You learnt the rules regarding the transfer of ownership from the seller to the buyer, wherein you have noted that once the goods are sold, the buyer becomes the owner of such goods. Here we have presumed that the seller is the owner of the goods. Now what will happen if it turns out that the seller was not the owner of the goods? Our answer will be that since the seller was not the owner, therefore, the buyer does not become the owner thereof.
The general rule as to transfer of property is that it is only the owner of the goods who can transfer the ownership in the goods to the buyer. In simple words, a person who is not the owner of the goods cannot sell them and transfer the ownership to the buyer even though the buyer has purchased them in good faith and for value. No one can sell the goods and give a good title thereof unless he is the owner of such goods. This general rule is expressed by the maxim: “Nemo dat quid non habet”, which means that “no one can give what he himself has not got”. Therefore, if a person deals with the goods of another person and without the owner’s authority, such transaction is of no value in the eyes of law. If the seller’s title is defective, the buyer’s title will also be defective. This is so because the buyer acquires his title to the goods from the seller. For example, A finds a ring of B and sells it to C who buys it in good faith and for value. The true owner (B) can recover the ring from C, since A had no title to the ring.
This general rule is contained in Section 27 of the Act which lays down that 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 as, with the consent of the owner, the buyer acquires no better title to the goods than what the seller had. Thus, it can be stated that a person who is not the owner of the goods cannot make a third person owner of the goods.
But the above rule is subject to some exceptions where seller may confer a better title than what he himself possess. These exceptions are as follows:
1. Title by estoppel: You are already familiar with the principle of estoppel. Applying this principle to a contract of sale of goods, when the owner of the goods, by his statement or conduct, leads the buyer to believe that the seller has the authority to sell later on he may be estopped from denying the seller’s authority to sell. For example: A says to B, in the presence of C that he (A) is the owner of the goods and C, who is the real owner of the goods does not contradict the statement. B buys the goods from A. Here, B will get a better title. In this example if the real owner C wishes to deny A’s authority to sell the goods, he (C) may be estopped from doing so.
2. Sale by a mercantile agent: 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, and he sells those goods in the ordinary course of business as a mercantile agent the buyer will get a good title to the goods provided, he (the buyer) buys them in good faith and for value. Section 2(9) defines a mercantile agent as an 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. In a sale by mercantile agent the buyer will acquire a good title to the goods only if the following conditions are satisfied:
a) the goods are sold by a mercantile agent who is in possession of goods or of a document of title to the goods with the consent of the owner;
b) the agent sells the goods in the ordinary course of his business as a mercantile agent;
c) the buyer must have acted in good faith i.e.; the buyer must have no knowledge that the agent had no authority to sell.
In Folkes v. King, F, the owner of the car, instructed an agent A to sell the car at a stipulated price and not below that. But A sold the car to B at a price lower than the stipulated price and misappropriated the money. B bought the car in good faith. It was held that B got a good title to the car and the real owner F cannot recover the car from B.
From the above, it should be clear that where the buyer does not act in good faith or has the knowledge that the agent has no authority to sell, this rule shall not apply. This rule has been framed to protect the interest of innocent buyers.
3. Sale by one of joint-owners:According to Section 28 of the Act, if one of several joint owners of goods has the sole possession of them by permission of the other co-owners, and he sells them to a person who buys them in good faith, and has, at the time of the contract of sale, notice of the fact the seller has no authority to sell, the buyer will get a good title to goods. As a rule, a joint owner can transfer his share only. However, if he is in sole possession of the goods with the consent of other joint-owners and the buyer buys them in good faith, the buyer gets a good title to the goods. For example, A, B and C are the joint-owners of some furniture and with the consent of B and C, the furniture was kept in possession of A. A sells the furniture to P who buys it in good faith and without notice that A had no authority to sell. P gets a good title to the goods.
You should note that this exception is applicable only in such cases where the joint-owner is in possession of goods with the consent of other co-owners.
