SCHOOL OF LAW

Semester – 2
Academic year: 2019- 20 SESSION: JAN-MAY

PROJECT
FOR
Law of Contracts - II
(CLCC 1004)
Under the supervision of:

Gaurav mittal
Name: Dhwaja Shrivastava
Akshat Jain
Aadarsh mittal

Sap id: 500077880

500077883
500077839

Roll no: R129219034

R129219032
R129219031
 Acknowledgement

In the very beginning. We would like to take the opportunity to express my gratitude to
almighty God, for keeping us in good health all through this gruelling project work.

We place on record our sincere gratitude and appreciation to our project guide Mr. Gaurav
mittal for his kind cooperation and guidance which enabled us to complete this project on
time

We take this opportunity to dedicate our project to all our loving faculty members who were a
constant source of motivation and We express our deep gratitude to their never-ending
support and encouragement during this project. Finally, we thank each and every one who
helped us to complete the task

Transfer by non-owners 2
 ABSTRACT

This project is based on Transfer of title by the non owner of goods, under Sale of goods
act, 1930. It covers the exceptions for the general rule- Nemo dat quod non habet which can
be traced under section 27 of the act, which in simple meaning states

A person who is not the owner of the goods cannot transfer the good title to the purchaser of
the goods.
The project will provide a detail explanation of the following exceptions with related case
laws.
1. Transfer of title by estoppels
2. Sale by mercantile agent
3. Sale by one of the joint owners
4. Sale by person in possession under voidable contract
5. Sale by seller in possession after sale
6. Sale by buyer in possession after sale
7. Resale by an unpaid seller
8. Sale by finder of goods
9. Sale by Pawnee

The main aim of the project is to define the status of title of the goods when it is transferred by
a non-owner.

Keywords: Transfer, title, Pawnee, finder, mercantile agent.

Transfer by non-owners 3
 Table of contents

• Introduction to transfer of title

• General rule (nemo dat quod non habet)
• Nemo dat rule in Indian law
• Exceptions to nemo dat rule
1. Transfer of title by estoppel (S.27 of Sale of goods act,1930)
2. Sale by mercantile agent (S.27 of Sale of goods act, 1930)
3. Sale by one of the joint owners (section 28 of sales of goods act,1930)
4. Sale by person in possession under voidable contract (s.29 of sale of goods
act.1930)
5. Sale by seller possession after sale (S.30(1) of sale of goods act, 1930)
6. Sale by buyer in possession after sale (s.30(2) of sale of goods act, 1930)
7. Resale by unpaid seller (Section 54(2) of sale of goods act, 1930)
8. Sale by finder of goods (S.169 of Indian contract act, 1872)
9. Sale by Pawnee (s.176 of Indian contract act,1872)

• Conclusion
• Bibliography

Transfer by non-owners 4
 Index of authorities

• BISHOPSGATE MOTOR FINANCE CORP LTD V TRANSPORT BRAKES LTD

• GREENWOOD VS BENNETT
• MERCANTILE BANK V. CENTRAL BANK
• HEAP V. MOTORISTS ADVISORY AGENCY LTD
• FOLKES VS KING
• TARUCK CHUNDER PODDAR V. JODESHUR CHUNDER KONDOO
• PHILIPS VS BROOKS
• STAFFS MOTOR GUARANTEE LTD V BRITISH WAGON CO LTD
• CITY FUR MANUFACTURING CO V FUREENBOND (BROKERS) LONDON
LTD
• R.V. WARD LTD V. BIGNALL
• VIMAL CHANDRA GROVER V BANK OF INDIA

Transfer by non-owners 5
 TRANSFER OF TITLE

The “Transfer of title” is a significant legal component of sale of goods. If someone sells
goods, the person has to transfer the title of the goods to the purchaser. Without the transfer
of ownership and delivery of possession of the goods from the seller to buyer, no sale
transaction can be completed. Usually, the real owner of the goods which has good title can
transfer good title to a new owner. But a problem arises what should be done when an
innocent person buys goods from one in good faith who has lack of authority to sell? Whether
law should protect the real owner and the treat the sale void or law should treat the
unauthorized sale to innocent party as valid?

