Principle of Nemo Dat and Its Exception Under Soga

1. The Nemo Dat Rule

According to Section 27 of SOGA, if the goods sold to a buyer by a non-owner of

the goods or by a person who does not have the authority or permission of the owner
of the goods to sell, then the buyer cannot get a better title to the goods than the
seller had. Thus, if the seller does not have title to the goods, the buyers will not
have any title to the goods and had to return the goods to the owner of the goods.

This principle is called “Nemo dat quod non habet” or briefly, “Nemo dat.” No one
gives what he doesn’t have.

Rationale: To protect the right of ownership. When a person sells goods which
belong to someone else, the buyer cannot get a good title. The true owner can still
recover the goods at law without paying any compensation to the buyer, even if the
buyer had paid the seller for the goods. Buying the goods from someone who has no
rights of ownership over it denies the buyer any title to ownership.

To protect commercial transaction and bona fide purchaser, there are 6

exceptions to Nemo Dat Rule:

(1) Estoppel (Section 27)

(2) Mercantile agent (Section 27)

(3) Sale by one of several joint owners (Section 28)

(4) Sale by the holder of voidable title (Section 29)

(5) Sale by a seller in possession (Section 30 (1))

(6) Sale by a buyer in Possession (Section 30 (2))

If any transaction falls within the ambit of any one of the exceptions above, a buyer
may obtain the property in goods even though initially the seller has no property to
the goods.

Question: What if Hanis is a bona fide purchaser for valuable consideration but
Hanis fails to prove any one of the exceptions above?
Answer: Hanis will NOT obtain the property in goods. The property in goods does
not pass to Hanis OKAY. She MUST prove that such sale falls under any one of the
exceptions above.

*** In short, bona fide purchaser is the basic requirement, but a claimant also needs
to prove that his case falls under one of the exceptions above. Which one it falls
under is a question of facts***

Exception #1 – Estoppel (Section 27)

Section 27: “... unless the owner of the goods is by his conduct precluded from
denying the seller’s authority to sell”

The owner of the goods cannot rely on the principle of “Nemo dat” if by his conduct
he is prevented (“estopped”) from raising the principle.

Where the owner has made a representation that the seller is entitled to sell the
goods and the buyer relies on that representation and obtains a good title, the owner
is estopped by his representation from denying the seller’s authority to sell.

Estoppel may arise in 3 situations:

(i) due to statements made by the owner (estoppel by words)

Where the owner by his words or conduct represented to the buyer that the seller is
the true owner or has the authority to sell.

Henderson & Co. v Williams (1895)

Held: When the owner of the goods make a representation which makes the buyer to
believe that the seller has the authority to sell the goods, the owner is later precluded
from denying the seller’s authority to sell.

(ii) due to conduct of the owner (estoppel by conduct)

It does not include the situation where owner gives possession of the goods to
others, for example lending a car.
Mercantile Bank of India v Central Bank of India (1938)

Estoppel due to conduct of the owner must be something more than giving
possession. Owner must do something which indicates that he has transferred the
ownership of the goods to others.

Syarikat Batu Sinar v UMBC Finance Bhd (1990)

This case involved hire purchase of a car. Endorsement was not recorded, so only
the name of hirer was there. Hirer sold the car to a third party before all instalment is
paid (in other words, ownership was still with the finance company). The finance
company tried to claim, but it was held that the failure of the company to record the
endorsement was to be regarded as estoppel through conduct of the owner
(although in fact this was due to negligence/careless)

Held: Failure by owner of the car to register its ownership with the Registrar estops
him from denying the seller’s authority to sell because 3rd party always relies on the
registration.

Industrial Resources Bhd v United National Finance Ltd (1987)

Brunei case which held that omission can’t be regarded as estoppel (This decision is
contrary to Batu Sinar who held omission to record endorsement was to be regarded
as estoppel through conduct of owner. Batu Sinar held that this decision is not
suitable in Malaysia because third party in Malaysia relied on registration card during
transfer of ownership).

(iii) due to the negligence of the owner

Estoppel may arise due to the negligence of the owner. This negligence result in the
3rd party believing that the seller has ownership of the goods or has the authority of
the owner to sell them. To raise this, all three elements of negligence must be
proved.

Elements:

(a) Owner owes the buyer a duty of care

(b) Breach of duty
(c) The negligence was the proximate/ real cause of the loss – buyer being
induced to buy the goods & part with the PP to the seller.
Coventry Shepherd & Co v Great Eastern Railways Co. (1883)

Held: The defendant negligently issued 2 delivery orders relating to the same load of
goods; the person told they were issued was thereby able to represent the plaintiff
that the goods were in fact available after they had already been disposed of.
Estoppel by negligence was applied.

