Atiyah: Sale of Goods

The Sale of Goods 11th ed Patrick S. Atiyah , John N. Adams , Hector MacQueen

ISBN13: 9780582894082
Published: April 2005
Publisher: Pearson Higher Education
£47.95

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Note: Cases linked in the text on the right are either to BAILII reports (where available) or the Wikipedia reference.

Contract Text

Contents

1. Introduction

2. The Contract of Sale

3. Terms of the contract

4. Exclusion Clauses

5. Title and Passing of Property

6. Retention of Title

7. Nemo Dat

8. Performance of the Contract

9. Remedies of the Seller

10. Remedies of the Buyer

11. Articles on Sale of Goods and Contract issues

12. Drafting Sale Contracts and specimen sale contract

 

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Recent Case Law

Cases on Sale of Goods and Contract 2009 - 2000

 

Statutes

Sale of Goods Act 1979

Sale and Supply of Goods Act 1994

The Sale and Supply of Goods to Consumers Regulations 2002

Unfair Contract terms Act 1977

Factors Act 1889

Part III Hire Purchase Act 1964: ss.27 - 29.

Companion Volume

The Law of Contract




 

 

 
 
 
 

 




 

7. Introduction - Nemo Dat

7.1 Background

7.1.1 Conflicting interests

No one may give a better title than he possesses. If a salesman sells goods to which he has no title or right to sell he may pass no title and the buyer, prima facie will not receive title.

The buyer in this situation may bring an action against the buyer for breach of s.12, recover his purchase price on a total failure of consideration and claim damages.

To preserve the integrity of the market place and protect the bona fide purchaser the law has developed a principle whereby the true owner will be divested of his proprietary rights and the bona fide purchaser for value without notice will be protected.

The exceptions to the nemo dat rule are considered in detail below.

7.1.2 The conflict stated

"In the development of our law, two principles have striven for mastery. The first is for the protection of property : no one can give a better title than he himself possesses. The second is for the protection of commercial transactions : the person who takes in good faith and for value without notice should get a better title . The first principle has held sway for a long time, but it has been modified by the common law itself and by statute so as to meet the needs of our times."

Bishopsgate Motor Finance Corpn. v Transport Brakes Ltd [1949] 1 KB 332 per Denning LJ.

7.2 Nemo dat quod non habet - The principle

7.2.1 Section 21 (1) of the Sale of Goods Act 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."

Note : Link with s.12 SOGA 1979 / Rowland v Divall [1923] 2 KB 500 et al .

7.2.2 Theme

There appears to be very little in the way of policy or legal principle to link the various exceptions to the nemo dat discussed below. The best that may be said is that the law appears to have developed in a somewhat haphazard manner, not always paying attention to the wording in the statutes, to protect the conflicting interests of the true owner and the bona fide purchaser for value without notice.

Perhaps the clearest indication of a policy lies in the theme that the true owner ought not to be divested of his proprietary rights except by his own voluntary act.

To what extent this theme is an accurate reflection of the way the law operates will be considered below.

7.2.3 Exceptions to the Nemo Dat Rule;

(a) Estoppel

(b) Sale by Agent : Common Law

(c) Sale by Agent : s.2 (1) Factors Act 1889

(d) Sale under Market Overt : s.22 SOGA 1979

(e) Sale under a voidable title : s.23 SOGA 1979

(f) Disposition by a seller in possession: s.24 SOGA 1979/s.8 FA 1889

(g) Disposition by a buyer in possession: s.25 SOGA 1979/s.9 FA 1889

(h) Part III Hire Purchase Act 1964: ss.27 - 29.

7.2.4 The Effect of S.47 SOGA 1979

"Subject to this act, the unpaid seller's right of lien...or stoppage in transit is not affected by any sale, or other disposition of the goods which the buyer may have made, unless the seller has assented to it.

[B] not in possession resells goods and [S] assents to sale - sub-buyer obtains good title free of [S] lien etc.

