Title Conflicts in Relation to Goods
The general position is that a person cannot give title unless he has title; only the “true” owner may dispose of the goods. This is expressed in the Latin phrase Nemo Dat Quod Non Habet; no person may give what he does not have. There are a number of long-established exceptions to the so-called “Nemo Dat” rule.
A person in possession of goods may assert title to them against all third parties, except those with a better title to the goods concerned. This reflects the principle of relativity in property law, which applies to both land/buildings and goods. Conflicts regarding the ownership of goods and related issues are discussed in other articles. This article deals with certain exceptions to the general principles applicable to the sale and transfer of goods.
There are a number of cases in which a transfer made by a person other than the owner, may pass title, which holds good against all parties, including the “true” owner. Most of these instances are provided for by statute. Some exceptions are apparent exceptions only, being based on agency principles which deem a person to be the agent of another in particular circumstances.
Several of the exceptions to the Nemo Dat Rule are based on estoppel or estoppel like circumstances. Estoppel is the principle by which a person with title or authority, who has held out another as having an entitlement and has let another act as if he had title without objection, may be precluded from thereafter objecting, where a third-party has acted to his detriment on foot of the representation.
Estoppel may arise where a person by his words or conduct, willfully causes another to believe in the existence of a state of affairs and induces him to act on that belief, so as to alter his previous position to his detriment. It is based on the more general notion, that whenever one of two innocent persons must suffer by acts of a third, he who has enabled such third person to occasion the loss, should sustain it.
Estoppel may arise in a case where a person facilitates another’s fraud. This may occur in the context of instruments, where the drawer signs and fills it out in blank or partly incomplete, thereby facilitating a forger or fraudulent person to complete the payee details.
In the context of a cheque, the liability of the customer turns on whether he owes the bank and others a duty to use care in drawing cheques. Where there is no duty, his mere negligence (in fact but not in law) may not suffice, and in this case, estoppel does not place a higher duty, than his duty of care.
A person may represent verbally, in writing or by conduct that another is the owner of his goods with a right to sell them. If he does so, then he may be estopped from asserting his title against a buyer who has been so misled, to the extent that it would be inequitable for him to do so. It is not enough to allow another to have possession of the goods. The true owner must do something that induces the third party to believe on reasonable grounds, that the possessor has title.
Where an agent sells in excess of his authority, the general principle of agency (based on estoppel like principles) may protect the third-party and give the agent power of sale. There may be an ostensible / apparent authority, where the agent has been held out as such. Apparent authority will usually exist in relation to matters within the scope of the agent’s usual authority.
The principle of estoppel is also reflected to some extent in the statutory exceptions in the Factors Act and Sale of Goods Act. The Acts codified the existing principles of law and equity. It is said however in this context, that the exceptions are based on commercial convenience rather than principles of estoppel.
Agency and Holding Out I
A sale by an agent on behalf of his principal in the course of his agency will bind the principal. Therefore, if the principal has a good title, the title will pass to the buyer. Agency may apply, notwithstanding that the apparent agent has no actual authority. The owner will be bound by the acts of a person who is held out and given the appearance of being an agent, by the owner.
Even, where he is deceived into holding out the other as owner, he will generally be bound.
A person may entrust goods to another to allow them to be dealt with, mortgaged or sold on his behalf. In this case, the owner will be bound notwithstanding that the person is not necessarily acting as his agent. The circumstances may imply a right of sale or a right to create security which binds the owner. The rights may be contractually provided. A person holding goods may have the power of sale, to enforce a lien, mortgage or another right.
Agency and Holding Out II
Where the true owner by his actions or omissions, leads third parties to believe that another has authority to sell, then he may be “estopped” (prevented) from denying the authority, notwithstanding that the other may not, in fact, have the requisite authority. The other person need not be held out as an agent. He may be held out as a person who simply has authority to sell or is held out or represented as the true owner.