Merchantile Credit Co. Ltd v Hamblin (1965)

For estoppel by negligence to apply, there must be more than just carelessness on
part of the owner. The person alleged to be stopped must owe some duty of care to
the person who has been misled, there is a breach of the duty and the breach is the
proximate cause of the loss.

Held: The court held that the D did owe a duty of care sufficient to raise an estoppel,
but she had not failed to take care. She has not breach of the duty.

Moorgate Merchantile Co Ltd v Hamblin (1977)

Facts: P omits to register hire purchase agreement with Hire Purchase Information.
The hirer sold the vehicle to the D. D had inquired from HPI if the agreement was
registered but were told that it was not. The issue is whether the P was under a duty
to take reasonable care to register?

Held: It was held that P was under no such duty to register the agreement. Estoppel
by negligence does not arise.

Exception #2 – Sale by mercantile agent (Section 27 proviso)

Proviso to Section 27: “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 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 acts in good faith and has not at the time
of the contract of sale notice that the seller has no authority to sell.”

Section 2: “mercantile agent” means a mercantile 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.
E.g: Second hand car dealer, broker or auctioneer

The sale is valid as if expressly authorized by the owner if:

(i) He must have possession of the goods in his capacity as a mercantile

agent.

Lowther v Harris (1927)

Principle: A person can be a mercantile agent even though he acts for one principal
only. This is because mercantile agent will act for few principals.

(ii) The seller must have possession of goods with the consent of the owner.
He must have possession at the time of the sale. Possession at another
time is not enough.

Pearson v Rose and Young (1951) (consent by fraud)

Principle: For the purpose of Section 27, a mercantile agent is in possession of the
goods with the consent of the owner even though he may have obtained possession
of them by fraud.

(iii) He must have possession of the goods in his capacity as a mercantile

agent.

(iv) He must act in the ordinary course of a mercantile agent

Stadium Finance Co. v Robbins (1962)

Held: The sale of a car without the registration book and ignition key by the dealer to
the salesman in a hire purchase agreement was of a sale in the ordinary course of
business of a mercantile agent

(v) The Buyer must act in good faith without knowledge that the seller does
not have the authority to sell.

Oppenheimer v Attenborough (1908)

Facts: D acted in good faith as he did not know the trade custom in the diamond
trade. Held: The pledge was valid for the disposition was made by a mercantile
agent acting in the ordinary course of business even though he had no authority to
pledge by the custom of trade.

Exception #3 – Sale by one of several joint owners (Section 28)

Section 28: 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.

3 elements of Section 28:

(i) One of the joint owners has the sole possession of the goods with the
permission of others
(ii) Buyer bought in good faith.
(iii) Buyer has no notice that the seller has no authority to sell at the time of
the contract was made.
(iv) The seller is not given the authority to sell even though he is a joint owner.

Exception #4 – Voidable title (Section 29)

The subsequent buyer acquires a good title to goods if:

(i) Seller obtained possession under a voidable contract Section 19

(coercion, fraud, misrepresentation) or Section 20 (undue influence)
Contracts Act 1950
(ii) Contract has not been rescinded at time of the sale
(iii) Buyer bought in good faith without notice that the seller has no authority to
sell

Voidable title can be transferred and will be valid if the seller sells the property before
the voidable contract is rescinded, therefore owner should rescind the contract as
soon as possible.

Car and Universal Finance Co Ltd v Caldwell (1965) (meaning of rescinded)

Facts: The seller was induced by the buyer to accept a cheque. The cheque was
dishonored on presentation. The seller informed the police and asked the
Automobile Association to trace the vehicle. The buyer sold the car to a 3rd party.
The buyer did all he could to evade any communication being made regarding the
seller’s intention to rescind the contract. The issue is whether the contract has been
rescinded.

Held: The court held that the owner has to establish clearly & unequivocally that he
terminates the contract and is no longer to be bound by it. There has to be a
communication. If he cannot communicate his decision, the owner is still entitled to
avoid the contract of sale. In this case, the seller had effectively shown his intention
to rescind the contract of sale even though he had not communicated his intention to
do so to the fraudulent buyer. By informing to the relevant authority (e.g. making
police report) effectively shows his intention to rescind the contract. Hence, the
contract is a voidable contract.

