As argued by Bradgate1, it is the essence of the capitalist economy that property should be freely alienable and be able to circulate within that economy. Disputes of title for immovable property arise comparatively rarely due to the static nature of land as well as the land title being recorded in documentary form. An inevitable consequence of this ease of alienability in a capitalist society permitting private ownership and trade is the inevitably arising disputes of title. Such disputes are more likely to arise in relation to movable property as the high volume of dealings in goods as well as the need for alienability of property to be as free as possible means that it is not possible to document the recording of title. In most cases the buyer must take it for granted buy the sellers mere possession of the goods that he holds title. The tension therefore in the law, as mooted by Denning LJ, is to reconcile the conflicting interests of the seller and the protection of the buyer.
Disputes may arise in a number of ways, for instance if Mr X steals Mr Y’s prized laptop and sells it on ebay to Mr Z (which is then discovered by Mr Y) who should keep the laptop? Another very common example of a dispute of title involves lease cars; If a lease company lease a car to Mr X who, after forging the logbook, sells the car to Mr A who is then entitled to keep the car? Conflicts may equally arise in the instance of a pawn shop for instance, where Mr A, in need of money, gives a violin (stolen) from Mr B to the pawnbroker, Mr C, as security for a loan.
In each of the above cases therefore there exists existing claims to title from a number of innocent parties who theoretically, pursuant to section 12 of the Sale of Goods Act 1979 (SOGA), may claim against the immediate seller for the price paid for the good and damages. In reality, taking into account the seller may often be an insolvent trader, or someone even more dubious such as a fraudster or a thief who has no doubt vanished it is unlikely that the price paid, let alone damages may be retrieved from the seller. When the purchase price cannot be retrieved from the immediate seller this means that in the end one party must always be the loser, the person who it was stolen from, the trader who honestly purchased the good or even an innocent consumer. It has been suggested, notably by Lord Denning in Ingram v Little, that any loss incurred should be equally divided between all the innocent parties, taking into account any fault or misprudence of either of the parties.
Who should keep the goods where a dispute of title arises is guaranteed by the common law concept of nemo dat quod non habet (no one [can] give what one does not have)as contained in section 21(1) of the SOGA 1979 which states “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”. section 21(1) therefore by implication includes a number of exceptions to the nemo dat quod non habet rule, namely those of agency (where the seller is acting in a procurist capacity or on the consent of the owner) and in such cases where the owner of the goods, by his conduct is precluded from denying the sellers authority to sell (estoppel)
The first exception to the rule, which comes in a number of varieties, is to be found in the last sentence of section 21(1) ‘unless the owner of the goods is by his conduct precluded from denying the seller’s authority to sell’. The common law rule of estoppel, as embodied in both the 1893 and 1979 SOGAs holds that where goods are sold by a person (without title) but the owner is by his conduct unable to deny the seller’s authority to sell, the effect is to transfer a real title to the buyer, rendering the owner unable to retrieve the goods from a bona fide purchaser for value without notice.
Estoppel arises where the owner of a good is, by virtue of his conduct precluded from denying the sellers authority to sell, for instance the owner of the good will be estopped in the case that he gives the impression that the seller is his agent with apparent authority to sell the good meaning the buyer will receive good title to the good. Such a case was for instance Eastern Distributors Ltd v Goldring. The claimant wished to purchase a Chrysler car from a car dealer but was unable to pay the deposit. The dealer then offered to buy the claimant’s Bedford van with the idea that both cars would then be sold back to the plaintiff on hire purchase terms. The claimant then foolishly signed the hire purchase agreement form in blank and forwarded the forms to the dealer who subsequently rejected the proposal in respect of the Chrysler but accepted the deal on the Bedford van in any case (which has remained in his possession), notwithstanding the fact that he could only deal with the Bedford in conjunction with the purchase of the Chrysler. The dealer subsequently sold the Bedford. It was held that the claimant’s signing of the hire purchase form in blank had the effect of estopping him from denying the dealer’s right to sell the van and therefore he was estopped from forcing the return of his van.
In Shaw and Another v Metropolitan Police Commissioner the claimant, wishing to sell his car, permitted a dealer who promised to sell the car to hold possession. The owner furthermore gave the dealer a transfer notification form signed in blank. The claimant had clearly made a representation to the dealer that he should sell the car and therefore would have been estopped from claiming return of the car under section 21 or 25 of the SOGA 1979 had the contract between the owner and the dealer not stated that title was only to pass at such time as the car was sold, thus rendering the contract a contract to sell the car as opposed to a contract of sale.
