1. Facts of the Case
M, the owner of a motor vehicle, offered to sell it to N.
N agreed to the offer and issued a cheque to M as advance payment for the vehicle.
Relying on the cheque, M delivered possession of the vehicle to N.
Subsequently, N sold the vehicle to O, a third party who purchased it in good faith and without notice of any defect in N’s title.
Later, the cheque issued by N to M was dishonoured upon presentation.
M, upon discovering this, filed a suit against N seeking return of the vehicle, claiming that N had no valid title to transfer since the payment had failed.
2. Issues in the Case
- Whether N acquired ownership (title) of the vehicle from M when the cheque given as consideration was dishonoured?
- Whether the sale made by N to O (a third party) is valid under the Sale of Goods Act, 1930?
- Whether O, who bought the vehicle in good faith and for consideration, acquires a good title, or whether M can recover the vehicle from O?
- Whether M’s act of delivery before cheque clearance affects his right to reclaim the vehicle?
3. Legal Principles Covered to Support Case Proceedings and Judgements
Relevant Legal Provisions:
- Section 4, Sale of Goods Act, 1930 – Definition of Sale and Agreement to Sell:
A contract of sale involves the transfer of property in goods from the seller to the buyer for a price.
If the transfer is to take place at a future time or subject to a condition, it is called an agreement to sell. - Section 19, Sale of Goods Act, 1930 – Transfer of Property:
The property in specific goods is transferred to the buyer at such time as the parties intend it to be transferred.
When payment is made by cheque, the transfer of ownership is generally conditional upon cheque clearance. - Section 30, Sale of Goods Act, 1930 – Sale by a Person Who is Not the Owner:
If a person, having obtained possession of goods under a voidable contract, sells them before the contract is rescinded, and the buyer acts in good faith and without notice, the buyer may acquire good title.
However, if the contract is void ab initio (invalid from the beginning), no title passes to the buyer. - Section 25, Indian Contract Act, 1872 – Consideration Must Be Real and Valid:
When the consideration (payment) fails, the contract is not validly performed, and the ownership cannot be said to have transferred completely.
Relevant Legal Concepts and Analysis:
- Dishonour of Cheque and Conditional Transfer:
Delivery of goods against a cheque creates a conditional sale, meaning ownership passes only when the cheque is honoured.
Therefore, when the cheque is dishonoured, the condition fails, and no ownership passes to N. - N’s Title to Sell:
Since N’s cheque was dishonoured, he did not acquire ownership of the vehicle. He only had possession, not title.
Hence, the sale made by N to O amounts to a sale by a person not having ownership, and generally, such a sale does not convey good title. - Exception – Sale by a Person in Possession under a Voidable Contract (Section 30(1)):
This applies only when the contract is voidable, not void. In this case, the contract between M and N became void ab initio when the cheque bounced, meaning no valid contract of sale ever existed. - Rule of “Nemo Dat Quod Non Habet” (No One Can Give What He Doesn’t Have):
Under the general rule of the Sale of Goods Act, a buyer cannot obtain a better title than that of the seller.
Since N did not have title, he could not pass ownership to O. - Protection of Bona Fide Purchaser (Good Faith Buyer):
Though O purchased the vehicle in good faith, he cannot acquire ownership because the sale by N was unauthorized, and the original seller’s title (M’s title) remains intact.
Supporting Case Laws:
- Rowland v. Divall (1923) 2 KB 500:
It was held that if the seller had no title to sell, the buyer must return the goods and recover the price — no title passes. - Cundy v. Lindsay (1878) 3 App Cas 459:
A sale under a void contract passes no title, even to a bona fide purchaser. - Phillips v. Brooks Ltd. (1919) 2 KB 243:
Where the contract is voidable but not void, and the third party buys in good faith before rescission, the third party may get a good title.
However, if the contract is void due to absence of consideration (as in dishonoured cheque), no title passes. - Kundan Lal Rallaram v. Custodian, Evacuee Property, Bombay (AIR 1961 SC 1316):
The Supreme Court held that ownership passes only when payment is completed if the transaction is dependent on payment realization.
4. Possible Judgement
In the present case, the transaction between M and N was conditional upon the clearance of N’s cheque.
Since the cheque was dishonoured, the condition precedent for the transfer of ownership was not fulfilled.
Therefore:
- N did not acquire ownership of the vehicle; he only obtained possession.
- Consequently, the sale by N to O was invalid, as N could not pass ownership he never had.
- The principle of “Nemo dat quod non habet” applies — N cannot give O a better title than what he himself possessed.
- Hence, M remains the rightful owner and is entitled to recover the vehicle from O.
- N is liable for the dishonoured cheque and for wrongful sale of M’s property.
Judgement:
- M is entitled to recover the vehicle from O.
- N is liable to M for damages and dishonour of cheque under the Negotiable Instruments Act, 1881.
- O’s purchase, even though in good faith, does not confer ownership, as N never had valid title.
About lawgnan:
Understand the legal implications of dishonoured cheques and conditional transfers of ownership under the Sale of Goods Act, 1930 at Lawgnan.in. Learn how Sections 4, 19, and 30 define when property passes, and explore the principle of “Nemo dat quod non habet”. Discover landmark cases like Rowland v. Divall, Cundy v. Lindsay, and Kundan Lal Rallaram v. Custodian to see how courts handle sales made without valid consideration or ownership. Lawgnan.in provides students and legal professionals with detailed case analyses, judgement summaries, and practical insights into buyer, seller, and third-party rights in conditional sales.
