A seller with no right to the goods may nonetheless pass a good title to a third party. The question that arises is which of the two innocent people is to suffer for the fraud of a third party. For instance a thief steals goods and sells them to someone who buys in good faith and for value, a person hands goods to an agent to obtain offers and the agent sells them without authority and disposes of the proceeds; In all of these cases the law has to choose between rigorously upholding the rights of the owner to his property, on the one hand, and protecting the interests of the purchaser who buys in good faith and for value on the other hand. As Lord Denning once put it
“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 better 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.
Cap 31 Section 23 (1) states as follows: -
“Subject to the provisions of this Act, 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.”
This rule is frequently dignified by the use of Latin in the tag nemo dat quod non-habet, or for short nemo dat. The part in Section 23 stating that a non-owner cannot pass title – is merely a re-enactment of the common law principle so it would seem that that part of the subsection, or the common law in lieu, is of the subsection (beginning with the word ‘unless’) has the positive effect of enabling a non-owner to pass a good title, although this also appears to be merely a restatement of the common law doctrine of estoppel. The only substantive question, therefore, is whether a person who has merely agreed to buy the goods can rely upon the doctrine of estoppel.
CONSENT OF THE OWNER
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.
Reference should be also be made of Section 47
“ Subject to the provisions of this Act, the unpaid seller’s right of lien or retention or stoppage in transitu is not affected by any sale or other disposition of the goods which the buyer may have made, unless the seller has assented thereto:
If therefore the buyer not being in possession resells the goods and the seller assents to such sale, the sub-buyer obtains a good title free from the first seller’s lien or right of stoppage in transit. The effect of such assent on the part of the seller is very similar to that of estoppel, but the difference seems to be that whereas estoppel can only operate if the assent is communicated to the sub-buyer, the seller may assent to the resale within the meaning of Section 47 even though he only communicates his assent to the buyer. But the mere fact that the seller has been informed of a resale and has not objected to it does not amount to an assent within Section 47.
In Mourdaunt Bros V. British Oil & Cake Mills Ltd the defendants sold oil to X, who resold part of it to the plaintiffs and gave them delivery orders in respect of that part. The Plaintiffs paid X for the oil and sent the delivery orders to the defendants, who accepted them without comment. The defendants delivered instalments of the oil direct to the plaintiffs as and when they were paid by X, but on X’s falling into arrears with the payments, they refused to deliver any more. Pickford J held that the defendants had not assented to the resale within S. 47. In my opinion, he said the assent which affects the unpaid seller’s right intends to renounce his rights against the goods. It is not enough to show that the fact of a sub-contract has been brought to his notice and that he has assented to it merely in the sense of acknowledging receipt of the information.
In D F Mount Ltd v Jay & Jay Co Ltd: Salmon J came to a different conclusion on the following facts. The defendants were owners of 500 cartons of tinned peaches lying at the wharf of D. The defendants were approached by M at a time when the market was falling, and M told them that he had a customer for 250 cartons. He made it clear that he, M, would pay the defendants out of the price he obtained from the sub-purchaser. The defendants agreed to sell the cartons to M and gave him a delivery order. M sent the order to D, who received it without acknowledgement. Later M sold the cartons to the Plaintiffs who paid M. The defendants, never having received the price from M, subsequently claimed to be still entitled to the cartons. Salmon J held that the defendants had assented to the sale within the meaning of S. 47:
“In the present case, the defendants were anxious to get rid of the goods on a falling market. They knew M could only pay for them out of the money he obtained from his customers, and that he could only obtain the money from his customers against delivery orders in favour of those customers. In my view the true inference is that the defendants assented to M reselling the goods, in the sense that they intended to renounce their rights against the goods and to take the risk of M’s honesty.”
Nemo dat also covers those cases where an owner sells goods, but is unable to sell them free from some encumbrance or charge existing in favour of a third party. The law generally sets its face against the recognition of encumbrances, which run with chattels into the hands of thirds parties so this is very unusual. Where a person pledges goods, or the documents of title to goods, and subsequently the pledgee returns the goods, or the documents to the pledgor for a limited purpose, for example to obtain clearance of the goods from the warehouseman, any unauthorized disposition by the pledgor will not prejudice the rights of the pledgee… in other words the seller, although owner of the goods cannot sell them free from the pledgee’s right.