Courts nowadays are replete with cases wherein an inherent conflict is palpable, that being between the rights of the true owner of goods and the bona fide purchaser of those goods. To put it more clearly, a bona fide purchaser is a person acquiring some goods in good faith or innocently without having an appraisal of any prior claims or titular affiliations on it. An illustration can be – where A, through a middleman B (who projects himself to be endowed with all the rights to transfer the property), gets a property by paying a lawful price for the same. Later on, person C comes up claiming to be the true owner sues A for it. In such a setup, the conundrum is whether the rights of C stand supreme, or whether A, being the purchaser in good faith, takes over.
Consider a situation where a man John steals a car from Jack and transfers it to James. Now if Jack sues James for the possession of the car, he would have to return it because the thief John has no authority to facilitate the sale. This phenomenon is called “Market Overt” or “Chor-Bazari”, to state in the layman lexicon. It is not recognized in India and the true owner can claim the goods from the subsequent buyer. However, time and again, it is seen that the true owner can purportedly act in some express or implied way to facilitate the transfer to an innocent buyer. In such cases, a straight-jacketed formula of redemption in favour of the owner can defeat the object of law and equity. Hence, some protections have been accorded to such subsequent possessor of the goods provided, he acts in good faith.
“Nemo dat quod non habet” is a Latin proverb that states that no one can give what they do not have. This serves as the foundational idea for title transfer. The laws regarding the transfer of title in India are outlined under Sections 27 to 30 of the Sale of Goods Act, of 1930. To enumerate some provisions in the aforementioned reference, and lay down some exceptions to it, the following are considered –
1. Sale by Mercantile Agent and Estoppel
Section 27[1] of the Act states that the buyer of the property acquires no better title to goods than the owner unless the owner, by his conduct, is precluded from denying the sale. Furthermore, the proviso to the section clarifies that the sale by a mercantile agent, with the consent of the owner who acts in the ordinary course of business is deemed valid if the purchaser acts bona fide.
An insight into the practical application can be when a car is in possession of a mortgagee and the mortgagor has not made the payments in a stipulated time. The mortgagee after all the necessary efforts to elicit the money, in dire need of it, sells it to another person who buys it without having any information about the prior encumbrances. Now, the default of the mortgagor precludes him from claiming the car back. This has stemmed from the idea of Estoppel. An estoppel may arise due to both, the representation by the real owner that the seller has the authority to sell the goods or the negligence of the real owner enabling the seller to posit as the real owner in front of the innocent buyer.[3]
2. Sale by Any of the Joint-Owners
Section 28[4] of the Act protects a sale by any of the joint owners in favour of the innocent purchaser. Goods are frequently bought in joint ownership. One of these joint owners is permitted by the other owners to retain possession of the goods. The buyer becomes the legal owner of the items if this person, who is the only one in possession of them sells them.
3. Sale in Case of a Voidable Title With the seller
Section 29[5] further broadens the scope by delineating a situation where the seller acquires a voidable title to goods. If the contract under which the seller gets the goods is not rescinded till the time of sale to the bona fide buyer, the latter gets a good title to the goods.
4. Sale by a Person Having Possession Even After Selling the Goods Previously
Section 30(1) says, that when a person who has sold goods continues to own the goods or the documents pertaining to the goods, delivers or transfers the goods or the documents pertaining to any sale of the goods to a person who accepts them in good faith and without being informed of the previous sale, the effect will be the same as if the person making the delivery or transfer had the owner of the goods’ express permission to do so.
5. Sale by a Buyer Obtaining Possession Before the Official Vesting of the Goods in Him
Section 30(2) considers a situation, about a buyer who, with the seller’s consent, takes possession of the products before ownership of them is transferred to him. He can transfer the property in goods, pledge them, or sell them. The second buyer acquires good title to the goods if he accepts delivery of them in good faith and does not discover the lien or any other claim of the first seller.
6. Sale by Unpaid Seller
Also, Section 54(3) [7]of the Act protects a subsequent sale in case of sale by an unpaid seller of goods, who has exercised a lien or the right to stoppage in transit over them.
So far, the provisions in the Indian legislation dealing with sale and the protection to an innocent purchaser therein have been set forth. While the legal jargons can seem a little difficult to comprehend, the gist is the delineation of the instances where the ownership can be transferred to the buyer through inflicting the rights of the true owner. Though the provisions are stated, judicial discretion prevails in these cases, whether on accounts of deciding whether the conduct of the owner did in fact preclude him from the claim, or whether the mercantile agent acted in the ordinary course of business. An international link drawn and common law principles considered, as Lord Denning stated in the iconic Bishop gate Motor Finance Corp Ltd. v. Transport Brakes Ltd.[8], that in the development of law, “two principles have striven for mastery. The first is for the protection of the property: no one can give a better title than he himself possesses. The second is for protection of commercial transactions: the person who takes in good faith and for value without notice should get a good title. The first principle has held sway for a long time, but it has been modified by common law itself and by statute so as to meet the needs of our times.”
Conclusion
The aforementioned statement stands true today. While it is necessary to protect the title and claims of an owner, who must not, be stripped of his rights to transfer or retain them, it is equally important in the era of changing needs to protect an innocent buyer who puts his faith in a transaction. The balance between the two is a solicited need in light of the aims of commercial transactions to instil confidence in contractual claims and obligations. Marking the territory of the validity of the transfer and otherwise needs more clarity to lay a guideline for prospective purchasers to consider before entering a contract for sale.
[1] The Sale of Goods Act, 1930 §27 No. 03, Acts of Parliament, 1930 (India).
[3] Pollock & Mulla, The Sale of Goods Act, Nineth Edition, 2014, Edited by Akshay Sapre, pg 242.
[4] The Sale of Goods Act, 1930 §28 No. 03, Acts of Parliament, 1930 (India).
[5] The Sale of Goods Act, 1930 §29 No. 03, Acts of Parliament, 1930 (India).
[6] The Sale of Goods Act, 1930 §30 No. 03, Acts of Parliament, 1930 (India).
[7] The Sale of Goods Act, 1930 §54(3) No. 03, Acts of Parliament, 1930 (India).
[8] [1949] 1 KB 332, pp 336-337.
This article is written and submitted by Shreshth Jindal during his course of internship at B&B Associates LLP. Shreshth is a 2nd Year BA. LLB. (Hons.) student at National Law University, Jodhpur.