In Bishopsgate Motor Finance Corp Ltd v Transport Brakes Ltd, 1Denning L.J. stated the
problem in the following way:

“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
the protection of commercial transactions: the person who takes the transaction in good faith
and for value without notice should get a good title”

The transfer of title includes the maxim nemo dat quod non habet also referred to as Nemo
dat rule which means that no one can transfer a better title than he himself has. This rule is
made to protect the real owners. If anybody sells goods without the permission of the
legitimate owner, that transaction will be unlawful and no title will pass to the purchaser.

THE GENERAL RULE

The general rule is that, no one can transfer a better title in property than he himself has. In
this case, the main problem is the conflict between the owner of the goods and the purchaser
of the goods. Nemo dat rule has established two principles.

• The safeguard of property

• The protection of a person who has bought the goods in good faith.
Generally, this rule stays valid even if the purchaser does not know that the seller has no right
to transfer the goods. But there are many exceptions, particularly estoppel, sale for mercantile
agent and sale under voidable contract and these exceptions protect the interest of innocent
buyer.

1
Bishopsgate Motor Finance Corpn Ltd v. Transport Brakes Ltd, 322 KB [1949]

Transfer by non-owners 6
 Nemo dat rule in Indian law

The Nemo dat rule can be traced in first paragraph of S.27 of Sale of goods act, 1930 which
is read as follow:

S.27 Sale by person not the owner: Subject to the provisions of this Act and of any other
law for the time being in force, where goods are sold by a person who is not the owner
thereof and who 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 had, unless the owner of the goods is
by his conduct precluded from denying the seller’s authority to sell. 2

The section left us with three situations where the seller-

• Is not the owner of the goods

• Does not have consent from the owner to sell the goods on his behalf
• Does not have authority from the owner to sell the goods on his behalf
Typical situations where his might arise include:

• A steal the goods and sells them to B who buys them in good faith for value
• A pass his goods to seek offers for sale but B sells them without A’s authority and
keeps the proceeds of sale
• A buys goods on credit terms and then resells or pledges them to B with no intention
of paying for them

The typical question that arises in such circumstances is which of two innocent parties should
suffer for the fraud of a third? The courts have to choose between the rights of owner and the
purchaser. The solution for the problem is that the general rule protects the right of owner and
the exceptions protects the right of purchaser.

The rule can be demonstrated by the case Greenwood vs Bennett3, in this case the original
owner of a Jaguar car (Bennett) entrusted it to a man named Searle for repairs to be carried
out. Searle then used the car for his own purposes, crashed it and caused extensive damage.
Searle then sold the car to Harper, who owned a garage, for £75. Harper did not realize that
Searle was not the owner of the car. Harper then spent £226 repairing the car and sold it on to
a finance company.

2
Sales of goods act,1930 § 27.
3
Greenwood v. Bennet, 195 QB 1 [1973]

Transfer by non-owners 7
 It was held by the court that the car belonged to Bennett as Searle did not have title and
could therefore not transfer that title to Harper. For the same reason, Harper could not
transfer title to the finance company. Bennett was therefore able to recover the car but had to
compensate Harper for the work done to it.

EXCEPTIONS TO NEMO DAT RULE

There are certain exceptions to nemo dat rule which protects the right of the purchaser. Thus,
in these exceptions transfer of bad title will be treated as good title.
The exceptions are discussed below:

• Transfer of title by estoppel (S.27 of Sale of goods act,1930)

Estoppel means that a person who by his conduct or words leads another to believe that
certain state of affairs existed, would be estopped (precluded) from denying later that
such as state of affairs did not exist.

The closing words of the Section 27 of sale of goods act, 1930 are as under:

Unless the owner of the goods is by his conduct precluded from denying the seller’s
authority to sell the goods.4

The purchaser in this case gets good title. The estoppel may arise in any of the following
ways:

• The owner standing nearby, when the sale is affected

• By assisting the sale
• If the owner has made representations.
(The list is not exhausted)

Estoppel by act or omission

An omission to perform one’s duty may create an estoppel provided that the duty is a
legal obligation.

