State the exceptions to the general rule that “no Seller can give to the buyer of goods a better title than he himself has.” Illustrate your answer by example.

State the exceptions to the general rule that “no Seller can give to the buyer of goods a better title than he himself has.” Illustrate your answer by example. Or State the rule “nemo dat quod non haber(i. e. no person can convey better title than he himself has in the property and discuss the various exceptions to the above rule.

The fundamental principle governing the transfer of title in the sale of goods is encapsulated in the Latin maxim “nemo dat quod non habet,” which translates to “no one can give what they do not have.” This general rule, enshrined in Section 27 of the Sale of Goods Act in India, dictates that a buyer acquires no better title to goods than the seller themselves possessed, unless the sale was conducted by the owner or with their explicit authority or consent (e.g., through an agent).

For instance, if someone sells stolen goods or goods obtained through fraud, the buyer does not acquire a valid title, and the true owner can recover their property. The landmark case of Hollins v Fowler (1875) illustrates this principle, where a fraudulent broker’s sale of cotton did not give the subsequent buyer a good title against the original owner. Similarly, in Lee v. Bayee (1856), the buyer of a stolen horse at a public auction, unaware of its stolen nature, did not obtain a valid title and had to return the horse to the rightful owner.

However, to facilitate smooth trade and protect bona fide purchasers, the law recognizes several crucial exceptions to this general rule. These exceptions allow a buyer to acquire a good title to goods even if the seller did not have a perfect title themselves, provided certain conditions are met. Let’s explore these exceptions in detail:

Exceptions to the “Nemo Dat Quod Non Habet” Rule:

