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5â The nemo dat exceptions |
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until they have been delivered to the buyer. This certainly accords with what the |
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average consumer would expect the position to be. Further, it means actual pos- |
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session, given that section 32(4) of the 1979 Act, which deals with the delivery |
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of goods to a carrier, makes clear that where the seller is authorised or required |
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to send the goods to a consumer buyer, his delivery of those goods to a carrier |
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does not constitute delivery to the buyer. The position of the consumer will be |
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strengthened further by the passage of the Consumer Rights Directive,43 which, |
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as mentioned previously, stipulates that the risk of loss or damage to the goods |
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will only pass to the consumer when he or a third party, other than the car- |
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rier and indicated by the consumer, acquires material possession of the goods.44 |
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The Directive is one of full harmonisation and thus will apply to all consumer |
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purchases made within the European Union, a distinct improvement on the |
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previous situation in which the Directives that it replaces were of minimum |
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harmonisation and thus allowed differing standards across the EU. Thus, fol- |
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lowing the passage of the Directive, a consumer will be able to purchase from |
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anywhere in the EU and know that the same rules about the passage of risk |
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will apply. Hence, whether the consumer buyer purchases goods in a shop with |
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delivery to follow, or over the phone or by Internet from anywhere in the EU, |
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the risk in them will not pass to him despite any passage of title until the buyer |
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or his nominee has physical possession of them. Until the time of delivery, all |
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such goods will remain at the seller’s risk and thus it is he who should insure |
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them during this period. |
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Q7 Analyse the relationship between the passage of property and the passage |
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of risk. |
5â The nemo dat exceptions
In addition to those situations in which the seller and buyer agree when property is to pass or it has passed under the section 18 rules, there are a number of situations in which property will pass to an innocent buyer acting in good faith, which entitles him to legal ownership of the goods even against the original owner. These are the so-called exceptions to the so-called nemo dat principle by which a seller cannot pass better title than he himself possesses, and are largely, though not exclusively, to be found in the Sale of Goods Act 1979 itself. The basic philosophy upholds the sanctity of property and the rights of the original owner by specifying in section 21 that where goods are sold by a person who is not their owner, and who does not sell them with the authority or consent of the owner, then the buyer acquires no better title to them than the seller had. This preserves the basic ‘nemo dat quod not habet’ tenet that you cannot give what you do not have and, as such, protects the position of the original owner. Nonetheless, there
43Consumer Rights Directive, above n. 3.
44Ibid. Art. 20.
128 The passage of title, delivery and payment
are some statutory exceptions to this principle which allow an innocent third party buying in good faith with no knowledge of the rights of the original owner to acquire good title to the goods even against the original owner.
The basic policy underlying these exceptions seems to be that, when you have two innocent parties with a claim to ownership of particular goods, the innocent buyer should be protected provided certain criteria are satisfied. This is not necessarily as unfair to the original owner as might appear at first sight, especially if he has allowed the situation to arise in which a seller, whether innocently or fraudulently, was able to sell goods belonging to the original owner to an innocent third party. Without this protection, the innocent third party could be liable to the original owner in conversion for wrongly interfering with the right of the owner to deal with his property as he chooses.
Q8 Analyse the basic premise behind the nemo dat exceptions which allow an innocent buyer to defeat the ownership rights of the original owner.
(a)â Estoppel
Many of the nemo dat exceptions emanate from normal trading situations of agency, the conduct of the original owner, and the seller or buyer of goods remaining in possession of them after a sale has been concluded. Thus, they might be viewed as mere interpretations of normal trading situations seen from the perspective of the innocent third party buyer acting innocently in good faith. Section 21 itself contains an exception based in agency concepts, stipulating that the basic nemo dat tenet can be set aside where the owner of the goods is precluded by his conduct from denying that the seller had his authority to sell the goods; or alternatively, that the conduct of the owner had allowed the third party to think that the seller was himself the owner. Where this has arisen the owner is estopped from denying the right of the seller to sell. This might come about by the owner making a representation, whether by words, conduct or even through negligence, (although, in respect of a negligent misrepresentation, there would be an issue as to whether the owner owes any duty of care to the third party).45 Thus, to some extent, estoppel overlaps with situations of apparent authority in which the owner may be deemed by his conduct to have clothed the seller with apparent authority, with the original owner becoming an unknowing principal in the sale of his goods. Apparent authority is, of course, binding on the principal in that the contract of sale is enforceable by the innocent third party, with the principal able to sue the ‘agent’ for recom pense. However, for section 21 estoppel to be effective, some definite action or omission by the owner is essential. It is insufficient for the owner merely to have allowed the seller to have possession of the goods. We all allow people to have possession of our goods for repair or simply by lending them without in any
