The general rule in S.27 is nemo dat quod non habet: no one can give what he does not have. A seller who is not the owner, and who does not sell under the owner's authority, cannot pass a good title. The rule protects ownership. The exceptions protect commerce, by allowing an honest buyer to rely on appearances in defined situations.
Legal Framework
| Provision | Subject | Key Rule |
|---|---|---|
| S.27 | Sale by a person not the owner | The buyer acquires no better title than the seller had, unless the owner is by his conduct precluded from denying the seller's authority |
| S.27 proviso | Mercantile agent | A sale by a mercantile agent in possession with the owner's consent, in the ordinary course of business, to a buyer in good faith without notice, is valid |
| S.28 | Sale by one of several joint owners | A sale by a joint owner in sole possession with the other owners' permission passes good title to a good faith buyer without notice |
| S.29 | Sale by a person in possession under a voidable contract | Where the seller's title is voidable but has not been rescinded, a good faith buyer without notice acquires good title |
| S.30(1) | Seller in possession after sale | A subsequent sale or pledge by a seller left in possession passes good title to a good faith transferee without notice of the earlier sale |
| S.30(2) | Buyer in possession before property passes | A person who has bought or agreed to buy goods and obtained possession with the seller's consent may pass good title to a good faith transferee |
| S.41, Transfer of Property Act | Ostensible owner | A transfer by an ostensible owner with the real owner's consent binds the real owner where the transferee acted in good faith after reasonable care |
| S.178, Indian Contract Act | Pledge by mercantile agent | Parallel protection for a pledgee taking from a mercantile agent |
The General Rule (S.27)
Where goods are sold by a person who is not the owner, and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had.
Why ownership is the starting point: A person's title to his property should not be capable of being destroyed by a stranger's dealings. If it were otherwise, no owner could safely allow goods out of his sight. The rule places the risk of dealing with a rogue on the person who chose to deal with him rather than on the true owner who did not.
Why exceptions are necessary: Commerce depends on buyers being able to rely on possession and apparent authority without investigating title in every transaction. A rule of absolute nemo dat would make every purchase unsafe and would penalise honest buyers while rewarding owners who created misleading appearances. The exceptions strike the balance by protecting the honest buyer where the owner's own conduct contributed to the appearance of authority.
Void and Voidable Title Distinguished
This distinction, drawn from the general law of contract, determines whether an honest buyer is protected at all.
| Basis | Void Contract | Voidable Contract |
|---|---|---|
| Effect on title | No title ever passes to the rogue | Title passes to the rogue, defeasible on rescission |
| Typical cause | Mistake as to identity, absence of consensus | Fraud, misrepresentation, coercion, undue influence |
| Position of an honest buyer from the rogue | Acquires nothing | Acquires good title if he buys before rescission |
| Governing provision | General law; S.27 applies fully | S.29 |
Facts: A rogue named Blenkarn wrote to the plaintiffs ordering handkerchiefs, signing so as to appear to be "Blenkiron and Co," a respectable firm known to the plaintiffs. The goods were sent, and Blenkarn sold them to Cundy, who bought in good faith.
Issue: Did any title pass to Blenkarn, so that he could pass title to Cundy?
Held: No. The plaintiffs intended to contract with Blenkiron and Co and with no one else. There was no consensus with Blenkarn, so the contract was void, not merely voidable. No title ever passed to him, and Cundy acquired nothing despite his good faith.
Relevance: The leading authority on mistaken identity in inter absentes dealings producing a void contract. Cite where the seller never intended to deal with the person in front of him.
Facts: A rogue entered a jeweller's shop, selected jewellery, and falsely represented that he was Sir George Bullough, a man of substance. He was allowed to take a ring away against a cheque which was dishonoured. He pledged the ring to Brooks, who took in good faith.
Issue: Was the contract void for mistake as to identity, or merely voidable for fraud?
Held: Merely voidable. The jeweller intended to contract with the person physically present in his shop, and was induced by fraud as to that person's attributes and creditworthiness. Title therefore passed to the rogue, and since the jeweller had not rescinded before the pledge, Brooks obtained a good title.
Relevance: The counterpart to Cundy v Lindsay. The two together are the standard pairing: dealings face to face are ordinarily voidable, dealings at a distance may be void.
The Exceptions in Detail
1. Estoppel or Ostensible Ownership (S.27, opening words)
Where the owner by his conduct is precluded from denying the seller's authority to sell, the buyer obtains good title. This is the same principle as S.41 of the Transfer of Property Act, requiring the transferee to act in good faith and after taking reasonable care.
