Q. When a Non Owner can make a valid contract of Sale of Goods?

Introduction:
In a contract of sales ownership or title of goods are transferred from one person
to another in exchange of money, the main motive behind the making of the
contract is a transfer of rightful ownership and possession from a seller to a
buyer, so this element lays down the groundwork for the making of a contract.
According to a Latin maxim, Nemo dat quod non-habet which means that no
one can transfer a better title than he himself has, only the owner of the goods
can pass the lawful ownership or title of goods to the buyer.

Relevant Provisions:
Section 27 to 30 of Sale of Goods Act, 1930
Relevant Maxim:
"Nemo Dat Quod Non Habet"

"No One can transfer a better title than he himself has"

This principle is enshrined in Section 27 of The Sale of Goods Act, if the title
of seller is defective and if this defective title is passed on to the buyer, then the
buyer’s title would also be the same, and he will have no rights on goods despite
the fact that he acted in good faith and paid the price.

Example:
Mr. Aslam stole a watch from Mr. Mujahid and sold that watch to Mr. Akbar.
Since Mr. Aslam is not the owner of the watch consequently Mr. Mujahid will
not get a good title over the watch. This doctrine is known as "Neuri dat quad
non habet" which means that no one can transfer or give which he himself does
not possess.

Exceptions:

Nonetheless, there are certain exceptions to this rule under which a non-owner
can convey a better title to the bona fide purchaser of goods for value.
Following are some exceptions to this rule.
Sale by a Mercantile agent:
Proviso to Section 27

Consider a mercantile agent, who is in possession of the goods or a document to

the title of the goods, with the consent of owner. Such an agent can sell the
goods when acting in the ordinary course of business of a mercantile agent. The
sale shall be valid provided the buyer acts in good faith and has no reason to
believe that the seller does not have any right to sell the goods. The transfer of
title is valid in such a case.

Who is mercantile agent?

Section 2(9)

Mercantile agent means that agent having an authority to sell or buy or consign
goods and he must be trusted with goods and sell goods as a mercantile agent
and not any other capacity.

Consent of the Owner:

Consent of the owner is a crucial element, it is fulfilled when true owner

intentionally deposits goods in the hand of mercantile agent and it is immaterial
that consent was obtained by fraud or misrepresentation or any other method
which renders consent voidable.

Sale by Joint Owner:

Section 28

Many times goods are purchased in joint ownership. In many cases, the goods
are kept in the possession of one of these joint owners by the permission of the
co-owners. According to section 28 , if more than one person has ownership
tights in anything, and that thing is in the possession of co-owned with the prior
approval of other co-owners, and co-owner sell that thing without consulting
other co-owners, the buyer will not be deprived of complete ownership of that
thing. But the transection of sale and purchase should be in good faith from the
buyer's side and buyer has no idea that the seller has no authority to sell that
things.

Example:

Ali, Ahmed and Asghar are three friends jointly purchased a 42- inch television
set to watch the upcoming Football World Cup. They unanimously decided to
keep the television set at Ali's house. Once the world cup is over, the television
is still at his house.

One day Ali's office colleague Mujahid visits his house and he sells the TV to
him. He buys it in good faith and has no knowledge about the fact that it was
purchased jointly. In this case, he gets a good title to the TV.

Sale by a person in possession of goods under voidable Contract

Section 29

According to section 29, if seller obtain possession of goods under voidable

contracts such as coercion, fraud, misrepresentation, or undue influence, and
sell those goods before the voidable contract is, the buyer will get a good title to
the goods. If the goods are in possession under voidable contract, the seller
needs to rescind that contract but before rescinding the contract if guilty party
sell goods to another party who is not at fault and acting in good faith, then the
real owner cannot claim the goods back because the buyer has rightful claim
over the goods.

Example:

Fozia purchased a ring from Khalid, under good faith. But it turns out that
Khalid had fraudlemtly obtained that ring from Ayesha and contract is voidable
at the otion of Ayesha, but before the contract could be terminated Khalid sold
that ring to Fozia- an innocent buyer. In this case Fozia will get good title over
the ring and Ayesha cannot recover the ring from Fozia since she didn't void the
contract before the sale was made.

Essentials requirements:

There are two essentials requirements to be fulfilled to claim this exception.

i. Firstly, voidable contract.

ii. Secondly, the contract should not be rescinded at the time of new
contract.

The goods are obtained under a voidable contract rather than void or void ab
initio. If the contract of possession of goods was void or void ab initio the
buyer will not get any rightful possession because the seller cannot transfer a
better title then he has.
Rescinding of Contract:

If the contract is rescinded at the time of further selling the goods buyer will
not get a rightful title of goods. Usually the contract is rescinded by giving
notice to the guilty party but if there is no way to contact that party the
contract is considered as rescinded by doing whatever the owner can do to
regain possession.

