Commercial Law (SOGO) PDF
Commercial Law (SOGO) PDF
Transfer of ownership by a
non-owner
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Key facts
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● Nemo dat quod non habet is often abbreviated to nemo dat. It means ‘no-one can transfer
what he has not got’.
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● Therefore, a seller can only pass ownership of goods to a buyer if he owns or has the right
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● The nemo dat rule might apply where a buyer purchases stolen property but also arises
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where a seller has no right to sell the goods but nevertheless sells them.
● The nemo dat rule protects the true owner of the goods and the innocent purchaser gets no
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title whatever.
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● There are several exceptions to the nemo dat rule. They are contained in the Sale of Goods
Act 1979 (hereafter referred to as the SGA), the Factors Act 1889 (referred to as the FA),
and the Hire Purchase Act 1964 (referred to as the HPA). When any of these exceptions
apply, the original owner of the goods loses his title in favour of the purchaser who
would have lost out if the exception did not apply. These exceptions protect the innocent
purchaser.
Introduction
Chapter
Chapter overview
overview
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buyer in possession sale under voidable title
after sale seller in possession s 23 SGA
s 25 SGA after sale
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s 9 FA s 24 SGA
s 8 FA sh
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Introduction
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This chapter deals with the situation where a seller, who has no right to the goods, is never-
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• A steals the goods and sells them to B who buys them in good faith for value.
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• A sells the goods to B1 but retains possession of them and then wrongly sells them again
to B2.
• A passes his goods to B to seek offers for sale but B sells them without A’s authority and
keeps the proceeds of sale.
• A buys goods on credit terms and then resells or pledges them to B with no intention of
paying for them.
The typical question that arises in such circumstances is which of two innocent parties
should suffer for the fraud of a third? The courts have to choose between upholding the
rights of the original owner of the goods and protecting the interests of a purchaser who
buys the goods in good faith and for value.
In the development of our law, two principles have striven for mastery. The first is for the protection
of property: no one can give a better title than he himself possesses. The second is for 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 has held sway for a long time, but it has been modified by the com-
mon law itself and by statute so as to meet the needs of our own times.
The first of Denning LJ’s principles can now be seen in s 21(1) SGA:
s 21(1) SGA:
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Subject to this Act, where goods are sold by a person who is not their owner, and who does not sell
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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
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the seller’s authority to sell.
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Looking for extra marks?
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The words in the above section ‘where goods are sold’ do not cover a situation where there is a mere
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The nemo datt rule is simply stated in that no-one can transfer that which he does not have. There
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are exceptions to this rule and it is the exceptions that are key to your understanding of this
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subject.
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Before looking at the exceptions to the nemo dat rule, let us briefly consider the position of
a sale by an agent. It can be seen from s 21(1) that unless the goods are sold with the author-
ity or consent of the owner then a buyer can acquire no title in them. However, the opening
words in the subsection (‘Subject to this Act’) mean that the section is subject to the provi-
sions of the Act, s 62(2) of which preserves the common law rules pertaining to principal and
agent. Therefore, a sale that is within the usual or ostensible authority of an agent will bind
the owner of the goods even if outside the agent’s actual authority.
See, further, Chapter 12, ‘The creation of agency and the agent’s authority’, p 161.
The exceptions to the nemo datrule are as follows:
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1. estoppel by representation; and
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2. estoppel by negligence.
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Estoppel by representation sh
Estoppel by representation might arise where the owner of the goods has by his words or
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conduct represented to the buyer that the seller is the true owner of the goods, or has his
authority to sell the goods. This category of estoppel is, therefore, sometimes sub-divided
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The owner of a Porsche advertised his car for sale. He was contacted by a swindler, Mr London,
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who claimed to be interested in purchasing it on behalf of a client. The owner allowed London to
take delivery of the car. He also gave London a note stating that he had sold the car to him. This
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was, in fact, untrue as the owner merely authorised London to sell it on his behalf. C agreed to
purchase the car from London (who had not paid the owner for it). London subsequently vanished
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and the ownership of the car became an issue. Notwithstanding that C had not paid London (or
indeed anyone) for the car, he claimed that he had acquired good title under s 21(1). This was
rejected by the Court of Appeal, although on the rather unsatisfactory basis that s 21(1) only
applies to a party who has actually purchased goods and not to one who has merely agreed to
do so. This is unsatisfactory because s 21(1) appears to be a simple restatement of the common
law principle of estoppel and, as such, ought to protect a party which has on the representation
made acted to its prejudice. On this basis, the Court of Appeal could easily have rejected C’s claim
simply because he had not acted to his prejudice as he had not paid the price.
