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Nemo dat

Previous: Consensual passing of chattels

The basic rule

Nemo dat, or more fully nemo dat quod non habet, is Latin, and can be translated as “you can’t give what you don’t have”. This maxim stands when trading property in goods. If a person doesn’t have good title to goods, they cannot sell that title, and both the seller and purchaser will be liable in conversion. This maxim should be balanced with the rights of a ban fide purchaser, however. According to Bishopsgate Motor Finance Corp v Transport Brakes [1949], a bona fide purchaser ought to get good title from a person without such a title. And although not authority, Lickbarrow v Mason (1787) suggests that whoever enables a fraud (which doesn’t transfer good title) should stand the cost of that fraud.

Today, the nemo dat maxim has been codified in section 21 of the Sale of Goods Act 1979 (SGA), stating that:

“Subject to this 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 phrase, “subject to this act”, is of particular importance here, as there are currently 7 exceptions to this basic rule, each of which will now be discussed in turn.

Exception 1 – sale by agent with apparent authority

Section 21 itself provides this exception in the words “authority or consent”. Where an agent (with or without actual authority) sells his principal’s goods with apparent authority or his principal’s consent, he may pass good title to the purchaser.

  • Jerome v Bentley & Co [1952] – an agent sold his principal’s ring to a ban fide purchaser for £175, where it was worth at least £500. No apparent authority was found, and so the principal could recover from the purchaser. The purchaser did not know the agent; the ring was clearly too cheap, and the purchaser should and could have confirmed that the agent had authority.

Exception 2 – estoppel

Also stemming from s 21 SGA is the estoppel exception. Where a person represents authority to sell, he may be estopped from later denying this authority, passing good title.

  • Henderson & Co v Williams [1895] – A warehouseman was estopped from denying a bona fide purchaser’s title after he attorned sugar to the purchaser then refused to deliver (after he worked out that his bailor was a fraudster)
  • Eastern Distributors Ltd v Goldring [1957] – The owner of a van was estopped from denying the title of a hire-purchase company (to whom he sold his van) when he subsequently sold the van onto a bona fide purchaser after signing representative forms in favour of the company. The hire-purchase company was entitled to recover from from the purchaser.
  • Farquarson Bros & Co v King & Co [1902] – An agent could not pass good title to goods where he didn’t sell to one of his authorised customers, instead selling to himself (as principal) and then to a bona fide purchaser

Estoppel by conduct

Unless conduct constitutes a representation of title, conduct will not estop a seller from denying that he has passed good title. In Central Newbury Car Auctions v Unity Finance [1957], leaving a log book in a car as it was acquired by a rogue (who sold it fraudulently to a hire-purchase company) and sold on to a bona fide purchaser, did not represent good title to that car.

Estoppel by negligence

There is good obiter authority from Central Newbury Car Auctions v Unity Finance [1957] that as a duty cannot be owed to the whole world, a title to goods cannot be lost through negligence.

  • Mercantile Credit Co v Hamblin [1965] – duty owed to hire-purchase company when left signed (blank) hire-purchase forms with a dealer, who executed them but retained the money paid by the hire-purchase company. But no breach of duty as reputable dealer.
  • Moorgate Mercantile Credit Co v Twitchings [1997] – no duty to register hire-purchase, even extreme carelessness will not destroy ownership
  • Chatfields-Martin Walter Ltd v Lombard North Central [2014] – HPI positive, received cheque to pay off, HPI cleared, confirmation from seller, representation estopped denial of buyer’s title when cheque bounced

Exception 3 – voidable title, good faith, no notice

Section 23 SGA provides that:

“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 to the goods, provided he buys them in good faith and without notice of the seller’s defect of title.”

It should be noted that, as illustrated by Cundy v Lindsay (1878), a mistake of identity will void a contract of sale. Only a voidable agreement which has not yet been voided may pass good title. There are two exceptions to this rule evidenced by case law.

Firstly, where a non-existent person is impersonated, title may pass, according to Kings Norton Metal v Elridge, Merret & Co (1897). Secondly, where a person is impersonated face-to-face title will only be voidable, according to Lewis v Averay [1972], where a famous actor was impersonated.

In Hudson v Shogun Finance [2004], the House of Lords refused to reverse Cundy v Lindsay (1878), where a rogue used a fake ID to obtain hire-purchase over a car. The minority in this case said that a private (bona fide) purchaser from the rogue could do very little to establish whether the rgoue had good title, suggesting that a mistake to identity should render a contract always voidable, and not automatically void. In Car & Universal Finance v Caldwell [1965], notifying the police and the AA that a car had been stolen successfully rescinded a contract (voiding it) before a bona fide purchaser purchased it, making it recoverable. Whitehorn Bros v Davidson [1911] states that the burden is on the owner of property to show that its bona fide purchaser did not act in good faith.

