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This article is written by Ashpreet Kaur, IInd year student, B.B.A. LL.B, Symbiosis Law School, NOIDA. In this article, the author discusses transfer of title of goods, position of non-owner, exceptions and the effect of estoppel.

Position of non-owner

In a contract of sales ownership or title of goods are transferred from one person to another in exchange of money, the main motive behind the making of the contract is a transfer of rightful ownership and possession from a seller to a buyer, so this element lays down the groundwork for the making of a contract. According to a Latin maxim, Nemo dat quod non-habet which means that no one can transfer a better title than he himself has, only the owner of the goods can pass the lawful ownership or title of goods to the buyer. This principle is enshrined in Section 27 of The Sale of Goods Act, if the title of seller is defective and if this defective title is passed on to the buyer , then the buyer’s title would also be the same, and he will have no rights on goods despite the fact that he acted in good faith and paid the price.

In Cundy V Linsay,  the claimant received an order for sale of handkerchiefs from a person named Blenkarn, who signed in his name in a manner resembling “Blenkiron & Co.”- a reputed firm located at “123, Wood Street”. The purchaser further mentioned his address to be at “37, Wood Street, Cheapside”, to which the claimant sent the goods. Although no payment was made by Blenkarn, he sold the goods to a third person- the defendants.

Later, the claimants alleged that, as they sold the goods to Blenkarn under the mistaken assumption that they were selling it to Blenkiron & Co., there was no real consent to the contract of sale. Consequently, there was no valid transfer of title, which remained with the claimants, and accordingly, they sued the defendants for the conversion of goods.

Hence, the defendants, being in possession without a good title over such goods, were held liable for conversion.

For instance, Shivan stole a watch from Ruchi and sold that watch to Rishab. Since Shivan is not the owner of the watch consequently Rishab will not get a good title over the watch. This doctrine is known as “neuri dat quad non-habet” which means that no one can transfer or give which he himself does not possess.  

Exceptions

Nonetheless, there are certain exceptions to this rule under which a non-owner can convey a better title to the bona fide purchaser of goods for value.

Joint owner

According to Section 28, if more than one person has ownership rights in anything, and that thing is in the possession of co-owned with the prior approval of other co-owners, and co-owned sell that thing without consulting other co-owners, the buyer will not be deprived of complete ownership of that thing. But the transaction of sale and purchase should be in good faith from the buyer’s side and buyer have no idea that the seller has no authority to sell that thing.

For instance, Shreya, Vardhan and Anshika jointly purchased a BMW car, with the permission of Shreya and Vardhan, the car is in the possession of Anshika, who sold it at half the market price without asking Shreya and Vardhan. But the buyer Hina purchased the car in good faith, so she will get a good title over the goods.

Mercantile agent

When a mercantile agent has the possession of goods with the consent of the owner, and further resells the goods, the rightful title will pass on to the buyer if the buyer has purchased in good faith and have no knowledge that seller has no authority.

For instance, in the case of Folkes V King, A gave his car to B, who was his agent, with the special instruction not to sell the car below a certain price. B sold the car to C at a much lower price and kept the sales proceed with him. C had bought the car in good faith and had no knowledge of instruction given by A to B. the court held that A cannot get the car back from C and recognized the title of C to its ownership.

Mercantile agent as per Section 2 Clause 9 means that agent having an authority to sell or buy or consign goods and he must be trusted with goods and sell goods as a mercantile agent and not any other capacity.

In the case of Staff Motors Guarantee V British Wagon, Heap was a mercantile agent. Heap had took the lorry from defendants on hire-purchase basis after selling his lorry to the defendants. Thereafter, Heap falsely contended to the plaintiff that he was the owner of the goods and sold the lorry to the plaintiffs. He failed to pay the dues in the form of stipulated instalments. The defendants thereupon seized the lorry. The plaintiffs sued the defendants to recover back the lorry. They contended that the plaintiffs had purchased the lorry from a mercantile agent and, therefore, they had a good title. The Court held that Heap had taken the lorry from the defendants on hire-purchase basis. he was merely bailee of the lorry and not a mercantile agent and, therefore, the plaintiffs did not get a good title. Thus, their action to recover back the lorry failed.

Consent of the owner is a crucial element, it is fulfilled when true owner intentionally deposits goods in the hand of mercantile agent and it is immaterial that consent was obtained by fraud or misrepresentation or any other method which renders consent voidable Pearson V Rose And Young the plaintiff gave possession of his motor car to H., a motor car dealer and a mercantile agent within the Factors Act, 1889, s. 2(1), for the purpose of inviting offers to purchase it. By means of a trick H, induced the plaintiff to hand him the registration book relating to the car. Later the same day H., acting without the authority or knowledge of the plaintiff, sold the car and handed the registration book to the fourth party who acted in good faith without notice of any absence of authority. The fourth party subsequently sold the car to the third party, and the third party sold it to the defendants. In an action by the plaintiff against the defendants claiming damages for the conversion of the car. H. was unable to pass a good title to the fourth party. H. was unable to pass a good title to the fourth party.