A good example of the operation of the doctrine of estoppel can be seen in Eastern
Distributors Ltd v Goldring (1957) (overruled on another ground by Worcester Works
Finance v Cooden Engineering Co (1972)).
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under an HP agreement ownership is not transferred until all instalments have been made. Thus,
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as M did not own the van he could not transfer ownership to X.
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See, also, Moorgate Mercantile Co Ltd v Twitchings (1977), under ‘Estoppel by
negligence’.
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Estoppel by negligence
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Estoppel by negligence is where the owner of goods, by reason of his negligence or negligent
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failure to act, allows the seller of the goods to appear to the buyer as the true owner or as hav-
ing the true owner’s authority to sell the goods. For this kind of estoppel to arise it must first
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be shown that the owner of the goods had a duty to take care so as not to act negligently.
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estoppel by negligence were pleaded. Both failed. C was a fi nance company and supplied
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a car on HP to X. C failed to register the HP transaction with HPI (an organisation set up
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by fi nance companies to prevent fraud in connection with the supply of vehicles on HP).
Registering such a transaction with HPI was not compulsory although the majority of HP
transactions were registered with it. X then offered to sell the car to D (a motor dealer).
As X had not paid all the instalments he did not own the car and therefore did not have
the right to sell it. D contacted HPI to see if the car was registered with them (as having
outstanding fi nance) and was told that it was not. D then bought the car from X. When the
fi nance company discovered what had occurred they commenced proceedings against D.
D contended that the fi nance company was estopped from asserting their title to the car
arguing that:
• there existed an estoppel by representation because HPI had represented that the car
was not the subject of an outstanding HP agreement and that this representation was
given as agent of the finance company; and
• there also existed an estoppel by negligence on the ground that the finance company
failed to register the HP agreement with HPI.
By a majority, the House of Lords rejected both limbs of the doctrine and upheld the claim-
ant finance company’s claim. They rejected the argument based on estoppel by representation
because the statement made by HPI was in fact true. HPI did not say that there was no out-
standing finance on the car but only that nothing was registered with them. Furthermore, when
responding to the finance company’s request for information, HPI were acting in their own
capacity and not as agents for them. Estoppel by negligence was rejected (Lords Wilberforce
and Salmon dissenting) because the registering of HP agreements with HPI by its members
was not compulsory and therefore the finance company was not under a duty to do so.
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the apparent or ostensible authority of an agent to transfer title in the goods in excess of his actual
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authority to do so.
s 1(1) FA:
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The expression ‘mercantile agent’ shall mean a mercantile agent having in the customary course of
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his business as such agent authority either to sell goods, or to consign goods for the purpose of sale,
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This exception to the nemo dat rule refers only to a person who is acting as a mercan-
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tile agent and is able to satisfy all of its requirements. These will be difficult to establish.
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Whether an agent will be considered in law to be a mercantile agent is not dependent on him
being labelled as such in the contract but will be a matter of substance (Weiner v Harris
(1910)). However, if this person (whether a mercantile agent or not) has actual or apparent
authority to sell the goods then ownership will pass to the buyer under common law agency
rules and it will be unnecessary to consider the rules of mercantile agency.
Section 21(2)(a) SGA expressly preserves the FA, s 2(1) of which sets out (together with the
various cases) the requirements of mercantile agency, all of which must be satisfied:
1. He must be independent from the person for whom he is agent (his principal).
2. He must act in a business capacity (even if only occasionally).
3. He must be in possession of the actual goods or documents of title to the goods when he
sells them on to the third party.
