SPECIAL EXEMPTION TO THE DOCTRINE OF NEMO DAT QUO NON HABEAT

CONTENTS

1.0. Introduction.

2.0. Objective.

• Main Body: Special Exception
• Estoppel
• Sale by a Person with voidable title
• Sale by a seller in possession
• Sale by a buyer in possession
• Sale in Market Overt
• Sale by Court Order

4.0. Conclusion

5.0. Summary

6.0. Tutor Marked Assignments (TMA)

7.0. References/Further Readings.

INTRODUCTION

The nemo dat rule mainly protects the interest of the  property  owners. If non-owners are allowed to sell properties that do  not  belong to them, the result is better imagined as we have seen in the previous unit of this module.

At the outset, it must be emphasized that the general rule is well enunciated in the Section 21 (1) of the Act where goods are sold by a person who is not their owner, and 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 in this circumstance.

The second aspect of the principle laid down by Denning LJ in Bishopgate Motor Finance Corp Ltd v. Transport Brakes Ltd (1949) 1 KB 322, is discussed in the last unit as the principle for the  protection of commercial transactions, that is, the person who takes  in good faith and for value without notice should get a good title. This is the principle that will be well discussed in this unit as the exemption to the nemo dat rule.

It is however pertinent to note that there is a whole lot of exemption   to the rule in section 21 of the Act, but some of them will  be  discussed later in this unit.

OBJECTIVE

In this unit learners should be able to have a detailed understanding of the exemption to the general rule of nemo dat quod non habet.

It is relevant to note that the exemption to this rule is also well spelt out in the Act, and all the sections contained in it will be discussed   for easy access.

The main objective of this unit is for the learner to know all the different types of the exemption to the rule and the outstanding judicial authorities in this regard.

MAIN BODY- SPECIAL EXEMPTION

ESTOPPEL

If the owner of goods represents that another is his agent or allows a person to represent himself as his agent, although no such agency exists in fact, he, the owner will be estopped from denying the existence of his agents authority to act, on his behalf, in relation to  the goods. This exception is created by the later part of Section 21(1)  of the Act which states that “…unless the owner of the goods is by his conduct precluded from denying the sellers authority to sell”.

However, this principle is also well preserved by Section 61(2) of the Act which states that;

“ the rule of the common law, including the law merchant, save in so far as they are inconsistent with the express provision of this act, and in particular the rules relating to the law of principal and agent…shall continue to apply to contracts for the sale of goods.”

Estoppel could be by representation or by negligence. This will be discussed briefly with judicial illustrations.

In Henderson & Co. v. Williams (1895) 1 QB 521, the true owner of  the goods represented to the buyer that the person selling was acting as an agent with authority to sell or is the owner. The owner was held estopped from denying that authority to sell and the buyer acquired good title, because he had represented to the buyer in that regard.

On the other hand, it may be otherwise if it could be shown that the owner has breached the duty of reasonable care owed to the third party and that this induced the third party to buy the goods so that the negligence was the proximate cause of the buyer’s loss.

In Mercantile Credit Co Ltd v. Hamblin (1965) 2 QB 242, the owner of a car signed forms in blank, without reading them, in the belief that they would enable a car dealer, who appeared to be respectable, to raise money on the security of the car. In fact, the dealer fraudulently used the forms to sell the car to a finance company. The Court of Appeal held that a duty of care existed between the owner and the finance company, but that there was no breach of that duty because she knew the dealer and reasonably believed him to be respectable. It was therefore not negligent of her to sign the forms in blank, It was  the fraud of the dealer that caused the loss and not the negligence of the owner.

SALE BY A PERSON WITH VOIDABLE TITLE

By section 23, the buyer, who buys in good faith and without notice   of any defect in the title of the seller, will acquire good title if the  goods are bought from a seller whose title is voidable but at the time  of the sale it has not been avoided.

In Kings Norton Metal Co Ltd v. Edridge, Merrette Co  Ltd (1897)14 TLR 98, a manufacturer of metal received an order from Hallam & Co and in consequence sent goods. It turned out that Hallam & Co. did not exist. The rogue resold the goods. It was held that the intention had been to contract with the writer of the order, and although this had been induced by a fraudulent misrepresentation, that only made the contract voidable, but since it had not been avoided before the goods were resold to a third party, title passed to the latter.

The law of contract governing void and voidable contracts apply in the instant cases. If property has not passed from the seller to the rogue and then to the innocent buyer then section 23 will not apply here.

Cunday v. Lindsay, (1878) 3App Cas 459. Lewis V. Averay.