Mordaunt Bros. v British Oil & Cake Mills Ltd [1910] 2 KB 502

DF Mount Ltd v Jay & Jay Co Ltd [1960] 1 QB 159

 

7.3 Exceptions to Nemo Dat

Section 21 Sale of Goods Act 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."

7.4 Estoppel

The nemo dat rule applies 'unless the owner of the goods is by his conduct precluded from denying the seller's authority to sell'

The buyer will obtain a good title if the owner of the goods has asserted the sellers right to sell.

Estoppel may be raised by:

Words

Conduct

Negligence

Estoppel only arises where goods have been sold and the property has passed to the buyer.

Shaw v Metropolitan Police Commissioner [1987] 3 ALL ER 405 (Infra)

7.4.1 Estoppel by words

Here, a representation by the owner that the seller has the right to sell the goods is the basis of the estoppel.

In Shaw v Metropolitan Police Commissioner [1987] 3 ALL ER 405

The owner of a car along with the car gave a letter to the seller stating that he had sold it to the seller with the vehicle transfer form signed in blank. The Court held that the owner had by words asserted the seller's right to sell and was estopped from going back on the statement. On the facts the buyer had only agreed to buy the car, that estoppel only applied when goods had been sold. In the particular circumstances the property had not passed to the buyer and the owner was entitled to recover the goods.

Estoppel will only operate when the statement was made voluntarily

Debs v Sibec Developments Ltd [1990] RTR 91

A document stating that the owner had sold his expensive Mercedes car was obtained at gunpoint and under the duress of threat to his family. The Court held that estoppel could not be raised in such a circumstance.

See also:

Henderson & Co v Williams [1895] 1 QB 521

7.4.2 Estoppel by Conduct

Here, conduct by the owner indicating that the seller has the right to sell the goods is the basis of the estoppel.

Eastern Distributors v Goldring [1957] 2 QB 600

The owner of a vans fraudulently signed hire purchase forms in blank which when completed by the seller showed the seller to be owner of the van. The owner was estopped by conduct from his assertion by conduct that the seller was owner of the van.

cf. Central Newbury Car Auctions Ltd v Unity Finance Ltd [1957] 1 QB 371 (Infra)

Farquharson Bros v J King & Co Ltd [1902] AC 325

7.4.3 Estoppel by Negligence

Establishing estoppel by negligence is going to be very difficult.

Professor Atiyah has argued that negligence may found an estoppel where an owner of goods negligently fails to disclose information to a buyer impliedly representing that the seller has the right to deal with the goods.

Estoppel by negligence will only arise where an owner owes a particular buyer a duty of care and it is well settled law that the owner of property who loses that property may take it back off a finder or bona fide purchaser for value.

Farquharson Bros v J King & Co Ltd [1902] AC 325 per Lord McNaughten p 335 HL

Estoppel by negligence is subject to the rules of negligence so it is important to establish that the owner owes a duty of care to the particular buyer and that that duty has been broken and that the buyer has suffered damage thereby. It is not going to be easy to establish that an owner of goods owes a duty of care to a potential buyer.

Moorgate Mercantile Co Ltd v Twitchings [ 1977] AC 890

The owner of the goods and the buyer were finance companies and both were members of HPI (Hire Purchase Information), a company set up to keep a register of hire purchase agreements relating to motor vehicles offering additional services to members to reduce the risk of fraud and theft. The buyer received a proposal to buy the car from them, searched the HPI register, found no extant hire purchase agreement registered and bought the car to relet it on hire purchase. The car was subject to an existing hire purchase agreement. Contrary to the usual practice the owners had not registered the hire purchase agreement.

The House of Lords held that the owners owed no duty to the buyers despite the fact that they were both members of HPI and were not estopped.

Economic loss in negligence

The Courts have shown a reluctance to accept economic loss as a basis for the founding of a claim in negligence save in the most exceptional cases, a reluctance rather pointedly exemplified in Twitchings where the relationship between the two parties was very close as both were members of the same trade association.