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6. The dealing in the goods by the mercantile agent must be in the ordinary course of
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business of mercantile agents generally. This means that the sale or disposition:
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(i) must be made during business hours;
(ii) from business premises; and
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(iii) acting in such a way as the third party would expect a mercantile agent to act
(Oppenheimer v Attenborough (1908)).
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7. The third party must acquire the goods in good faith and without knowing that the mer-
cantile agent lacked the authority to sell them. The burden of proof in this regard rests
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with the third party (Heap v Motorists Advisory Agency Ltd (1923)). The test of good
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These requirements are lengthy and complex and will be difficult to establish. Unless all
have been satisfied a non-owner will not be able to pass good title to a third party under s 2(1).
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Finally, it should be noted that a mercantile agent is only able to pass that title which the
person who consented to him having the goods or documents of title had in the first place. If
that person was not in fact the owner of the goods (for example, because he had stolen the
goods) then no title will be passed by the mercantile agent to the buyer.
Example
Jim has bought a new hi-fi system and leaves his old one with his friend Peter who owns an
electrical goods shop. Jim asks Peter to sell it for him but for no less than £500. Although Peter’s
main business is selling general electrical goods, he does occasionally sell hi-fi systems and
therefore agrees to sell Jim’s old one. Peter is absent-minded and sells Jim’s old hi-fi for only £200
to Fred. Had Peter had authority (actual or apparent) to sell the hi-fi for this price then the contract
with Fred would have been binding without there having been any need to consider the rules of
mercantile agency. However, Peter had no such authority and therefore whether or not Fred is
now the owner of the hi-fi turns on whether the requirements of s 2(1) FA have been satisfied. In
this example, they have been satisfied and Fred has thereby become the owner of the hi-fi system.
Jim would, of course, have a claim against Peter for breaching his duty as agent to obey Jim’s
instructions. See Chapter 13, ‘The relationships created by agency—the rights and liabilities of the
parties’, p 175.
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show that the third party did not act in good faith (Whitehorn Bros v Davison (1911)). This
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can be contrasted with the other exceptions where it is for the third party purchaser to show
that he did act in good faith.
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Section 23 provides that if a party who has a voidable title to the goods resells them to
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an innocent third party, then that third party will gain good title to them provided that the
original contract has not by then been avoided. If the party with the voidable title resells
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the goods to an innocent third party after the contract has been avoided, then there will no
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longer be any title in the goods which would be capable of being passed to the third party.
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Examples of situations where a seller has a title that he may choose to avoid are where he has
obtained possession of the goods by fraud (unless the fraud is such that the offer or accept-
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ance is nullified) or where a person induces another to sell goods by means of duress, undue
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depend on the speed that the original owner takes in avoiding the contract and the speed taken by
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the rogue to resell the goods. In the almost factually identical Scottish case of McLeod v Kerr (1965)
the Court of Session held that ‘by no stretch of imagination’ could the seller’s conduct amount to
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rescission of the contract.
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Given the difficulty faced by an innocent purchaser in gaining title under s 23, he should
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consider a claim under s 25 (‘Sale by a buyer in possession after sale—s 25 SGA/s 9 FA’, p 93)
as he is also likely to be a ‘buyer in possession after a sale’.
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SGA/s 8 FA
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This exception to the nemo dat rule allows a seller who, after a sale, remains in possession of
the goods or of the documents of title to them, to pass a good title to a second buyer. Section
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24 SGA is almost identical to s 8 FA although s 8 is slightly wider in its application than s 24.
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Provided the requirements are satisfied the effect shall be ‘as if the person making the deliv-
ery or transfer were expressly authorised by the owner of the goods to make the same’.
This exception operates in the following way:
Example
Suppose a seller (S) sells goods to a buyer (B1). B1 now owns the goods. Therefore, as S no longer
has any interest in them he clearly cannot pass title to anyone else. But let’s say that S keeps
possession of the goods (or the documents of title to them) for a few days until B1 is able to
collect them and during this time he sells them again to a second buyer (B2). In this example, even
though S no longer has any ownership in the goods and therefore would not ordinarily be in a
position to transfer title to anyone, B2 obtains good title to the goods at the expense of B1. B1, of
course, could sue S for non-delivery of the goods.