45 See Atiyah, Adams and MacQueen, above n. 14, ch. 21, 380.
129 |
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5â The nemo dat exceptions |
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way representing that the person in temporary possession would have any right |
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to sell them. The responsibility of the owner stretches as far as not creating a |
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belief in the third party either that the seller owns the goods or, alternatively, |
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that he has a right to sell them. Equally, the owner must correct any misrepre- |
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sentation about the position of the seller if he is to protect his rights to his own |
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property. |
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(b)â Mercantile agent |
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Mercantile agency also gives rise to a nemo dat exception, but again the ori- |
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ginal owner must have played a part in facilitating the sale by the mercantile |
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agent. Various criteria must be satisfied if the exception under section 2 of the |
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Factors Act 1889 (which is expressly reserved by Sale of Goods Act 1979, sec- |
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tion 21(2)),46 is to work to the benefit of the innocent third party buyer. The |
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seller must: |
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(i) be an independent mercantile agent with the ability to buy and sell goods |
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in his own right;47 |
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(ii) be in possession of the goods or document of title, such as a bill of lading, |
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in his capacity as a mercantile agent;48 |
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(iii) be in possession with the consent of the owner; |
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(iv) have been acting in the ordinary course of his business when disposing of |
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the goods. |
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Further, the buyer must have been acting in good faith without notice of the |
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lack of authority of the agent. |
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The consent of the owner is crucial and is binding on the owner even if con- |
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sent was given as a result of a fraud perpetrated by the agent, as long as con- |
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sent has actually been given. In Stadium Finance v. Robbins,49 the agent was |
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asked to obtain offers for a car with the owner retaining the key but accidentally |
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leaving the registration book in the glove compartment. The agent acquired a |
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second key, found the registration book and sold the car. Similarly, in Pearson |
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v. Rose & Young,50 the agent obtained the registration document by tricking the |
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owner into leaving it behind with the car. He likewise sold the vehicle. In both |
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instances, the court held that the seller had possession of the goods in his cap- |
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acity as an agent but in neither case had the consent of the owner been given. |
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In Stadium Finance, there was no consent as regards possession of either the |
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car or the document, while in Pearson, there was no consent to possession of |
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the registration book. In neither case was the agent able to pass good title to the |
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innocent third party buyer, which may seem unduly harsh on the buyer given |
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46 |
Sale of Goods Act 1979, s.21(2). |
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47 |
That is, he must not merely be an employee; he must be capable of buying and selling without |
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disclosing that he is an agent. |
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48 |
He must not have possession in any other capacity, e.g. repairer. |
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49 |
[1962] 2 QB 664.â 50â [1951] 1 KB 275. |
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130 The passage of title, delivery and payment
that in neither case was there anything that should have put the buyer on notice of the irregularity.
(c)â Seller in possession
When possession of the goods and title to them are in different hands, the scope exists for the person in possession, either innocently or fraudulently, to pass possession of the goods to an innocent third party and possibly to pass title to them as well. The two most obvious examples arising out of a contract of sale are the exceptions for the seller in possession of the goods51 and the buyer in possession of the goods.52
The former involves the seller who, having sold goods to a first buyer, remains in possession of them and then subsequently sells them again to an innocent third party. A situation of deemed agency arises in that the seller will be deemed to be acting with the express authority of the new owner (the first buyer) when selling them to the second buyer. For the exception to be relevant, the property in the goods must have passed to the first buyer and thus, in practice, is most likely to arise with specific goods, although it would be possible for it to apply to ascertained goods which have been unconditionally appropriated before being delivered to the first buyer and are then sold for a second time. Where this occurs, the second buyer acquires title to the goods with the first buyer claiming a full refund of the contract price from the seller. Ultimately, neither buyer loses out financially although the first buyer will not have acquired the goods that they believed they had bought.
(d)â Buyer in possession
An allied example exists where a person who has bought or agreed to buy goods takes possession of them with the consent of the seller and then transfers them to an innocent sub-buyer who has no knowledge of any lien or rights of the original seller/owner. Where that is the case, the first ‘buyer’ will be deemed to be selling as if he were a mercantile agent acting with the consent of the owner, with title passing to the second buyer. The key factor is that the first buyer must satisfy the requirement of being someone who has bought or agreed to buy the goods. It is not sufficient that he has possession of them unless he is contractually committed to buying them. Thus, a person purchasing goods under a conditional sale agreement, whereby possession passes immediately but title will pass at some point in the future pending the payment of sufficient instalments of the price, has not ‘bought or agreed to buy,’ as it is possible that the relevant payments will not be paid and title will never pass.53 Equally, the debtor/Âpurchaser under a hire-purchase agreement has not ‘bought or agreed
51Sale of Goods Act 1979, s.24.
52Ibid. s.25.â 53â Ibid. s.25(2).