1. Sale by a Mercantile Agent (Proviso to Section 27, Sale of Goods Act):
   • Rule: Where a mercantile agent is in possession of goods or documents of title to goods with the consent of the owner, any sale made by them in the ordinary course of business of a mercantile agent is valid as if they were expressly authorized by the owner to sell.
   • Conditions:
     • The mercantile agent must be in possession of the goods or documents of title with the owner’s consent.
     • The sale must be made by the agent acting in the ordinary course of their business.
     • The buyer must act in good faith and without notice that the seller (mercantile agent) lacks the authority to sell.
   • Example: A broker dealing in jewelry (a mercantile agent) is entrusted with a diamond necklace by its owner to show to potential buyers. If the broker, acting in their usual course of business, pledges the necklace to a pawnbroker who acts in good faith and without knowing the broker’s limited authority, the pledge is valid, and the pawnbroker gets a good title to the necklace to the extent of their lien.
2. Sale by One of Joint Owners (Section 28, Sale of Goods Act):
   • Rule: If one of several joint owners of goods is in sole possession of them with the permission of the co-owners, the property in the goods is transferred to any person who buys them from such joint owner in good faith and without notice that the seller has no authority to sell.
   • Conditions:
     • The seller must be one of the joint owners.
     • The seller must be in sole possession of the goods.
     • The possession must be with the permission of the other co-owners.
     • The buyer must act in good faith and without notice of the seller’s lack of full authority.
   • Example: Three brothers, A, B, and C, jointly own a motorcycle, but A has sole possession of it with the consent of B and C. If A sells the motorcycle to D, who buys it in good faith and without knowing that A is not the sole owner, D acquires a good title to the motorcycle.
3. Sale by a Person in Possession Under a Voidable Contract (Section 29, Sale of Goods Act):
   • Rule: When a seller has obtained possession of goods under a contract voidable under Section 19 (coercion, undue influence, fraud, misrepresentation) or Section 19A (undue influence in certain relationships) of the Indian Contract Act, 1872, but the contract has not been rescinded at the time of sale, the buyer acquires a good title to the goods.
   • Conditions:
     • The seller must have obtained possession under a voidable contract.
     • The contract must not have been rescinded (cancelled) by the innocent party before the sale.
     • The buyer must purchase the goods in good faith and without notice of the seller’s defective title (the voidable nature of the original contract).
   • Example: A fraudulently induces B to sell him a horse. Before B discovers the fraud and rescinds the contract, A sells the horse to C, who buys it in good faith and without any knowledge of A’s fraudulent acquisition. C obtains a good title to the horse.
4. Sale by a Seller in Possession After Sale (Section 30(1), Sale of Goods Act):
   • Rule: Where a person has sold goods but continues to be in possession of the goods or the documents of title to the goods, any subsequent sale or pledge of the same goods or documents by that seller (or a mercantile agent acting for them) to a person who receives them in good faith and without notice of the previous sale has the same effect as if the seller was expressly authorized by the owner to make the subsequent sale or pledge.
   • Conditions:
     • The seller must have already sold the goods to a previous buyer.
     • The seller must continue to be in possession of the goods or their documents of title.
     • The subsequent sale or pledge must be to a buyer or pledgee who acts in good faith and without notice of the earlier sale.
   • Example: A sells certain furniture to B but keeps the furniture in his warehouse. A then sells the same furniture to C, who buys it in good faith, unaware of the previous sale to B. C gets a good title to the furniture.
5. Sale by a Buyer in Possession After Sale (Section 30(2), Sale of Goods Act):
   • Rule: Where a person has bought or agreed to buy goods and obtains possession of the goods or the documents of title with the consent of the seller, any subsequent sale or pledge of the goods or documents by that buyer (or a mercantile agent acting for them) to a person who receives them 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 such lien or right did not exist.
   • Conditions:
     • The seller must have consented to the buyer obtaining possession of the goods or documents of title.
     • The subsequent sale or pledge by the buyer in possession must be to a person who acts in good faith and without notice of any unpaid seller’s lien or other rights.
   • Example: A sells copper to B and sends B the bill of lading and a bill of exchange for payment. B, who is insolvent, does not accept the bill of exchange but takes possession of the bill of lading and sells it to C, who in good faith pays for it. C obtains a good title to the copper against A, the original unpaid seller.
6. Resale by an Unpaid Seller (Section 54(3), Sale of Goods Act):
   • Rule: Where an unpaid seller who has exercised their right of lien or stoppage in transit re-sells the goods, the subsequent buyer acquires a good title to the goods against the original buyer, even if no notice of the resale was given to the original buyer.
   • Conditions:
     • The seller must be an “unpaid seller” as defined in the Act.
     • The seller must have validly exercised their right of lien or stoppage in transit.
     • The seller then resells the goods.
   • Example: A sells goods to B, but B fails to pay. A exercises their right of lien and, after a reasonable time, resells the goods to C. C acquires a good title to the goods, even if A did not notify B about the resale.

Additional Exceptions Under the Indian Contract Act, 1872:

1. Sale by a Finder of Goods (Section 169, Indian Contract Act):
   • A finder of lost goods may sell them under specific circumstances to pass good title:
     • When the goods are of a perishable nature.
     • When the lawful charges of the finder amount to two-thirds or more of the value of the goods.
     • When the owner cannot be found with reasonable diligence.
     • When the owner, if found, refuses to pay the lawful charges of the finder.
2. Sale by a Pawnee (Section 176, Indian Contract Act):
   • If the pawnor (the person who pledged the goods) defaults in payment of the debt or performance of the promise, the pawnee (the person with whom the goods were pledged) has the right to sell the pledged goods after giving the pawnor reasonable notice of the sale. The buyer at such a sale acquires a good title.

Conclusion

While the “nemo dat quod non habet” rule serves as a cornerstone of the law governing the transfer of title in the sale of goods, the exceptions discussed above are crucial for facilitating trade and protecting innocent buyers who purchase goods in good faith and for value. These exceptions strike a balance between protecting the rights of the original owners and promoting the free flow of commerce. Understanding these exceptions is vital for anyone involved in buying or selling goods.