JUNE 2012 PART B QUESTION 4 The English legal principle of Nemo dat quad non habet is reflected i n Section 27 of the Sale of Goods Act 1957. Briefly discuss the main objective of this rule and the e xceptions. (25marks)
The ultimate purpose of a contract for the sale of goods is to pass ownership of goods from the seller to the buyer. The general rule is that only a person with title can pass good title to another person. Title represents the interest embodied in a good. Title is also a means by which ownership in a good may be established. This unit explains how the title in a good is transferred from the seller to the buyer. A person who is a non-owner of goods cannot confer a valid title on a supposed buyer of the good. “nemo dat quod non habet ”. ”. The English rule of This rule is expressed in the Latin maxim “nemo “nemo dat quod non habet ”
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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 f or 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 the consent of the owner, the buyer acquires no better title to the goods then the seller had, unless the owner of the goods is by his conduct precluded from denying the sellers authority to sell.
Provided that where a mercantile agents is, with the consent of the owner in possession of the goods or of the 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 acts in good faith and has not at the time of the contract of sale notice that the seller has no authority to sell. In simple terms, this provision means that is good bought from a person who is not the owner, 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 the computer and the title that he had (that is no title because B had no title). If A can trace the computer to C, A will be able to repossess it because C has no right of ownership. C would be able to sue B for damages if B could be found. Both the unauthorized seller, B and the innocent purchaser, C may be sued for the tort of conversion which is a civil action against a person for dealing 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 owner of the goods would be lost if the goods were stolen. This general rule is illustrated in cases such as Lim Chui Lai v Zeno Ltd. Zeno Ltd contracted with Ahmad for the construction of culverts with Petaling Jaya Local Authority. Zeno supplied all the materials at the side but latter the contract was cancelled in June 1961. Zeno Ltd informed PJ authority that the materials at the side belong to them. In September 1961, the respondent discovered that the materials had been sold by Ahmad to the Lim Chui Lai for RM14,000 of which Ahmad had received RM7,000 as part payment. The court held that Ahmad was not the owner of the materials at the time he sold them to Lim Chui Lai. Therefore, Ahmad has no title to the goods and he cannot pass the title to Lim Chui Lai. Thus, Lim Chui Lai does not have the title upon the materials bought from Ahmad.
There are, however, exceptions to this nemo dat quod non habet rule. We look at these exceptions 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 from denying 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 to be precluded from denying the seller authority to sell to a third party. In that case, A agreed to sell a car to B and B was given possession of the car upon the tender of a cheque as payment. It was agreed that property in the car was not to pass until the price had been received. B then sold 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. On discovery of the events that had occurred, C sued A for conversion relying on the New Zealand equivalent to Section 27. C was successful in claiming that A was precluded by his conduct from 2
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 the conduct on which the estoppels is based. It has no application in respect of strangers to the conduct. Second exception of general rule can be seen in the term sale by mercantile agent. Under Section 27, Sale of Goods Act 1957 provides 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 valid as if he were expressly authorized by the owner of the goods to make the same. However, if the buyer has acted in good faith and at the time of the contract of sale had not received notice, that the seller has no authority to sell. A ‘mercantile agent’ has been defined in section 2 of the Sale of Goods Act 1957 as ‘a
mercantile agent having in the customary course of business as such agent authority either to sell goods, or to transfer goods for the purpose of sale, or to buy goods ,or raise money on the security of goods’. Examples of a mercantile agent would be a second-hand, automobiles
dealer, a broker, or an auctioneer. In English case, Folkes v King , Folkes left his car with a mercantile agent and told him not to sell it below a certain price. The agent sold the car for less than the minimum price to king who purchased the car in good faith and for valuable consideration, without any notice of any fraud. The agent then disappears with the money. Folkes sued to recover his car from King. The issue was whether king received good titles. Held that, as the mercantile agent was in a possession of the car with the consent of the owner for the purpose of sale, and as the sale been in the ordinary course of th e agent’s business, the purchaser received a good title. Folkes therefore, could recover the car from King. The following illustrates the operation of the provision to section 27, Sale of Goods Act 1957, Mimi hands over her car and registration book to her boyfriend Kok Beng, a second- hand dealer car, for safekeeping. Kok Beng sells Mimi’s car to Ali who buys in good faith, without knowledge or notice of Kok Beng’s lack of authority. Ali obtains title to the car.
