be valid and the buyer will be protected. Alternatively, if
the buyer is aware of the revocation, he will not be a bona fide owner and will not be
protected.

Section 30 (3) deals with a situation where the mercantile agent has obtained
possession of document of title because he was in possession of the goods
themselves. In that situation, his possession of the documents would be deemed
with the consent of the owner. No question can therefore be raised.

Finally, Section 30 (6) says that, nothing in Sec. 30 affects the liability of a mercantile
agent to the owner for any wrongful sale, pledge or other disposition of the goods or
document of title.
All the above are intended to protect free flow of commercial activities.

POINTS TO NOTE

The disposition is by a mercantile agent (Jerome v Bentley [1952] 2 All ER 114

The mercantile agent is in possession of goods or of the documents of title to goods

with the consent of the owner. The owner must have specifically consented to the
person having possession in their capacity as mercantile agent and not in some other
capacity (for example, handing over goods for repair).

Consent is given even though obtained by deception (Folkes v King [1923] 1 KB 282
since, although it might plausibly be suggested that such consent is not consent at
all, the courts have tended to protect the innocent third party (but see Pearson v
Rose & Young Ltd [1951] 1 KB 275.

Once consent has been given it continues, in spite of the owner terminating such
consent, unless the person dealing with the agent has notice of that termination. The
problem for the buyer is to know in what capacity the agent received possession of
the goods.

The disposition is made when acting in the ordinary course of business of a

mercantile agent.

The person acquiring the goods under the disposition must have acted in good faith
and without notice of the mercantile agent’s lack of authority (Heap v Motorists’
Advisory Agency Ltd [1923] 1 KB 577