The rule is ‘the seller can not transfer to the buyer of goods a better title when he himself has’. Sector 27 says ‘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 goods than the seller had’. The maxim is ‘nemo det quod non habet,” which means that no one can give what he has not got.
The general rule aims at protecting the interest of the true owner and is deemed necessary in the larger interest of society. If a thief disposes of a stolen property, the buyer acquire no title though he may have purchased the goods bona-fide for value, and real owner of the goods is entitled to recover possession of goods without paying anything to the buyer.
So the buyer cannot get a good title to the goods unless he purchase the goods from a person who is the owner thereof or who sells them under the authority or with the consent of the owner.
Transfer of Title by Non-Owners
The above rule as to the title is however subject to following exceptions where the buyer gets a better title to the goods than what the seller himself possesses.
1. An unauthorized sale by a mercantile agent:
( Sec. 27 ) A mercantile agent means an agent having in the customary course of business as such agent authority either to sell goods, or to consign goods for the purposes of sale, or to buy goods, or to raise money on the security of goods [Sec. 2(9)]. Thus as a rule a mercantile agent having an authority to sell goods conveys a good title to the buyer. But by virtue of this provision ( proviso to Sec. 27) a mercantile agent can convey a good title to the buyer even though he sells goods without having any authority from the principal to do so, provided the following conditions are satisfied:
(a) He should be in possession of the goods or documents of title to the goods in his capacity as mercantile agent and with the consent of the owner,
(b) He should sell the goods while acting in the ordinary course of business,
(c) The buyer should act in good faith without having any notice, at the time of the contract, that the agent has no authority to sell. Example: F entrusted his car to a mercantile agent for sale at a stated price and not below that. The agent sold it to S, a bonafide purchaser, below the reserve price and misappropriated the proceeds. S resold the car to K, the defendant. Held, S obtained a good title to the car from the mercantile agent and he conveyed a good title to K and therefore F was not entitled to recover the car from K (Kolkes vs King).
2. Transfer of title by estoppel (Sec. 27 )
Estoppal 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. Sometimes the doctrine of estop or preclude the owner from denying the seller’s right to sell the goods and thus an innocent buyer may have a good title dispite the want of authority of the seller. When the true owner of goods by his conduct or word or by any act or omission leads the buyer to believe that the seller is the owner of the goods or has the authority to sell them, he cannot afar wards deny the seller’s authority to sell. The buyer in such case gets a better title when that of the seller. The estopal may arise in any of the following ways:
1. The owner standing by, when the sale is effected, or
2. Still more, by his assisting the sale, or
3. By permitting goods to go into the possession of another with all the insignia of possession thereof and apparent title, or
4. If he has otherwise acted or made representations so as to induce the buyer to alter his position to his prejudice.
Example: M, the owner of a wagon allowed one of his employees K, to have his name painted on it. M did so for the purpose of inducing the public to believe that the wagon belonged to K. C purchased the wagon from K in good faith. C acquires a good title as M is estopped from denying K’s authority to sell (O, Connor vs Clark).
3. Sale by joint owner: (Sec.28) If one of several joint owners of goods has the sole possession of them by permission of the co-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 from such joint owner in good faith without notice of the fact that the seller has no authority to sell. It may be noted that in the absence of this provision (i.e., Sec. 28) the buyer would have obtained only the title of the co-owners and would have become merely a co-owner with the other co-owners. Hence the provision constitutes an exception to the rule – “no one can give what the has not got.”
Example: A, B and C are three brothers. They own a cow in common. B and C entrust the work of looking after the cow to A and leave the cow in A’s possession. A sells the cow to D. D purchases bonafide for value. D gets a good title.
4. Sale by person in possession under voidable contract: (Sec. 29) When a person has obtained possession of goods under voidable contract and sells those goods before the contract has been rescinded acquires a good title to them provided he acts in good faith and without notice of the seller’s defect in title.
Example: A, by misrepresentation induces B to sell and deliver to him a cow. A sells the cow to C before B has rescinded the contract. C purchases the cow in good faith and without notice of the seller’s defective title. C acquires a good title.
It is to be noted that this Section (Sec. 29) does not apply unless there is a contract. Thus it does not apply to a contract originally void or where goods have been obtained by theft.
5. Sale by Seller in possession after sale [Sec. 30 (1)] Where a seller, after having sold the goods, continues to be in possession of the goods or of the documents of title to them and again sells or pledges them either himself or through a mercantile agent, he will convey a good title to the buyer or the pledge provided the buyer or the pledge acts in good faith and without notice of the previous sale.
For the application of this exception it is essential that the possession of the seller must be as seller and not as hirer or bailee.
