Understanding the Rule
In commercial law, the principle of “Nemo dat quod non habet” — Latin for “No one gives what he does not have” — is fundamental in the sale of goods. Under Section 27 of the Indian Contract Act, 1872, and reflected in Sections 27 and 41 of the Sale of Goods Act, 1930, the law states that a buyer cannot acquire a better title than the seller possesses.
This principle ensures that the ownership rights of goods are protected and prevents fraudulent transfers. If a seller does not own the goods, the buyer, no matter how honest, cannot acquire legal ownership. The buyer may receive possession but not ownership.
However, modern commercial transactions necessitate flexibility. For example, merchants often buy goods from intermediaries who may not be the original owners. To address these practical situations, law recognizes certain exceptions that allow a buyer to acquire a good title, even if the seller’s title was limited or defective.
This article explains the exceptions to the nemo dat rule, supported by Indian statutes, real-life examples, and illustrative cases, helping law students and professionals understand the balance between buyer protection and seller accountability.
1. Sale by a Mercantile Agent (Section 27, Sale of Goods Act)
Definition
A mercantile agent is a person entrusted by the owner of goods to sell or purchase goods in the ordinary course of business. Under Section 27 of the Sale of Goods Act, 1930, if a mercantile agent sells goods to a buyer acting in good faith and for value, the buyer obtains a good title, even if the agent did not have authority to sell.
Conditions
- The agent must be entrusted with possession of the goods or documents of title.
- The sale must occur in the ordinary course of business.
- The buyer must act in good faith, unaware of any defect in the agent’s authority.
Example
A wholesaler authorizes B, a mercantile agent, to sell 100 smartphones. C purchases them from B in good faith, unaware that B exceeded his authority. By law, C obtains a valid title to the smartphones despite B’s limited authority.
This exception facilitates commerce by protecting innocent buyers who rely on the apparent authority of agents.
2. Sale Under a Voidable Title (Section 27(b), Sale of Goods Act)
Definition
Sometimes goods are sold by a person who obtains them under a voidable contract, e.g., through fraud, misrepresentation, or undue influence. Under Section 27(b), if the buyer purchases in good faith and for value, the buyer gets a valid title, even though the seller’s contract was voidable.
Example
A sells goods fraudulently obtained from X to B, who buys the goods in good faith. Even though the original contract between A and X was voidable, B acquires valid ownership because the purchase was bona fide.
Case Reference: Phillips v. Brooks (1919) – A fraudulent buyer obtains goods from a jeweler by misrepresentation. When a third-party buyer purchases the goods in good faith, he gets valid ownership.
3. Sale by a Person in Possession Under a Common Authority
Definition
A person in possession of goods under a common authority can transfer a good title to a buyer acting in good faith. This often applies in joint ownership or consignment arrangements.
Example
If A and B jointly own machinery, and B sells it to C without A’s consent, but C acts in good faith and for consideration, C may obtain ownership. The law protects innocent buyers from disputes between co-owners.
This exception ensures commercial certainty and prevents buyers from being penalized due to internal conflicts among owners.
4. Sale by a Buyer in Possession of Documents of Title (Sections 27 and 41)
Definition
When goods are delivered to a buyer who holds documents of title, such as a bill of lading, warehouse receipt, or delivery order, they can transfer ownership to another buyer acting in good faith and for value.
Example
A consigns 500 units of textile goods to B, who receives the warehouse receipt but not the goods. B sells them to C, a bona fide purchaser. By law, C acquires valid ownership of the goods through possession of documents, even though B is not the owner.
This principle is widely used in international trade, where goods in transit are sold multiple times based on negotiable documents.
5. Sale Under Statutory Authority or Court Orders
Definition
Goods sold under statutory authority or by public officers (e.g., auction by government authorities, court-directed sales, or seizure sales) pass valid title to a bona fide purchaser.
Example
If a court orders the sale of seized goods, and D buys them in good faith at an auction, D obtains good title even if the original owner disputes the sale.
This exception ensures legal certainty in state or judicial interventions and encourages participation in auctions without fear of ownership disputes.
6. Estoppel (Agency by Representation or Conduct)
Definition
A principal who allows another person to appear as the owner or authorized seller of goods is estopped from denying the authority of the seller. The buyer acting in good faith gets a valid title.
Example
A leaves goods with B and allows B to sell them publicly. C buys the goods in good faith. Even if B had no authority, A is estopped from denying C’s ownership due to his conduct.
This principle protects innocent buyers who rely on the seller’s apparent authority, facilitating trust in trade.
Real-Life Example: Exceptions in Practice
Consider an online marketplace:
- Sellers often act as mercantile agents, handling goods on behalf of larger vendors.
- Buyers purchasing goods in good faith through the platform obtain ownership, even if the seller exceeds their authority.
- Goods sold under consignment agreements or documents of title (like bills of lading) are also transferred to bona fide purchasers, ensuring smooth commercial operations.
These exceptions prevent disruption in trade and protect innocent buyers from losing money or goods due to technical defects in the seller’s title.
Mnemonic to Remember Exceptions to the Nemo Dat Rule — “MVJ DES”
Use the mnemonic “MVJ DES” to recall the key exceptions easily:
- M – Mercantile agent
- V – Voidable title
- J – Joint ownership or possession
- D – Documents of title
- E – Estoppel (apparent authority)
- S – Statutory/Court authority
Mnemonic Sentence:
“Many Valued Jobs Demand Efficient Sales.”
This helps law students and professionals memorize the exceptions for bailment, sale, and property law exams quickly.
About lawgnan:
Master the Nemo Dat Quod Non Habet rule and its exceptions with comprehensive study resources available at Lawgnan.in. Understand how mercantile agents, voidable titles, joint ownership, documents of title, estoppel, and statutory sales allow buyers to acquire valid ownership even if the seller’s title is defective. Perfect for law students, legal practitioners, and business professionals, Lawgnan.in offers clear explanations, case references, mnemonics, and practical examples to make property and commercial law easy to grasp. Visit Lawgnan.in now to access exam-ready content, enhance legal understanding, and boost confidence in handling sale of goods transactions.