In Mercantile Bank v. Central Bank5, the respondent bank advanced money to a firm
of merchants, on the pledge of railway receipts. The bank then handed the railway

4
Sales of goods act,1930 § 27.
5
Mercantile Bank v. Central Bank, BOMLR 1938 BHC 713

Transfer by non-owners 8
 receipts back to the merchants for the specific purpose of clearing the goods and
storing them in the bank’s godown. The merchants, instead of doing so, repledged the
receipts with the appellant bank. On merchant’s default to pay the money back, a
question of priority arose between these two banks with regard to the pledged railway
receipts with these two banks.

The appellant bank argued that the omission of the respondent from impressing their
stamp on the receipts before returning them enabled the merchants to do so and hence,
the respondent should be estopped from the denial of the second pledge’s validity. The
Privy Council held that Mercantile Bank’s title over the receipts was subject to that of
Central Bank since Central Bank’s omission to impress stamp did not create a legal
estoppel as it was not a legal duty in the first place.

Estoppel by negligence
Where the owner of goods, by reason of his negligence or negligent failure to act,
allows the seller of the goods to appear to the buyer as the true owner or as having the
true owner’s authority to sell the goods, an estoppel by negligence is created against
the owner.

In Heap v. Motorists Advisory Agency Ltd6, Heap allowed his car to be taken by A to
show it to a potential customer. A used the car for a few weeks and then sold it to
Motorists Advisory Agency, the defendant. A claimed the car from the defendant and
the Agency claimed estoppels against A. The court held that A was entitled to take his
car back from the defendants as A was not negligent as he did not breach any duty that
he owed to the defendant, rather, he was just not very careful

• Sale by mercantile agent (S.27 of Sale of goods act, 1930)

Section 2(9) of the Sale of Goods Act, 1930, defines a mercantile agent as “a mercantile
agent having in the customary course of business as such agent, authority either to sell
goods, or to consign goods for the purpose of sale or to buy goods, or to raise money on
the security of goods.”7

This definition covers factors, brokers, auctioneers, commission agents, Del credere
agents and bankers.

Second Para of the section 27 explicitly express about this. Provision is—

Provided that, where a mercantile agent is, with the consent of the owner, in possession of the
goods or of a document of title to the goods, any sale made by him, when acting in the ordinary

6
Heap v. Motorists Advisory Agency Ltd., [1923] KB 577.
7
Sales of goods act,1930 § 2, cl.9

Transfer by non-owners 9
course of business of a mercantile agent, shall be as valid as if he were expressly authorised
by the owner of the goods to make the same, provided that the buyer act is good faith and has
not at the time of the contract of sale notice that the seller has no authority to sell 8

For the application of this proviso, the following condition are to be satisfied, -

• That the seller is a Mercantile agent as defined in Sec. 2(9) of the Act.

• The said mercantile agent got the possession of the goods or documents of title to the goods
with the consent of the owner, and in his capacity as a mercantile agent;

• While selling the goods he must have been acting in the ordinary course of his business of
a Mercantile agent;

• The buyer of the goods must have acted in good faith without having any notice that such
a Mercantile agent did not have an authority to sell

In Folkes vs king9, the plaintiff entrusted his car to a mercantile agent for sale at a stated
price and not below that. He sold it to X below that price and misappropriated the proceeds.
X resold the car to the defendant. The plaintiff could not recover it from the defendant. X got
a good title from the mercantile agent and be conveyed a good title to the defendant.

• Sale by one of the joint owners (section 28 of sales of goods act,1930)

Sale by one of joint owners. If one of several joint owners of goods has the sole
possession of them by permission of the co-owners, the property in the goods is
transferred to any person who buys them of such joint owner in good faith and has not at
the time of the contract of sale notice that the seller has no authority to sell. 10

Ordinarily, a co-owner could transfer his share only and hence this section enables a co-
owner to sell not only his own share but also of his other co-owners.

