A sale by non-owner in business law occurs when goods are sold by a person who is not the owner without the owner's permission. Only the person who owns the title to a piece of property, whether that is personal property or real estate, can transfer the title to someone else.

Nemo dat quod non habet is a legal term that's often abbreviated to nemo dat. It simply means no one can transfer what they don't have. As such, a seller can only transfer ownership to a buyer if he possesses the right to do so. Nemo dat may apply if a seller sells stolen goods without the rights to them or a buyer purchases stolen goods.

Nemo Dat Exceptions

Nemo dat protects the rightful owner of a piece of property, precluding the innocent purchaser from maintaining ownership of the title. However, there are several exceptions to the rule. Each exception is contained in one of the following acts:

  • The Sale of Goods Act 1979 (SGA)
  • The Factors Act 1889 (FA)
  • The Hire Purchase Act 1964 (HPA)

When any of these exceptions are enacted, the rightful owner of the property loses ownership of the title in favor of the purchaser. In essence, these exceptions protect the innocent purchaser.

Here's an example of a scenario where the transfer of ownership to a non-owner may arise:

  • Mr. Smith steals a piece of property and sells it to Mr. Jones.
  • Then, Mr. Smith sells another piece of property to Mr. Murphy but retains possession of it while wrongfully selling it again to Mr. Napoli.
  • Mr. Smith then passes the property to Mr. Jones in search of an offer for sale. Meanwhile, Mr. Jones goes on to sell the property without Mr. Smith's authority and maintains the proceeds from the sale.
  • Mr. Smith buys the piece of property on credit and resells it to Mr. Jones, with no intention of paying for the property.

This situation becomes tricky when you pause to consider why the two innocent parties should suffer at the hands of one deviant.

Denning LJ in Bishopgate Motor Finance Corporation Ltd. v. Transport Brakes Ltd. (1949)

These exceptions are illustrated well in Denning LJ in Bishopgate Motor Finance Corporation Ltd. v. Transport Brakes Ltd. (1949). There were a couple elements at play in this case.

First, the courts were seeking to protect the property. Shouldn't it be true that no one can give away a title if he doesn't possess it? Second, the courts were seeking to protect commercial transactions. Shouldn't the person who makes a purchase in good faith receive a fair title?

The first consideration demonstrated by Denning LJ can be seen in the Sale of Goods Act 1979. Since the implementation of this act, whenever goods are sold by someone who is not the rightful owner, the buyer does not acquire a valid title.

Estoppel

Estoppel occurs in cases where the owner of the piece of property acts in a manner in which the seller has the right to sell the piece of property. As such, the rightful owner is prevented (estopped) from making a claim against the seller. In such a scenario, the purchaser may then go on to become the rightful owner of the goods.

Two further distinctions of estoppel may arise. They are:

  • Estoppel by Representation
  • Estoppel by Negligence

Estoppel by representation occurs when the owner of the piece of property has, either in his words or conduct, led the buyer to believe that the seller is the true owner of the property, or at least has the right to sell them. This form of estoppel is also known as estoppel by words or estoppel by conduct.

Estoppel by negligence occurs when the owner of the property has, through negligence, allowed the seller to appear before the buyer as the true owner, or as one who possesses the authority to transfer ownership of the property. For this form of estoppel to take place, it must be proven that the owner of the property had a responsibility to take care of it, so as not to act negligently, but did so anyway.

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