Commercial Law Tutorial 4 - Nemo Dat PDF

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TUTORIAL CYCLE 4Reading:I Davies ‘Wrongful Disposition of Motor Vehicles – a legal quagmire’ [1995] JBL 47The main difficulty with the legislative response is that on the one hand it is too extensive in terms of legal consequence whilst on the other it is too restrictive in its scope because the pro...

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TUTORIAL CYCLE 4

Reading: I Davies ‘Wrongful Disposition of Motor Vehicles – a legal quagmire’ [1995] JBL 47 The main difficulty with the legislative response is that on the one hand it is too extensive in terms of legal consequence whilst on the other it is too restrictive in its scope because the protection accorded to private disponees is piecemeal. There should be an ownership register under which purchasers could determine whether a seller is actually the true owner (possibly limited to goods of a certain value) – similar to the Land Registry Of course, where it is unreasonable to expect a search then registration should not prevail because it would be an unacceptable hindrance to trade if buyers from dealers in such goods were expected to search a register recording an encumbrance wrongful dispositions are too easy for the seller and too safe for the imprudent private buyer because of the requirement of actual notice rather than mere suspicion of the encumbrance. the protection accorded is piecemeal so motor dealers are not protected and there are important financing arrangements which are themselves not covered by the legislation including leases, contract hire and other bailment mechanisms. A Foster ‘Sale by a non-owner: striking a fair balance between the rights of the true owner and a buyer in good faith’ (2004) 9 Cov LJ 1 The answer is vital because, although the person who is held not to be the owner will, in theory, have a remedy against the unauthorised seller,3 that seller will probably be a "rogue' who has disappeared, and, if he can be found, may be penniless and any unsuccessful (and innocent) party will lose out financially. The starting point in law is that the true owner's rights are paramount, although many exceptions have been created to this rule by both common law and statute4 . This has created an unsatisfactory situation, with the law being developed in a piecemeal fashion and being interpreted restrictively, and often inconsistently, by the courts The decision in Shogun Finance displays the unfairness associated with the arbitrary rules of the nemo dat rule S2(1) incorporates the general doctrine of estoppel – The exception embodies the principle that "wherever one of two innocent persons must suffer by the acts of a third, he who has enabled such third person to occasion the loss must sustain it – rooted in fairness Whitehorn Brothers v Davison 31 it was held that the true owner bears the burden of proving that the buyer bought with notice or otherwise than in good faith. This ruling reverses the burden of proof applied in the case of similar provisions and it has been submitted that it is capable of unfairness Only applies to voidable NOT void titles

As with all these provisions, difficulties have arisen with regard to its scope and application. For example, it only applies where goods have been sold and does not apply to a mere agreement to sell Pacific Motors – it was held that the crucial question was whether the seller's possession was physically continuous - The complexity of these rules increase the uncertainty of who receives good title and, it is submitted, should not be the proper basis of deciding the better title between two innocent parties. A number of presumptions do exist to assist the innocent purchaser. First someone who has the custody of the goods (or who controls someone else who has it) will be deemed to be in possession. Once this is established it will then be presumed that this *Cov. L.J. 11 was with the owner's consent; the burden of proof of showing that this was not the case is on the owner. Second, any consent given by the owner to the agent's possession of goods or of documents of title to goods is also deemed to be given with respect to documents of title.74 Third, although possession by the mercantile agent must be with consent of the owner, this consent is presumed in the absence of contrary evidence. Fraud will not automatically negate consent but such consent could be negated by mistake as to identity of the owner and possibly by illegality.75 To balance the rights of the owner, the purchaser must take in good faith and without notice. "Notice' in this context means actual knowledge of the fact, but as has been noted76 a person can also have knowledge by being aware of circumstances which would lead a reasonable person to reach such a conclusion. Knowledge acquired in either of these ways is enough to exclude a party from the benefit of the provisions, although it is doubted whether a slight suspicion would suffice.77 Should reintroduce the market overt rule – allows BFPFVWN to receive title if in a shop/marketplace – reflective of the As an alternative to providing complete protection for the purchaser, one proposal could be that a purchaser who lays claim (or who defends a claim) to title would lose that claim if they had failed to take all reasonable steps to confirm the credibility of the seller of the goods or their true ownership. This duty could be heavier in the case of business purchasers who would have greater access to relevant data, but could also apply to consumer purchasers where appropriate. This would alleviate the unfairness towards the true owner who is deprived of title, if not providing him with financial comfort. Similarly, a true owner, particular one in business, would have a duty to ensure that his goods did not knowingly fall into the hands of the rogue - the proposal could be used alongside the possibility of apportionment to produce as fair a result as possible The existing rules have little to do with fairness and are not understood by commercial parties Whether the law is kept in substantially its present state or not, it is clear that the inevitable unfairness created by the rogue is often compounded by the uncertainty and iniquity of the present law. At the very least and given the fact that such claims engage the property rights of parties under the Human Rights Act 1998, the unsuccessful party should be able to understand why his claim has been defeated and the reasoning of such decisions should not be the prerogative of academics and specialist judges.

