Lecture notes

Nemo Dat Rule - 1st CLASS DETAILED Notes // ALL CASES // colour co-ordinated

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Module
Commercial & Agency Law

Institution
Queen Mary, University Of London (QMUL)

FIRST CLASS - DETAILED NEMO DAT RULE NOTES 2019 QUEEN MARY : FIRST CLASS COMMERCIAL LAW NOTES - 79.3 John Yelland Commercial Law Prize AWARD.

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Final revision Notes: The nemo dat rule

‘’Nemo dat quod non habet’’

NEMO DAT RULE – YOU CANNOT SELL WHAT YOU DON’T HAVE!  if you don’t own the phone THEN you cannot
sell it because you are the owner – no ownership rights!

Nemo dat deals with – e.g. if owner of goods entrusts goods with agent. Owner entrusts goods with agent then you have
third party. Agent has instructions to obtain offers but not sell the goods. In breach of instructions – agent sells the
goods… third party is unaware of agents lack of authority! Instead of obtaining offers only HE DECIDES TO SELL
GOODS TO 3RD PARTY. Agent then runs away with proceeds. Who is entitled to goods? Original owner or 3 rd party!

Another scenario… with owners consent – rogue obtains possession for which he pays by cheque which bounces… in
the meantime rogue sells goods to third party… which is unaware of defects. Buyer takes goods and rogue runs.

^ type of scenarios nemo dat deals with.

Definition:

 The Latin Maxim ‘nemo dat quod non habet’ translates as ‘no one gives who possesses not’ or ‘you
cannot give more than you have’ This broadly provides that a seller cannot transfer to a buyer the ownership
in goods to which he himself has no title. Thus, a seller who does not own the goods, who is not authorized
by the owner to sell them, cannot usually pass good title to an innocent buyer.

The Nemo dat rule: This protects the true owner (i.e. Original owner) of the goods at the expense of the innocent
purchaser who loses out, unless one of the exception to the rule applies. These exceptions can be found in:

(i) The Sale of Goods Act 1979 (SGA),
(ii) The Factors Act 1889 (FA) and
(iii) Hire Purchase Act 1964(HPA)
(iv) Common law Exceptions

When any of these exceptions apply the original owner of the goods loses his title in favour of the innocent Bona fide
purchaser. Although the application of the nemo dat rule will lead to one of the parties succeeded at the expense of the
others, it was suggested in the case below that a preferable solution might be to apportion the loss between the innocent
parties;

Ingram v Little [1961] (CA) per Devlin LJ (dissenting judgement)
 ‘’For the doing of justice, the relevant questions in this sort of case is…… which of the two innocent parties shall
suffer for the fraud of a third. The plain answer is that the loss should be divided between them in such
proportion as is just in all the circumstances’’.

Notwithstanding the apparent fairness of such an approach, it does not represent the law. this was explained by

Denning LJ in Bishopgates Motor Finance Corporation Ltd v Transport Brakes Ltd [1949] (CA)
“In the development of our law, two principals have striven for mastery. The first is for the protection of property: no one
can give a better title than he himself possesses (e.g. lessee cannot sell property) . The second is for the protection of
commercial transactions: the person who takes in good faith and without notice should get a good title.

The first principle has held sway for a long time, but it has been modified by common law itself and by statute so as
to meet the needs of our own times”

A. Common law exceptions to the nemo dat rule
s.21(1) of the SGA 1979:
 Subject to this Act, where goods are sold by a person who is not their owner, and who does not sell them under
the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller
had, unless the owner of the goods is by his conduct precluded from denying the seller’s authority to
sell.
THIS IS ESSENTIALLY THE NEMO DAT RULE ^

,Final revision Notes: The nemo dat rule

EXCEPTIONS;
1. Agency: - sale by agent
 s.21(1) talks about goods that are sold by a person who is not the owner and who does not sell them under the
authority of the owner. Therefore, a sale that is within the usual or apparent authority of an agent will bind the
owner of the goods and thus pass goods title to the buyer, even if the agent had exceeded his actual authority.
2. Estoppel (unlikely to come up in exam)
The concluding words in s.21(1) ‘unless the owner of the goods is by his conduct precluded from denying the
sellers authority to sell’ set out this exception.
 Estoppel applies in cases where the owner of the goods acts in such a way that it appears that the seller
has the right to sell the goods. As a consequence, the owner is then precluded (estopped) from denying the
facts as he represented them to be or that the sale was unauthorised. Consequently, the innocent third-party
purchaser then becomes the owner of the goods at the expense of the original owner.
For the innocent buyer to obtain a good title by estoppel the following conditions apply:
(i) Representation made by the Original owner that the seller was allowed to sell
(ii) Intentional or negligent representation
(iii) Representation misled the innocent purchaser
(iv) Purchaser bought the goods (property has passed)

Explaination:This exception is little more than the application of the common-law doctrine of estoppel. The section is
silent as to when the owner is by his conduct precluded from denying the seller’s authority to sell, although merely
giving the third-party possession of the goods will not amount to a representation that the third-party is the owner
or has the right to sell them. Before the innocent purchaser can obtain title by estoppel, the original owner of the
goods must have made a representation that the seller was authorised or entitled to sell the goods such
representation being made either intentionally or negligently and upon which the innocent purchaser relied
when buying the goods.