It was once the position that for a third party to succeed under this exception he was
required to show that the seller was in possession of the goods as a seller and not in some
other capacity (Staffs Motor Guarantee Ltd v British Wagon Co Ltd (1934); Eastern
Distributors v Goldring (1957)). However, the Privy Council in Pacific Motor Auctions Pty
Ltd v Motor Credits Ltd (1965) said that these decisions had been wrongly decided and held
that the words ‘continues or is in possession’ (under the New South Wales equivalent to our
s 24) referred only to the continuity of actual possession rather than the capacity in which
the seller had the goods in his possession. Being a decision of the Privy Council, this decision
is only of persuasive authority in the English courts, although it has since been followed by
the Court of Appeal in Worcester Works Finance Ltd v Cooden Engineering Co Ltd (1972),
which held that the correct approach is one of continuity of possession rather than examin-
ing whether the seller was in possession of the goods ‘as seller’ or in some other capacity,
such as bailee. Thus, provided the seller remained, without interruption, in physical posses-
sion of the goods, then the innocent second buyer gets good title under this exception to the
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nemo dat rule.
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It is important that the seller disposes of the goods to the second buyer under a ‘sale,
pledge or other disposition’. A ‘disposition’ will occur whenever a new legal or equitable
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interest is created, although it will not by merely giving possession of the goods to the second
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buyer (Worcester Works Finance Ltd v Cooden Engineering Co Ltd (1972)).
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The second buyer must take delivery of the goods or of the documents of title to them. It
was held in Michael Gerson (Leasing) Ltd v Wilkinson (2001) that in respect of a sale and
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leaseback agreement where the original machinery does not actually leave the premises, a
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sale—s 25 SGA/s 9 FA
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This exception allows a buyer in possession of the goods to pass good title even where such a
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buyer has not got any such title to pass. This operates in the following way.
Example
A buyer (X) takes possession of goods that he has agreed to buy although he has not yet acquired
title to them. The reason why he has not yet acquired title is immaterial but might be because of
a retention of title clause in the contract or because his cheque in payment of the goods has
been dishonoured by his bank and it was a condition of the contract that title will not pass until
the goods have been paid for. He then sells the goods to Y. Y obtains good title to the goods even
though X did not himself have ownership of them.
1. The protection afforded to a third party is only available if the goods or documents of
title were in the possession of the buyer with the consent of the seller. Thus the seller of
the goods must have consented to the first buyer obtaining possession of the goods or of
the documents of title to the goods.
2. As can be seen from the statute, delivery to the second buyer must be made under a
sale, pledge, or other disposition.
3. It will only apply to transactions where the first buyer actually buys or agrees to buy
the goods. It will not operate if he merely acquires the goods on hire purchase (Helby
v Matthews (1895)). It will not apply to a contract to provide services or where the first
buyer acquired the goods under a ‘sale or return’ contract.
4. It operates to defeat the title only of an owner who has entrusted to a buyer the posses-
sion of his goods or documents of title. Consent only of the owner in respect of such
possession is crucial (National Employers Mutual General Insurance Association Ltd
v Jones (1990)).
5. The goods or the documents of title to the goods must be delivered to the second
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buyer. As noted under ‘Sale by a seller in possession after sale—s 24 SGA/s 8 FA’, p 92,
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constructive delivery will suffice.
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6. The second buyer can only succeed under this exception and thereby take good title if
he takes the goods in good faith and without notice of the first buyer’s defect of title.
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7. When selling or otherwise disposing of the goods, the first buyer must act in the way
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a mercantile agent acting in the ordinary course of business of a mercantile agent
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would act.