 

7.5 Sale by Agent : Common Law

The common law doctrines of agency apply to vest the agent with authority (Actual or Apparent/Ostensible - Implied and Usual or customary authority) to sell goods on behalf of the principle. - Agency is a Power/Liability Relationship. (Dowrick) Fridman.

7.6 Sale by Agent : S.2 Factors Act 1889

A great deal of trade was carried on by professional agents acting on behalf of owners of goods. Factors, a type of professional agent, traditionally carried on business in their own names more often than not not disclosing that they acted on behalf of a principal. Buyers would, therefore, not realise that they were dealing with an agent. To preserve the integrity of the market the Factors Act was passed which protected the bona fide buyer.

7.6.1 S.1 Factors Act 1889 : Mercantile Agent.

"...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."

Must be a mercantile agent

For the purposes of section 2 the agent must be a mercantile agent and section 2 will not protect a buyer where the person in person is not a mercantile agent but in possession of the goods under some other guise - for example, a buyer under sale or return or sale on approval terms. In such a case the second buyer will ordinarily get title from the first buyer because the act of resale would be an act of adoption of the transaction under s.18 r.4, the property would pass to the first buyer scintilla temporis and through to the second buyer.

 

7.6.2 S.2 (1) Factors Act 1889 -

Factors Act 1889

"Where a mercantile agent is, with the consent of the owner, in possession of the goods or documents of title to the 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."

While there may not be many old style Factoring firms around there is no doubt that those who transact business on behalf of others will come within the ambit of s.2 Factors Act 1889 and buyers buying from them will, subject to the conditions contained therein and canvassed below, be given the protection of s.2

7.6.3 Possession of the goods and consent of the owner

Possession of the goods or documents of title

The appearance of an individual being in physical possession of the goods is a powerful influence in the mid of a contracting buyer. It raises the implication that the person selling the goods either owns them or enjoys the right to sell them.

The act will only apply where the agent is in possession of the goods or documents of title (s.2 FA 1889) or are held by any other person subject to his control or for him or on his behalf (s.1(2) FA 1889).

Consent of the owne

The fact that consent to possession may be obtained by a fraud or a trick will not vitiate the consent

Pearson v Rose & Young [1951] 1 KB 27

If the owner of the goods, having consented to possession, withdraws the consent the withdrawal of consent will not affect any future buyer unless the buyer has notice that the consent has been withdrawn.

S.2(2) Factors Act 1889

It is for the owner to prove that he did not give consent.

S.2(4) Factors Act 1889

7.6.4 Goods given to Mercantile Agent qua Mercantile Agent

The goods must have been given to the mercantile agent qua mercantile agent.

While this is not stated as a formal requirement in s.2 Factors Act 1889 there is no doubt following Pearson and Astley Industrial Trust (Infra) that such a condition must be fulfilled.

The condition has been defined to include a purpose preparatory to a sale such as possession of the goods for display for the purpose of receiving offers.

Pearson v Rose & Young [1951] 1 KB 275

Astley Industrial Trust v Millar [1968] 2 All ER 36

If the goods are entrusted to the mercantile agent for some other purpose, - for example to a garage dealer who also offers servicing and repair facilities for servicing the third part will not be protected because the goods were not given to the mercantile agent for the purpose of the mercantile agency but for some other purpose.

The difficulty is that the third party will not see what happens behind the 'commercial curtain' and will be wholly unaware of in which capacity the seller (mercantile agent) received the goods from the true owner.

7.6.5 Ordinary Course of business of a mercantile agent

The section requires the transaction to be made within the ordinary course of business of a mercantile agent.

It is a question of fact whether the mercantile agent was acting in ordinary course of business. The mercantile agent would be expected to act from trade premises, during normal business hours and consistent with the norms and practices of business behaviour.

A sale of a car without the ignition key would not be within the ordinary course of business of a mercantile agent.