Exception #5 – Sale by a seller in possession (Section 30 (1))

The subsequent buyer acquires a good title to goods if:

(i) Seller sold the goods (to the 1st buyer)

(ii) Seller continues to be in possession after sale
(iii) Seller resell the goods to a 3rd party who receive in good faith without
notice of the previous sale
(iv) Seller had delivered/ transferred goods to 3rd party. (under any sale,
pledge or other disposition)

This is a situation where goods stay with seller after being sold, and 2nd buyer who
come is also interested to buy the goods, and seller sells the goods again without
informing the 2nd buyer that it has been sold, this situation is allowed. However, if
seller informed the 2nd buyer that it has been sold, but 2nd buyer offer to pay much
higher to get it, and seller sell it again, this situation is not allowed (not bona fide
purchaser)

If a seller is still in possession or title of the goods and resells them to a third party,
that third party (subsequent purchaser) shall receive a good title to the goods,
provided that he had acted in good faith.

City Fur Manufacturing v Fureenbond (Brokers) London (1937)

Facts: Possession of goods does not mean that the seller has to be in personal
possession of the goods. Another person may have the actual possession of the
goods provided that he passes them on behalf of the seller. For instance possession
by the agent of the seller.

Held: A seller ‘continuing in possession of the goods can pass a good title to a bona
fide purchaser for value under Section 30(1) even though the goods are actually in
the possession of the seller’s agent.

Note: This case can be used to illustrate that the possession by the seller’s agent is
sufficient to pass a good title to a bona fide purchaser.

Pacific Motor Auctions v Motor Credits (1965)

Doesn’t matter if a person hold possession as a bailee, what important is that he is

holding possession of it.

Principle: The seller who acts as a bailee to the original buyer still has the actual
possession of the cars. The 3rd party had obtained a good title because the seller
‘continued in possession’ of the cars. The words ‘continue… in possession’ refer to
the continuity of physical possession regardless of any private transactions between
the seller and the original buyer which might alter the legal title under which the
possession was held. The legal quality of possession (title) is immaterial because
before the sale, he is in possession as an owner, whereas after the sale, he is in
possession as a bailee holdings goods for the new owner. The possession continues
unchanged, but the title under which he possesses has changed.

Note: The type of possession of property whether as a bailee or anything are not
taken into account.

Mitchell v Jones (1905)

Principle: The possession of goods must be continuous. The bona fide purchaser will
not be protected by Section 30(1) if there is a break in the possession.

Note: The possession MUST be continuous

Sale of horse by X to Y. This horse is sent to Y, later Y sent back to X. After that, X
sold the horse to third party. Held: Possession must be continuous to raise the
exception. The exception does not apply because the possession is not continuous
as it has been sent to the first buyer and first buyer sent it back.
Nicholson v Harper (1895) (delivery be made to the buyer)

Principle: Pledging the goods is not counted as delivery

Worcester Works Finance v Cooden Engineering (1971) (meaning of other

disposition)

Principle: ‘Other disposition’ can mean a situation where the seller, having lost or
parted with the possession of the goods, regain possession of them, provided he did
so as seller and not in some other capacity.

A sold and sent the car to B, so ownership and possession of the car transferred to
B. B bought using cheque, but it was found not acceptable because no value.
Without knowledge of A, B sold the car to C, which make C the new owner. C
allowed B to hold possession of the car after the sale. When A realized the cheque is
not valid, A went to see B. B told A you can take back the car, and sent the car back
to A. C tried to claim from A.

Held: A had the ownership because B is the seller who had possessions, so C can’t
claim from A. Though B didn’t transfer the car back to A through selling, but court
held that the provision had the words “other disposition”, which means it not only
includes selling, but any act of transferring ownership.

Exception #6 – Buyer in possession (Section 30 (2))

Section 30 (2): “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 goods shall have effect as if such
lien or right did not exist.”

The subsequent buyer acquires a good title to goods if:

(i) Buyer has possession of goods with consent of seller

(ii) Buyer had delivered/ transferred the goods to 3rd party (Second buyer)
(iii) 3rd party (Second buyer) acted in good faith without notice of liens/ other
rights of the original seller.
There are occasions where the seller imposes condition that the property in goods
shall not pass until a certain requirement is fulfilled. In such situation, the property in
the goods will not pass to the buyer even though the delivery has been made.
Therefore, if the buyer has no title to the goods, he shall not pass it to another.

If the buyer sells it to a 3rd party, the transaction shall be regarded as sale by buyer
in possession and it can be an exception to the Nemo Dat rule.

Helby v Mathews (1895) (meaning of bought or agreed to buyer)

Facts: The hirer was not a buyer at the time of the sale as he only becomes the
owner after he had fully repaid the price of the goods in instalments and make option
to purchase it from the hire purchase company.

It was held that Section 30(2) only applies to a person having bought/ agreed to buy
the goods not applicable to a hirer who is not a buyer at the time of the sale.