You must also look at these cases: Pearson v Rose and Young [1951] 1 K.B. 275 The plaintiff, the owner of a motor car, gave to a motor car *276 dealer, admittedly a mercantile agent, possession of his car to see what offers could be obtained for the sale of it when a new car, which he had ordered through the agent, should be delivered to him. The car was thus left with the agent provisionally in his capacity as a salesman. Later in the day, the agent, who had decided to sell the car and misappropriate the proceeds, when in conversation with the plaintiff, had in his hands the registration book of the car. He thereupon induced the plaintiff to leave in haste on a bogus errand, so that the plaintiff forgot that he had left the custody of the registration book in the hands of the agent who thus obtained possession of the book by a trick. On the same day the agent sold the car with its registration book to a person who bought it in good faith. A mercantile agent when selling a second-hand motor car cannot sell the car "in the ordinary course of business of a mercantile agent" within the meaning of sub-s. 1 of s. 2 of the Factors Act. 1889 , unless he sells the registration book with the car, and a purchaser buying the car from him without the registration book will not obtain a good title to the car under that Act; and if he buys the car with the book he must prove that both the car and the book were in possession of the mercantile agent with the consent of the owner. On the basis that the agent obtained possession of the car by larceny by a trick, the agent having an animus furandi at the moment when he received possession of it, nevertheless he was in possession of the car "with the consent of the owner", within the meaning of the subsection. If he had been asked: "did you mean to leave your registration book?", he would have answered "No" Parliament has not protected the true owner, if he has himself consented to a mercantile agent having possession of them: because, by leaving *287 them in the agent's possession, he has clothed the agent with apparent authority to sell them; and he should not therefore be allowed to claim them back from an innocent purchaser.

Stadium Finance v Robbins [1962] 2. Q.B. 664 The defendant left a car which he wished to sell with a car dealer, a tentative arrangement being made regarding the finding of a purchaser. The defendant took the ignition key away with him, intending to control the sale of the car himself, but he accidentally left the registration book in the locked glove compartment of the dashboard. Without the defendant's actual authority, the dealer, who was a mercantile agent within the meaning of the Factors Act, 1889, s. 1 (1) , 1 purported to sell the car to one of his salesmen, the sale being effected through a hire-purchase agreement made by the plaintiffs with the salesman. The first instalment due under the agreement not being paid, the plaintiffs tried to repossess the car in accordance with the terms of the agreement, and on finding that the defendant had himself retaken the car, sued for its recovery or its value and damages for its detention. The county court judge found for the defendant, holding, inter alia, that a car without an ignition key was not "goods" within the meaning of section 2 (1) of the Act of 1889. On appeal:- Held, that the

sale of the car, without the registration book and the ignition key, by the dealer to the plaintiffs for the purpose of the hire-purchase agreement was not a sale in the ordinary course of business of a mercantile agent within the meaning of section 2 (1) of the Act of 1889 and that accordingly the plaintiffs' claim failed (post, pp. 671, 675, 677). The word "goods" in section 2 (1) of the Act of 1889 bears its ordinary meaning and includes a car without an ignition key and registration book (post, pp. 670, 676). The car was in the possession of the dealer The onus was on the plaintiffs to bring themselves within section 2 (1) of the Act of 1889. Without either the key or the registration book, the car was not in the possession of the dealer within section 2 (1) of the Act of 1889 (post, p. 674).

