Commercial law discussion - 'Transfer of Title by a Non-Owner'.
Commercial Law Coursework
This question is mainly concerned with the 'Transfer of Title by a Non-Owner'. Sections 21-26 of the Sale of Goods Act 1979 deal with the transfer of title. The general rule is that a person cannot give a better title than he himself possesses when he purports to sell goods. This is nest expressed by the legal maxim 'Nemo dat quod non habet' - no one gives who possesses not, that is to say, no person can give a greater title than that which they possess.
Section 21(1) provides:
'subject to this Act, when goods are sold by a person who is not their owner and who does not sell them under the authority and consent of the owner, the buyer acquires no better title to the goods than the seller had...'
The Act does not affect the provisions of the Factors Act or any enactment enabling the apparent owner of goods to dispose of them as if he were their true owner.
At one time the only exception to this was sale in market overt, but in response to commercial pressures a steady flow of further exceptions have been introduced both by statute and common law, while the concept of market overt itself has been abolished.
There are many exceptions to the nemo dat rule. The first one is Estoppel, this exception is\incorporated into s21(1) which ends:
'...unless the owner of the goods is by his conduct precluded from denying the seller's authority to sell.'
Section 21 can only operate to pass title when there has been a sale, if there is merely an agreement to sell then the doctrine of estoppel will not operate. Estoppel is often considered to operate in a number of possible ways, by words, by conduct or by negligence. The nature of estoppel is that it provides a defence to the person in whose favour it operates, so that the owner of goods, (the person estopped) is not allowed subsequently to deny the truth of what he has represented or allowed to be represented and on which the buyer has relied to his detriment.
The second exception is the Sale under common law or statutory powers of sale, or under a court order- section 21(2)(b) provides that nothing in the Sale of Goods Act affects:
'the validity of any contract of sale under any special common law or statutory powers of sale, or under the order of a court of competent jurisdiction.'
The High Court has the power to order a sale if the goods are perishable or for some other reason likely to deteriorate quickly.
The third exception is a Sale in market overt- the concept of market overt, long agreed to be out of date, was finally abolished by the Sale of Goods (Amendment) Act 1994, as of January 1995.
The forth exception is a Sale under a voidable title- section 23 provides:
'when a seller of goods has a voidable title to them, but his title has not been avoided at the time of the sale, the buyer acquires good title to the goods, provided he buys in good faith and without notice of the seller's defect of title'.
Section 23 presents one major problem: that it is essential to distinguish between contracts which are voidable and those which are actually void.
The fifth exception the a Sale by an agent- Section 62 of the Sale of Goods Act expressively preserves the common law powers of an agent. The sale by an agent of goods belonging to his principle, will pass good title, provided the agent had 'actual' or 'ostensible' authority to make the sale.
The fifth exception is a Sale by a mercantile agent- the concept of a mercantile agent- the concept of a mercantile agent within the meaning of the Factors Act 1989 and the power of sale by such agents has been expressively preserved by s21(2). The ...
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The fifth exception the a Sale by an agent- Section 62 of the Sale of Goods Act expressively preserves the common law powers of an agent. The sale by an agent of goods belonging to his principle, will pass good title, provided the agent had 'actual' or 'ostensible' authority to make the sale.
The fifth exception is a Sale by a mercantile agent- the concept of a mercantile agent- the concept of a mercantile agent within the meaning of the Factors Act 1989 and the power of sale by such agents has been expressively preserved by s21(2). The Factors Act itself was passed in 1889 to protect third parties dealing with professional or 'mercantile' agents acting in the ordinary course of their business. Such agents would have authority to sell goods or consign goods for sale or to buy goods or to raise money on the security of goods. The Act covers people who in today's language are brokers or dealers.
Section 2(1) of the Factors Act provides:
'where a mercantile agent is, with the 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...as mercantile agent shall...be valid as if he were expressly authorised by the owner...provided the person taking... (the goods)...acts in good faith, and has not at the time of the disposition notice that the person making the disposition has not the authority to make the same.'
