Law 350 - Lecture 7: Sales Without Title and Exceptions to Nemo Dat

Introduction to Sales Without Title

• This lecture focuses on the legal implications of a person ($A$) selling goods (personal property) to person ($B$) when person $A$ did not have valid title to the property at the time of sale.
• The central question is: Under what circumstances, if any, does the buyer ($B$) obtain good title to the goods despite the seller's lack of ownership?

The General Rule: Nemo Dat Quod Non Habet

• The starting point in commercial law for sales without title is the Latin maxim nemo dat quod non habet, which translates to "no one can give what they do not have."
• Section 149 of the Contract and Commercial Law Act (CCLA):
  • This section applies if goods are sold by a person who is not the owner and does not have the owner's authority or consent.
  • The buyer acquires no better title than the seller had, unless the owner is precluded by their conduct from denying the seller's authority to sell.
• Conduct Preclusion Exception (Section 149(2)):
  • As illustrated in the case of New Zealand Wright Cousins, an owner may lose title if their behavior prevents them from denying the seller's right to sell.

Case Study: Sigelcow v Gibbs (1988)

• The Facts:
  • In $1988$, Mr. Gifford sold a $1935$ Chevrolet Coupe to Mr. Gibbs for $\$12,000$.
  • A deposit was paid, and the balance was fully settled by May $1988$.
  • Property in the car officially passed to Mr. Gibbs, but the car remained in the possession of Mr. Gifford for storage.
  • No change of ownership was registered.
  • Mr. Gifford then resold the car to Ms. Sigelcow for $\$11,000$.
  • Ms. Sigelcow borrowed the funds from a finance company; the finance company technically bought the car and gave her possession under a hire purchase agreement.
  • Ms. Sigelcow held the car for $11$ months, during which she performed repairs and improvements.
  • Mr. Gibbs eventually discovered the situation, complained to the police, and Mr. Gifford was convicted of theft.
• Legal Conflict:
  • Section 153 of the CCLA (Seller in Possession after Sale): This section protects innocent purchasers. It applies when a seller sells goods to party $B$, remains in possession, and then transfers them to party $C$ who takes them in good faith and without notice of the prior sale. This transfer to $C$ is as valid as if it were expressly authorized by the owner.
  • Section 152 of the CCLA (Stolen Goods): This section states that if goods are stolen and the offender is convicted, title re-vests in the original owner despite any intermediate dealings.
• Court Decision:
  • The court noted the conflict between protecting the innocent purchaser deceived by the appearance of ownership (Section $153$) and the rule that a thief cannot pass title (Section $152$).
  • The court cited Davy v Payne Brothers (1954), which noted that a true owner loses title if they voluntarily confer ostensible authority on another to pass title.
  • The court ruled that Section 153 prevailed over Section 152. Section $153$ is intended to mitigate common law harshness toward innocent purchasers when a seller displays the "trappings of ownership" with the true owner's consent (by leaving the items in their possession).

Case Study: Elwin v O’Regan (1971)

• The Facts:
  • Mr. Elwin bought an MG sports car from a dealer, Maxwell, for $\$2,500$ in $1969$.
  • Maxwell had bought it from Broadlands Finance, who bought it from Mr. Nevin.
  • Mr. Nevin had brought the car from Australia and registered himself as the owner in New Zealand (noting that registration does not equal ownership).
  • One year later, an Australian finance company repossessed the car because Mr. Nevin still owed them $\$823$ under a hire purchase agreement from Australia.
• The Issue:
  • Did Mr. Nevin ever have title to pass down the chain? Under Nemo Dat, if the Australian finance company never passed title to Nevin, he could not pass it to Maxwell, and Maxwell could not pass it to Elwin.
• Section 154 Analysis (Buyer in Possession after Sale):
  • Section $154$ allows a person who has "bought or agreed to buy" goods and is in possession with the owner's consent to pass good title to an innocent third party as if they were a mercantile agent.
  • The court examined the nature of the hire purchase agreement between Nevin and the Australian company.
• Types of Hire Purchase Agreements:
  • True Hire Purchase: The hirer has an option to purchase but can return the goods at any time and cancel the agreement. They have not "agreed to buy."
  • Conditional Sale Agreement: The hirer is committed to completing all payments and must eventually own the goods. This constitutes an "agreement to buy."
• Court Decision:
  • Mr. Nevin's agreement allowed him to return the car at any time. Therefore, he had not "bought or agreed to buy."
  • Consequently, Section 154 did not apply, the chain of title was "tainted," and the Australian finance company retained ownership. Mr. Elwin lost the car.