Next is sale by one of joint owners. Goods may be owned by more than one person. Under Section 28 of Sale of Goods Act 1957, provides that 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 is transfer to any person who buys them from such joint owner in good faith and has not at the time of the contract of sale notice that seller has no authority to sell.
The following can be illustrated in the case Tom, Dick and Harry jointly owned a microwave oven. Tom was allowed to keep the oven and to cook with it since Dick and Harry did not know how to cook. Tom, without Dick and Harry’s permission, sold the oven to Nancy who did not know about Tom’s lack of au thority. Nancy would acquire acquire a good title to the oven.
Under Section 29 of Sale of Good Act 1957, provides that where the seller of goods has obtained possession thereof under a contract voidable under Section 19 or 20 of the Contracts Act 1950 (Revised 1974), but the contract has not been rescinded at the time of the sale, the buyer acquires a goods titles to the goods provided he buys them in good faith and without notice of the seller’s defect of title.
The consent of the original owner is caused by coercion, fraud misrepresentation or undue influence is voidable under Section 19 or 20 of the Contract Act 1950. An example of the operation of section 29 of Sale of Goods Act, 1957 is when Bobby obtains goods from Cathy by coercion and sells them to Doris who buys them innocently. At that time Doris buy the goods, Cathy has not rescinded the contract made with Bobby. Doris obtains title to the goods. Under Section 30(1) of Sale of Goods Sale Act 1957, provides that if a seller 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 goods or documents of title under any sale, pledge or other disposition thereof to any person receiving the same same in good faith faith and without notice of the previous sale shall have the same effect as if the person making the delivery or transfer were expressly authorized by the owner of the goods to make the same. To put in simply, the effect of section 30(1) of Sale of Goods Act 1957, stated that, if a seller resells to a second buyer the goods sold by him previously to the first buyer, the second buyer will obtain good without notice of the previous sale shall have the same effect as if the person making the delivery or transfer were expressly authorized by the owner of the goods to make the same.
In other words, if a seller continuous in possession of the goods or holds documents of title after a sale, and then he or she (or a mercantile agent acting for him or her) transfer the goods or the document of title to a third party, who buys them in good faith and without knowledge of the previous sale, the second sale is considered as good. It is assumed that the owner authorized it. This can be illustrated in the, Pacific Motor Auctions Pty Ltd v Motor Credits (Hire Finance) Ltd (1965). As the fact, a car dealer entered into a display agreement with Motor Credits. Under the agreement, cars bought by the dealer were sold to the finance company for 90% of their purchase price. The dealer retained possession for display purposes. When the dealer got into the financial difficulty, the finance company cancelled its agreement with him. The same day as its authority was withdrawn; the dealer sold all his stock to Pacific Motor Auctions. Pacific Motor Auctions was unaware of the withdrawal of the car dealer’s authority and the car dealer signed a declaration stating that all of its stock was unencumbered and was its sole property. The issue was whether the finance company can successfully sue Pacific Motor Auctions for the return of the cars. As the held, Pacific Motor Auctions had title to the cars as they bought them in good faith and without notice of the sale from a seller who had continued in possession of the goods after the sale. Last exception is a sale by a buyer in possession. Based on Section 30(2), Sales of Goods Act 1957 provides that if a buyer, 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 the documents of title under any sale, pledge or 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 shall have effect as if such lien or right di d not exist. In other words, if a buyer, having bought or agreed to buy goods, obtain possession of the goods or the document of titles with the consent of the seller, he can pass a good title to a subsequent buyer acting in good faith, even if under the first transaction he has not obtained a good title.
This is illustrated in Newtons of Wembley Ltd v Williams . The facts are the plaintiffs sold a car to A who paid by cheque. Although he was given possession, it was agreed that the property would not pass until the cheque was honoured. The cheque was dishonoured but A had resold the car to B who bought it without knowledge of the position. B resold it to the defendant. The plaintiffs tried to recover the car from him. him. The court held that, A, the original buyer, was was in possession with the consent of the owner. Hence, he could pass a good title to B, who in turn transferred it to the defendant. The defendant was, therefore, entitled to keep the car.
