Nemo Dat Quod Non Habet Essay Format

Commonly refered to as nemo dat, this concept stems from vision of a series of transactions whereby a current owner of property is required to be able to trace back ownership to reflect a chain of legitimate transfers. Further, the chain of transfers should originate from legitimate original possession. With examples, this paper will discuss the importance of nemo dat as well as applicable exceptions as per the provisions of the Sale of Goods Act 1979.
Nemo dat is mainly concerned with the issue of which of the two parties, the legitimate owner and the innocent buyer, must pay the price of the fraud of a third party (Yap 2008, p. 254). It is a familiar occurrence that legitimate owners of goods are swindled into parting with the goods and, similarly, innocent buyers deceived into buying the goods from a third party. Therefore, the fundamental importance of the nemo dat rule is protecting the true and legitimate owners of property. Then, it also protects property by stipulating that no one can give a title that is better than he himself has (MacLeod 2012, p. 27). The usual scenario of the sale of property is that it is carried out between a willing buyer and either the legitimate owner or their duly authorized representatives. However, situations also occur in which the seller is selling property that does not rightfully belong to him or he does not possess the required right to sell. At that point, the significance of nemo dat is that it will form the basis on which the law will decide whether to favor the original owner or the bona fide buyer (Elliott 2004, p. 382). The rule of nemo dat remains legally binding even in situations where buyers are not aware that the sellers have no right to allege ownership of the property being transacted. In most circumstances, the buyer of property from a seller with no ownership rights will not get the title of ownership but, legally, there are exceptions that can actually grant such buyers the title. Meant to protect ...Show more

By Divy Durgesh Sinha, CNLU

Editor’s Note:  Nemo dat quod non habet, literally meaning “no one gives what he doesn’t have” is a legal rule, sometimes called the nemo dat rule, which states that the purchase of a possession from someone who has no ownership right to it also denies the purchaser any ownership title. This paper begins by explaining the application of this maxim in India and later discusses the exceptions to the same.

INTRODUCTION

Nemo dat quod non habet, literally meaning “no one gives what he doesn’t have” is a legal rule, sometimes called the nemo dat rule, which states that the purchase of a possession from someone who has no ownership right to it also denies the purchaser any ownership title.

The phrase, in a closely related variant, traces back at least as far as the Digest of Justinian (Digest 50.54), who gives credit to the Roman jurist Ulpian (Ad Edictum 46).  In other words, if I own something because someone transferred it to me – by sale, gift, bequest, etc. – I normally have only that which the previous owner had and nothing more.  This is sometimes called the “derivation” principle: The transferee’s rights derive from those of the transferor.

In the case; Bishopsgate Motor Finance Corpn. Ltd. v. Transport Brakes Ltd[i]., Denning LJ, has defined the position of the modern law as follows:

“In the development of our law, two principles have striven for mastery. The first is the protection of property: no one can give a better title than he himself possesses. The second is the protection of commercial transactions: the person who takes in good faith and for value without notice should get a good title. The first principle held sway for a long time but it has been modified by the common law itself and by statute so as to meet the needs of our times.”

Nemo dat is also related to the principle of “first in time is first in right.”  Here the classic problem is someone, A, who transfers his or her interest to B and then turns around, and out of mistake or worse, transfers to C.  Who owns the property?  According to the nemo dat principle, it would be B, because A had rights to transfer when A transferred to B.  Now B has the rights.  When A later transfers to C, A has no rights to transfer and hence by nemo dat C gets nothing.  Of course C could sue A, but A in such situations will often (not coincidentally) have fled the jurisdiction or be judgment-proof.  There are situations in which C could prevail over B, but nemo dat and its first-in-time implications are the baseline.

The nemo dat principle rests on a vision of a chain of transactions.  Current owners must be able to trace their ownership back in time through a series of legitimate transfers (ideally) to an act of legitimate original acquisition.  Later we consider ways in which the law cuts off the need for this tracing to an ultimate root of title.  But the tracing itself can prove to be quite complicated, as illustrated by the following case.

IMPLEMENTATION OF MAXIM IN INDIA

Section 27: Sale by person not the owner.-Subject to the provisions of this Act and of any other law for the time being in force, 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 is by conduct precluded from denying the seller’s authority to sell.