Mercantile Agents

• Section 296 CCLA Definition: A mercantile agent is an agent who, in the ordinary course of their business, has authority to sell goods, consign goods for sale, buy goods, or raise money on the security of goods.
• Section 297 CCLA Rule: If a mercantile agent is in possession of goods with the owner's consent, any sale made in the ordinary course of business is valid as if expressly authorized by the owner, provided the buyer acts in good faith and has no notice of the agent's lack of authority.

Applied Scenario: Brett the Baker and the Table

• The Facts:
  • Brett buys a table from a second-hand shop on Monday and pays for it. Title passes to Brett immediately as a completed contract for sale.
  • Brett leaves the table there until Friday. The relationship becomes a bailment.
  • On Thursday, the shopkeeper’s son sells the table to a woman who takes it away, unaware it was already sold.
• Legal Analysis:
  • Section 297 (Mercantile Agent): Does not apply because Brett did not leave the table with the shopkeeper specifically in their capacity as a mercantile agent for him.
  • Section 153 (Seller in Possession): Applies. The shop owner ($A$) sold to Brett ($B$), remained in possession, and then sold and delivered to the woman ($C$). The woman acted in good faith with no notice of Brett’s purchase.
• Outcome:
  • Brett loses his title to the table under Section $153$.
  • Brett has a claim against the shop for the money/value of the table based on:
    • Bailment: Breach of duty of care by the bailee.
    • Tort of Conversion: The shop intended the act of selling the table, which denied Brett's rights, even if they did not have a dishonest intent.

Retention of Title and the Personal Property Securities Act (PPSA)

• Scenario (Dodds Hill / Les Wilsons / Wellington Zoo):
  • Dodds Hill supplied water to Les Wilsons with a Retention of Title (RoT) clause (title stays with Dodds Hill until payment).
  • Les Wilsons sold water to the Wellington Zoo. The Zoo paid on delivery.
  • The Zoo went into receivership. Dodds Hill, unpaid, wants the water back.
• Nemo Dat Analysis:
  • Les Wilsons had no title to pass. Section $149(2)$ (Conduct) does not apply as Dodds Hill did nothing to suggest Les Wilsons owned the water.
• Section 154 Analysis:
  • Les Wilsons had "agreed to buy" and had possession with consent. Delivering to a good faith purchaser (the Zoo) would normally transfer title under Section $154$.
• Conflict with PPSA Section 53:
  • Section 53 of the PPSA: A buyer of goods sold in the ordinary course of business takes them free of a security interest (which applies to RoT arrangements) unless they know the sale breaches the security agreement.
  • Priority Rule: Section $53$ of the PPSA expressly prevails over Section $154$ of the CCLA.
• Outcome:
  • The Zoo gets good title under Section $53$ PPSA. Dodds Hill loses the goods and must look to the proceeds of the sale.
• Protections for Sellers (Dodds Hill):
  • Contractual clauses prohibiting resale before payment.
  • Clause taking security over the proceeds of the sale (supported by Section $45$ of the PPSA).
  • Requiring proceeds to be paid into a specific, segregated bank account.

Exception: Voidable Title (Section 151 CCLA)

• Rule: If a seller ($A$) has voidable title (title obtained through deception or devious means) but the title has not been voided (rescinded) at the time of the sale to ($B$), then internal purchaser ($B$) gets good title, provided they act in good faith and without notice of the defect.
• Example (Brett, Trevor, and Catherine):
  • Brett sells a Kauri table to Trevor based on Trevor's lie that he will display it in his house (Trevor is actually an antiques dealer).
  • This deception makes the contract voidable by Brett.
  • If Trevor sells the table to Catherine before Brett takes steps to void the contract, Catherine gets good title.
• Distinction: A sale might be void ab initio (void from the start, as if it never happened) depending on the level of deception, in which case no title ever passes. The distinction between voidable and void ab initio is a fine legal point to be explored in future sessions.