SALE BY A SELLER IN POSSESSION

Where a person who sold goods retains possession of them  and  resells them, for instance, where A, the seller, sell goods to B and   then resells the same goods to C. If property has passed to B, but the seller is still in possession of the goods or documents of title to the goods, and the seller sells them to C, who purchased in good faith   and without notice of the sale to, this second transaction passes title to C. B will only have an action for breach of contract against the seller. Section 25 of the Act.

For the second buyer to acquire good title, the seller must deliver possession of the goods or documents of title. Merely contracting a second sale is not sufficient to give title to the second buyer. In Michael Gearson (Leasing) Ltd v. Wilkinson (2001) QB 514, Machinery was sold to a finance company and leased back to the seller, who   then sold it to a second finance company and leased back. At all  times, the machinery remained in possession of the seller. It was held that the seller’s acknowledgement to the finance company that the machines were being held on its behalf amounted to a delivery.

SALE BY A BUYER IN POSSESION

Section 25 (2) of the Act states that:

“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 title, 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  goods,  has  the  same effect as if the person making the delivery or transfer were a mercantile agent in possession of the goods or documents of title with the consent of the owner.”

The goods or title to the documents of title must have been obtained under a sale or an agreement to sell that is bought or agreed to buy.

In Cahn v. Pocketts Channel Steam Packet Co. Ltd(1889) 1 QB 647, a seller of copper transmitted a bill of exchange for the price together with the bill of lading to the buyer, X . X did not signify acceptance, but endorsed the bill of lading to the plaintiffs in accordance with a contract for resale of the copper already made. In other words, he did not accept the bill of exchange but transferred the bill of lading. It   was held that, X was someone who had agreed to buy the goods and since the plaintiffs had taken the transfer of the bill of lading in good faith and without the knowledge of the original owner’s rights, they obtained a good title on the copper under 25 (2) of the Sales of Goods Act.

SALE IN MARKET OVERT

The word market overt was been defined by Jervis, J in Lee v. Bayes (1856) 18 CB 599 as an open, public and legally constituted market. Note that an unauthorized market does not qualify as a market overt. To constitute a sale in a market overt, it must be shown that the sale took place within the premises of the market, during ordinary business day, provided it is a sale of goods of the kind normally sold  in the market.

Not only must the sale be in a market overt and the whole transaction effected there, it is vital to show that the sale was open and public. In Reid v. Metropolitan Police Commissioner (1973)2 AER 97, the sale of stolen goods took place in a market overt in the morning when the  sun had not risen and it was still only half light. The court held that the goods should have been sold in day time when all who passed could see the goods.

Where stolen goods are sold in market overt, the buyer acquires good title under section 22 (1) provided he buys in good faith and without notice of the seller’s lack of title.

SALE BY COURT ORDER

The second arm of section 21(2) (b) of the sale of Goods Act protects  all sales carried out under the order of a court of competent jurisdiction. The High Court has the power to order the sale of any goods which may be of perishable nature, or likely to deteriorate from keeping or which for any other just and sufficient reason it may be desirable to have sold at once.

Consequently, a court bailiff acting in compliance with such an order may exercise a valid power of sale.

CONCLUSION

It pertinent to note that there are many exemptions to the nemo dat quod non habeat rule but some, not all of them have been discussed in this unit others not discussed are sale  by Mercantile Agent which  is not protected under the Sale of Goods Act.

It is however worthy to note that once one of the exemptions to the general rule is applied and the good is passed, a good title will pass to the innocent buyer without notice of the original owner of the goods.

SUMMARY

In summary it is important to note that someone who has no title to goods cannot pass the goods to another as enunciated in the general rule of nemo dat quod non habeat. By this, a person cannot give what he does not have. The innocent purchasers of such goods are protected by the provisions of the Sale of Goods Act.

TUTOR MARKED ASSIGNMENT

2. 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 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.’ (Denning LJ). Discuss.
3. Briefly explain some types of exemptions to the rule of nemo dat quod non habeat.

REFERENCES/FURTHER READING

• Sales of Goods
• Rawlings, Commercial Law University Of London Press (2007).
• Okany Nigerian Commercial Law, Africana .FEP Publishers Limited (1992)
• Sofowora General Principles of Business and Coop Law, Soft Associates, (1999).
• A.   M.   Agbonika   and   J.   A.   A.   Agbonika,   Sale   of   Goods (Commercial Law), 2009, Ababa Press Ltd
  • J. Okoro    (2013),    Business    Law    for    Professional    Exams, MaltHouse Press Ltd.