The sixth exception is a Sale by a seller in possession- this exception to the 'nemo dar' rule is contained in s8 of the Factors Act which is reproduced with only minimal changes in s24 Sale of Goods Act which provides:
'where a person having sold goods continues or is in possession of the goods, or the documents of title to the goods, the delivery or transfer by that person...of the goods or documents of title under any sale, pledge or 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 delivery or transfer were expressly authorised by the owner of the goods to make the same.'
The seventh exception is a Sale by a buyer in possession- in a similar way to the previous key point s25(1) of the Sale of Goods Act reproduces with only minor alterations s9 of the Factors Act. Section 25 provides that:
'where a person having bought or signed 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...of the goods or documents of title, under any sale pledge or other disposition thereof, to any person receiving...in good faith and without notice of any lien or other right of the original seller... has the same effect as if the person making the delivery or transfer were a mercantile agent in possession of the goods...with the consent of the owner.'
And finally the eighth exception is 'motor vehicles subject to a hire purchase or conditional sale agreement'- Part III, ss27-29 of the Hire-Purchase Act 1964 provides an important exception to the 'nemo dat' rule. The provisions of this Act, which were themselves amended by the 1974 Consumer Credit Act, are strictly limited to motor vehicles.
In order to determine whether the law has achieved an even balance between the respective parties in the case Bishopsgate Motor Finance v Transport Brakes Ltd each transaction in the case need to be evaluated carefully.
In this case there is a conflict of interest between that of the original owner of the car who is seeking to recover the car and the ultimate buyer who has paid good money for the car which he beloved the seller was entitled to sell to him.
The defendant had no right to sell the car, however he does transfer ownership because it is one of the exceptional cases where a non-owner seller can make the buyer owner. However the seller is in breach of s12(1) of the Sale of Goods Act. Even though the defendant (seller) is the owner of the car he does not have the right to sell the car because of the hire purchase terms. This is well illustrated by the leading case of Niblett v Confectioner's Materials (1921)1, where the plaintiffs bought tins of milk from the defendants. Some of the tins of milk were delivered bearing labels 'Nissly brand', which infringed the trademark of another manufacturer. That manufacturer persuaded Customs and Excise to impound the tins and the plaintiffs had to remove and destroy the labels, before they could get the tins back. It was held that the defendants were in breach of s12(1) because they did not have right to sell the tins in the condition in which they were, even though they owned them. This was clearly reasonable, as the plaintiffs had been left with a supply of unlabelled tins which would be difficult to dispose of. Similarly the defendant in Bishopsgate had no right to sell the car and is in breach of Section 12(1) of the Sale of Goods Act, which states:
'in a contract of sale, there is an implied condition on the part of the seller that in the case of a sale he has a right to sell the goods, and in the case of an agreement to sell he will have such a right at the time when the property is to pass.'
The bona fide their party in the case can certainly recover, recover, by way of damages, any loss which he has suffered because of the breach. Further, the seller's obligation is stated to be a condition and the buyer is generally entitled to reject the goods when there is a breach of condition. In practice, however it will very seldom be possible to use this remedy because the third party did not know until well after the car had been delivered, that the seller had no right to sell. In Rowland v Divall (1923)2, the Court of Appeal held that the buyer had a more extensive remedy. In that case, the defendant honestly bought a stolen car from the thief and sold it to the plaintiff, who was a car dealer, for £334. The plaintiff sold the car for £400. In due course, some four months later the sale by the defendant to the plaintiff, the car was repossessed by the police, and returned to its true owner. Clearly on these facts, there was a breach of s12(1) and the plaintiff could have maintained a damages action, but in such an action it would have been necessary to take account not only of the plaintiff's loss, but also of any benefit he and his sub-buyer had received by having use of the car. The Court of Appeal held, however, that the plaintiff was not restricted to an action for damages, but could sue to recover the whole of the price. This is on the basis that there was a total failure of consideration; that is, that the buyer had received none of the benefit for which he had entered the contract, since the whole object of the transaction was that he should become the owner of the car.
The defendant has acquired the car on hire purchase terms and then has disposed it for cash before he has completed the hire purchase contract. Such transactions are not protected by s25 of the Sale of goods Act because the defendant who acquired the car on hire purchase is not the buyer and nor by the Factors Act because the seller is not a mercantile agent.
