Nemo dat quod non habet and the exceptions under the Sale of Goods Act

The rule. Section 27 of the Sale of Goods Act, 1930 deals with a sale by a person who is not the owner. As a general rule a seller can transfer to the buyer no better title than he has himself: if the seller is not the owner, the buyer does not become the owner either, and takes only the seller's title. This is the maxim nemo dat quod non habet: a person cannot pass on a title he does not himself hold. Thus a buyer of stolen goods gets no title even if he buys in good faith, and the true owner may recover them; and a person who buys a vehicle from a hirer under a hire-purchase agreement gets at most the hirer's rights, not ownership. Our example: Rahul buys a bicycle in good faith at a weekly market in Delhi; it turns out to have been stolen from Simran. Simran can take it back, and Rahul's remedy lies only against the person who sold it to him.

Why the Act allows exceptions. Applied rigidly, the rule would make innocent buyers bear losses in many cases. To protect them, the Act allows a non-owner, in the situations below, to pass a good title to a buyer who buys in good faith and for value.

Exceptions.

1. Sale by a mercantile agent (proviso to s. 27). The buyer gets a good title if (a) the agent was in possession of the goods or of the documents of title with the owner's consent; (b) he sold them while acting in the ordinary course of business of a mercantile agent; and (c) the buyer acted in good faith and, at the time of the contract, had no notice that the seller lacked authority to sell. A mercantile agent is an agent who, in the customary course of his business as such, has authority to sell goods, to consign goods for sale, to buy goods, or to raise money on their security (s. 2(9)).
2. Sale by one of several joint owners (s. 28). Where one joint owner has sole possession of the goods with the permission of the co-owners, a person who buys from him in good faith, without notice at the time of the contract that he has no authority to sell, gets a good title.
3. Sale by a person in possession under a voidable contract (s. 29). Where the seller obtained possession under a contract voidable for coercion, fraud, misrepresentation or undue influence, and the contract has not been rescinded at the time of the sale, an innocent buyer gets a good title; the original owner cannot recover the goods from him even if the contract is later set aside.
4. Sale by a seller in possession after the sale (s. 30(1)). Where a person who has sold goods continues in possession of them or of the documents of title, and sells them to a third person who obtains delivery in good faith and without notice of the earlier sale, that person gets a good title, although the property had already passed to the first buyer. A pledge or other disposition of the goods by such a seller has the same effect as a sale.
5. Sale by a buyer in possession before property passes (s. 30(2)). Where a buyer, with the seller's consent, obtains possession of the goods before the property has passed to him and sells, pledges or otherwise disposes of them to a third person, that person gets a good title if he obtains delivery in good faith and without notice of the original seller's lien or other right over the goods. This does not cover a hirer under a hire-purchase agreement who has only an option to buy, unless the arrangement amounts to a sale.
6. Estoppel. Where the true owner, by his conduct, is barred from denying the seller's authority to sell, the buyer gets a good title against him. It must be shown that the owner actively allowed, or held out, the seller as the owner or as a person authorised to sell. Example: Meera stands silent while her friend tells a buyer that Meera's laptop is his own; the buyer who then purchases it keeps it.
7. Resale by an unpaid seller (s. 54(3)). If an unpaid seller, after using his lien or his right of stoppage in transit, resells the goods, the new buyer acquires a good title as against the original buyer, even though no notice of the resale was given to the original buyer.
8. Sale by a pawnee under the Indian Contract Act, 1872 (s. 176). If the pawnor defaults in paying the debt, or in performing the promise, at the stipulated time, the pawnee may either "bring a suit against the pawnor upon the debt or promise, and retain the goods pledged as a collateral security" (s. 176), or sell the goods pledged after giving the pawnor reasonable notice of the sale; on a sale any shortfall remains payable by the pawnor and any surplus goes back to him. A buyer at such a sale therefore takes the goods although the pawnee is not their owner.

Conclusion. Nemo dat protects ownership: as a rule a buyer is only as safe as his seller's title. The exceptions protect commerce: in the first six the buyer must have acted in good faith, and the owner has usually himself put the seller in a position to deal with the goods, by consent, by conduct or by a contract he has not rescinded in time. In the last two the law itself gives the unpaid seller and the pawnee a power of sale, so the buyer's title rests on that power.