Provided that, where a mercantile agent is, with the consent of the owner, in possession of the goods or of a document of title to the goods, any sale made by him, when acting in the ordinary course of business of a mercantile agent, shall be as valid as if he were expressly authorised by the owner of the goods to make the same, provided that the buyer act is good faith and has not at the time of the contract of sale notice that the seller has no authority to sell.

Section 27, as a general rule, tries to protect the interest of the true owner when it provides that where the 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 has.

If the title of the seller is defective, the buyer’s title will also be subject to the same defect. The rule does not imply that buyer’s title will always be a bad one. What it means is that the buyer cannot acquire a superior title to that of the seller. If a thief disposes of stolen goods, the buyer of such goods has the same title as the seller had. Similarly, where a person taking goods on hire- purchase basis sells them before he had paid all the instalments, the owner can recover the goods from the transferee, on default of payment, in the same way as he could have recovered them from the person to whom they had been given on the hire purchaser basis. [ii]

The rule can be demonstrated by the case of Greenwood v Bennett.[iii] In this case the original owner of a Jaguar car (Bennett) entrusted it to a man named Searle for repairs to be carried out. Searle then used the car for his own purposes, crashed it and caused extensive damage. Searle then sold the car to Harper, who owned a garage, for £75. Harper did not realise that Searle was not the owner of the car. Harper then spent £226 repairing the car and sold it on to a finance company. It was held by the court that the car belonged to Bennett as Searle did not have title and could therefore not transfer that title to Harper. For the same reason, Harper could not transfer title to the finance company. Bennett was therefore able to recover the car but had to compensate Harper for the work done to it.

However, although the nemo dat rule in its essential form may be clear, it is not always fair, as it is an innocent party buyer who will suffer, and nor is it necessarily in keeping with the needs of modern commerce and trade. Where goods are in question the buyer may be in a very difficult position. The owner, in voluntarily parting with the possession of the goods, takes upon himself the risk that something might happen to the goods. The owner is in a position to check for himself the creditworthiness of the person to whom he gives possession of the goods and there is an argument that if the owner’s trust is in fact ill-founded then he ought not to put the consequences of his own mistaken judgment on to the shoulders of the innocent purchaser. There is no way that the buyer can effectively investigate the title to chattels and if the goods are to move freely in the distribution chain then it is important that buyers are confident in their purchases. Furthermore, goods may be perishable and there is a need for them to be dealt with quickly and efficiently.

Because of the apparent harshness of the nemo dat rule, several exceptions to it were developed at common law and also have been added by statute. All of the exceptions will apply only in favour of a person who acquires the goods in good faith and without notice of the rights of the original owner. The common law exceptions are around agency arrangements, estoppel and (previously) market overt.[iv]

In India in the case of Life Insurance Corporation  vs United Bank Of India Ltd. And Anr[v]   court held that Under the Indian Law, an actionable claim is no doubt transferable but it is transferable only by the person who has a title to the property in respect of which the claim lies. The position is the same in English lawNemo dat quod non habet, no one gives what he does not possess. If the nominee has no title to the policy money he can neither surrender the policy nor can he transfer by assignment any right, title or interest in the moneys payable under the policy. In the contemplation of the statute, the right of a nominee is a mere right to collect the proceeds of the policy and the right has been given only to obviate the inconvenience of obtaining representation to the estate of the deceased policy-holder or a succession certificate.

EXCEPTIONS

1. Transfer of Title by Estoppel (Sec 27 )

Estoppel means that a person who by his conduct or words leads another to believe that certain state of affairs existed, would be estopped ( precluded ) from denying later that such as state of affairs did not exist. Sometimes the doctrine of estop or preclude the owner from denying the seller’s right to sell the goods and thus an innocent buyer may have a good title dispite the want of authority of the seller. When the true owner of goods by his conduct or word or by any act or omission leads the buyer to believe that the seller is the owner of the goods or has the authority to sell them, he cannot afar wards deny the seller’s authority to sell.

The closing words of the rule contained in Sec 27 are as under:

Unless the owner of the goods is by his conduct precluded from denying the seller’s authority to sell the goods.

The buyer in such case gets a better title when that of the seller. The estoppel may arise in any of the following ways:
1. The owner standing by, when the sale is effected, or
2. Still more, by his assisting the sale, or
3. By permitting goods to go into the possession of another with all the insignia of possession thereof and apparent title, or
4. If he has otherwise acted or made representations so as to induce the buyer to alter his position to his prejudice.[vi]

Estoppel arises from;
a. act or omission – but it should be a legal obligation
b. Negligence – not mere negligence but it should be in regard to the person.