Beverley Acceptances Ltd v Oakley [1982] RTR 417 Facts: O, a rogue, borrowed £25,000 from the fourth defendant, G, in order to buy two Rolls Royce cars. He signed an agreement pledging the cars to G as a security for the loan in the sum of £38,000 and giving G power to sell the cars. O then borrowed another £25,000 from P and used the same cars as security. O executed two bills of sale in the plaintiff’s favour which were duly registered on 11 March 1980. When the plaintiffs discovered that G was in possession of the cars and claimed to be a pledgee to secure his loan to O they brought proceedings against O and G and two other defendants in respect of the two cars. In other words, Oakley was a fraud who obtained £25,000 by deception. He did it on the strength of two cars. He charged first to Mr. Green, the licensee of a public house and secondly, to Beverley Acceptances Limited, a finance house. He has been convicted and sentenced. Issue: To determine the priorities between the lenders. Who has the prior claim to the cars? The licensee of the public house? Or the finance house? A transcript of the evidence was absent that made the story even more complicated. Held: G, as prior pledgee, had priority over the plaintiffs as holders of the bills of sale. For the purposes of the Factors Act 1889 s.1(1), the log book was not a document of title since it stated that the registered keeper might not be the legal owner, and therefore could not provide proof of ownership. Secondly, for P to rely on possession by a mercantile agent under s.2(1), possession had to be simultaneous with the disposition. In the present case, O had not been in possession at the time of the execution of the bills of sale, and P were not protected by the Act.

1. ‘The exceptions to the nemo dat rule give too much protection to purchasers of goods and pay insufficient regard to the rights of the original owner.’ Bishopsgate case – rights of the original owner and the rights of the 3rd party must be balanced but the sea saw has now swung too far the other way S2(1) of the SGA has expressly incorporated the nemo dat rule into the commercial law. Whilst this raises the presumption that a seller cannot transfer better title than he possesses himself, the exceptions which have been introduced by statute and under the common law demonstrate attempts to ensure fairness between parties. Such fairness is important as the rigid application of the nemo dat rule would lead to injustice, however, it appears that the law

now provides too much protection to the purchasers of goods rather than their true owners. By adopting a legal analysis this essay will demonstrate how these exceptions have created unfairness in the law and that proposals for reform would address this imbalance. Rule becomes the exception when more rules are created – of this occurs, this is more likely to favour the third party Firstly, the exceptions created under the nemo dat rule have not ensured that losses are apportioned, thus when losses are sustained by the conduct of a rogue, distributive justice is not acheived. - The decision in Shogun Finance displays the unfairness associated with the arbitrary rules of the nemo dat rule – buyer left without the car or his money Secondly, wrongful dispositions are too easy for the seller and too safe for the imprudent private buyer because of the requirement of actual notice rather than mere suspicion of the encumbrance. Thirdly, the exception created under sale by voidable title has put the onus on the seller to communicate their their rescission of the contract – an unfair burden. - Caldwell has lowered the threshold of this Fourthly, there are important financing arrangements which are themselves not covered by the legislation including leases, contract hire and other bailment mechanisms Fifthly, the exceptions relate to complex concepts which appear unsuitable for the deduction of who possesses better title - Pacific Motors – it was held that the crucial question was whether the seller's possession was physically continuous Consent of the Owner – difficult to prove – consent by trick is still consent Good faith and no notice burden of proof on 3rd party Sixthly, there are many presumptions which appear to unfairly weigh the law in favour of purchasers of goods a. First someone who has the custody of the goods (or who controls someone else who has it) will be deemed to be in possession. b. Once this is established it will then be presumed that this was with the owner's consent; the burden of proof of showing that this was not the case is on the owner. c. Second, any consent given by the owner to the agent's possession of goods or of documents of title to goods is also deemed to be given with respect to documents of title. d. Third, although possession by the mercantile agent must be with consent of the owner, this consent is presumed in the absence of contrary evidence. e. Fraud will not automatically negate consent, but such consent could be negated by mistake as to identity of the owner and possibly by illegality.75 To balance the rights of the owner, the purchaser must take in good faith and without notice. " i. Notice' in this context means actual knowledge of the fact, but as has been noted a person can also have knowledge by being aware of