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Any title passed under this exception is the same title as the original owner had. It follows,
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therefore, that if the original owner himself had no title in the goods (for example, if he had
stolen them) then s 25/s 9 will not pass any title to the innocent buyer (National Employers
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In this case a rogue bought a car in exchange for a cheque which later proved to be worthless. The
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seller attempted to trace the rogue and informed the police. Before the rogue could be traced,
he sold the car in a market to an innocent purchaser. The Court of Appeal held that the innocent
buyer acquired good title. It was significant that the market was one where dealers commonly
sold cars because it meant that the rogue had sold it in the way a mercantile agent acting in the
ordinary course of business of a mercantile agent would have sold it.
It follows, therefore, that a person who has acquired goods on hire purchase and sells them
before he pays the final instalment will pass no title to a buyer.
Part lll of the HPA makes an exception to the above but only in the case of a sale of a
motor vehicle that was acquired by hire purchase. In broad terms, this means that a bona
fide purchaser of a motor vehicle from a person in possession under a hire purchase agree-
ment or conditional sale agreement obtains good title to the vehicle. The sale of anything
other than a motor vehicle is not covered under this exception. So, if X acquires a car and
a piano on hire purchase and sells them both to Y before he has paid the final instalment
then (provided the requirements of s 27 are satisfied) Y will obtain good title to the car but
not the piano.
A purchaser will acquire good title to a motor vehicle provided the requirements of s 27
are satisfied. (Bicycles, caravans, and the like are not motor vehicles and are therefore not
covered.):
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1. There needs to be a disposition, the timing of which is important. See Kulkarni v Manor
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Credit (Davenham) Ltd (2010), p 96.
2. The seller must be in possession of the motor vehicle either as a hirer under a hire pur-
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chase agreement or purchaser under a conditional sale agreement.
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3. Section 27 only applies to pass title to a private purchaser. A few notes about a private
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purchaser are needed:
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(a) once the private purchaser has acquired title under s 27, he can then pass title on to
anyone;
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(b) section 27 protects only the fi rst private purchaser who buys the vehicle in good
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(s 29(2) HPA 1964). Thus, if X acquires a motor vehicle on hire purchase and
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before making the last payment wrongly sells it to Y, a motor dealer, who then
resells it to Z, a private purchaser, who buys it in good faith and without notice
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of the hire purchase arrangement and therefore is unaware of the defect in both
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X’s and Y’s title, Z acquires good title to the vehicle notwithstanding that he has
purchased it from Y rather than from X who was the original hirer and even
though Y did not acquire any title himself. Note that in this example, s 27 does
not pass ownership to Y, as Y is not a private purchaser. Z is the fi rst private
purchaser and, as such, acquires good title to the vehicle. Z can then pass title in
the ordinary way to a subsequent purchaser as he now owns the vehicle;
(c) a person who is a motor dealer, even part-time, is not deemed to be a private pur-
chaser for the purposes of s 27 even if he buys the car for his own personal use
(Stevenson v Beverley Bentinck Ltd (1976)); and
(d) neither is a person who buys several cars for the purpose of selling them on for gain
(G E Capital Bank Ltd v Rushton (2006)).
4. The private purchaser must either purchase the motor vehicle or acquire it on hire
purchase.
5. The private purchaser must act in good faith and without notice of the hire purchase or
conditional sale agreement.
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state until its registration plates had been attached. The Court of Appeal held that as there
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was no evidence that the registration plates had been attached to the car prior to delivery,
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K would not have been bound to take delivery and therefore the car was not in a deliverable
state before delivery. On that basis K was a purchaser under a disposition which fi rst took
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place upon delivery. The exception under s 27 therefore applied, meaning K succeeded in his
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claim against M.
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It was noted above that the seller must be in possession of the motor vehicle either as a
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hirer under a hire purchase agreement or purchaser under a conditional sale agreement.
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In Shogun Finance Ltd v Hudson (2003) a rogue took possession of a vehicle under a hire
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purchase agreement by using a stolen driving licence as evidence of his name and address.