Estoppel by act or omission

A firm of merchants pledged certain railway receipts with a bank against a loan. Subsequently they took back the receipts for clearing the goods and storing them in the bank’s warehouse. But they fraudulently re-pledged the receipts with another bank for another loan. The second bank contented that the first bank should not have returned the receipts without impressing up on then them their stamp of pledge. Their omission to do so enabled the merchants to re-pledge the receipts and therefore the first bank should be stopped from denying the validity of the second pledge. But the Privy Council ruled otherwise. The court held that the duty to impress the stamp of pledge was not a legal duty. It was a duty of commercial origin and its omission did not create a legal estoppel.

Estoppel by negligence

Mere carelessness may not create an estoppels, negligence in order to give rise to a defence under this section must be more than mere carelessness on the part of a person in the conduct of his own affairs, and must amount to a disregard of his obligations towards the person who is setting up the defence. In Conventary Shepherd & Co v. Great Eastern Rly.Co the defendant carelessly issued two delivery orders relating to the same consignment of goods, thus enabling the person to whom they were issued to obtain an advance from the plaintiff and the defendants were held to be estopped as against him from denying the fact that the goods mentioned in the order were held on behalf of the assignor someone who puts documents of this nature into circulation owes a duty to those into whose hands they may come.

In Shaw and Another v Metropolitan Police Commissioner [vii]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 Sale of Goods Act 1979 ( This is English Case )  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

2. Sale by a Mercantile Agent (Section 27)

If a mercantile agent has an authority to sell the goods and he does so, no difficulty arises because according to the general rule, an agent having the authority to sell them can convey a good title. The difficulty arises when the mercantile agent disposes of the goods without having authority to do so. [viii]

Second Para of the section 27 explicitly express about this. Provision is—

Provided that, where a mercantile agent is, with the consent of the owner, in possession of the goods or of a document of title to the goods, any sale made by him, when acting in the ordinary course of business of a mercantile agent, shall be as valid as if he were expressly authorised by the owner of the goods to make the same, provided that the buyer act is good faith and has not at the time of the contract of sale notice that the seller has no authority to sell.

For the application of this proviso, the following condition are to be satisfied,-

  1. That the seller is a Mercantile agent as defined in Sec. 2(9) of the Act. Section 2(9) states that

mercantile agent” means a mercantile agent having in the customary course of business as such agent authority either to sell goods, or to consign goods for the purposes of sale, or to buy goods, or to raise money on the security of goods;

  1. The said mercantile agent got the possession of the goods or documents of title to the goods with the consent of the owner, and in his capacity as a mercantile agent;
  2. While selling the goods he must have been acting in the ordinary course of his business of a Mercantile agent;
  3. The buyer of the goods must have acted in good faith without having any notice that such a Mercantile agent did not have an authority to sell.

In Folks v king,[ix] he plaintiff delivered his car to a mercantile agent to sell it for not less than 575 pounds. But the mercantile agent sold it to the defendant for pound 140 and misappropriated the amount. In an action by the plaintiff it was held that the defendant (buyer) had a good title to the goods.

3. Sale by joint owner (Section 28)

 If one of several joint owners of goods has the sole possession of them by permission of the co-owners of goods has the sole possession of them by permission of the co-owners, the property in the goods is transferred to any person who buys them from such joint owner in good faith without notice of the fact that the seller has no authority to sell. It may be noted that in the absence of this provision (i.e., Sec. 28) the buyer would have obtained only the title of the co-owners and would have become merely a co-owner with the other co-owners. Hence the provision constitutes an exception to the rule – “no one can give what the has not got.”

Section 28 reads as

  1. Sale by one of joint owners.- If one of several joint owners of goods has the sole possession of them by permission of the co-owners, the property in the goods in transferred to any person how buys them of such joint owner in good faith and has not at the time of the contract of sale notice that the seller has not authority to sell.