Stadium Finance Ltd v Robbins [1962] 2 QB 664

A sale without a log book or registration document in the case of a second hard (but not necessarily for a new car) would not be within the ordinary course of business rule.

Pearson v Rose & Young [1951] (Supra)

Oppenheimer v Attenborough [1908] 1 KB 221

While evidence was adduced to show that diamond merchants did not pledge gems the pledge of gems belonging to an owner was held to within s.2 because it was done in a way in which a mercantile agent would do business.

Janesich v Attenborough (1910) 102 LT 605

Interest rate not 'commercial'

Lloyds & Scottish Finance Ltd v Williamson [1965] 1 WLR 404

Biggs v Evans [1894] 1 QB 88 at 91


7.6.6 Sale, pledge or other disposition

Worcester Works Finance Ltd v Cooden Engineering Co Ltd [1971] 3 All ER 708 [1972] 1 QB 210 CA

7.6.7 Good Faith

A buyer buying from a mercantile agent will only come within the protection afforded by s.2 Factors Act 1889 if he acts in good faith and without notice of the agents lack of authority - a burden of proof placed on the buyer.

Heap v Motorists Advisory Agency Ltd [1923] 1 KB 577

Onus Probandi - on the buyer to prove he acted in good faith. cf. 23 SOGA 1979 (on owner)

What amounts to good faith will be a question of fact in the circumstances of each case but certainly the circumstances of the sale must be such as not to raise in the mind of the buyer that anything untoward is being done and to that extent there is an overlap with the requirement of the mercantile agent that he must act in the ordinary course of business of a mercantile agent.

By way of example, if an item was being offered at an obviously marked down price it may raise both the issue of the buyer's good faith and the mercantile agent's conduct in acting in the ordinary course of business of a mercantile agent.

7.6.8 Criteria for the application of s.2 (1) Factors Act 1889 - Summary

(a) Must be a [MA] - s.1 FA 1889

(b) P in P must not be True Owner

(c) P in P must be in P with consent of true owner

(d) P in P in P qua [MA]

Astley Industrial Trust v Millar [1968] 2 All ER 36 per Chapman J

Pearson v Rose & Young [1951] per Denning LJ

7.7 Sale in a Market Overt : S.22 SOGA 1979

Now repealed by The Sale of Goods Act 1994 s. 22(1) repealed (3.1.1995) by 1994 c. 32, ss.1, 3(3) (with s. 3(2)).

7.8 Sale under a voidable title : S.23 SOGA 1979

7.8.1 Introduction

Typically section 23 will apply when a seller of goods is induced to part with the goods by a misrepresentation on the part of the buyer who then sells the goods on to a third party.

The contract between seller and buyer in this instance will be voidable at the instance of the seller. Title will pass to the buyer, but it will be a voidable title, and if the buyer resells to a third party before the original contract is rescinded by the seller the third party will get title.

S.23 does not cover the type of transaction where the contract between seller and buyer was void ab initio as was the case in Cundy v Lindsay where a plea of mistake was accepted. s.23 covers the situation exemplified by the case of Lewis v Avery (Ingram v Little having been regarded by most commentators as an exceptional case)

7.8.2 Section 23 Sale of Goods Act 1979

"When the seller of goods has a voidable title to them, but his title has not been avoided at the time of the sale, the buyer acquires a good title to the goods, provided he buys them in good faith and without notice of the seller's defect of title."

Confirms common law rule that a person cannot avoid a voidable contract to the prejudice of third party rights acquired in good faith and for value.

Phillips v Brooks [1919] 2 KB 243

Lewis v Avery [1972] 1 QB 198 CA

The seller sold his car to a buyer who represented that he was "Richard Green" (a famous actor of the day who played Robin Hood). The contract was voidable for fraudulent misrepresentation, not void for mistake because the person was present to sight and hearing which was not the case in Cundy v Lindsay, a transaction conducted by post where the plea of mistake, rendering the contract void, was successful.