The representation or holding out may take place by words or conduct. If a reasonable third party would interpret the owner’s words or conduct as holding out another as having authority to make a sale, then the true owner may not deny this authority. The disposition of property must be in accordance with the apparent authority.
This general principle is reflected in the Sale of Goods Act, which codified the pre-existing common law. Under that Act, where goods are sold by a person who is not the owner, the buyer does not obtain title unless the owner of his conduct is precluded from denying the seller’s authority to sell.
Insufficient Holding Out
An employee making a disposition of property will generally be presumed to do so in the ordinary course of his employment, duties, and functions. What is or is not within his authority, will normally be apparent from his position. The employee’s position (in common with other agents) will generally indicate the scope of his authority.
The mere giving of possession of goods to a third party is not normally sufficient to hold him out as having ownership or authority to sell. If, however, title deeds are delivered to that other, this may be sufficient. Title deeds do not exist in relation to most types of goods. In some cases, particular documents such as warehouse receipts may be treated as if they represented title to the goods so that their delivery (in the legal sense) is equivalent to the delivery of the goods.
The person who holds out another to sell goods may revoke that consent. If, however, third parties have dealt with that other on the basis of his office, role or apparent authority, notice must usually be given of the revocation of authority, where there is any doubt.
Sale of Goods Act Exceptions
The Sale of Goods Act, provides that where goods are sold by a person who is not the owner thereof, 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 by his conduct, is precluded from denying the seller’s authority to sell.
The legislation confirms certain exceptions to the general principle including
- the provisions of the Factors Acts, or any enactment enabling the apparent owner of goods to dispose of them as if he were the true owner thereof;
- the validity of any contract of sale under any special common law or statutory power of sale or under the order of a court of competent jurisdiction.
Seller in Possession I
Where a person, having sold goods continues in possession of the goods or their documents of title, the delivery or transfer by that person or by a mercantile agent acting for him, of the goods or their documents of title under a sale, pledge or other disposition to a person receiving the same in good faith without notice of the sale, is effective as against the buyer / owner. The transaction may be a sale, mortgage or other transfer. The transferee or mortgagee must act in good faith without knowledge of the sale.
The provision applies where property passes under the Sale of Goods Act or by agreement in advance of the transfer of possession. The default Sale of Goods Act presumption is that property passes on the making of the contract. The possession must be continuous. If the seller delivers possession to the buyer and then retakes it, the rule does not apply.
Seller in Possession II
The definition of a seller in possession covers sales, pledges and other transfers by a person who had sold the goods but has remained in possession of them. A buyer from that party or from a mercantile agent who acts for him obtains good title provided that he takes delivery of the goods or their documents of title, in good faith without notice of the previous sale.
The provisions do not apply once the buyer has obtained possession. This is so, notwithstanding, for example, that the goods are returned for repair or warranty work.
A seller may remain in possession in another capacity, such as through an agent. They may be in his actual possession or in his control, such where they are in the custody of someone under this control. I
It has been held that a transfer to a finance company, is within the provision where the finance company is the seller’s agent in the circumstances.An ordinary sale and leaseback has been held to be within the exception.
On one view, the seller must remain in continuous possession of the goods. If there is a substantial break, for instance, after he delivers the goods, he obtains them back, then the provision would not appear to apply. However, on another view, the exception covers cases where the goods or title documents to them come back into the seller’s possession, after the date of contract.
Buyer in Possession I
A disposition by a buyer in possession of goods without property or title is similarly protected. The provision does not apply where a person who has hired goods, sells them.
Where a person has either bought or agreed to buy goods and obtains possession of them or other documents or title with the consent of the seller, the delivery or transfer by that person or by a mercantile agent on his behalf, of the goods or title documents with them, whether under a sale, pledge or other disposition, to a person acting in good faith without notice of any liens or rights of the original seller, is deemed effective as a sale by a mercantile agent with the consent of the owner.