 4.Sale by a person in possession under a voidable Contract- (Section 29)

According to section 19 and 19- A of the Contract Act, if the consent of a party to the contract has been obtained by coercion, fraud, misrepresentation or undue influence, the contract is voidable at the option of the party whose consent has been so obtained.  Section 29 provides that if a person has obtained the possession of some goods under a contract which is voidable under section 19 or 19 – A of the contract Act and he sells those goods before the contract has been avoided by the party entitled to do so, the buyer of such goods acquire a good title to them. It is, however, necessary that such buyer must have purchased the goods in good faith and without the notice of the seller’s defect of title.

Section 29 reads as.

When the seller of gods has obtained possession thereof under a contract voidable under Section 19 or Section 19A of the Indian Contract Act, 1872, but the contract has not rescinded at the time of the sale, the buyer acquires a god title to the goods, provided he buys them in good faith and without notice of the seller’s defect of title.

This section does not apply to a contract which is void and not voidable, or where the seller has no title at all, for example, he has obtained the goods by theft.

5. Sale by the seller in Possession (Section 30) (1)

 If a seller has sold the goods and the property in the goods has passed to the buyer, the seller cannot deal with such goods. If he is still in possession of the goods and deals with them, the buyer can sue him for the tort of conversion, Sec 30 (1), however, provides that if seller having sold the goods is still in possession of the goods or of the documents of title to them, the delivery or transfer of the goods or of the documents of title to them, the delivery or transfer of the goods or of the documents of title under any sale, pledge or other disposition thereof by the seller or by a Mercantile agent on his behalf will convey a good title to the buyer provided the buyer has been acting in good faith and he has no notice of the previous sale.

Section 30(1) reads as

Where a person, having sold goods, continues or is in possession of the goods or of the documents of title to the goods, the delivery or transfer by that person or by a mercantile agent acting for him of the gods or documents of title under any sale, pledge o other disposition thereof to any person receiving the same in good faith and without notice of the previous sale shall have the same effect as if the person making the deliveryto transfer were expressly authorised by the owner of the gods to make the same.

6. Sale by the buyer in Possession – sec 30(2)

This section says that if a buyer has obtained the possession of the goods or the documents of title to them with the consent of the seller, any sale, pledge or other disposition thereof to any person will convey s good title and without any notice as regards any lien or other right of the original seller in respect of those goods.

Sec 30(2) reads as

Where a person, having bought or agreed to buy goods, obtains with the consent of the seller, possession of the goods or the documents of title to the goods, the delivery or transfer by that person or by a mercantile agent acting for him, of the goods or documents of tile under any sale, pledge or other disposition thereof to any person receiving the same in good faith and without notice of any lien or other right of the original seller in respect of the gods shall have effect as if such lien or right did not exist.

7. Resale by an unpaid seller – Sec 54(3)

According to this section, if an unpaid seller has exercised the right of lien or stoppage in transit and the buyer does not pay him he may resell the goods after a notice to the buyer. If such a notion is not given, the seller is neither entitled to claim from the buyer any loss if the goods bring lower than the contract price nor can he retain the benefit if the goods are sold at a higher price.

Section 54(3) reads as-

Where an unpaid seller who has exercised his right of lien or stoppage in transit re-sells the goods, the buyer acquires a good title thereto as against the original buyer, notwithstanding that no notice of the re-sale has been given to the original buyer.

Section 54(2) reads as-

Where the goods are of a perishable nature, or where the unpaid seller who has exercised his right of lien or stoppage in transit gives notices to the buyer of his intentions to re-sell, the unpaid seller may, if the buyer does not within a reasonable time pay or tender the price, re-sell the goods within a reasonable time and recover from the original buyer damages for any loss occasioned by his breach of contract, but the buyer shall not be entitled to any profit which may occur on the re-sale. If such notices is not given, the unpaid seller shall not be entitled to recover such damages and the buyer shall be entitled to the profit, if any, on the re-sale.

8. Sale by finder of goods- (sec 169, Indian Contract Act)

According to sec 71, Indian Contract Act, the finder of goods is subject to the same responsibility as the bailee. He is to take due care of goods while they are in his possession and also to return them when their owner has been found.  According to Sec 169 of ICA, however, if the owner cannot with a reasonable diligence be found or if he refuses upon demand, to pay the lawful charges of the finder, the finder may sell the goods,-

  • When the things is in danger of perishing or of losing the greater part of its value, or
  • When the lawful charges of the finder, in respect of the thing found, amount to 2/3 of its value.