Sale by a person who has sold the Goods but continues to have
possession:
Section 30 (1)

According to section 30(1) of The Sale of Goods Act, when seller has sold
goods to the buyer but the possession of goods remain with him, if during
that possession seller sold that goods to someone else and that person has
purchased goods in good faith and without notice of prior sales, he would
have good title to them. It is essential that seller should be in possession of
goods as a seller not as an altered capacity like bailee.

Example:

Mr. A purchased a car from Mr. B but the possession is still with Mr. A, in
the meanwhile Mr. B sold that car to Mr. C because he was getting a higher
price. Herein, Mr. C does not know anything about the previous sale and
purchases the car in good faith. In this situation, Mr. C will get good title
over the car and Mr. A cannot claim that car back from Mr. C.

Case Law:

However, personal possession of goods is not important, goods should be at

his disposal. In the case of City Fur Manufacturing V Fureenbond, Mr. H
purchased a quantity of skins from a broker. Since the payment was pending,
the goods remained in the broker's warehouse. Mr. H sold them to the
plaintiff. The plaintiff gave him a bill of exchange to enable him to pay the
broker and arrange delivery to the plaintiffs. Instead of arranging the same to
same for the plaintiff, Mr. H pledged the goods with the defendants. The
court held that the defendants have acquired a good title.
Sale by buyer obtaining possession before the property in
goods has Vested in him:
Section 30 (2)

According to Section 30 Clause 2 of The Sale of Goods Act, if a buyer

resells the goods that he has obtained with the consent of the seller but the
actual sales have not yet been made, if the buyer to whom goods have been
resold have purchased the goods in good faith and without notice, he gets a
rightful possession and ownership.

Example:

Aviral took a car from Vansh with a promise that he will pay monthly
installments of Rs. 10000/- for the next 15 months if wants to purchase the
car or else he can pay the same amount as hiring charges. After a few
installments, Aviral sold the car to Danny. In this case, Vansh can recover
the car from Danny because Aviral had neither purchased the car not have
agreed to purchase the car in the future.

Sale By Unpaid Seller:

Section 54(3)

Clause 3 of Section 54 states that when an unpaid seller has exercised his
right of lien or stoppage resells the goods, the buyer will acquire the rightful
title of goods notwithstanding that no notice of resale has been given to the
original buyer. This can be understood clearly by following cases:

Great Indian Peninsula v Hanmandas, the seller consigned the goods with
the GIP Ry Co for transportation to the buyer. On the arrival at the
destination, the company had delivered the goods to the buyer who had
loaded them on his cart, but the cart had not yet left the railway compound
when a telegram was received by the company to stop the goods. The
company did not do so and were sued by the seller in damages. It was held
that the transit had ended as soon as the goods were handed over to the
buyer.

In the case of Whitehead v. Anderson, a quantity of timber was consigned

on board. When the ship arrived at the destination, the buyer went bankrupt.
The buyer’s agent came to the board and told that he has come to take
possession. The captain said that he will deliver only when the freight is
paid. Before this could be done, the seller sent a notice to stop and asked to
send the goods to be delivered to the agent of the seller. The court said that
 since the transit has not ended, the carrier was within his rights in returning
the goods to the seller. The captain agreed to deliver the goods on a
condition and if the condition is not fulfilled, the buyer does not acquire the
constructive possession of goods.

Effect of estoppel:
Estoppel comes from showing that the seller has the authority to sell. If by
any act or conduct or words or declaration a person shows that ownership of
goods rests with the seller or that person has an authority to sell goods, then,
later on, he cannot claim that he is the sole owner of goods and the seller had
no rights to sell the goods.

For instance, A, B and C were having a conversation, when, B offered A to

buy a horse which A misrepresented as his horse but originally that horse
belongs to C. at that time C did not say anything, even though he knew
everything. Later on, when B sold the horse to A, C have no right to claim
that horse back and A will get a valid title of the horse even though that
horse does not belong to B.

Apart from this, estoppel by negligence is another kind of estoppel where the
party in whose favour it operates is the victim of fraud of some third person
facilitated by the careless breach duty of another party.

Sale under the Provisions of other Acts:

 Sale by an official Receiver or Liquidator of the Company will give
the purchaser a valid title.
 Purchase of goods from a finder of goods will get a valid title under
circumstances of the Contract Act 1872.

Conclusion:
The contract of sale is entered into, for the purpose of transferring the
property from seller to buyer that is why it is important to determine the time
of passing the property from seller to buyer. Generally the risk passes with
the property, when the goods are lost or damaged the burden of loss will be
borne by the owner of the goods not the person who is holding the
possession at the time of loss or damage. If the goods are damaged by third
party only the owner can take action against third party.

In the development of this kind of law, there are two principles which forms
the basis. First is the protection of property and the second is protection of
commercial transaction. The protection of property means that no one can
give better title than he himself possesses which is enshrined in legal maxim
“nemo dat quod non habet” whereas protection of commercial transaction
indicates that person who purchases anything in good faith and for value
without notice should get a good title. The main purpose of transferring the
right of ownership not merely the possession of goods