131 |
5â The nemo dat exceptions |
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to buy’ the goods as title does not pass until the option to purchase is exercised |
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at the end of the hire period.54 The debtor has a statutory right to terminate the |
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contract at any time before the final payment is due55 and hand the goods back |
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to the hire-purchase company, making an appropriate financial settlement.56 |
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Consequently, an innocent purchaser buying the goods from the debtor/hirer |
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under hire-purchase does not attract the protection of section 25 of the 1979 |
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Act and will not acquire good title to the goods. |
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The other class of purchasers who have not ‘bought or agreed to buy’ goods |
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would be those buying on sale or return and who have not informed the seller |
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of their wish to purchase and to whom title has not yet passed under section 18 |
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rule 4. As long as the right remains to return the goods to the original seller, the |
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buyer has not ‘bought or agreed to buy’ and any sub-buyer buying the goods |
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from him will not gain the protection of section 25 and would be obliged to |
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return the goods to the original owner/seller. Naturally, the sub-buyer would |
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have a right to a refund of the full contract price for a breach of section 12 of the |
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1979 Act and the total failure of consideration. |
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(e)â Hire-Purchase Act 1964, section 27 |
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There is a valid nemo dat exception that works in favour of some innocent |
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purchasers acquiring goods from a hire-purchase debtor but the exception is |
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limited to innocent private purchasers of motor vehicles. Section 27 of the Hire- |
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Purchase Act 1964 stipulates that if an innocent private purchaser of a motor |
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vehicle buys it, not knowing of the existence of the hire-purchase agreement, |
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then the hire-purchase company’s title to the goods will be deemed to pass to |
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the hire-purchase debtor immediately before the sale to the innocent private |
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purchaser.57 Thereafter, title will then pass as normal. Even if the hire-purchase |
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debtor sells directly to a trader, the first private purchaser buying innocently |
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from that trader will acquire the title58 even though the trader himself would |
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not have been so protected. Once a valid title has passed to the innocent pur- |
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chaser, it will pass down the line in the usual way to any subsequent purchasers. |
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This protection is particularly valuable to consumers given the high percent- |
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age of cars purchased on hire-purchase which are subsequently resold to pri- |
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vate individuals through classified advertisements in a newspaper, notices in |
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shops or even sales notices appearing on the vehicles themselves. While trad- |
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ers have the opportunity to check for outstanding hire-purchase though HPI |
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checks59 and thus are in a position to protect themselves, consumers are more |
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vulnerable. |
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54 |
Helby v. Matthews [1985] AC 471. |
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55 |
Consumer Credit Act 1974, s.99. |
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56 |
Ibid. s.100.â 57â Sale of Goods Act 1979, s.27(2). |
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58 |
Ibid. s.27(3). |
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59 |
An HPI check is a search of financial information to establish whether a specific vehicle is the |
subject of a hire-purchase agreement in respect of which there are outstanding payments. This
132 The passage of title, delivery and payment
The application of section 27 was reconsidered in the recent Court of Appeal decision in Rohit Kulkarni v. Manor Credit (Davenham) Ltd.60 The appellant, Kulkarni, contracted to buy a car from a third party, G, knowing that G did not have a car at the time and would need to acquire one to fulfil the contract. G subsequently acquired a car on hire-purchase from the respondent, Manor Credit (Davenham) Ltd, and wrongfully passed the car onto to Kulkarni on the same day. Subsequently, Manor Credit repossessed the car and Kulkarni claimed it, arguing that the title had passed to him as he was a private purchaser protected under the nemo dat exception in section 27 of the Hire-Purchase Act 1964. Kulkarni had been given the registration details some three days before delivery to allow him to insure the car but the registration plates were not fixed to the car until the date of delivery. The court confirmed that this meant that the goods were not in a deliverable state under section 18 rule 1 and, hence, the passage of property was not governed by that rule. When Kulkarni took possession of the goods, G was already the hirer under a hire-purchase and Kulkarni was entitled to claim ownership under the nemo dat rule in section 27 of the Hire-Purchase Act 1964.
(f)â Voidable title
There remains the issue of voidable title. The presumption is that the owner of goods intends to deal with the person in front of them,61 with any defect in the contract through misrepresentation rendering the title voidable. Consequently, if the owner has parted with possession of the goods to a fraudster who has acquired the goods as the result of a fraud, the fraudster will only acquire a voidable title to the goods. Whether an innocent third party buyer buying the goods from the fraudster will gain title to them will depend on whether the fraudster’s voidable title had been validly avoided at the time of the sale to the innocent buyer. The onus is on the owner to act quickly to protect himself by avoiding the sale through informing the fraudster or the police.62 If the owner has not avoided the sale prior to the goods being sold to an innocent third party buyer, the innocent buyer will acquire title,63 leaving the owner to try and recover his money from the fraudster. By contrast, if the owner avoids the fraudulent sale before the fraudster sells the goods to the innocent third party buyer, the owner retains title to the goods. The innocent buyer must then return the goods to the owner or face a claim in conversion, and must seek to recover his money from the fraudster. It is only if the identity of the person buying the goods from the owner was crucial to the sale that the contract will be rendered void, with the
would mean that the vehicle is the legal property of the finance company and not of the person in possession of it.
60[2010] EWCA Civ 69.
61Phillips v. Brooks [1919] 2 KB 243, Lewis v. Averay [1972] 1 QB 198.
62Car and Universal Finance v. Caldwell [1965] 1 QB 535.
63Sale of Goods Act 1979, s.23.