#5257 - Passing Of Title - Commercial Law

• General principle is nemo dat non quod habet, per s.21(1) SGA 1979

  • But these exceptions operate to give title when the owner does not have it

  • So if title is transferred to the third party

    1. The owner is left with a personal claim against the fraudster

  • And if title is not transferred

    1. The owner is entitled to recover the goods (a proprietary remedy)

COMMON LAW

1. Agency, s21 SGA 1979

   • A non-owner can pass good title if he has actual or apparent authority

2. Estoppel by representation

   • O makes a representation to B that S has authority

   • You tend to require a representation

     • No estoppel as no representation

       1. Farquharson Bros v C Kin (1902) clerk sold on the timber to a third party, and employing the clerk was not enabling him enough

       2. Mercantile Bank of India v Central Bank of India (1938) S pledged railway receipts to CB. They returned it to him in accordance to standard practice and he fraudulently used it to pledge to MB. Possession of the receipts did not convey a representation

     • Yes estoppel as there was a representation

       1. Eastern Distributors v Goldring (1957) Giving a blank form. But this was about hire purchase fraud

       2. Motor Credits v Pacific Motor Auctions (1963) X had O’s authority to display and sell. Representation limited to selling in the ordinary course of business not in a forced sale.

3. Estoppel by negligence

   • S makes a representation to B, but it was allowed by O’s negligence

   • Requirements

     • Duty - but there is no general duty of care on the owner of goods to protect his interest

       1. Moorgate Mercantile v Twitchings (1977) no duty to register with HP info even though 98% did

     • Breach

     • Causation

   • Rare case Coventry Shepherd v Great Eastern Railway (1883) negligently issued two delivery orders in respect of same goods. The documents had mercantile meaning and so had a duty to people likely to deal with those documents

   • Effects

     • Effective against owner and anyone O has sold it onto

       1. Owner (estoppel by negligence) S B

       2. Owner B2

       3. B can assert his title against B2, Eastern Distribution v Goldring (1957)

PASSING OF PROPERTY

Sale by a Mercantile Agent, Factors Act 1889, s.2

1. Requirements

   • Mercantile Agent

     • Can be MA if acting for a single principal, but must be in the business of buying or selling goods Budberg v Jerwood (1934) Russian countess gave lawyer a pearl necklace to sell. Was not in business, so not MA

   • In possession of the goods or of documents to title of the goods at time of sale

   • With the consent of owner

     • Question is whether owner intended to leave the good with the seller, whatever the motive

       1. Pearson v Rose & Young (1951) Owner intended to leave the car (after being tricked) but forgot the reg book, so was in possession of the car but not the logbook

   • Goods entrusted to MA as MA

     • But need not be for sale, can be for any part of a MA’s job description (i.e. to get offers)

     • Cannot be as something else

       1. Astley Industrial Trust v Miller (1968) Firm had 2 business hiring and dealing cars. Sold a hire car to B, but it was held that they were in possession as hirer, not MA.

   • Sale in the ordinary course of business

     • Within business hours, at a proper place of business, and in the ordinary way an MA would act, so there is nothing to lead the buyer to suppose anything’s wrong, Buckley J in Oppenheimer v Attenborough (1908)

     • Sale without a log book isn’t within the ordinary course of business Lambert v G&C Corporation (1963) but it may be okay as long as there is a plausible explanation

   • To a purchase in good faith without notice that the sale was made without O’s authority

     • Original owner must prove the lack of good faith, SGA 1979, s.23

     • Actual notice or constructive notice? Goode says constructive notice not enough when NO reasonable man would have bought it without asking more. Not supported by the case law, Heap v Motorists Advisory Agency (1923)

2. Analysis

   • Favours third party expectations

     • The idea of operating in the ordinary course of business

     • But there are some exceptions

       1. Items has to be entrusted to MA as MA, which he can’t know

   • Requires owner to have lent himself to the dispositive act (per Merrett (2008) by entrusting them to the MA in the course of his business as MA

Sale under a voidable contract, s.23 SGA 1979

1. What is the rule

   • A person cannot avoid a voidable contract to the prejudice of third party rights acquired in good faith and for value

     • O sells to B1 under duress, B1 sells to B2, O cannot then avoid the voidable title

1. Requirements

   • B1 must acquire title

   • The transaction between O and B1 must be voidable

     • Voidable (the exception does apply, and third party gets good title)