Contrast :

Cundy v Lindsay (1878) 3 App Cas. 459

Ingram v Little [1960] 3 All ER 332

7.8.3 Communication of rescission

S.23 will not apply if the seller rescinds the contract before the buyer sells to a third party.

Rescission has to be communicated. The difficulty lies in cases where the rogue buyer has absconded.

In such a case the rogue, by absconding, is said to have abrogated his right to rescission having to be communicated and evidence of an intention to rescind on the seller's part is all that is required and for this purpose notification of the fraud to the police or, in the case of a motor car, was sufficient evidence of an intention to rescind in the case of :

Car & Universal Finance Ltd v Caldwell [1965] 1 QB 525

Note : If the innocent third party does not acquire title under section 23 he may do so under section 25 of the Act (Infra)

7.9 Disposition by a Seller in Possession : S.24 SOGA 1979

7.9.1 Introduction

We have seen how possession may give the appearance of ownership. S.24 is intended to apply in cases where a seller of goods in possession of goods sells them on to an innocent third party, the bona fide purchaser for value without notice.

Two situations may arise:

The first is where a seller having sold goods remains in possession and then, deliberately or inadvertantly sells the goods on to another person.

The second is where a seller having sold goods receives back possession of the goods, perhaps for the purposes of repair, and then sells them on to another person.

In both cases the buyer will be unaware of happenings behind the 'commercial curtain'. He will not know that the goods had been sold. He will assume, the seller being in possession, that the seller has the right to sell the goods.

s.24 The seller in possession:

Section 24 Sale of Goods Act 1979

"Where a person having sold goods, continues, or is in possession of the goods or of the documents of title to the goods, the delivery or transfer by that person, or by a mercantile agent acting for him, of the goods or documents of title under any sale pledge or other disposition [or under any agreement for sale, pledge or other disposition thereof] * to any person receiving the same in good faith and without notice of the previous sale, shall have the same effect as if the person making the delivery or transfer were expressly authorised by the owner of the goods to make the same."

[ ] * The words in brackets are not contained in SOGA 1979 but appear in the Factors Act 1889

7.9.2 The seller must continue in possession

Old Law

Before the decision in Worcester Works Finance Ltd v Cooden Engineering Co Ltd [1972] 1 QB 210 there had been much judicial debate about the capacity in which the seller was in possession of the goods.

For example, a seller may have sold goods. The buyer may have taken the goods back to the seller for repair and the seller then sold the goods to a bona fide purchaser. The question of whether the third party could enjoy the protection afforded by s.24 was beset with difficulty it being argue that the seller was not in possession qua seller but qua repairer and that s.24 thereby could not apply.

Staffs Motor Guarantee Ltd v British Wagon Co Ltd [1934] 2 KB 305

Eastern Distributors v Goldring [1957] 2 QB 600

New Law : 'Continuity of physical possession'

It is clear now that once the continuity of physical possession is broken that s.24 cannot apply and that if a seller later acquires possession of goods which he had sold (where continuity of physical possession had been broken) the section cannot apply to protect the bona fide purchaser for value without notice.

Pacific Motor Auctions Pty Ltd v Motor Credits (Hire Finance) Ltd [1965] AC 867 PC

Worcester Works Finance Ltd v Cooden Engineering Co Ltd [1972] 1 QB 210

Test

"whether seller was in possession 'as seller' depends on whether person remained in possession throughout. Unless there is an actual transfer of physical possession, the seller is to be treated as continuing in possession and as able to give a good title under s.24.

 

7.9.3 The buyer must act in good faith and have no knowledge of the previous sale

The requirement of good faith applies both at the time of the sale and at delivery if delivery is delayed.

 

7.9.4 A possessory interest is not sufficient

For the second buyer to obtain protection under s.24 some proprietary interest in the goods must have passed and not simply possession.

7.9.5 The practical effect if s.24 is applied

Where s.24 is applied the second buyer will receive full title, the first buyer's title will be extinguished and it will be for the first buyer to pursue his rights against the seller for conversion.