This section lays down three conditions for validating a sale by one co-owner:

• He must be in sole possession by permission of his co-owners.

• The purchaser must act in good faith.

8
Sales of goods act,1930 § 27.
9
Folkes v. King, 282 KB [1923]
10
Sales of goods act,1930 § 28.

Transfer by non-owners 10
• The purchaser must have had no notice at the time of the contract of sale that the seller
had no authority to sell.11

Illustration

A, B and C have certain cattle in common. A is left by B and C in possession of a cow which
he sells to D. D purchases the cow in good faith. The title over the cow is transferred to D.

This section also applies to Joint Hindu families.

In case Taruck Chunder Poddar v. Jodeshur Chunder Kondoo12, A was member of a joint
hindu family and sold a clock which was in the possession of the family. The sale was held to
be valid since A acquired the title over the clock as a member of the family and the sale was
on behalf of the family.

• Sale by person in possession under voidable contract (s.29 of sale of goods act.1930)

Sale by person in possession under voidable contract.—When the seller of goods has
obtained possession thereof under a contract voidable under section 19 or section 19A of
the Indian Contract Act, 1872 (9 of 1872), but the contract has not been rescinded at the
time of the sale, the buyer acquires a good title to the goods, provided he buys them in
good faith and without notice of the seller’s defect of title.13

In other words, the present section validates a sale by a person who has obtained
possession of goods under a contract voidable at the option of the other party as per
section 19 or section 19A of the Indian Contract Act on the grounds of coercion as
defined in section 15,fraud as defined in section 17,misrepresentation as defined under
section 18 or undue influence as defined under section 16, provided that the contract has
not been rescinded by the other party at the time of sale.

This section lays down three conditions for validating a sale by person in possession
under a voidable contract:
i. The goods must have been obtained by the seller under a voidable contract and not a
void contract.
ii. The contract must not have been rescinded at the time of the sale.

11
AVTAR SINGH, LAW OF SALE OF GOODS AND HIRE PURCHASE 128 (Eastern Book Company 2005).
12
Taruck Chunder Poddar v. Jodeshur Chunder Kondoo, BLR 1873 BHC 193.
13
Sales of goods act,1930 § 29.

Transfer by non-owners 11
 iii. The buyer must have acted in good faith and must not have had notice of the seller’s
defective title.14

In Philips vs brooks15, on 15 April 1918, a man named Mr. North entered Phillip’s
jewellery shop and claimed he is Sir George Bullough. Impressed by his title, the jeweller
allowed Mr. North to pay £3000 using a personal cheque. Later Mr. North took the ring
'for his wife's birthday tomorrow'. Mr. North then pawned the ring to Brooks Ltd for
£350. When the false cheque was dishonoured, Phillips sued Brooks Ltd to get the ring
back.
The judgment of Morton CJ: "The minds of the parties met and agreed upon all the terms
of the sale, the thing sold, the price and time of payment, the person selling and the
person buying. The fact that the seller was induced to sell by fraud of the buyer made the
sale voidable, but not void. He could not have supposed that he was selling to any other
person; his intention was to sell to the person present, and identified by sight and hearing;
it does not defeat the sale because the buyer assumed a false name or practised any other
deceit to induce the vendor to sell."

• Sale by seller possession after sale (S.30(1) of sale of goods act, 1930)

Section 30(1) is read as under

Where a person, having sold goods, continues or is in possession of the goods or of 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 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 to
transfer were expressly authorised by the owner of the gods to make the same.16

The following conditions must be satisfied to enable a seller to pass a good title:
i. The seller must continue to be in possession of the goods or of the documents of title to
the goods as a seller. Possession as a hirer or bailee of the goods from the buyer after
delivery of the goods to him will not do.
ii. The goods must have been delivered to the buyer or the documents of title must have
been transferred to him.