Effect of estoppel

Estoppel comes from showing that the seller has the authority to sell. If by any act or conduct or words or declaration a person shows that ownership of goods rests with the seller or that person has an authority to sell goods, then, later on, he cannot claim that he is the sole owner of goods and the seller had no rights to sell the goods.

For instance, A, B and C were having a conversation, when, B offered A to buy a horse which A misrepresented as his horse but originally that horse belongs to C. at that time C did not say anything, even though he knew everything. Later on, when B sold the horse to A, C have no right to claim that horse back and A will get a valid title of the horse even though that horse does not belong to B.

Apart from this, estoppel by negligence is another kind of estoppel where the party in whose favour it operates is the victim of fraud of some third person facilitated by the careless breach duty of another party.

Unpaid seller

Clause 3 of Section 54 states that when an unpaid seller has exercised his right of lien or stoppage resells the goods, the buyer will acquire the rightful title of goods notwithstanding that no notice of resale has been given to the original buyer. This can be understood clearly by following cases:

Great Indian Peninsula v Hanmandas, the seller consigned the goods with the GIP Ry Co for transportation to the buyer. On the arrival at the destination, the company had delivered the goods to the buyer who had loaded them on his cart, but the cart had not yet left the railway compound when a telegram was received by the company to stop the goods. The company did not do so and were sued by the seller in damages. It was held that the transit had ended as soon as the goods were handed over to the buyer.

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In the case of Whitehead v. Anderson, a quantity of timber was consigned on board. When the ship arrived at the destination, the buyer went bankrupt. The buyer’s agent came to the board and told that he has come to take possession. The captain said that he will deliver only when the freight is paid. Before this could be done, the seller sent a notice to stop and asked to send the goods to be delivered to the agent of the seller. The court said that since the transit has not ended, the carrier was within his rights in returning the goods to the seller. The captain agreed to deliver the goods on a condition and if the condition is not fulfilled, the buyer does not acquire the constructive possession of goods.

In Grice V Richardson, the sellers had delivered a part of the three parcels of tea comprised in the sales, and they had not been paid for the part which remained with them. They were allowed to keep it till the payment of the price. Where, however, a part of goods delivered which show an agreement to waive the lien, the seller cannot the remainder.

Possession under voidable contract

As per Section 29, if seller obtains possession of goods under voidable contracts such as coercion, fraud, misrepresentation or undue influence, and sell those goods before the voidable contract is, the buyer will get a good title to the goods. If the goods are in possession under voidable contract, the seller needs to rescind that contract but before rescinding the contract if guilty party sell goods to another party who is not at fault and acted in good faith, then the real owner cannot claim the goods back because the buyer has rightful claim over the goods.

For instance, Anushka purchased a ring from Khalid, under good faith. But it turns out that Khalid had fraudulently obtained that ring from Reshma and contract is voidable at the potion of Reshma, but before the contract could be terminated Khalid sold that ring to Anushka. The court held that Anushka will get good title over the ring and Reshma cannot recover the ring.

There are two requirements to be fulfilled to claim this exception firstly, voidable contract, secondly, the contract should not be rescinded at the time of new contract.

The goods are obtained under a voidable contract rather than void or void ab initio. If the contact of possession of goods was void or void ab intio the buyer will not get any rightful possession because the seller cannot transfer a better title than he has.

In case of Phillips V Brooks, Phillips was a jeweler. A person purchased a ring from him with a cheque and signed his name as “Sir George Bullough”. He also provided this person’s address. Phillips knew the person named Bullough and knew he lived at the mentioned address. So he allowed him to take the ring before the cheque cleared. The person turned out to be a  fraudster and the cheque dishonored. The ring was pledged to Brooks Ltd. by the fraudster and Brooks Ltd. paid for it with a bona fide intent. Later, a civil action was brought by Phillips against Brooks Ltd to recover the ring or its value. The claim made by philips was allowed. Then there should be a contract of sale instead of an agreement to the sale of future goods or contingent goods.

If the contract is rescinded at the time of further selling the goods buyer will not get a rightful title of goods. Usually, the contract is rescinded by giving notice to the guilty party but if there is no way to contact that party the contract is considered as rescinded by doing whatever the owner can do to regain possession.