2. Sale by a Mercantile Agent (S.27 proviso)
| Requirement | Explanation |
|---|---|
| The seller is a mercantile agent | A person having in the customary course of business authority to sell, consign, buy, or raise money on the security of goods |
| In possession of the goods or documents of title | Possession must be as a mercantile agent, not in some other capacity |
| With the owner's consent | Consent to possession, even if obtained by deceit, so long as not by theft |
| Acting in the ordinary course of business | The sale must appear a normal transaction for such an agent |
| Buyer in good faith without notice | The buyer must not know of the want of authority |
Facts: A car owner entrusted his car to a mercantile agent for sale at not less than a stated price. The agent sold it below that price and misappropriated the proceeds, having obtained possession by a fraudulent intention from the outset.
Held: The buyer obtained good title. Possession had been given with the owner's consent, and it did not matter that the agent had a fraudulent intention when he obtained it, nor that he sold below the authorised price. The sale was in the ordinary course of his business and the buyer took in good faith.
Relevance: Establishes that consent to possession is what matters, not the agent's honesty of intention, and that breach of a price limitation does not defeat the buyer.
3. Sale by One of Several Joint Owners (S.28)
Where one of several joint owners has sole possession by permission of the co-owners, a sale by him passes good title to a buyer in good faith without notice.
4. Sale by a Person Having a Voidable Title (S.29)
Where the seller has obtained the goods under a voidable contract which has not been rescinded at the time of sale, the buyer acquires good title provided he buys in good faith and without notice of the defect.
Practical importance of prompt rescission: Since the exception applies only until rescission, an owner who discovers the fraud must act at once. Rescission may be effected by communicating avoidance to the rogue, or where he cannot be found, by any overt act evidencing avoidance such as informing the police.
5. Sale by a Seller in Possession After Sale (S.30(1))
Where a seller who has sold goods continues in possession of them or of the documents of title, a subsequent sale or pledge by him passes good title to a transferee in good faith without notice of the earlier sale.
6. Sale by a Buyer in Possession Before Property Passes (S.30(2))
Where a person having bought or agreed to buy goods obtains possession of the goods or documents of title with the seller's consent, a subsequent transfer by him passes good title to a good faith transferee.
Why a hirer under a hire purchase agreement falls outside S.30(2): The provision requires a person who has "agreed to buy." A hirer with a genuine option to return has not agreed to buy, as Helby v Matthews established, so he cannot bring himself within the exception. A person bound to complete instalment payments, as in Lee v Butler, has agreed to buy and can.
7. Other Exceptions Outside the Act
| Exception | Source |
|---|---|
| Pledge by a mercantile agent | S.178, Indian Contract Act |
| Pledge by a person with a voidable title | S.178A, Indian Contract Act |
| Sale by a pawnee on default | S.176, Indian Contract Act |
| Sale by an unpaid seller exercising the right of resale | S.54(3), Sale of Goods Act |
| Sale by a finder of goods | S.169, Indian Contract Act |
| Sale under statutory authority | Court sale, revenue sale, liquidator's sale |
| Sale in a market overt | Not recognised in India |
Illustrations
-
Void contract, honest buyer unprotected: A rogue orders goods by post using a name closely imitating a reputable firm. The seller dispatches them believing he deals with that firm. The rogue sells to an honest buyer. Applying Cundy v Lindsay (1878), the contract was void, no title passed to the rogue, and the buyer acquires nothing.
-
Voidable contract, honest buyer protected: A rogue in a shop falsely claims to be a wealthy customer and takes a ring against a bad cheque, then pledges it. Applying Phillips v Brooks Ltd (1919), the contract was voidable only, title passed to the rogue, and the pledgee is protected as the seller had not rescinded.
-
Mercantile agent exceeding authority: An owner entrusts a car to a dealer to sell at not below Rs. 6 lakhs. The dealer sells at Rs. 4 lakhs and absconds. Applying Folkes v King (1923) and the S.27 proviso, the honest buyer gets good title, since possession was given with consent and the sale was in the ordinary course of business.
-
Joint owner in sole possession: Three siblings jointly own machinery kept at one sibling's premises with the others' permission. That sibling sells it. Under S.28 a good faith buyer without notice acquires good title.