14
AVTAR SINGH, LAW OF SALE OF GOODS AND HIRE PURCHASE 129 (Eastern Book Company 2005).
15
Phillips v. Brooks, 243 KB [1919]
16
Sales of goods act,1930 § 30, cl.1.

Transfer by non-owners 12
 iii. Good faith and absence of notice of the previous sale on the part of the second
buyer17.

In Staffs Motor Guarantee Ltd v British Wagon Co Ltd, 18the owner of a lorry sold it to
the defendants and took it back on hire-purchase. He then resold it to the plaintiffs. It was
held that the latter could not get a good title because the seller was not in possession as
seller but as a bailee under a hire-purchase agreement.

However, it is not necessary that the seller should be in personal possession of the goods.
It is enough that the goods are at his disposal even if they are in the custody of a
warehouse keeper.

In City Fur Manufacturing Co v Fureenbond (Brokers) London Ltd 19, H purchased a

number of skins from a broker. The goods remained in the broker’s warehouse pending
payment. H sold them to the plaintiffs who gave him a bill of exchange to enable him to
pay the broker and arrange delivery to the plaintiffs. Instead, H pledged the goods with
the defendants. The defendants were held to have acquired a good title.

• Sale by buyer in possession after sale (s.30(2) of sale of goods act, 1930)

Section 30(2) is read as under

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 gods shall have effect as if such lien or right did not exist.20

The following conditions must be satisfied to enable the buyer to pass a good title:
i. The buyer must be in possession of the goods or documents with the consent of the
seller.
ii. The goods must have been delivered to the buyer or the documents of title transferred
to him.

17
AVTAR SINGH, LAW OF SALE OF GOODS AND HIRE PURCHASE 131 (Eastern Book Company 2005).
18
Staffs Motor Guarantee Ltd v. British Wagon Co Ltd, 305 KB [1934]
19
City Fur Manufacturing Co v. Fureenbond London Ltd, 199 All ER [1937].
20
Sales of goods act,1930 § 30, cl.2.

Transfer by non-owners 13
 iii. There must be good faith and absence of notice of the seller’s right of property on the
part of the second buyer.21

In Marten v. Whale22, the plaintiff agreed to buy a plot of land from one T in return for a
car subject to the condition that his solicitor approved the title to land. Before anything
was done in this connection, the plaintiff gave the possession of his car to T, who sold it
to the defendant, the latter acting in good faith. It was held that the car was in the
possession of a person who had agreed to buy it and, therefore, the defendant acquired
good title.

• Resale by unpaid seller (Section 54(2) of sale of goods act, 1930)

"Where the goods are of a perishable nature, or where the unpaid seller who has exercised
his right of lien or stoppage in transit gives notices to the buyer of his intentions to re-sell,
the unpaid seller may, if the buyer does not within a reasonable time pay or tender the
price, re-sell the goods within a reasonable time and recover from the original buyer
damages for any loss occasioned by his breach of contract, but the buyer shall not be
entitled to any profit which may occur on the re-sale. If such notice is not given, the
unpaid seller shall not be entitled to recover such damages and the buyer shall be entitled
to the profit, if any, on the re-sale.”23

The term perishable means not only physically perishable but also in a commercial sense
becoming unmerchantable

In R.V. Ward Ltd v. Bignall24, there was a contract for the sale of two cars for 850
pounds. Buyer deposited 25 pounds but did not pay the price despite a reasonable notice.
The seller tried to resell but could only find a buyer for one of the cars and sold it for 359
pounds. He then claimed damages of 475 pounds representing the balance price and
advertising expenses. It was held that he could only recover advertising expenses and the
shortfall in the price of the car sold.

The court held that when the seller resells the goods, the contract is rescinded and the
goods once again become his property.