The transferee must buy or agree to buy goods. As with a seller in possession, an actual transfer/delivery is required. It is not enough that he simply agrees to sell them.
In the case of both of the above provisions, the question arises as to whether the buyer or seller is acting on behalf of the true owner or on behalf of the another. Notwithstanding the wording of the legislation, the courts have taken the view that the transferee can have no better title than the seller who lets his buyer have possession or the buyer who lets his seller retain possession.
Buyers in Possession II
Where a buyer in possession of goods or their documents of title with the consent of the seller before the transfer of ownership, sells pledges or disposes of the goods, a buyer of the goods, who acts in good faith without notice, takes good title. Where a mercantile agent is, with consent of the owner in possession of goods or the documents of title to goods, any sale, pledge or other disposition of the goods made by him when acting in the ordinary course of a business as a mercantile agent, is valid as if it was authorised by the owner of the goods.
Where there is a hire agreement with an option to purchase, the person does not purchase or agree to purchase, so the exception does not apply. This position protects hire purchase arrangements. In contrast, a conditional sale contract may be covered by the exception, as there is an agreement to buy.
The buyer must be in possession of the goods with the seller’s consent. The exception covers the later sale, pledge or other transfer of the goods, following an initial sale. The buyer must act in good faith and without notice that the person making the disposition lacks the requisite authority. The consent must not have been obtained by fraud or dishonesty.
Where goods are bought and sold on “sale or return” or equivalent terms, the ownership of the goods passes when the buyer signifies acceptance or approval or does some act adopting the transaction.
There is uncertainty as to the extent of communication that must be made to rescind and avoid a contract. Generally, it seems that it must be communicated where possible, in order to be effective. The communication must be to the other party unless he has acted dishonestly.
Mercantile Agent I
An exception to “Nemo dat” applies in respect of factors and mercantile agents. A factor is a largely redundant term for a commercial agent who handles goods in the course of seeking a buyer or seller for them. The Factors Act exception applies to sales by a mercantile agent, (the marginally more modern expression)
Where a “mercantile agent” has possession of goods or title documents of the goods with the consent of the owner, a sale, pledge or other transfer of the goods made by him in the ordinary course of his business as such, is valid. This is provided that the buyer or transferee acted in good faith and was not, at that time, aware of the absence of authority.
A “mercantile” agent is an agent having in the ordinary course of his business, authority to sell the goods, to consign them for sale, to buy the goods or raise money on the security of the goods.
A mercantile agent must act as agent, and not on his own behalf. His agency must allow him to dispose of the goods and grant them by way of security. It is sufficient that his business involves either the sale or mortgaging of the goods for commercial return.
Mercantile Agent II
The Factors Act applies to a mercantile agent, having in the customary / ordinary course of his business as such agent, authority either to sell goods or consign goods for the purpose of sale or to buy goods or raise money on the security of goods. It does not include an employee or caretaker who has possession of the goods for carriage, safe custody or otherwise as an independent contractor. A retailer is not a mercantile agent as such but may have authority on behalf of its principal in particular cases.
Where a mercantile agent is, with the consent of the owner, in possession of goods or of the documents of title to the goods, any sale, pledge, or other disposition of the goods, made by him when acting in the ordinary course of business of a mercantile agent, are as valid as if he were expressly authorised by the owner of the goods to make the same. This is provided that the person taking under the disposition acts in good faith. He must not at the time of the disposition have notice that the person making the disposition has no authority to make the same.
The onus is on the true owner to prove lack of good faith in the case of market overt sales. In the case of purchases from buyers’ or sellers’ in possession and factors, it appears that the onus is on the third party.
Whether or not the purchase is in good faith and with notice is a matter of fact. A person may have knowledge of a fact either by direct communication or by being aware of circumstances which must lead a reasonable man employing his mind to them coming to the conclusion that this is so. Knowledge acquired in either of these ways is enough to exclude the party from the protections of the legislation