Nemo Dat Quod Non Habet - Assignment Example

Nemo Dat Quod Non Habet Nemo Dat Quod Non Habet Nemo dat quod non habet is the underlying principle of the system of transfer of property ownership. According to the Sale of Goods Act 1979, section 21(1), a buyer of goods, albeit bona fide, cannot assume title to such goods if the seller had no ownership rights. Essentially, a seller is not in a position to transfer goods to a buyer or give a buyer a title better than what he himself has (Atiyah 2005, p. 46). In this sense, ownership rights of goods can only be passed to a buyer if the seller has the right to sell the goods at the time of making the sale. Commonly refered to as nemo dat, this concept stems from vision of a series of transactions whereby a current owner of property is required to be able to trace back ownership to reflect a chain of legitimate transfers. Further, the chain of transfers should originate from legitimate original possession. With examples, this paper will discuss the importance of nemo dat as well as applicable exceptions as per the provisions of the Sale of Goods Act 1979. Nemo dat is mainly concerned with the issue of which of the two parties, the legitimate owner and the innocent buyer, must pay the price of the fraud of a third party (Yap 2008, p. 254). It is a familiar occurrence that legitimate owners of goods are swindled into parting with the goods and, similarly, innocent buyers deceived into buying the goods from a third party. Therefore, the fundamental importance of the nemo dat rule is protecting the true and legitimate owners of property. Then, it also protects property by stipulating that no one can give a title that is better than he himself has (MacLeod 2012, p. 27). The usual scenario of the sale of property is that it is carried out between a willing buyer and either the legitimate owner or their duly authorized representatives. However, situations also occur in which the seller is selling property that does not rightfully belong to him or he does not possess the required right to sell. At that point, the significance of nemo dat is that it will form the basis on which the law will decide whether to favor the original owner or the bona fide buyer (Elliott 2004, p. 382). The rule of nemo dat remains legally binding even in situations where buyers are not aware that the sellers have no right to allege ownership of the property being transacted. In most circumstances, the buyer of property from a seller with no ownership rights will not get the title of ownership but, legally, there are exceptions that can actually grant such buyers the title. Meant to protect innocent buyers, the exceptions facilitate the transfer of title to the buyer, which means the original owner loses the title. The exceptions mainly originated from the numerous cases in which there was more than just a single innocent party involved. It has always been a difficult decision to make when a choice has to be taken between two evidently innocent parties since the courts must achieve a delicate balance between the rights of the two parties (Yap 2008, p. 258). Such situations presented difficulties to courts in arriving at judgment, hence the exceptions that afforded genuine buyers and original owners certain levels of protection. For instance, in a scenario that involves nemo dat, a seller that is not the true owner may sell property to an unsuspecting third party and then become insolvent such that both the buyer and legitimate owner may not receive any remedy from him. The implication, therefore, is that loss must be suffered by either the buyer or the legitimate owner and it is up to the court, via nemo dat, to decide on which one (Guest 2002, p. 31). Basing on this situation, an area in which nemo dat is especially important and applicable is hire purchase. Legal draftsmen attempted to formulate installment contracts that were intended to protect the ownership rights and title of the sellers until the buyer settles the agreed amount of the purchase fully (Salomons, A 2007, p. 1). The general rule of hire purchase is that the buyer will only be granted full ownership title upon paying the full amount within the agreed period. In light of the possibility of the buyer selling to a third party before settling with the legitimate owner or seller, nemo dat protects the legitimate owner by addressing three key aspects. First, the seller’s rights to the object of transaction must be secured against the buyer and any possible creditors the buyer might have for the entire duration that the payment is not completed. Secondly, the possibility of the buyer overriding their proprietary or possessory interests in the object of transaction in favor of a bona fide buyer must be prevented. Then, after securing their legal interests in the object of transaction, the legitimate seller must keep ensuring that such rights continue being of adequate value (MacLeod 2012, p. 27). By addressing these aspects, nemo dat ensures that the seller does not lose the object of transaction and, should the buyer sell to another party before paying the full price, the title of ownership cannot be transferred to the new buyer. This is because the first buyer has not yet acquired the ownership title from the original owner by not paying the full price, and the original owner can claim the object of transaction from the new buyer. However, as will be discussed later in the paper, the new buyer can also be protected by the exceptions of nemo dat. The case Kunstsammlungen zu Weimar v. Elicofon 678 F.2d 1150 (2d Cir. 1982) offers an appropriate example of where theft is involved. For instance, a person steals goods from the legitimate owner and sells them to a buyer who is unaware that he is transacting in stolen goods. After the transaction, the seller disappears. In such a case, the original owner would rightfully argue that he deserves and still retains the ownership title as the goods were stolen. On the other hand, the innocent buyer can also rightfully argue that during the purchase, they were acting in good faith and paid the value of the goods, implying that they should keep the goods. Under common law, nemo dat will offer protection to the original owner of the stolen goods. Since the person who stole the goods did not have ownership title to them, he could not pass the same to the buyer. According to the judgment of Kunstsammlungen zu Weimar v. Elicofon 678 F.2d 1150 (2d Cir. 1982), no legitimate issue of fact or material exists as to whether the buyer could actually have obtained good title. This judgment remains valid even if the buyer was not aware of the source of the goods transacted. This can be explained with the example of a mercantile agent, who is an intermediary entrusted by the legitimate owner of goods with their possession or documents. If the goods are in the mercantile agent’s possession with consent from the owner, they have authority to sell them. For example, in Pearson v Rose and Young Ltd [1951] 1 KB 275, the legitimate owner of an automobile left it in the hands of a mercantile agent with authority only receive interested buyers’ offers but not to sell. However, the agent received offers and then obtained the automobile’s registration documents from the owner without his consent and went ahead and sold to an unsuspecting buyer. Although selling the automobile with the registration documents rendered the transaction legal, it was held that since the document was obtained without the owner’s consent, no good title was acquired by the buyer (MacLeod 2012, p. 104). Therefore, the importance of nemo dat here is that it protects the original owner of the automobile. The mercantile agent can only be in possession of goods in his capacity as a mercantile agent. On the contrary, if the goods were placed in his possession under any other capacity, he is not in a position to pass on a good title. The above examples portray the harsh nature of nemo dat in the way it protects the owner and, as critics have pointed out, is unfair to the innocent buyer. It is from this and the difficulty of being fair to all involved parties that exceptions were developed (Goode 2004, p. 69). However, the exceptions are only applicable to buyers who bought goods in good faith and paid their value without notice of the original owner’s rights. When the exceptions are applied, the goods’ original owner will lose title to them in favor of the innocent buyer who would otherwise have lost them. From this perspective, the importance of nemo dat is that it protects innocent buyers. The exceptions to nemo dat include estoppel (by negligence or representation), sale by a mercantile agent and sale under a voidable title. Estoppel becomes applicable when the original owner of goods conducts himself in such manner that it seems the seller possesses the right to sell them (Merrett 2008, p. 379). This will lead to the owner being prevented, or estopped, from disagreeing with the facts in the way he represented them. In such cases, the buyer will assume ownership of the goods at the original owner’s expense. In the case of mercantile agents, the exception states that so long as the buyer acts in good faith and is not aware of the agent lacking authority to sell at the moment of sale, he assumes ownership. In conclusion, nemo dat is a legal rule that literally means a person cannot give out what he does not have or owns. Hence, when a buyer acquires property from a seller who does not have the ownership right to that property, the buyer is also denied ownership title. This is regardless of whether the buyer knows or does not know that the seller does not have ownership rights. From this perspective, nemo dat can be seen to be important in its role of protecting legitimate owners of goods. However, there are exceptions to the rule mainly because of the challenges that courts face in making judgment in cases where more than one innocent or naive party is aggrieved. From this notion, the importance of nemo dat is seen in the common occurrences in which courts must judge who among the two innocent parties must bear the loss caused by the fraud of a third party. Essentially, this makes it important as it protects innocent buyers who acted in good faith and without notice of the original owner. References Atiyah, P 2005, Sale of goods, Pearson, New Jersey. Elliott, C 2004, ‘No justice for innocent purchasers of dishonestly obtained goods’, Journal of Business Law, vol. 21. no. 3, pp. 381-387. Goode, R 2004, Commercial law, Penguin, London. Guest, A 2002, Benjamin’s sale of goods, Sweet & Maxwell, London. MacLeod, J 2012, Consumer sales law, Cavendish Publishing, London. Merrett, L 2008, ‘The importance of delivery and possession in the passing of title’, Cambridge Law Journal, vol. 67, no. 2, pp. 376-395. Salomons, A 2007, How to draft new rules on the bona fide acquisition of movables for Europe, viewed 27 November 2014 http://www.ssrn.com/abstract=979458 Yap, J 2008, ‘Appraising the market overt exception’, Journal of International Commercial Law and Technology, vol. 3, no. 4, pp. 254-258. Read More