4. Sale by person in possession under voidable contract: According to Section 29 of the Act, where a seller is in possession of goods under a voidable contract, and he sells the goods to a bonafide buyer before the contract is rescinded the buyer gets a good title to the goods. This exception is limited to contract of sale of goods obtained under a contract voidable under Section 19 or 19A of the Contract Act, i.e., voidable on the ground of coercion, undue influence misrepresentation or fraud. For the application of this exception, it is necessary that:
a) the seller must be in possession of goods under a voidable contract;
b) the goods must be sold before the contract is rescinded; and
c) the buyer must buy in good faith and without notice of the seller’s defect of title.
Thus, if the seller is in possession of goods under a contract which is void, even an innocent buyer will not get a good title to the goods.
Example: A obtains a necklace from B, a jeweller, by playing fraud upon him. This contract is voidable at the option of B. But before B could terminate the contract, A sells the necklace to C who buys it in good faith and without notice of A’s defective title. C gets a good title.
5. Sale by seller in possession after sale: Sometimes, the buyer after buying the goods, leave them with the seller. Section 30(1) of the Act provides that where a person having sold the goods continues or is in possession of the goods or of the documents of the title of the goods, after sale and he resells the same goods to another buyer, the buyer shall get a good title to the goods provided the buyer buys them in good faith and without notice of the previous sale. For example, A buys some goods from B, but leaves them with B for the time-being. In the meanwhile, B sells the same goods to C who buys them in good faith and without knowledge about the previous sale. C gets a good title to the goods.
For the application of this action, it is necessary that the seller must be in possession of goods as seller and not in any other capacity. Thus, if the first sale was completed and the seller again gets possession of the goods for same specific purpose and he resells those goods, then the buyer shall not get a good title to the goods even though he buys them in good faith.
Example: A sold a wrist watch to B and it was delivered to B. Later on, B delivered the watch to A for some repair. A resells that watch to C, who buys in good faith, Here C will not get any title to the goods because A was in possession of the watch not in the capacity as a seller but in the capacity of a bailee.
Thus, it is necessary that the seller must be in possession of goods as a seller and not as a bailee or a hirer.
6. Sale by a buyer in possession after sale: Section 30(2) deals with cases where goods are sold or agreed to be sold and the goods are in the possession of the buyer but the ownership has not yet passed to the buyer. If such a buyer resells the same goods to a new buyer who buys them in good faith and without any knowledge about the first seller’s rights over the goods, the second buyer gets good title to the goods. For the application of this rule, it is necessary that the first buyer must have obtained the possession of the goods or documents of title to the goods with the consent of the original seller. For example, A buys a scooter on instalment basis from B. It is agreed that B will remain the owner of the scooter till the last instalment is paid. A sold the scooter to C even before the payment of the last instalment. C buys in good faith and has no knowledge about the arrangement between A and B. C gets a good title to the scooter.
You should note that this exception will apply only in such cases where the buyer is in possession of goods or the documents of title to the goods.
7. Sale by an unpaid seller: Section 54(3) provides that where an unpaid seller exercises his right of lien or stoppage in transit and is in possession of the goods, if he resells such goods, the subsequent buyer gets a good title to the goods as against the original buyer (discussed in detail in Unit 19).
8. Sale by a finder of goods:According to Section 169 of the Contract Act, a finder of goods has the power to sell the goods under certain circumstances and the buyer will get a better title. A finder of goods can sell such goods:
a) if the owner cannot be found with reasonable diligence, or
b) if found, he refuses to pay lawful charges of the finder, or
c) if the goods are in danger of perishing or of losing the greater part of its value, or
d) if the lawful charges of the finder, in respect of the thing found, amount to two thirds of its value.
9. Sale by a Pawnee or pledgee: If the pawner or pledger makes a default in payment of the debt or the performance of the promise at the stipulated time, the Pawnee has the right to sell the goods pledged after giving a reasonable notice to the pawner. In such a case, even though the Pawnee is not the owner of the goods but still he can convey a good title to the buyer.
10. Sale by Official Receiver or Official Assignee: The official receiver or the official assignee are appointed by the court to sell the property of the insolvent person. Though they are not the owners of the property, they can pass on a better title to the buyer.