circumstances which would lead a reasonable person to reach such a conclusion. Knowledge acquired in either of these ways is enough to exclude a party from the benefit of the provisions, although it is doubted whether a slight suspicion would suffice. Discuss. 2. Sallie buys a large TV screen from Mark, a shopkeeper in Durham. She wishes to pay with a cheque. Mark has doubts, but when Sallie tells him that she is the cousin of Baron Rothschild, a wealthy philanthropist who is well known in the region, Mark is reassured and sells her the TV, but not before asking her to sign up for his customer loyalty scheme. Sallie agrees willingly and fills out the required forms which ask for details regarding her address, telephone number and email address. The following day, Sallie’s cheque is dishonoured. Upon learning of this, Mark immediately informs the police and asks them to look out for Sallie. Sallie meanwhile goes on to sell the TV to Rita, an accomplice, at a highly discounted price a few days later. Rita in turn sells the TV to Joe. A week later, the policy finally locates Sallie at her address at home. Does Joe have a good title? Issue 1: does Rita receive good title from Sallie? Sale under voidable title – s23 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 Void or Voidable Lewis v Averay – law presumes that the seller is contracting with the person before them rather than who they are purporting to be – unless written communication (Cundy v Lindsay), fraud only creates a voidable title rather than a void one Shogun Finance – confirmed that if sale was merely voidable but had not yet been rescinded, the buyer could get good title Avoided at the time of the sale Try and contact the rogue if at all possible BUT if they have absconded, take all reasonable steps and tell the whole world ON FACTS HADNT ATTEMPTED TO CALL HER Caldwell has stated that the rescission of the contract need not be directly to the rogue, rather it is sufficient to notify the police as this demonstrates the rescission to the whole world Rita cannot receive good title as she is not acting in good faith or without notice as she is an accomplice to the theft

Good faith and without notice Whether Joe receives good title is dependent on whether the contract was rescinded by Mark before the sale to him A seller conveys to a purchaser that they are the owner of an item, and The purchaser makes all relevant investigation and has no reason to believe otherwise, and The purchaser makes payment for that item, and The purchaser has, at all times, acted in good faith and with honesty A person seeking to rely upon the bona fide purchaser exception will bear the onus of proof that they have at all times acted in good faith and free of suspicion that there was any issue with the sale and that they did not have notice of defective title from the seller. Buyer in Possession – s25 With consent of the owner In good faith without notice

JOE GETS TITLE AS HE IS BFPFVWN DO NOT NEED A CHAIN OF TITLE – YOU DON’T NEED PERFECT TITLE TO PASS TITLE – EXCEPTIONS IMPROVE TITLE DO NOT SAY EQUITY’S DARLING 3. Paul wishes to buy an Arco floor lamp from Mark. Mark agrees but tells Paul that he would like to hire the lamp back from Paul for a few months until he is able to get hold of another lamp. Paul agrees as he is in no hurry. Mark therefore continues to display the lamp in his showroom. A few weeks later, Peter visits Mark’s shop. He spots the floor lamp which is now carrying a tag reading ‘sold to Paul Matthews’. Peter likes the lamp and asks Mark to sell him the lamp. Mark grabs the opportunity to make some extra-cash. He agrees to sell it to Peter. But the lamp is heavy and Peter has no means of transportation. He tells Mark that he will fetch it later. Mark agrees. A few days later, Paul returns to Mark’s shop. He spots his lamp, but is surprised to find that the tag now reads ‘sold to Mr Peter Jones’. Advise Paul. EXCEPTION 6: S8 FA 1889 or S24 SGA 1979 Where a person having sold goods continues or is in possession of the goods or docs of title, the delivery of title or transfer by that person or my a mercantile agent acting for him of the goods/docs of title and sale, pledge or other disposition or under any agreement for sale, pledge or disposition to any person receiving the same title in good faith and without notice of pervious sale shall have the same effect as it person making delivery/transfer were expressly authorised by the owner of the goods Continuous ...