       1. Misrepresentation

       2. Undue Influence

       3. Duress

     • Void ab initio (the exception does not apply because the transaction between O and B1 is treated not to exist)

       1. Fraud

       2. Fundamental mistake

          1. If face to face, there is a strong presumption that it is misrep because it is assumed that the party intended to deal with the person in front of them Ingram v Little (1962)

             1. This means that it does fall under s.23

          2. If NOT face to face, you look at the written document to see who the innocent party intended to deal with Shogun Finance v Hudson (2003)

             1. This means its fundamental mistake and does NOT fall under s.23

• By expanding the scope of unilateral mistake, the court has narrowed the scope of s.23 as these situations will no longer be a voidable contract, and an innocent third party has only personal recourse against the fraudster (usually worthless) not proprietary recourse

  • Seller Fraudster Innocent third party.

  • Catherine Elliott (2004) prefers the dissenting judgments of Lord Nicholls and Millett in Shogun Finance v Hudson (2003) who held that in any case where two people deal with each other the presumption is that contract is between them misrep s.23 applies innocent third party is in a better position. The majority said that that presumption only applies in face to face contracts.

  • Reasons

    • The person selling to a fraudster is in a stronger position to check the credentials than the person buying from one

    • LC Report 12 (1966) said that where goods are sold under mistake as to identity, contract is voidable

    • Why should B2s rights be determined by complex turns of contract law that he is unaware of?

    • America follows the line of the minority in Shogun which says mistakes of identity are voidable

  • B1 must sell to B2 before the title is avoided

    • If title is avoided before the sale, then s.23 does not apply

      1. Although B1 could pass title as a seller in possession or under other exceptions

    • When is title avoided?

      1. By communicating with B1 and notifying him of the rescission

      2. Or taking all steps open to him when the fraudulent party is deliberately keeping away Car & Universal Finance v Caldwell (1965)

  • B2 must be in good faith and for value

    • If B2 knew that B1’s title was voidable, B2 only obtains voidable title, but this is still good title until voided

Seller in possession, s.8 Factors Act 1889, s.24 SGA 1979

1. What is the rule?

   • O sells goods to B1 but remains in possession and then sells it to B2.

   • Nemo dat would give title to B1, but the exception operates to give title to B2

2. Requirements

   • Having sold goods

   • Continues or is in possession

     • Continues in possession

       1. No break in physical possession between the first sale and resale

          1. Michael Gerson v Wilkinson (2001) only in relation to continuing in possession.

• Merrett (2008) argues that this is wrong and constructive delivery should serve to break continuous possession and Pacific Motors (1965) was wrongly decided.

• Pacific Motors (1965) was reasoned on the basis that the third party is relying on the appearance of possession

  • BUT in none of the other nemo dat exceptions is a third protected simply because he believed that the seller was the owner. E.g. s.2 the good have to be entrusted to MA as MA

  • BUT B2 would not have known that the property was continually possessed.

• With constructive delivery the buyer has completed the sale and therefore you should not penalize him, and plus constructive delivery usually counts City Fur v Fureenbond (1937)

  • Is in possession

    1. Do you have to be in possession as a seller?

       1. Yes Pacific Motor Agency v Motor Credits (1965), approving of Michell v Jones (1905, NZ) S sold horse and obtained it back on lease. No possession as a seller.

       2. Michael Gerson did not consider the Mitchell v Jones (1905) type situation where there is a break in possession.

  • Remember that possession is in the commercial sense

    1. Goods that are at the seller’s disposal even if they are in a warehouse count City Fur v Fureenbond (1937)

  • Sale, pledge or other disposition OR agreement to sell, pledge or other disposition

    • S.8 Factors Act

      1. Applies to agreement for sale pledge or other disposition

         1. If agreement for sale - B2 has priority over O and will acquire title when property passes to him in accordance with the SGA rules

    • s.24 SGA 1979

      1. Narrower – only sale, pledge or other disposition

  • The delivery or transfer of foods or documents of title to B2

    • Constructive delivery is enough Michael Gerson v Wilkinson (2001) S sold goods to B1 on a sale and leaseback. S, having retained possession, then sold it to B2 on sale and leaseback. There was constructive delivery

    • Merrett (2008) we prefer B2 to B1 even though they did exactly the same thing!

  • Good faith without notice

    • Actual notice or turning a blind eye Feuer Leather Corp v Frank Johnstone (1981) although there is no general duty to make inquiries as to the right of the seller to sell.

    • Constructive...