Another form of estoppel is estoppel by negligence which may arise in such a circumstance as where the owner negligently fails to disclose information to the buyer (in such case as he owes a duty of care), ergo, impliedly representing that the seller possesses the right to sell the goods. Case law therefore establishes that a person who has been careless with one of their possessions to the point of recklessness and leaves it unattended my recover it even from someone having purchased it in good faith.
In Central Newbury Car Auctions for instance the seller purchased a car by means of hire purchase from the owner. The owner subsequently allowed the seller to drive away with the car (including the log book) before the HP agreement was finalised. The log book crucially stated that the person named did not necessarily hold title to the car. The court held that by entrusting the car to the seller, together with a document which clearly stated that it did not prove legal ownership, the owners made no representation entitling the seller to deal with the car as his own therefore estopping them from asserting title. The decision in Central Newbury car auctions clearly goes against all sense of reason and meant, due to the car’s owner’s gross negligence that the buyer was left out of pocket.
As per the rules of Tort law negligence in order for there to be estoppel by negligence there first needs to be a duty of care. In Moorgate Mercantile a car dealer (who was a member of the central register in which 98% of all HP (hire purchase) agreements were recorded) was offered a car for sale by M. The dealer undertook a search of the central register and , having found it was not registered as being the subject of a HP agreement, brought the car. In fact the car was the subject of
A HP agreement but the finance company involved had failed to register the agreement. Subsequently, when M defaulted on HP installments, the finance company brought an action against the dealer for damages for conversion. The dealer, in his defence, claimed that the finance company, by failing to have registered the HP agreement with the central register, were estopped from claiming damages for conversion and that they were guilty of negligence in their failure to register the agreement. The House of Lords held, even though both the dealer and the finance company were members of the central register the dealer owed the finance company no duty of care meaning the finance company was estopped. A duty of care to avoid economic loss by negligence will only be imposed where there has been an assumption of responsibility by the defendant such as to create a special relationship between himself and the claimant. The Moorgate decision therefore signals that the law gives owners, reckless beyond measure with their property, a green light to inflict harmful conduct upon others.
A major exception to the nemo dat quod non habet rule is the role played by agents. section 22(1)(a) of the SOGA specifically makes clear that, as per common law rules, persons buying goods from the owner’s agent will receive good title to the good providing the transaction was within the agents actual or apparent authority. An agent will often be classified as a Mercantile agent, able to bind his principal by disposition of the principles property pursuant to the the Factors Act 1889 (expressly retained by S.21(2)(a)the SOGA 1979). A person dealing with a factor will more often then not therefore be unaware that he is in fact dealing with a Mercantile agent and not the owner of the goods.
According to section 1(1) of the Factors Act 1889 “the expression “mercantile agent”shall mean a mercantile 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”. People dealing with mercantile agents are protected due to the appearance given by the agent’s possession of the goods. In order for someone to be classed as mercantile agent a number of pre-requisites must be met.
The mercantile agent must be in possession of the goods or title to them. The buyer is therefore only protected by the rule in so far as the mercantile agent was in possession of the goods at the time of the sale- it is insufficient that the mercantile agent possessed the goods at some earlier time. It would though be sufficient in such case as the mercantile agent has possession of documents of the good’s title. The mercantile agent must furthermore have obtained permission from the owner to the creation of the situation where the agent appear to be the owner. The onus, according to s.1 of the Factors Act, lies though on the owner to prove the agent did not have permission.
The goods must furthermore have been in the agent’s possession for some capacity related to the sale of goods, as opposed to repair of the goods for instance. The sale of the goods must also be classed as being in the ordinary business of the mercantile agent, that is to say that the mercantile agent must act in the way that he would act if he was conducting an authorised transaction so that there is nothing to lead the buyer to the indication that anything is wrong. Whether the transaction was made in the course of ordinary business will though ultimately be a question of evidence. The buyer must furthermore have acted bona fides and although the onus to prove this rests on the buyer it is a subjective test. The effect of a transaction having been found to have been conducted by the mercantile agent pursuant to the Factors Act is that the owner is bound to pass good title to the goods whether he has authorised it or not meaning that any subsequent owners of the good may freely inherit good title. The act serves to aid the bona fide party by shifting any loss to the owner who, having agents to sell his goods, is presumably in a better position to absorb any losses and fairly should bear the risk of the mercantile agent’s dishonesty.
