Sale by a Person Not the Owner under Section 27 of the Sale of Goods Act, 1930: The Nemo Dat Rule, Estoppel of the Owner, and Sale by a Mercantile Agent

Section 27 states one of the oldest rules of property law: nemo dat quod non habet, no one can give what he does not have. A buyer from a person who neither owns the goods nor sells with the owner's authority acquires no better title than the seller had, which is usually none. The rule protects ownership. But commerce depends on buyers being able to rely on what they see, and the Act therefore creates exceptions that protect a buyer in good faith. Section 27 contains two of them itself: estoppel of the owner, and sale by a mercantile agent. The remaining exceptions, in Sections 28 to 30, are dealt with in the notes that follow.

The rule, the six exceptions across Sections 27 to 30, and the two cases on Section 27

1. The Section

Section 27, Sale of Goods Act, 1930

Subject to the provisions of this Act and of any other law for the time being in force, where goods are sold by a person who is not the owner thereof 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:

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.

2. The Rule and Its Basis

A thief passes no title. The owner of stolen goods may recover them from anyone, however innocent, and the buyer's remedy is against the person who sold to him, usually for breach of the implied condition as to title under Section 14.
The rule protects property. An owner should not lose his goods through the wrongful act of a stranger.
Its cost falls on innocent buyers, and the exceptions exist because in some situations the owner has, by his own conduct, created the appearance that misled the buyer.
Every exception resolves a conflict between two innocent parties. The owner who lost the goods and the buyer who paid for them cannot both be protected, and the law decides which of them should bear the loss caused by a third person's dishonesty.

3. Estoppel of the Owner

The owner is precluded from denying the seller's authority where his own conduct has led the buyer to believe that the seller was the owner or had authority to sell. The estoppel may arise from words or conduct. Mere entrusting of possession is not enough, since possession of goods does not by itself signify ownership; the English courts held in Central Newbury Car Auctions Ltd. v. Unity Finance Ltd., [1957] 1 QB 371 that handing over a car and its registration document to a prospective buyer did not estop the owner.

📖 Eastern Distributors Ltd. v. Goldring, [1957] 2 QB 600 (CA)

Facts: The owner of a van wished to raise money on it. With a dealer, he signed documents making it appear that the dealer owned the van and was selling it to him on hire-purchase through a finance company. The finance company, relying on the documents, bought the van from the dealer. The owner then claimed that the dealer had had no title to sell.

Held: The Court of Appeal held that the owner was estopped. By signing documents that represented the dealer as the owner, he had armed the dealer with the appearance of ownership, and the finance company had relied on it. The finance company acquired a good title.

Ratio: An owner who, by his words or conduct, represents that another is the owner or has authority to sell cannot deny that authority against a buyer who relied on the representation.

4. Sale by a Mercantile Agent

The seller must be a mercantile agent, as defined in Section 2(8): an agent having, in the customary course of his business, authority to sell, consign for sale, buy, or raise money on goods.
He must be in possession with the owner's consent, of the goods or of a document of title. Consent obtained by fraud is still consent, as held in Folkes v. King, [1923] 1 KB 282.
He must have possession as a mercantile agent, that is in connection with his business, and not in some other capacity, such as for repair.
The sale must be in the ordinary course of business of a mercantile agent, meaning in the way a mercantile agent would normally sell: at business premises, in business hours, and in the normal manner for goods of that kind.
The buyer must act in good faith, without notice that the agent had no authority.

📖 Pearson v. Rose & Young Ltd., [1951] 1 KB 275 (CA)

Facts: An owner left his car with a mercantile agent to obtain offers. The agent tricked him into leaving the registration book as well, and sold the car to a buyer in good faith.

Held: The buyer did not acquire a good title. The owner had consented to the agent's possession of the car, but not of the registration book, which had been obtained by a trick. A sale of a car without its registration book was not a sale in the ordinary course of business, so the proviso did not apply.

Ratio: The mercantile agent exception requires consent to possession of what is sold and a sale in the ordinary course of business; a sale of a car without its registration document does not satisfy it.

5. The Position Stated Shortly

Section 27: a buyer from a non-owner selling without authority gets no better title than the seller had.
The rule protects ownership; the exceptions protect good faith buyers where the owner's conduct created the appearance that misled them.
Estoppel applies where the owner's words or conduct represented the seller as owner or authorised; mere possession is not enough.
Eastern Distributors v. Goldring: an owner who signed documents presenting the dealer as owner was estopped.
A mercantile agent in possession with the owner's consent passes good title by a sale in the ordinary course of business to a good faith buyer.
Pearson v. Rose & Young: a car sold without its registration book was not sold in the ordinary course of business.