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He then resold the vehicle to Mr Hudson and disappeared. When the finance company found
out about the fraud they sued Mr Hudson in conversion. The House of Lords held the agree-
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ment to be void for mistake as the finance company clearly intended to deal with the person
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actually named on the agreement rather than the rogue. As the rogue was not a seller in
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possession of the vehicle under a hire purchase agreement, Mr Hudson could not rely on s 27
to acquire title.
Finally, it should be noted that any title that passes under s 27 will be the same as the
creditor had who let the motor vehicle.
Even in cases where a private buyer acquires title under s 27, it does not exonerate the
seller from either civil or criminal liability for making the sale (s 27(6); Barber v NWS Bank
plc (1996)).
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Section 21(2) covers miscellaneous situations in which a non-owner of goods may neverthe-
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less pass good title to a purchaser. These situations include:
• common law powers of sale, for example, that of a pawnbroker selling the goods of the
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pledgor when the loan remains unpaid;
•
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statutory powers of sale, such as the powers given to law enforcement officers to sell
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goods seized under a writ of execution. In such a case, it gives a good title to the pur-
chaser of the goods sold by a bailiff which have been taken by the bailiff out of the pos-
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session of the execution debtor, irrespective of whether or not the purchaser had notice
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that the goods in question were not the property of the execution debtor (Dyal Singh v
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• other statutory provisions, such as seen in Bulbruin Ltd v Romanyszyn (1994) where
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the Court of Appeal held that a purchaser who acquired a vehicle from a local authority
exercising its power of sale under the Road Traffic Regulation Act 1984 acquired good
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title to the vehicle even if the vehicle had been stolen before coming into the hands of
the local authority;
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• sale by order of a court. A court may order the sale of goods ‘for any just and sufficient
reason . . .’ despite any objections or claims by the original owner (Larner v Fawcett
(1950)).
Each of the exceptions to the nemo datt rule requires that the purchaser who is claiming good title
to the goods must have acted in good faith and he has the burden of proving that he has so acted.
Section 23 is different in that the burden of proving lack of good faith rests with the original
owner of the goods.
Key debates
Topic The importance of delivery and possession in the passing of title
Viewpoint The article evaluates the operation of statutory exceptions to the nemo
dat rule. It reviews the exceptions in SGA, ss 24 and 25 governing sales
by a seller or buyer in possession of goods and discusses, with reference
to case law, the meaning of ‘continue in possession’, the practical
problems caused by the need for continuous physical possession, and
the importance of ‘delivery’ and ‘possession’ having consistent meanings
throughout the Act.
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Topic No justice for innocent purchasers of dishonestly obtained goods
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Author/Academic Catherine Elliott
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Viewpoint This article discusses the injustice resulting from the House of Lords’ decision
in Shogun Finance Ltd v Hudson (2003) on an innocent purchaser of a motor
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vehicle as it removes from the scope of s 27 a transaction where a rogue
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impersonates another person in order to acquire a vehicle either on hire
purchase terms or under a conditional sale agreement.
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Exam questions
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Problem question
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Roger acquired on hire purchase a car from Dave’s Finance Ltd. Immediately on taking delivery of
the car Roger sold it to Peter, a car dealer, who wanted it as a gift for his wife’s birthday. Before
buying the car, Peter carried out an HPI check on the car and was told by HPI that it was not regis-
tered with them as being subject to any finance arrangement. It appears that Dave’s Finance Ltd
frequently forgot to notify HPI of their finance agreements. Peter’s wife didn’t like the car so Peter
sold it on to his friend George who is another car dealer. George put the car on his forecourt and
sold it to James, a retired local butcher.
Roger has not made any payments to Dave’s Finance Ltd who have now found out that Roger no
longer has the car. They have contacted James requesting the car’s return.
Advise the parties as to who now owns the car.
Essay question
In Bishopgate Motor Finance Corporation Ltd v Transport Brakes Ltd [1949] 1 KB 322 Denning
LJ stated that:
In the development of our law, two principles have striven for mastery. The first is for the protection
of property: no one can give a better title than he himself possesses. The second is for 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 has held sway for a long time, but it has been modified by the com-
mon law itself and by statute so as to meet the needs of our own times.
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