If s.24 does not apply the second buyer will not get title but he may, of course, have a right against the seller under s.12 for breach of the implied condition that the seller had a right to sell.

7.10 Disposition by a Buyer in Possession : S.25 SOGA 1979

7.10.1 Introduction

s.25 The buyer in possession:

 

 

Section 25 applies where a buyer having bought goods sells them on to a third party in circumstances where he is not the owner of the goods, the property in the goods not having passed to him because the seller has retained ownership or perhaps because an earlier contract has been rescinded (e.g. for fraudulent misrepresentation. See s.23 (Supra))

7.10.2 Section 25 sale of Goods Act 1979

"Where a person, having bought or agreed to buy goods, obtains with the consent of the seller possession of the goods or the documents of title to the goods, the delivery or transfer, by that person or by a mercantile agent acting for him, of the goods or the documents of title under any sale, pledge or other disposition thereof [or under any agreement for sale, pledge or other disposition thereof] * to any person receiving the same in good faith and without any notice of any lien or other right of the original seller in respect of the goods, shall have the same effect as if the person making the delivery or transfer were a mercantile agent in possession of the goods or documents of title with the consent of the owner."

 

7.10.3 Having bought or agreed to buy goods

The buyer must have bought or agreed to buy goods.

The section does not apply to Hire Purchase because the debtor does not agree to buy in HP. Because conditional sale agreements are so similar to hire purchase s.25(2) provides that s.25(1) does not apply to a person buying goods under a conditional sale agreement regulated under the Consumer Credit Act 1974. : See HPA 1964 Pt.III ss.27 - 29. (Infra)

7.10.4 Possession of the goods and the documents of title

For the section to apply the first buyer must be in possession of the goods or documents of title to the goods at the time of the sale to the second buyer. Constructive possession is sufficient so where a seller delivered the goods direct to the second buyer at the first buyer's request this was regarded as constructive possession and the second buyer was protected by s.25.

Four Point Garage Ltd v Carter [1985] 3 All ER 12

Where [B] has obtained documents of title to goods with seller's consent he can by delivery to 3P pass a good title to him. Overrides s.19(3) SOGA 1979.

7.10.5 Consent of the seller

The consent of the seller may be obtained by fraud but fraud will not vitiate the consent and the withdrawal of the consent will have no effect on the second buyer unless he actually knows about it.

Du Jardin v Beadman Bros [1952] 2 All ER 160

7.10.6 Possession of the Goods

The second buyer is only protected if obtains possession of the goods and not if he has merely bought or agreed to buy them

7.10.7 Good Faith and Notice

The buyer must act in good faith and without notice of the seller's rights.

7.10.8 Two difficulties with s.25

There are two difficulties with the wording in s.25. First with regard to the effect of the sale by the first buyer to the second buyer which is stated to behave " the same effect as if the person making the disposition making the delivery or transfer were a mercantile agent " and the second difficulty is with regard to the remainder of the closing phrase in the section " in possession of the goods or documents of title with the consent of the owner ."

Read literally it would mean that a sale by a buyer in possession to a second buyer acting in good faith etc would pass title to the second buyer for the first buyer will be treated as if he were a mercantile agent in possession of the goods with the consent of an owner and such people will be held to have passed title to a bona fide purchaser if they do sell the goods.

A second, somewhat grotesque result would be, if the section were applied literally, that a second buyer could obtain title from a first buyer who bought in good faith down a chain from a thief who stole the goods from the original true owner - a result now precluded by the decision in National Employer's General Mutual Insurance Association Ltd v Jones [1990] 1 AC 24 where the court held that the words " consent of the seller" had to be construed as consent of the "owner"

The courts have not interpreted the section literally.

In Newtons of Wembley v Williams [1965] 1 QB 560 the court developed the principle that the second buyer will only be protected if the first buyer behaved as a mercantile agent would have behaved - that is, according to the normal business practice of such mercantile agents.