Exception 4 – mercantile agency

S 21(2)(a) SGA states that the SGA will not affect the provisions in the Factors Act 1889 (FA). Section 1 FA defines a mercantile agent as an:

“agent having in the customary course of his business as such agent authority either 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”

Section 2 FA then goes on to state that where a mercantile agent in possession of goods sells, pledges or otherwise disposes of them, that disposition will be valid if the purchaser acts in good faith and without notice of a lack of authority of the mercantile agent.

  • Lowther v Harris [1927] – an antiques dealer acting as an agent was classed as a mercantile agent as he usually traded in antiques (in the customary course of his business)
  • Staffs Motor Guarantee Ltd v British Wagon Co [1934] – where the lessee in a leaseback agreement concerning a lorry sub-leased the lorry, the original lessor could recover from the sub-lessee as the lessee was not acting in the capacity of a mercantile agent when he leased the lorry
  • Cole v North Western Bank (1874) – an auctioneer was not in the position of a mercantile agent when he sold furniture from his rented house
  • Oppenheimer v Attenborough [1908] – defined the ‘ordinary course of business’ of a mercantile agent as within business, hours in a proper work place. A diamond dealer’s pledge was unusual, but he was still classed as a mercantile agent, passing good title.

Exception 5 – seller in possession

S 24 SGA provides that where a person (or his mercantile agents) sells goods retaining possession, then sells them again and delivers them to the second buyer, that second buyer will obtain good title to those goods if he did not have notice of the first sale.

  • Johnson v Credit Lyonnais (1877) – before s 24 was enacted, the law was the opposite, finding that the first buyer could recover from the second buyer
  • Pacific Motor Auctions v Motor Credits [1965] – under a floorplan agreement, Motordom sold but retained possession of cars to Motor Credits, to sell them as agents of Motor Credits. Motordom then used the cars as securities with Pacific Motor Auctions. Pacific were allowed to keep the cars (enforcing their securities) as Motordom, even though an agent, was a seller in possession
  • Mitchell v Jones (1905) – possession needs to be continuous for this exception to apply. A horse’s temporary delivery prevented the exception from operating

Exception 6 – buyer in possession

S 25 SGA provides that where a person has purchased or agreed to purchase goods, and is in possession of them, that buyer can pass good title to the goods provided that his (second) buyer acts in good faith and without notice of the rights of the original seller.

  • Lee v Butler [1893] – as a conditional sale agreement is an agreement to sell, the purchaser in possession could validly sell on the furniture with outstanding payments not made. However, the agreement was classed as a hire-purchase agreement, preventing this exception from applying
  • Four Point Garage v Carter [1985] – constructive delivery to a buyer is enough for this exception to apply. The original seller delivered goods to who he thought was his buyer’s hirer. In fact, he delivered goods to a second purchaser. It was said that the goods were constructively delivered to the first buyer
  • The Saetta [1993] – possession taken of a ship by its owner after charterparty breach. Claimants supplied oil to ship, retaining title until the oil was paid for. Claimants entitled to oil as delivery of oil was not voluntary, possession of the ship was forcibly taken
  • Angara Maritime v OceanConnect [2010] – oil supplied by claimants with title retention validly passed to owner of ship when used by buyer in possession (charterer) to set of debts owed under charterparty – voluntary delivery

It seems odd that s 25 references a person who has already purchased goods, as well as persons who have only agreed to purchase goods. Newtons of Wembley v Williams [1965] found a use for the phrase to allow a buyer in possession to validly trade a car having ‘already purchased’ the car with a cheque which subsequently bounced.

It should be noted that, according to National Employers’ Mutual General Insurance Association v Jones [1990] that the buyer in possession rule only applies where the original seller had good title. Where the original seller is a thief, the true owner may may a conversion claim against a bona fide purchaser in a chain such as this:

True owner -> thief (seller) -> buyer in possession -> bona fide purchaser

Forsythe International (UK) v Silver Shipping Co [1994] once again confirms that the buyer in possession must deliver goods to the bona fide purchaser, even if constructively.

As a final point, it should be noted that conditional sale agreements are only classed as agreements to sell in non-consumer transactions for the purposes of this exception.

Exception 7 – Hire Purchase Act 1964, s 27

The final exception to the nemo dat rule is contained in s 27 of the Hire Purchase Act 1964. It states that where a car bailed on hire-purchase terms to a bailee is sold by that bailee to a private purchaser, that private purchaser will obtain good title to the car if he does not have notice of the hire-purchase arrangement. According to VFS Financial Services v JF Plant Tyre Services [2013], money consideration must pass for this exception to apply: trading a truck to discharge a debt would not invoke the exception.

Reform

In 1994, the Department of Trade and Industry suggested combining the 7 exceptions into 1 exception, where if possession is given with consent, the person in possession can sell good title. Oliver Wendell-Homes suggests letting any loss lie where it falls, and Ashworth suggests that whoever gives possession to a fraudster is in the best position to insure it, therefore that person should bear the loss if a fraudster sells on the property in question.

Next: Attachment, alteration and mixing

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