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Sale of goods by a non-owner
Varun Kathuria |
March 28, 2024 |

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How a business may secure its interest at the time, goods are purchased from someone who is a non-owner of the goods? Question – If A is the owner of product X and B is the broker/mercantile agent; who does not own X but sells to C.

We will discuss here in this article: How C as an innocent buyer may claim title upon goods purchased from B and not from A (actual owner).

The ownership or title of goods as a rule in any transaction is completed only when a seller transfers the title of a product in question to buyer and may discharge the product’s future liabilities arising due to any defect, non-working, breakage, etc. at the time of purchase and/or after purchase, depending upon case-to-case basis. Primary question from a buyer or seller: Whether the present laws take in the balance; in connection to sale of goods by a non-owner or in a case where someone who purchases goods in a good faith from the non-owner with no authority to sell them?

The concept of “nemo dat quod non habet” a legal maxim which means – No one gives what he does not have (section 21 (1)) of the Sale of Goods Act 1979 refers to a principle about the transfer of title. However, there are exceptions to above maxim/rule, and we will try to understand and execute these exceptions from the understanding.

A.     Estoppel by representation and negligence: In an event, the actual owner represents that the stated seller which may be mercantile agents (an agency relationship): maybe broker, commission agent, factors etc., by way of authority letter or any other kind of a valid instrument. For example, if a sale by a mercantile agent takes place with the consent of the actual owner, in possession of goods, or having documentation pertaining to the title of goods provides a title to the buyer. The law “estopped” actual owner to later explaining the situation as that it was an error, mistake or joke and cannot entitle the title of goods to a buyer.

B.     If one of the owners has the sole possession of goods: For an example if X as a one of the joint co-owner has goods “A” in the possession along with its safe custody and Y in a good faith buys it from X, then Y gets a title over the goods in question.

C.     Sale under a voidable contract: In an event, sale of goods made by person in a possession of goods under a voidable contract sells them, but before the contract is avoided because of coercion or misrepresentation, an innocent buyer gets a title to the goods. However, this above does not apply in contracts that are originally void.

D.     Possession of goods after-sale: If the seller in an agreement with the buyer and after selling manages to retain the possession of goods and sells the same goods to another buyer, provided the new buyer does not have any information about the previous sale. The last buyer will have title to the goods. For example in any hire purchase agreements.

In the past, courts were disinclined to find a way in the cases related to sales by non-owners. Hence, (i) an original owner is protected in a situation; where goods are purchased from the non-owners with no good title cannot pass the goods title to the seller. (ii) a buyer interest is safeguarded; if original owner provided the authority to sell to a mercantile agent having possession of goods to which the mercantile agent sells the goods without permission of actual owner may result the innocent buyer to own title over goods. (iii) in an event of reselling of goods made by the seller with possession of goods to a new buyer (provided new buyer has no knowledge about the original sale of goods) may result to transfer of title of goods to new purchaser/buyer.

“The best way to ensure that title of goods passes to an innocent buyer is to document the transaction, where seller warrants the ownership of goods or has the right to sell them”.

Author: Varun Kathuria

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