6. Sale by buyer in possession after ‘agreement to buy’ [Sec. 30(2)]. Where a buyer has agreed to buy the goods and has obtained possession of the same or the documents of title to them with the consent of the seller, resells or pledges the goods either himself or through a mercantile agent, he will convey a good title to the buyer or the pledge provided the person receiving the goods acts in good faith and without notice of any lien or other right of the original seller in respect of those goods.
It is to be noted that a person who has got merely ‘an option to buy,’ as in a hire-purchase agreement, cannot convey a good title to a sub-buyer, however bonafide, for ‘an option to buy’ is not ‘an agreement to buy’ (Belsize Motor Supply Co. vs Cox). In order to make this exception applicable it is essential that the person must have obtained possession of the goods under ‘an agreement to sell’ (i.e., under ‘and agreement to buy’ from the buyer’s point of view).
Example
(a) A buys some furniture and agrees to pay for that in two monthly installments, the ownership to pass to him on payment of the second installment. Having obtained possession of the furniture, A, sells the furniture to B before paying the second installment. B buys the furniture bonafide. Subsequently A does not pay the second installment. The furniture dealer cannot take back furniture from B, who obtains a good title to the same. The dealer can, of course, sue A for the breach of the contract and claim damages.
(b) A agreed to buy a car and pay for it, if his solicitor approved. A obtained possession of the car and sold the same to B. But the solicitor subsequently disapproved of the transaction. It was held that B, the bonafide buyer, got a good title, because A agreed to buy ( Marten vs Whale).
7. Resale by an unpaid seller: [Sec. 54(3)]. Where an unpaid seller, who has exercised his right of lien or stoppage in transit, resells the goods (of which ownership has passed to the buyer), the subsequent buyer acquires a good title thereto as against the original buyer, even though the resale may not be justified in the circumstances, i.e., no notice of the resale has been given to the original buyer.
8. Exceptions under other Acts. Other Acts also contain some provisions under which a non-owner may pass to the buyer a better title than he himself has. For example,
(a) Sale by finder of lost goods under certain circumstances (Sec. 169, The Indian Contract Act).
(b) Sale by Pawnee or pledgee under certain circumstance (Sec. 176, The Indian Contract Act.).
(c) Sale by Official Receiver or Assignee in case of insolvency of an individual and Liquidators of companies. These persons are not owners of the properties they deal in, but convey a better (good) title to the buyers than they themselves possess.
(d) Under the Negotiable Instruments Act, a holder in due course gets a better title than what his endorser had. In other words, a person who takes a negotiable instrument in good faith and for value becomes the true owner even if he takes it from a thief of finder.
The general rule aims at protecting the interest of the true owner and is deemed necessary in the larger interest of society. If a thief disposes of a stolen property, the buyer acquire no title though he may have purchased the goods bona-fide for value, and real owner of the goods is entitled to recover possession of goods without paying anything to the buyer.
So the buyer cannot get a good title to the goods unless he purchase the goods from a person who is the owner thereof or who sells them under the authority or with the consent of the owner.
Transfer of Title by Non-Owners
The above rule as to the title is however subject to following exceptions where the buyer gets a better title to the goods than what the seller himself possesses.
1. An unauthorized sale by a mercantile agent:
( Sec. 27 ) A mercantile agent means an agent having in the customary course of business as such agent authority either to sell goods, or to consign goods for the purposes of sale, or to buy goods, or to raise money on the security of goods [Sec. 2(9)]. Thus as a rule a mercantile agent having an authority to sell goods conveys a good title to the buyer. But by virtue of this provision ( proviso to Sec. 27) a mercantile agent can convey a good title to the buyer even though he sells goods without having any authority from the principal to do so, provided the following conditions are satisfied:
(a) He should be in possession of the goods or documents of title to the goods in his capacity as mercantile agent and with the consent of the owner,
(b) He should sell the goods while acting in the ordinary course of business,
(c) The buyer should act in good faith without having any notice, at the time of the contract, that the agent has no authority to sell. Example: F entrusted his car to a mercantile agent for sale at a stated price and not below that. The agent sold it to S, a bonafide purchaser, below the reserve price and misappropriated the proceeds. S resold the car to K, the defendant. Held, S obtained a good title to the car from the mercantile agent and he conveyed a good title to K and therefore F was not entitled to recover the car from K (Kolkes vs King).
2. Transfer of title by estoppel (Sec. 27 )
Estoppal 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. Sometimes the doctrine of estop or preclude the owner from denying the seller’s right to sell the goods and thus an innocent buyer may have a good title dispite the want of authority of the seller. When the true owner of goods by his conduct or word or by any act or omission leads the buyer to believe that the seller is the owner of the goods or has the authority to sell them, he cannot afar wards deny the seller’s authority to sell. The buyer in such case gets a better title when that of the seller. The estopal may arise in any of the following ways:
1. The owner standing by, when the sale is effected, or
2. Still more, by his assisting the sale, or
3. By permitting goods to go into the possession of another with all the insignia of possession thereof and apparent title, or
4. If he has otherwise acted or made representations so as to induce the buyer to alter his position to his prejudice.
Example: M, the owner of a wagon allowed one of his employees K, to have his name painted on it. M did so for the purpose of inducing the public to believe that the wagon belonged to K. C purchased the wagon from K in good faith. C acquires a good title as M is estopped from denying K’s authority to sell (O, Connor vs Clark).