However the third party in the case has rights under s27(2) of the Hire-Purchase Act 1964, which states that where a motor vehicle is held under a hire purchase or conditional sale agreement and the person who has the vehicle sells to a private purchaser (rather than a dealer or finance house) before payment has been completed then subject to certain qualifications the purchaser has good title. The purchaser must be a private individual and he must take in good faith and without notice of the hire purchase or conditional sale agreement. If the vehicle is disposed of to a dealer or finance house then no title will pass. So therefore relating this to the case the bona fide third party has good title to the car in question. A similar situation arose in Butterworth v Kingsway Motors (1954)3. Where the defendant who was in possession of a car under a hire purchase agreement, sold it to the plaintiff before he had paid all the instalments.
As states above all the exceptions, I believe that the seventh exception applied to the Bishopsgate case, which is- a Sale by a buyer in possession (section 25 of the Sale of Goods Act 1979). It is seen that this section is in a sense the reverse of s24, since it deals with the situation where possession of the goods has passed to the buyer before ownership has passed to him and permits such a buyer to transfer ownership to a sub-buyer. In Shaw v Commissioner of Police (1987)4, a car had been obtained from the owner ob the basis that the person obtaining it might have a client who might be willing to buy it. It was held that he was not a buyer within the meaning of s25 and was not, therefore, in a position to transfer ownership to a sub-buyer. In the same way, the defendant in the Bishopsgate case is under a hire purchase agreement and is not a buyer for the purpose of s25 because, in such a case, the defendant has only agreed to hire the goods and is given an option to buy the goods which he is not legally obliged to exercise, even though commercially it is extremely likely that he will. Although the buyer's voidable title would have been avoided, he would still be a buyer in possession within s25. This was shown in Newtons of Wembley Ltd v Williams (1965)5, where the plaintiff agreed to sell a car to A on the basis that the property was not to pass until the whole purchase price had been paid or a cheque had been honoured. 'A' issued a cheque and was given possession of the car but in due course his cheque bounced. The plaintiff took immediate steps to avoid the contract, and after he had done this A sold the car to B in a London street market and B sold the car to the defendant. The Court of Appeal held that, although the plaintiff had avoided A's title, A was still a buyer in possession of the car and that B had, obtained a good title from A when he bought from him in good faith and had taken possession of the car. It was an important part of the Court of Appeal's reasoning that the sale by A to B had taken place in the ordinary course of business of a mercantile agent.
So therefore the Bishops case is a similar situation and so there is no reason why the bona fide third party shouldn't obtain a good title from the defendant when he bought from him in good faith.
The sale in the Bishopsgate case has taken place in a market overt, in Ganly v. Ledwidge (1876) and Delaney v. Wallis and Sons (1884)
it was held that there was no authority for the proposition that, to obtain the protection of market overt, goods must be sold by a trader in the market; if goods were exposed for sale and sold in the market in the day time, a sale was equally good if made by their owner as if made, for example, by an auctioneer. Section 22(1) of the Sale of Goods Act 1979 provided:
'where goods are sold in market overt, according to the usage of the market, the buyer acquires a good title to the goods, provided he buys them in good faith and without notice of any defect or want of title on the part of the seller.'
However this exception had been removed by the Sale of Goods (Amendment) Act 1994. as the Bishops gate case was in 1948, this exception would then have been allowed and so the third part would have obtained a good title however even though this rule has been abolished the innocent third party in this case still had good title to the car as he bought it in good faith and without notice of the hire purchase agreement.
So all in all in my opinion I believe the law has achieved an even balance between the respective parties as in the case the hire purchase company couldn't recover the car as the third party bought the car in good faith and obtained a good title, and since cars were sold in the market by private sale as well as by public auction, the car was sold to the third party "in market overt, according to the usage of the market," within the Sale of Goods Act 1893 s. 22 (1) and, therefore, the third party was able to give a good title to the defendant, with the result that the hire purchase company could not recover.
Words: 735
[1921] 3 K.B. 387
2 [1923] 2 K.B. 500
3 [1954] 1 W.L.R. 1286
4 [1987] 1 W.L.R. 1332
5 [1965] 1 Q.B. 560