Section 54(3) of the Sale of Goods Act, 1930 states-

Where an unpaid seller who has exercised his right of lien or stoppage in transit re-sells
the goods, the buyer acquires a good title thereto as against the original buyer,
notwithstanding that no notice of the re-sale has been given to the original buyer.25

21
AVTAR SINGH, LAW OF SALE OF GOODS AND HIRE PURCHASE 132 (Eastern Book Company 2005).
22
Marten v. Whale, 480 KB [1917].
23
Sales of goods act,1930 § 54, cl.2.
24
R.V. Ward Ltd v. Bignall, 449 All ER [1967].
25
Sales of goods act,1930 § 54, cl. 3.

Transfer by non-owners 14
 Under Section 54(3), on a re-sale by the unpaid seller, the purchaser acquires a good title
thereto as against the original buyer, even if no notice of re-sale has been given to him.
This, as it should be, for the original buyer being in default, is not entitled to the
possession of the goods, and therefore cannot sue to recover the goods or their value.

• Sale by finder of goods (S.169 of Indian contract act, 1872)

Section 169 of Indian contract act states-

When finder of thing commonly on sale may sell it - When a thing which is commonly
the subject of sale is lost, if the owner cannot with reasonable diligence be found, or if he
refuses upon demand, to pay the lawful charges of the finder, the finder may sell it—

(1) when the thing is in danger of perishing or of losing the greater part of its value, or
(2) when the lawful charges of the finder, in respect of the thing found, amount to two-
thirds of its value.26

This section gives us three situations where it might arise-

1. When the owner refuses to pay the lawful charges
2. When the owner cannot be found:
• If the subject is of perishing nature
• If the lawful charges amount to two-third of its value

Suppose a diamond Ring is lost and found by some other person and if the owner could not
be found or traced by the Finder, he is not entitled to sell it as both the subjections in 169
have no application here.

• Sale by Pawnee (s.176 of Indian contract act,1872)

Pawnee’s right where pawnor makes default.—If the pawn or makes default in
payment of the debt, or performance; at the stipulated time or the promise, in respect
of which the goods were pledged, the pawnee may bring a suit against the pawn or
upon the debt or promise, and retain the goods pledged as a collateral security; or he
may sell the thing pledged, on giving the pawn or reasonable notice of the sale. If the
proceeds of such sale are less than the amount due in respect of the debt or promise,
the pawn or is still liable to pay the balance. If the proceeds of the sale are greater
than the amount so due, the Pawnee shall pay over the surplus to the pawn or.27

26
Indian contract act,1872 § 169.
27
Indian contract act,1872 § 176.

Transfer by non-owners 15
 The section explicitly states that Pawnee can sell the goods by giving notice of the
sale if the pawn or makes default in the payment of debt.

In Vimal Chandra Grover v Bank of India,28 the pledgor asked the pledgee bank to
sell the pledged shares at the prevailing price of Rs 2400 per share. The pledgor, quite
wrongly, indicated that the share was at the head office of the bank. The bank took
nine months to locate the shares and to sell them, at which time the price of the shares
had fallen to Rs 700 per share. Observing that it was for the bank to locate where the
pledged shares are kept, the supreme court upheld the claim of the pledgor for this
loss.

28
Vimal Chandra Grover vs Bank of India, SCR 2000 SC 587

Transfer by non-owners 16
 Conclusion

The nemo dat rule is a fair rule as it protects the rights of both the innocent parties (owner
and purchaser). The general rule protects the owner while the exceptions protects the
purchaser.

The perquisite of the exceptions transfer by estoppel, sale by mercantile agent, sale by
one of joint owners, sale by person in possession under voidable contract, Sale by seller
possession after sale, sale by buyer possession after sale is good faith while in sale by
pawnee the required thing is the default by pawnor.

The nemo dat rule without its exceptions would be very harsh as it will do injustice to the
purchaser who acted in good faith. These exceptions have somehow limited the harshness
of the nemo dat rule, but there is need of reform in this rule.

Transfer by non-owners 17
 Bibliography

Books
• LAW OF SALE OF GOODS AND HIRE PURCHASE BY AVTAR SINGH
Statues and acts

• Sale of goods act, 1930

• Indian contract act,1872
Referencing style

• Bluebook 20th edition

Transfer by non-owners 18