Another exception to the rule is with regards to the protection of sellers in possession. The SOGA, along with complementary provisions in the Factors Act designed to protect buyers who buy goods from people who no longer own or do not yet own the object of the transaction. Such instances may be for instance where Mr A sells goods to Mr B but retains the goods in lieu of payment so long as the purchase price is unpaid. If Mr A subsequently sells the goods whilst the title has already passed and the purchase price remains unpaid the third party will, under S.48(2) of the SOGA receive good title, in preference to Mr B.
If the seller remains in possession of the goods after being paid, he may, although having no statutory rights of resale under the SOGA pass good title to a third party (if the contract provides as such for instance in Shaw and Another v Metropolitan Police Commissioner (see above) where title did not pass until a condition was satisfied.) If the title to the goods has already passed under the first contract nemo dat quod non habet means that the first buyer has a stronger claim for title then the third party. section 24 of the SOGA however provides that a bona fide purchaser for value will take title over the first buyer. section 24 of the SOGA (which should be read in conjunction with the Factors Act) is though only applicable where the seller is still in possession which is defined under S.1(2) of the Factors Act as meaning that the goods are in the seller’s “actual custody or are held by any other person subject to his control or on his behalf. section 24 has therefore been construed to include such cases where goods are held on the seller’s behalf by a bailee. section 24 of the SOGA can be seen to work for the seller in so far as once he has sold a good he will only try to resell it at such time as payment for the goods are not forthcoming.
section 23 of the SOGA also provides a rather dubious distinction between void and voidable contracts. The section applies where for instance the buyer fraudulently receives goods from the seller (for instance by the means of a cheque subsequently dishonoured) and sells them on to a third party. In such cases the buyer is often a fraudster who is subsequently untraceable. In such case the third party will, providing that S.23 of the SOGA has been fulfilled, receive good title. The distinction between void and voidable is not always clear. In Ingram v Little for instance a car dealer accepted a cheque from a fraudster purporting to be “PGM Hutchinson”. The dealer checked the address against the real PGM Hutchinson’s address in the telephone directory and let the fraudster leave with the car. The cheque was subsequently found to be stolen. The car was subsequently ruled to be recoverable from the third party who had brought it as the original contract was void for mistake. Conversely in the seemingly indistinguishable case of Lewis v Averay where a fraudster purporting to be the actor Richard Green managed to buy a car with a cheque made out in the name of “R A Green” the contract was held to be voidable for misrepresentation but not void for mistake.
The final exception to the nemo dat quod non habet rule and arguably the most important given the number of cases concerning hire purchase agreements is section 25 of th SOGA which protects the third party should for instance a car in the possession of Mr A but with the title retained by Mr B (until full payment) be sold to Mr C. section 25 applies “where a person …(has)… bought or agreed to buy goods” from the seller. The exact definition of buy was subsequently clarified in the Fortright Finance Ltd v Carlisle Finance Ltd case where the court held simply that the distinction between sale and hire purchase is that with sale the purchase price must be paid in full. In order for S.25 to apply the goods must be in the buyer’s possession (whether actual or constructive) at the time that the object is sold to the third party. The third party will then, provided that he is acting bona fides attain good title. section 25 is therefore pretty similar to section 24 except for one subtle difference; under section 24 the sale of an object by the seller in possession will be de facto as if the sale of the goods had been authorised by the owner whereas under section 25 the seller will be treated akin to the mercantile agent of the owner. This would therefore mean that the seller, to be a mercantile agent should ideally operate through business premises 9am-5pm. When the seller is for instance a private individual selling a car through the local newspaper to make a quick profit is cannot be said for certain seller whether the third party will receive good title under section 25.
In conclusion the nemo dat quod non habet serves only to shift loss from one innocent party to another. Transfer of title depends upon factors completely unascertainable by the end buyer. The distinction between void and voidable contracts further leads to injustice with some, seemingly identical cases, leading to wildly different results.
- Adams, J. Atiyah, P. McQueen, H. (2005) The Sale of Goods. Pearson Education Limited: Harlow
- Battersby, G. (1991). The Sale of Stolen Goods: A Dilemma for the Law. The Modern Law Review, Vol. 54, No. 5 (Sep., 1991), pp. 752-757
- Brown, I. (1988). Case Comment: title to stolen goods. Law Quarterly Review. Pp 516-520
- Cheng, C J. Cheng, J. Schmitthoff, C M. (1988). Clive M. Schmitthoff’s Select Essays on International Trade Law. Martinus Nijhof publishers: Dordrecht.
- Rutherford, L A. Todd, I A. (1979). section 25(1) of the SOGA 1893: The reluctance to create a Mercantile agency. 1979Cambridge Law Journal 38(2), pp 346-360.
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