Transfer of title and performance of the contract of sale

1. The rule: nemo dat quod non habet (section 27)

Subject to the Act and any other law, where goods are sold by a person who is not the owner and who does not sell under the authority or with the consent of the owner, the buyer acquires no better title than the seller had. A buyer of stolen goods, however honest, gets no title against the owner.

2. The exceptions

• Estoppel (section 27). Where the owner is by his conduct precluded from denying the seller's authority to sell, the buyer gets a good title. If the owner allows another to appear as owner, or stands by while his goods are sold as another's, he cannot later deny the sale.
• Mercantile agent (proviso to section 27). Where a mercantile agent is, with the consent of the owner, in possession of the goods or of a document of title, a sale made by him when acting in the ordinary course of business of a mercantile agent is as valid as if expressly authorised by the owner, provided the buyer acts in good faith and has no notice at the time of the contract that the seller has no authority. A mercantile agent is one who in the customary course of business has authority to sell goods, consign them, buy them or raise money on them (section 2(9)).
• Joint owner (section 28). If one of several joint owners has the sole possession of the goods by permission of the co-owners, the property passes to a buyer who acts in good faith without notice that the seller has no authority.
• Seller under a voidable contract (section 29). Where the seller has obtained possession under a contract voidable under section 19 or 19A of the Contract Act (coercion, fraud, misrepresentation, undue influence), but the contract has not been rescinded at the time of sale, the buyer gets a good title if he buys in good faith without notice of the seller's defect of title. Compare Phillips v. Brooks (1919) and Lewis v. Averay (1972), where a rogue who bought by a worthless cheque passed title before rescission, with Cundy v. Lindsay (1878), where the mistake as to identity made the contract void and no title passed at all.
• Seller in possession after sale (section 30(1)). Where a seller, having sold goods, continues in possession of them or of the documents of title, a sale, pledge or other disposition by him (or a mercantile agent acting for him) to a person receiving them in good faith without notice of the previous sale has the same effect as if expressly authorised by the owner.
• Buyer in possession before property passes (section 30(2)). Where a person who has bought or agreed to buy goods obtains, with the seller's consent, possession of the goods or documents of title, a sale, pledge or disposition by him to a person in good faith without notice of the original seller's lien or other right is valid as if he were a mercantile agent in possession with the owner's consent.
• Resale by unpaid seller (section 54(3)). Where an unpaid seller who has exercised his lien or right of stoppage in transit resells the goods, the second buyer acquires a good title as against the original buyer, even though no notice of resale was given.
• Other law. A finder may sell in the cases allowed by section 169 of the Contract Act; a pawnee may sell on default under section 176; and court or official sales pass title under the relevant statutes.

3. Performance: duties of seller and buyer (sections 31 and 32)

It is the duty of the seller to deliver the goods and of the buyer to accept and pay for them, in accordance with the contract (section 31). Unless otherwise agreed, delivery and payment are concurrent conditions: the seller must be ready and willing to give possession in exchange for the price, and the buyer to pay in exchange for possession (section 32).

4. Delivery: sections 33 to 36

Delivery is the voluntary transfer of possession from one person to another (section 2(2)). It may be made by doing anything the parties agree shall be treated as delivery or which has the effect of putting the goods in the possession of the buyer or his authorised agent (section 33). It may be actual (handing over), symbolic (handing over the keys of a godown or a railway receipt) or constructive (attornment, where a person in possession acknowledges that he holds for the buyer). Delivery of part in progress of delivery of the whole has the effect of delivery of the whole (section 34). Unless otherwise agreed, the seller need not deliver until the buyer applies for delivery (section 35).

Section 36 sets the default rules: goods sold are to be delivered at the place where they are at the time of the sale, and goods agreed to be sold at the place where they are at the time of the agreement or, if not then in existence, where they are manufactured or produced; where the seller is to send the goods and no time is fixed, he must send them within a reasonable time; where the goods are with a third person, there is no delivery until that person acknowledges to the buyer that he holds on his behalf; demand or tender of delivery must be at a reasonable hour; and the expenses of putting goods into a deliverable state fall on the seller.

5. Delivery of wrong quantity: section 37

• Less than contracted (s.37(1)). The buyer may reject them, or accept them and pay at the contract rate.
• More than contracted (s.37(2)). The buyer may accept the contracted quantity and reject the rest, or reject the whole. If he accepts the whole, he pays at the contract rate.
• Mixed with goods of a different description (s.37(3)). He may accept the goods that accord with the contract and reject the rest, or reject the whole.
• These rules are subject to usage of trade, special agreement or course of dealing (s.37(4)).

6. Instalment deliveries: section 38

Unless otherwise agreed, the buyer is not bound to accept delivery by instalments. Where the contract provides for delivery in stated instalments to be separately paid for, and the seller makes defective deliveries or the buyer fails to take delivery of or pay for one or more instalments, whether the breach repudiates the whole contract or is a severable breach giving only a claim for compensation depends on the terms of the contract and the circumstances. The test applied in English cases is the ratio of the breach to the whole contract and the probability that it will be repeated (Maple Flock Co. v. Universal Furniture Products, 1934).

7. Carrier, distant delivery and examination: sections 39 to 41

Delivery to a carrier for transmission to the buyer is prima facie delivery to the buyer (section 39(1)). The seller must make a reasonable contract with the carrier, failing which the buyer may decline to treat the delivery as delivery or hold the seller liable (section 39(2)); and in sea transit he must give the buyer notice to allow insurance (section 39(3)). Where the seller agrees to deliver at his own risk at a place other than where the goods are sold, the buyer still bears the risk of deterioration necessarily incident to the transit (section 40). A buyer who has not previously examined goods is not deemed to accept them until he has had a reasonable opportunity of examining them (section 41).

8. Acceptance and payment: sections 42 to 44

The buyer is deemed to have accepted the goods when he intimates acceptance to the seller, or when after delivery he does an act inconsistent with the seller's ownership, or when after a reasonable time he retains them without intimating rejection (section 42). A buyer who rightfully refuses goods need not return them; it is enough to tell the seller he refuses (section 43). If the buyer does not take delivery within a reasonable time after the seller's request, he is liable for the loss caused and for a reasonable charge for care and custody (section 44). He must pay the price in accordance with the contract; failing that, the seller has the remedies in sections 45 to 61.

9. Problem

R buys a laptop from S by a cheque, falsely saying he has funds. Before the cheque is dishonoured and before S does anything, R sells the laptop to T, who pays the full price and knows nothing. S sues T for the laptop.

Issue. Whether T acquired a good title from R, whose own title was obtained by fraud.

Law. Section 27 (nemo dat) and the exception in section 29; section 19 of the Contract Act makes a contract induced by fraud voidable; Lewis v. Averay.

Application. S intended to deal with R, the person in front of him, so the contract was voidable for fraud, not void. It had not been rescinded when R sold to T. T bought in good faith and without notice.

Conclusion. T has a good title and S cannot recover the laptop from him. S's remedy is against R, in damages and by prosecution for cheating.

How this is examined

Essays: “No one can give a better title than he himself has. Explain with exceptions”, and “Explain the rules relating to delivery of goods.” Short notes: mercantile agent, delivery of wrong quantity, instalment deliveries, acceptance. The rogue-buyer problem is answered as above.