7.11 Sale of motor vehicles on Hire Purchase

7.11.1 Introduction

Section 25 has no application to cases where goods were supplied under hire purchase or conditional sale arrangements and in such cases bona fide purchasers buying from a debtor will not be protected.

The exception to this is that under ss.27-29 Hire Purchase Act 1964 Part II the bona fide purchaser of a motor car either from a debtor or from a dealer who bought from a debtor is given a measure of protection.

The act only applies to motor cars and other goods are therefore not covered.

The HP Act does not apply to leasing arrangements.

7.11.2 Section 27 Hire Purchase Act 1964

"(1) This section applies where a motor vehicle has been bailed or (in Scotland) hired under a hire-purchase agreement or has been agreed to be sold under a conditional sale agreement, and, before the property in the vehicle has become vested in the debtor, he disposes of the vehicle to another person. "

(2) Where the disposition referred to in subsection (1) above is to a private purchaser, and he is a purchaser of the motor vehicle in good faith, without notice of the hire purchase or conditional sale agreement (the "relevant agreement") that disposition shall have effect as if the creditor's title to the vehicle has been vested in the debtor immediately before that disposition.

(3) Where the person to whom the disposition referred to in subsection (1) above is made (the "original purchaser") is a trade or finance purchaser, then if the person who is the first private purchaser of the motor vehicle after that disposition (the "first private purchaser") is a purchaser of the vehicle in good faith without notice of the relevant agreement, the disposition of the vehicle to the first private purchaser shall have effect as if the title of the creditor to the vehicle had been vested in the debtor immediately before he disposed of it to the original purchaser.

(4) Where, in a case within subsection (3) above -

(a) The disposition by which the first private purchaser becomes a purchaser of the motor vehicle in good faith without notice of the relevant agreement is itself a bailment or hiring under a hire purchase agreement, and

(b) the person who is the creditor in relation to that agreement disposes of the vehicle to the first private purchaser, or a person claiming under him, by transferring to him the property in the vehicle in pursuance of a provision in the agreement in that behalf,

the disposition referred to in paragraph (b) above (whether or not the person to whom it is made is a purchaser in good faith without notice of the relevant agreement) shall as well as the disposition referred to in paragraph (a) above have effect as mentioned in subsection (3) above.

 

7.11.3 Explanation

The act only applied to motor vehicles.

The act only applies where the vehicle has been supplied under hire purchase or conditional sale. It does not apply to leasing arrangements. There must be a disposition within s.2 and 91). The act does not apply to cases where the goods were stolen from the debtor.

The first private purchaser must have bought, agreed to buy or have taken the vehicle under hire purchase. (The trade purchaser is not protected)

The private purchaser must act in good faith. If he did not do so any later purchaser - even a private purchaser - will not be protected for their protection is dependant on the bona fides of the first private purchaser.

7.11.4 Explanatory diagram s.27 Hire Purchase Act 1964

 


7.12 Demonstration Question


 

Evan, in response to an advertisement in the Daily Bung/e, went to the specified address to inspect a rare sports car which had been described as "a good little bus", "in excellent condition throughout" and "a rare 1969 model". Evan inspected the car and told the car advertisers, two elderly sisters, that he was Lord Trecynon and he showed them a stolen House of Lords pass with Evan's photograph and Lord Trecynon's name in it. He said he would buy it at the asking price provided he was satisfied with it on a test drive. He asked to be allowed to take the car for a test drive and, relying on the House of Lords pass, the sisters agreed. Evan took the car on a test drive and decided that, although it was not a 1969 model, it went well. Also, he discovered the registration documents in the car. Evan drove to the house of a well-known dealer in such sports cars and agreed to sell it to him for £5,000 cash on the spot. On the next day the ladies informed the police and the A.A. that their car had been taken. After making inquiries it was discovered that the two ladies had bought the car from Donald who had been buying the car under a conditional sale agreement from Croam Finance but had absconded before the final payment had been made.

