#13889 - The Nemo Dat Principle And Its Exceptions - Commercial Law

Nemo dat quod non habet principle

The nemo dat principle

• You can only give some one what you have, you cannot give someone a good title if you yourself do not own a good title.

• (If you find something one the street and give it someone, you are merely giving him or her a possessory title)

• Two principles: -

• Protection of property: no one can give a better title than he himself possesses

• Protection of commercial transactions: the person who takes in good faith and for value without notice should get better title

• SGA 1979, s. 21:

• ‘Subject to the Act, where goods are sold by a person who is not their owner ... the buyer acquires no better title to the goods than the seller had...’

• Bishopgate Motor Finance Corp v Transport “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 common law itself and by statute so as to meet the needs of our times” Denning LJ

• However, there are a number of exceptions to this principle.

The exceptions to nemo dat

N.B. All the exceptions are cumulative from the point of the view of the party seeking protection against the original owner. He need only bring his case under one of the exceptions to obtain protection against the former owner.

Exception 1: authority/consent

• Where the goods are sold with the express authority of the owner, the ordinary rules of principal and agent apply and no special difficulty arises

• S.62(2)

Exception 2: estoppel

• s.21, SGA goes on to say ‘...unless the owner of the goods is by his conduct precluded from denying the seller’s authority to sell.’

• Rests in every case on a representation

Shaw v Commissioner of Met Police [1987]

Facts

• Owner of a car gave along with the car a letter to Shaw stating that he had sold it to Shaw with the vehicle transfer form signed in blank

Held

• Owner had by words asserted Shaw’s right to sell the car and was estopped from going back on that statement. However on these particular set of facts B had only agreed to buy the car, in which case estoppel only applied when the goods had been sold, and here the goods were agreed to be sold

• So by time this happened the property had not yet passed to the buyer, and the owner was entitled to recover the goods

• Clearly you can see a link between estoppel on the one hand, sale versus agreement to sell, and when property passes in a sale versus an agreement to sale, and how estoppel works on top of each of those scenarios

• On the particular set of facts it had been an agreement to sell but if it had not, and had it been a sale then perhaps we could see it differently

‘Representation’ requirement

Central Newbury Car Auctions v Unity Finance [1957]

• A takes his car to the auctioneers who are effectively dealers: Central Newbury Car Auctions

• They sell the car to a finance company: Unity Finance. Under hire-purchase agreement they sell/give the car to B. A and B are the same person

• So what A has effectively done has sought to sell his car via the dealers/auctions, take the money back from the finance company and lease the car back with an option to buy

• In a hire-purchase agreement, we have a bailment under the hire then it becomes a sale later on

• At the beginning of the hire-purchase agreement, B decided to sell it to C, who then sold it to D. D now holds the car .

• In this case it was held that throughout, the registration booklet had gone along with the car

• Dispute arose here because we want to show or not whether estoppel could be used here because the representation arguably is that by allowing someone to take possession of the car with the key and registration booklet you represent to any future buyers that this person who is holding those things it the owner

• In other words C & D, would have no reason to believe that B or A is not the true owner

• Question is there estoppel, in other words D gets to keep car? Or is there no representation and you don’t fulfil the requirement.

• Held that parting with the car and registration booklet endows the possessor with an apparent authority to sell 8

• If you are not the owner of the goods then at least you are the agent of the owner of the goofs.

• The person at the end of the chain keeps the car

• Registration booklet had a disclaimer in it said that holding this registration booklet does not prove ownership of the car

• We were unable to say estoppel by negligence, by carelessly allowing this book to follow.

Eastern Distributors Ltd v Goldring [1957]

• Where in pursuance of a plan to deceive a finance company, one M signed and delivered forms to C which enabled C to represent that the had M’s authority to sell a car belonging to him.

  • He signed blank HP forms, by him signing a contract you give authority to do it. That’s the written method.

• It was held by the Court of Appeal that M was estopped from setting up his title against the plaintiffs who had bought he car from C

• It was also held that the estoppel in fact operated to pass a good title to the plaintiffs not only against M himself, but also against a buyer in good faith from M

• It is, however, not entirely clear why the case was not disposed of on the simpler ground that C had M’s apparent authority to sell, although in fact he exceeded that authority

Lloyds and Scottish Finance Ltd v Williamson

• The plaintiff entrusted his car to a dealer and authorised him to sell at or above a certain price

• The dealer sold the car above this price but the price was not paid in cash but set off against a debt owed by a dealer to a friend of the buyer

• For this reason the sale was outside the ordinary course of business but was held that this was immaterial

• Since the owner knew that the seller might very well sell as a principal and not as an agent and had authorised him to so, it made no difference how he sold the goods.

Farquharson Bros v King [1902]

• Timber merchants (plaintiffs) had their timber in a warehouse and their employee clerk had a limited authority to deal with it.

• The clerk set up a fraudulent scheme whereby he sold timber through a false name to innocent buyers (defendants). The timber company then wanted its timber back from the buyers.

• The buyers argued that whoever enabled the loss ought to bare it and the owner had enabled the fraudulent scheme to happen by employing the thief.

• The House of Lords held that the defence of estoppel failed because the defendants had not acted in reliance on any representation made by the plaintiffs concerning the authority of the clerk.

• On estoppel by negligence: whether a seller owes a duty of care towards all potential buyers, in other words if we treat this as estoppel be negligence, we will have to show that A owes a duty of care to all potential buyers. It will be hard to demonstrate that.

Mercantile Credit Co Ltd v Hamblin [1965]

• Owner of the car signed forms in blank without reading them in the belief that it would enable a car dealer who appeared to be respectable to raise money on the security of the car

• The dealer fraudulently use the forms to sell the car to a finance company

• A owned jaguar and wished to raise money on it, and took it to B, B said he could do so and raise money on it

• A told B to find out much you can get, and then come back to me

• A signed the form enabling the sale, leaving the form blank with no fee/amount entered

• B completed the transaction with the finance company and the courts took the same sort of approach in Central Newbury and A was not estopped from claiming that the car was belonging to her

• Quite clear that B is an agent, it is a disclosed agency. It is clear to C that A is the owner and that B is acting as her agent. Principal ? Agent Third Party

• If that’s the case then B as agent should draw attention to all facts that an act that will be relied upon by any party, namely the third-party is unlawful

• Clearly B not authorised to act, you can see that he has completed the transaction fraudulently as he has filled in the form

• Looking at this at an agency situation, and loss that C sustains, you can simply sue the agent

• Was not the negligence of the owner but fraud of dealer that caused the loss

• Estoppel does not work here

Moorgate Mercantile Co v Twitchings [1977]

A House of Lords Case

• Where a careless failure to register a hire purchase agreement did not give rise to estoppel

• Here we have an owner and buyer of a car who were both finance companies, and both members of HPI, hire-purchase register

  • Due diligence means that you should check the register if they are actually the owner

Buyer received a proposal to buy the car, and he searched the register but found nothing.

• He bought it to re-let under a hire-purchase agreement, and it turned out that the car was already subject to a hire-purchase agreement

• So the person who purported to sell it to him was not their own

• You could not rely on estoppel. The owner of a property, according to Lord Fraser is entitled to be careless with it if he likes and even extreme carelessness with his own property will not preclude him from recovering it from a person who has bought it from someone who dishonestly purported to sell it.’

  • Not really a breach of duty – giving rise to estoppel.

Further requirements

The representation must be voluntary

Debs v Sibec Developments [1990]

We see that a document is obtained from an...