-
Seller left in possession: A sells goods to B but retains possession pending collection. A then sells the same goods to C, who takes delivery in good faith without notice of the sale to B. Under S.30(1) C acquires good title, and B's remedy is against A.
-
Buyer in possession under an agreement to buy: A takes furniture on terms obliging him to pay all instalments, with no right of return, and obtains possession. He resells to D in good faith. Applying Lee v Butler (1893) and S.30(2), D acquires good title.
-
Hirer cannot pass title: A takes a piano on hire purchase with a genuine option to return, and pledges it. Applying Helby v Matthews (1895), A had not agreed to buy, S.30(2) does not apply, and the pledgee acquires nothing.
-
Rescission before sale defeats the buyer: A seller defrauded of goods communicates rescission to the rogue and informs the police on Monday. The rogue sells to an honest buyer on Wednesday. S.29 does not protect the buyer, because the voidable title had already been avoided.
Recall Check
- State the maxim in S.27 and explain the policy it serves.
- Why is an honest buyer protected where the rogue's title was voidable but not where it was void?
- Why can a buyer from a hire purchase hirer not rely on S.30(2)?
Key Cases
Cundy v Lindsay (1878) Cundy v Lindsay 1878
Issue: Whether a contract induced by a rogue impersonating a known firm by post was void or voidable.
Rule: Where the seller intended to contract only with the person impersonated, there is no consensus and the contract is void.
Held: No title passed to the rogue, and the honest buyer acquired nothing.
Phillips v Brooks Ltd (1919) Phillips v Brooks 1919
Issue: Whether a face to face sale induced by a false claim of identity was void or voidable.
Rule: A seller dealing face to face intends to contract with the person present, so the contract is voidable for fraud, not void.
Held: Title passed to the rogue, and the pledgee who took before rescission was protected.
Folkes v King (1923) Folkes v King 1923
Issue: Whether a mercantile agent who obtained possession with a fraudulent intention and sold below the authorised price could pass good title.
Rule: What matters is the owner's consent to possession and a sale in the ordinary course of business, not the agent's honesty or observance of price limits.
Held: The buyer in good faith obtained good title.
Distinctions
| Basis | Void Title | Voidable Title |
|---|---|---|
| Title in the rogue | None | Passes, defeasible on rescission |
| Honest buyer's position | Unprotected | Protected if he buys before rescission (S.29) |
| Typical fact pattern | Impersonation at a distance | Fraud in a face to face dealing |
| Leading case | Cundy v Lindsay (1878) | Phillips v Brooks Ltd (1919) |
| Basis | S.30(1) Seller in Possession | S.30(2) Buyer in Possession |
|---|---|---|
| Who deals | The seller, after having sold | The buyer, before property passes |
| Requirement | Continued possession of goods or documents of title | Possession obtained with the seller's consent |
| Person protected | Transferee in good faith without notice of the earlier sale | Transferee in good faith |
| Excluded person | Not applicable | A hirer under a true hire purchase agreement |
| Basis | Nemo Dat Rule | Exceptions |
|---|---|---|
| Interest protected | The true owner's title | The honest buyer's reliance on appearances |
| Underlying policy | Security of property | Security of commercial transactions |
| Burden of the rogue's fraud | Falls on the buyer | Falls on the owner who created the appearance |
Flashcards
State the general rule in S.27.
Nemo dat quod non habet. Where goods are sold by a person who is not the owner and who sells without the owner's authority or consent, the buyer acquires no better title than the seller had.
Name the statutory exceptions to the nemo dat rule.
Estoppel or ostensible ownership, sale by a mercantile agent (S.27 proviso), sale by a joint owner in sole possession (S.28), sale under a voidable title (S.29), sale by a seller in possession after sale (S.30(1)), and sale by a buyer in possession (S.30(2)).
What is the difference between Cundy v Lindsay and Phillips v Brooks?
In Cundy v Lindsay the dealing was by post with a rogue impersonating a known firm, so the contract was void and no title passed. In Phillips v Brooks the dealing was face to face, so the contract was merely voidable and title passed.
What must a buyer from a mercantile agent establish?
That the agent was in possession with the owner's consent, sold in the ordinary course of business, and that the buyer took in good faith without notice of the want of authority.
Did it matter in Folkes v King that the agent sold below the authorised price?
No. Consent to possession and a sale in the ordinary course of business were enough; breach of the price limitation did not defeat the buyer.
Until when does S.29 protect a buyer from a person with a voidable title?
Until the contract has been rescinded. A buyer who purchases after rescission is unprotected.