3. Sale by joint owner: (Sec.28) If one of several joint owners of goods has the sole possession of them by permission of the co-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 from such joint owner in good faith without notice of the fact that the seller has no authority to sell. It may be noted that in the absence of this provision (i.e., Sec. 28) the buyer would have obtained only the title of the co-owners and would have become merely a co-owner with the other co-owners. Hence the provision constitutes an exception to the rule – “no one can give what the has not got.”
Example: A, B and C are three brothers. They own a cow in common. B and C entrust the work of looking after the cow to A and leave the cow in A’s possession. A sells the cow to D. D purchases bonafide for value. D gets a good title.
4. Sale by person in possession under voidable contract: (Sec. 29) When a person has obtained possession of goods under voidable contract and sells those goods before the contract has been rescinded acquires a good title to them provided he acts in good faith and without notice of the seller’s defect in title.
Example: A, by misrepresentation induces B to sell and deliver to him a cow. A sells the cow to C before B has rescinded the contract. C purchases the cow in good faith and without notice of the seller’s defective title. C acquires a good title.
It is to be noted that this Section (Sec. 29) does not apply unless there is a contract. Thus it does not apply to a contract originally void or where goods have been obtained by theft.
5. Sale by Seller in possession after sale [Sec. 30 (1)] Where a seller, after having sold the goods, continues to be in possession of the goods or of the documents of title to them and again sells or pledges them either himself or through a mercantile agent, he will convey a good title to the buyer or the pledge provided the buyer or the pledge acts in good faith and without notice of the previous sale.
For the application of this exception it is essential that the possession of the seller must be as seller and not as hirer or bailee.
6. Sale by buyer in possession after ‘agreement to buy’ [Sec. 30(2)]. Where a buyer has agreed to buy the goods and has obtained possession of the same or the documents of title to them with the consent of the seller, resells or pledges the goods either himself or through a mercantile agent, he will convey a good title to the buyer or the pledge provided the person receiving the goods acts in good faith and without notice of any lien or other right of the original seller in respect of those goods.
It is to be noted that a person who has got merely ‘an option to buy,’ as in a hire-purchase agreement, cannot convey a good title to a sub-buyer, however bonafide, for ‘an option to buy’ is not ‘an agreement to buy’ (Belsize Motor Supply Co. vs Cox). In order to make this exception applicable it is essential that the person must have obtained possession of the goods under ‘an agreement to sell’ (i.e., under ‘and agreement to buy’ from the buyer’s point of view).
Example
(a) A buys some furniture and agrees to pay for that in two monthly installments, the ownership to pass to him on payment of the second installment. Having obtained possession of the furniture, A, sells the furniture to B before paying the second installment. B buys the furniture bonafide. Subsequently A does not pay the second installment. The furniture dealer cannot take back furniture from B, who obtains a good title to the same. The dealer can, of course, sue A for the breach of the contract and claim damages.
(b) A agreed to buy a car and pay for it, if his solicitor approved. A obtained possession of the car and sold the same to B. But the solicitor subsequently disapproved of the transaction. It was held that B, the bonafide buyer, got a good title, because A agreed to buy ( Marten vs Whale).
7. Resale by an unpaid seller: [Sec. 54(3)]. Where an unpaid seller, who has exercised his right of lien or stoppage in transit, resells the goods (of which ownership has passed to the buyer), the subsequent buyer acquires a good title thereto as against the original buyer, even though the resale may not be justified in the circumstances, i.e., no notice of the resale has been given to the original buyer.
8. Exceptions under other Acts. Other Acts also contain some provisions under which a non-owner may pass to the buyer a better title than he himself has. For example,
(a) Sale by finder of lost goods under certain circumstances (Sec. 169, The Indian Contract Act).
(b) Sale by Pawnee or pledgee under certain circumstance (Sec. 176, The Indian Contract Act.).
(c) Sale by Official Receiver or Assignee in case of insolvency of an individual and Liquidators of companies. These persons are not owners of the properties they deal in, but convey a better (good) title to the buyers than they themselves possess.
(d) Under the Negotiable Instruments Act, a holder in due course gets a better title than what his endorser had. In other words, a person who takes a negotiable instrument in good faith and for value becomes the true owner even if he takes it from a thief of finder.
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Rules regarding transfer of title on sale
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