Car Universal Finance V Cladwell, in this case on January 12, Mr Caldwell sold his Jaguar car to a rogue. Norris paid £10 cash deposit and left another car as security and gave a cheque for £965. Mr Caldwell went to cash the cheque  the following day and found that it was fraudulent and the car left because the deposit turned out to be stolen. Mr Caldwell reported the matter to the police. He used his best endeavours to co-operate with the police to find Norris. He did so in order to rescind the contract of sale. He also tried to locate the car by  contacting the Automobile Association. Since the contract was induced by fraudulent misrepresentation, Norris had acquired a voidable title to the car. Norris sold the car on to a third party on 15th Jan. The question for the court was whether the actions taken by Mr Caldwell were sufficient to avoid the contract. It was held by the court that Mr Caldwell had successfully rescinded the contract. He no longer wished to be bound by the contract and thus took all steps possible to demonstrate his contentions. Just because his endeavours failed to locate Norris,  he should not be prejudiced.

The burden of proof lies on the person who is challenging the validity of the transaction, that transaction is not under good faith and without notice.

Seller/buyer in possession after/before the sale

Seller

According to Section 30 Clause 1 of The Sale of Goods Act, when seller has sold goods to buyer but the possession of goods remain with him, if during that possession seller sold that goods to someone else and that person has purchased goods in good faith and without notice of prior sales, he would have good title to them. It is essential that the seller should be in possession of goods as a seller not as an altered capacity like bailee.

For example, Aviral purchased a car from Vansh but the possession is still with Vansh, in the Vansh sold that car to Danny because he was getting a higher price. Herein, Danny does not know anything about previous sale and purchases the car in good faith. In this situation, Danny will get good title over the car and Aviral cannot claim that car back from Danny.

However, personal possession of goods is not important, goods should be at his disposal. In the case of City Fur Manufacturing V Fureenbond, Mr. H purchased a quantity of skins from a broker. Since the payment was pending, the goods remained in the broker’s warehouse. Mr. H sold them to the plaintiffs. The plaintiff gave him a bill of exchange to enable him to pay the broker and arrange delivery to the plaintiffs. Instead of arranging the same to same for the plaintiff, Mr. H pledged the goods with the defendants. The court held that the defendants have acquired a good title.

Buyer

According to Section 30 Clause 2 of The Sale of Goods Act, if a buyer resells the goods that he has obtained with the consent of the seller but the actual sales have not yet been made, if the buyer to whom goods have been resold have purchased the goods in good faith and without notice, he gets a rightful possession and ownership.

For example, Aviral took a car from Vansh with a promise that he will pay monthly instalments of Rs 10000/- for the next 15 months if wants to purchase the car or else he can pay the same amount as hiring charges. After a few instalments, Aviral sold the car to Danny. In this case, Vansh can recover the car from Danny because Aviral had neither purchased the car not have agreed to purchase the car in the future.

In the case of Marten V Whales, Marten and Theaker agreed that Marten will buy land from Theaker and in return Theaker will buy his car. There was a condition attached to it that  Marten‟s solicitors approved the Theaker‟s title to land. The car’s possession was handed over to Theaker. Theaker further sold the car to Whale. Whale bought that car in good faith and without notice of Marten‟s rights. The sale was not carried out as Marten‟s solicitors refused to approve Theaker‟s title to land. Marten sued Whale for possession of the car. The court held that Theaker, who sold the car, had agreed to buy the same and, therefore, Whale acquired a good title to the same.

It is important that the original seller should have rightful ownership of goods, if he does have the right to sell goods the subsequent buyer will gata good title. National Employers Mutual General Insurance V Jones it was held that for the purposes of the Sale of Goods Act 1979 (UK) a thief could not be the seller. In that case a car was stolen and sold five times. The fifth buyer claimed that the fourth buyer was in possession with the consent of the seller, the third buyer. In the Gerson scenario it was the onetime owner, Gerson, who had lost title by operation of the Act. It can be argued that neither the thief nor the disposed owner should be treated as the seller who may consent to the possession of the buyer in possession since this would push the exceptions to the nemo dat rule too far.

Conclusion

The contract of sale is entered into, for the purpose of transferring the property from seller to buyer, that is why it is important to determine the time of passing the property from seller to buyer. Generally the risk passes with the property, when the goods are lost or damaged the burden of loss will be borne by the owner of the goods not the person who is holding the possession at the time of loss or damage. If the goods are damaged by third party only the owner can take action against third party.

In the development of this kind of law, there are two principles which forms the basis. First is the protection of property and the second is protection of commercial transaction. The protection of property means that no one can give better title than he himself possesses which is enshrined in legal maxim “nemo dat quod non habet” where as protection of commercial transaction indicates that person who purchases anything in good faith and for value without notice should get a good title. The main purpose of transferring the right of ownership not merely the possession of goods.

But the main question arises is whether a person who is not the owner of the goods can transfer the possession and ownership to goods to someone else? This answer to this question is explained above.

References

  1. Law of Sale of Goods Act, Avtar Singh.
  2. Business laws, CA Foundation.
  3. Business laws, Avtar Singh.

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