Can a hire purchase hirer pass good title under S.30(2)?
No. He has not "agreed to buy" and so falls outside the exception (Helby v Matthews, 1895).
Is sale in a market overt recognised in India?
No. That English exception has never been part of Indian law.
Exam Scenario
Problem: Three disputes arise. First, a rogue telephones a wholesaler claiming to be the purchase manager of a well known retail chain, and goods are dispatched on the chain's usual credit terms; the rogue sells them to Priya, who pays cash in good faith. Second, Quasim entrusts his tractor to a farm equipment dealer for sale at not less than Rs. 7 lakhs; the dealer, who had intended from the start to misappropriate the proceeds, sells it to Rekha for Rs. 5 lakhs and disappears. Third, Sanjay is defrauded of a consignment of steel by a buyer's bad cheque; on discovering the fraud on Monday he immediately writes to the rogue avoiding the sale and lodges a police complaint, but the rogue had already sold the steel to Tanvi on Sunday. Advise Priya, Rekha and Tanvi.
Step 1: Characterise the rogue's title before anything else
The honest buyer's fate turns on whether the rogue held a void or a voidable title, and where voidable, on whether rescission preceded the sale.
| Buyer | Basis of the claim | Governing rule | Outcome |
|---|---|---|---|
| Priya | Rogue's title void, no consensus at a distance | S.27, Cundy v Lindsay (1878) | Loses. Acquires nothing |
| Rekha | Owner's own consent to the agent's possession | S.27 proviso, Folkes v King (1923) | Protected. Good title |
| Tanvi | Rogue's title voidable and unrescinded at the sale | S.29, Phillips v Brooks Ltd (1919) | Protected. Good title |
Step 2: Advise Priya, the dealing at a distance
The wholesaler dealt at a distance and intended to contract with the retail chain and no one else, being induced to extend that chain's credit terms.
Applying Cundy v Lindsay (1878), there was no consensus with the rogue, so the contract was void and no title ever passed to him. S.29 cannot assist, since it presupposes a voidable title.
Priya, despite her good faith, acquires nothing and must return the goods. Her remedy is a personal claim against the rogue.
Step 3: Advise Rekha under the proviso to S.27
The dealer was a mercantile agent, in possession of the tractor with Quasim's consent, and the sale of a tractor by a farm equipment dealer is plainly in the ordinary course of his business, with Rekha taking in good faith.
Apply Folkes v King (1923) to both complicating facts. The dealer's fraudulent intention when obtaining possession is irrelevant because consent to possession was given, and the sale below the authorised price is a breach of the agent's mandate which does not defeat an honest buyer.
Rekha acquires good title and Quasim's remedy is against the dealer.
Step 4: Advise Tanvi, where timing decides the case
Sanjay's title was voidable for fraud, not void, since he dealt with and intended to deal with the person before him and was deceived only as to creditworthiness, following Phillips v Brooks Ltd (1919).
The critical question is timing. The sale to Tanvi occurred on Sunday, before Sanjay's rescission on Monday, so the voidable title was unrescinded at the moment of sale.
Tanvi, buying in good faith without notice, acquires good title under S.29. Sanjay's diligence came one day too late.
Good faith alone never saves a buyer from a void title. Priya is honest and paid cash, and still loses. S.29 presupposes a title that existed and was defeasible, not a title that never came into being.
Face to face against dealing at a distance. Cundy v Lindsay gives a void contract, Phillips v Brooks Ltd a voidable one. Identify the mode of dealing before choosing the case.
A fraudulent agent can still pass title. Under Folkes v King, what matters is the owner's consent to possession, not the agent's honesty of intention when he obtained it.
Breach of a price limit is not want of authority. Selling at Rs. 5 lakhs against a Rs. 7 lakh floor is a breach of mandate between owner and agent, and it does not defeat an honest buyer.
Rescission must precede the sale, not merely the discovery. Sanjay acted at once on discovery, but the rogue had already sold. Fix the date of each event before applying S.29.
Conclusion. Priya loses and must return the goods. Rekha and Tanvi are protected and take good title. The respective owners' remedies lie against the rogues personally.
See Also
- Passing of Property in Goods : the rules determining what title the seller had to pass.
- Sale Distinguished from Agreement to Sell and Other Transactions : why a hirer falls outside S.30(2) while an instalment buyer does not.
- Pledge : the parallel exceptions in S.178 and S.178A of the Contract Act protecting a pledgee.