B. 5 Statutory exceptions to the nemo dat rule
1.Sale by a Mercantile Agency: (i.e. s.2(1) Factors Act
1889)
s.2(1) FA 1889: Powers of mercantile agent with respect to disposition of goods.
 Where a mercantile agent is, with the consent of the owner, in possession of goods or of the
documents of title to goods, any sale, pledge, or other disposition of the goods, made by him when
acting in the ordinary course of business of a mercantile agent, shall, subject to the provisions of
this Act, be as valid as if he were expressly authorised by the owner of the goods to make the
same; provided that the person taking under the disposition acts in good faith, and has not at
the time of the disposition, notice that the person making the disposition has not
authority to make the same.
Typical diagram for this exception. Original owner… then Mercantile Agent then
third party/buyer! Owner entrusts goods to MA who is usually the DODGY
ROGUE, with a view to obtain offers. E.g. instructs MA not to sell car below a
certain price. Then MA breaches instructions and sells goods for £8000 then runs
with money. Then owner discovers that goods are with 3rd party… WHO HAS
RIGHTS TO GOODS? Original owner or 3rd party?

O Entrusts goods MA sells or pledges goods without authority TP

Scenario: This exception to the nemo dat rule is intended to deal with a situation in which the owner of goods has given
a mercantile agent possession of the goods, or of the document of title to them, but not authority to sell them, but the

, Final revision Notes: The nemo dat rule

mercantile agent sells them anyway. Many of the cases nowadays normally is where a motor vehicle has been
entrusted to a dealer for the purpose of sale or obtaining offers for a sale.

1) A mercantile agent is defined in s.1(1) of the Factors Act 1889: DEFINE MERCANTILE
AGENT – REQUIREMENT 1;

s.1(1) FA 1889:
 ‘’The expression “mercantile agent” shall mean a mercantile agent having in the customary
course of his business as such agent authority either to sell goods, or to consign
goods for the purpose of sale, or to buy goods, or to raise money on the security of
goods’’.
e.g. car dealer, jewellery dealer… can be agents
Employee, bailee or courier is not agent … IT HAS TO BE AN INDEPENDENT PARTY!

N.B: if this person (whether a mercantile agent or not) has actual or apparent authority to sell the goods, then
ownership will pass to the buyer under common law agency rules and it will be unnecessary to consider the
rules of mercantile agency.

Example:
 an owner of goods entrusts them to an agent with the instructions to obtain offers, but not to
sell them. In breach of his instructions, the agent sells them to a third party who is unaware of
the agents lack of authority. The agent then absconds with the proceeds. Who is entitled to
the goods?
Who gets the title of goods? The original owner or the innocent buyer
 This exception to the nemo dat rule under the FA provides protection to the innocent buyer
under certain conditions and if the requirements are met.
Before an unauthorised sale by a mercantile agent can confer goods title to an innocent buyer, a number of
requirement must be satisfied as stated in s.2(1) FA 1889.

i. Requirement No.1: The seller must be a ‘’Mercantile agent’’
General rule: This requirement is self-evident and reference should be made to the definition in s.1(1) of the FA 1889
considered at the beginning of this section. The Mercantile agent must be independent from the principal (i.e.
original owner), acting in a way of business and must be authorised to deal with the goods in his own name.

Whether an agent will be considered in law to be a mercantile agent is not dependent on him being labelled as such in
the contract but will be a matter of substance. Weiner v Harris [1910].

This rules out a person who is the principle’s employees or mere servant, but not someone who is acting for a
single principal [see Lowther v Harris [1927] (KB)], Provided he acts as agent in the customary course of business.
There is no need for him to regularly to be engaged as a mercantile agent, it being sufficient that he acted as such
during the particular transaction in dispute.

Lowther v Harris [1927] (KB)
o Lowther kept furniture and antiques stored in a house in Chelsea. Prior had a shop nearby from which he sold
mainly glass and china. Lowther engaged prior to seek buyers for the stored articles, but prior was not
authorised to sell anything without obtaining Lowther’s approval. Customers were brought to the house to see
the tapestries, and after one such visit prior obtained Lowther’s consent to remove one of the taperies by falsely
telling Lowther that he had sold it to Woodhall for £525. In fact, he had not sold the tapestry to anyone; but he
later sold it to Harris for £250.
o Held: Wright J held that prior had been entrusted with possession of this tapestry as a mercantile agent,
with the consequence that Harris obtained good title under s.2(1) of the Factors Act 1889.

Obtains Possesion, then becoming a Mercantile Agent is not sufficent:

Heap v Motorists Advisory Agency Ltd [1923] (KB):
o The question as to whether or not the person is a mercantile agent is to be considered at the time he obtains
possession of the goods. This means that if he subsequently falls within the meaning of mercantile agent

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Nemo Dat Rule - 1st CLASS DETAILED Notes // ALL CASES // colour co-ordinated

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