Advise the sisters.

Evan "Lord Trecynon"

 


Analysis

 

1. Devolution of title

1.1 Croam Finance the original owners of the motor vehicle sold the goods to Donald (The Debtor) on conditional sale on terms that title would be retained until the instalments had all been paid.

1.2 Donald absconded before making the final payment to Croam Finance and had no title to pass when he sold the car to the two ladies - nemo dat quod non habet (s.21 Sale of Goods Act 1979). The ladies, assuming that they acted in good faith without notice of the conditional sale agreement between Croam Finance and Donald, (and this is assumed here) were private purchasers and acquired title under s.27(2) Hire Purchase Act 1964 Part III the sale by Donald to them being a disposition under s.27(1) of the same Act.

2. The main issues

2.1 There are to main issues. First whether there is, in fact, a contract between the ladies and Evan and secondly, if there is, to determine whether the dealer now in possession of the car has title or not.

 

3. The two ladies and Evan ("Lord Trecynon")

3.1 Casting aside for the moment the issue of Evan's possible misrepresentation of his identity we have first to determine whether there is in fact a contract between the ladies and Evan.

3.2 Evan stated that he would buy the car at the asking price provided 'he was satisfied with it on a test drive'. This appears to establish a condition precedent to be fulfilled, which if fulfilled will give rise to a contract between them. (Pym v Campbell et al)

3.3 Taking the view that the condition has been fulfilled (and that communication of such condition having been fulfilled is not required, the fact of it being sufficient), there is a contract between Evan and the two ladies in relation to the sports car. ( Aliter : There will be no contract, no title passes to Evan or to the dealer, the dealer is not protected by any of the exceptions to the nemo dat and will be liable in conversion to the ladies if he refuses or fails to return the car.)

3.4 Proceeding on the basis that there is a contract between the ladies and Evan the second issue is raised as to whether the contract is voidable for fraud and whether at this stage the contract may be rescinded.

3.5 Evan misrepresented his identity, by asserting that he was a member of the House of Lords, clearly a factor which induced the ladies to part with the car for a test drive and in entering the resulting contract (which latter point is assumed here).

3.6 The contract is voidable for fraud under the principle exemplified in Lewis v Avery. (Ingram v Little not applied being an 'exceptional' case) The rogue was present to sight and hearing, a plea of mistake per Cundy v Lindsay will not succeed.

3.7 Where, as here, a seller has voidable title to the goods, but his title has not been avoided at the time of a sale to a bona fide purchaser for value without notice of the seller's defect in title the buyer will acquire title under s.23 of the Sale of Goods Act 1979.

3.8 While the Courts will accept notification to the Police or an appropriate trade association (The AA in this case) as evidence of an intention to rescind where, as here, the rogue absconds, such rescission has to be made before the rogue resells to a bona fide purchaser. Here, the rogue sold to the dealer before the ladies notified the Police and AA. It is therefore too late to rescind. Prima facie the dealer has title under s.23.

3.9 The only hope for the two ladies lies in the bona fides of the dealer. Assuming that he had no knowledge of the seller's defect in title, did he act in good faith by accepting a cash on the spot offer for £5000 for a rare sports car. A dealer would not be mala fide accepting an on the spot cash offer where a car was sold with the registration document (as here) provided the car was not being offered at an obvious undervalue. If the car was offered at approximate market value, that is the price which a dealer would pay for such a car (as opposed to what the dealer will sell the car for), then the dealer will have acted bona fide.

3.10 In the premises the ladies will have to pursue their remedy against Evan, which may well be impossible, given that he has absconded. Their only hope, in such a case, is that the Police apprehend him and that he has assets to pay in an action for the price under s.49 Sale of Goods Act.

3.10 If the dealer is found to have acted mala fide then he will not get title under s.23 and will be liable in conversion to the two ladies if he refuses or fails to return the car to them.

 



 

 

 

 




 


 

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