9. Sale by Pawnee- sec 176 of Indian contract act

According to this section, if the pawnor makes a default in the payment of the debt, the pawnee may either sue him for the debt or may sell the goods pledged on giving the pawnor reasonable notice of the sale.

CONCLUSION

The Indian Contract act 1872 contained 266 sections originally which was divided in to various chapters. 1 to 75 dealt with general principles of the contract, section 76 to 123 of the original enactment dealt with sale of goods. Later in 1930 it was repealed and a new enactment called Sale of Goods act 1930 was introduced due to the advancement and increase in trade and transactions. It is a piece meal legislation containing 66 sections divided in to 7 chapters. The principles enshrined are basically those that included in the British sale of goods act which was later amended in 1979.

Chapter III of the sale of goods act 1930 containing sections 18 to 30 deals with effects of the contract with regards to transfer of property between seller and buyer. According to Denning LJ, “In the development of law two principle have striven for mastery, the first is the protection of property; no one can give a better title than he himself possesses. The second is the protection of the commercial transactions; the person who takes in good faith and for value without notice should get a good title”.
Meaning

The first of this principle is enshrined in the Latin maxim, nemo dat quod non habet, which literally means no one can give what they do not have. In the context of sale of goods it means no one can transfer a better title than he himself has.

Section 27 of the Indian contract act embodies this principle mentioned above, the same is enshrined in section 21 of the British sale of goods act 1979. Buyer gets no title when sale is by a person not the owner. This generally happens in case of finder of lost goods sells the goods or in case of stolen goods or goods in procession by an agent, it tries to misappropriate. In the sale of immovable property and in contract of pledge also we can see the application of this Latin maxim. So the essence of the maxim is only the real owner can pass a real good title to the buyer in sale.

Section 27 of the sale of goods act 1930

Sale by person not the owner.-
Subject to the provisions of this Act and of any other law for the time being in force, 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 is by conduct precluded from denying the seller’s authority to sell.
Provided that, where a mercantile agent is, with the consent of the owner, in possession of the goods or of a document of title to the goods, any sale made by him, when acting in the ordinary course of business of a mercantile agent, shall be as valid as if he were expressly authorized by the owner of the goods to make the same, provided that the buyer act is good faith and has not at the time of the contract of sale notice that the seller has not authority to sell.

The first part of the section embodies the explanation of the Latin maxim and the second part of the section provides 2 exceptions to the original principle. If a person leaves a watch or a ring on a seat in the park or on a table in a café, and it ultimately gets in to the hands of a bonafide purchaser, it is no answer to the true owner to say that it was his carelessness and nothing else that it enabled the finder to pass it off as his own. The owner of a car delivered it to a repairer for repairs, but he carried out no repairs and kept using the car until it crashed. Then he sold it in damaged condition for a nominal price to an innocent buyer, the buyer got the car repaired for 226 pounds. The owner was held entitled to recover the car from him by paying the expense of the repair

Some of the exceptions of this rule are-

  1. Transfer of Title by Estoppel (Sec 27 )
  2. Sale by a Mercantile Agent (sec 27)
  3. Sale by joint owner:(Sec.28)
  4. Sale by a person in possession under a voidable Contract- (section 29)
  5. Sale by the seller in Possession (Section 30) (1)
  6. Sale by the buyer in Possession – sec 30(2)
  7. Resale by an unpaid seller – Sec 54(3)
  8. Sale by finder of goods- (sec 169, Indian Contract Act)
  9. Sale by Pawnee- sec 176 of Indian contract act

Edited by Hariharan Kumar

[i] 1902 AC 325 (326).

[ii] Belsize Motor Supply co. V Cox. (1914) 1 K.B . 244

[iii] [1973] 1 QB 195

[iv] http://www.lawteacher.net/commercial-law/essays/the-nemo-dat-quod-non-habet-rule-commercial-law-essay.php#ftn4( accessed on 9/10/14 )

[v] AIR 1970 Cal 513

[vi] http://mercantilelaws.blogspot.in/2012/05/rules-regarding-transfer-of-title-on.htm ( accessed on 1/10/2014)

[vii]  [1987] 3 ALL ER 405

[viii] R.K Bangia,  Contract – II, 6th Edition, Allahabad Law Agency,  2009

[ix] ( 1923) 1 K.B 282

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