sale by Non-owner and right of an unpaid seller
A question may arise where a sale is made by a seller who happens to be a non-owner that whether the property in such goods passes to the buyer who might be purchased the goods in good faith believing that the seller was the true owner of the goods. The general rule of law regarding the transfer of property is that no one can give that which one has not got. This is expressed in Latin maxim "nemo dat quod non-habet". Therefore, where goods were sold by a seller who is non-owner, no property transferred to the buyer and it is only the owner of the goods or a person authorized by him, who can sell the goods. This protects the property and interest of the owner against the possible undesirable interference of any other unauthorized persons. As a general rule, therefore, a non-owner of goods cannot make a valid sale. The reason in obvious that how a buyer can get title in the goods when his transferor himself has not got ownership, i.e., the transferee cannot get better title than that of the transferer. For example, S possesses a goods of T by means of theft. Afterward, S sells the goods to B who purchases the goods in good faith without having knowledge of such irregularity and for price. Though B is an innocent and bonafide buyer yet T can recover the goods from the hands of B without paying for. This rule has some important exceptions.
Exceptions: In the following cases, the following persons though they are not the owner of goods can make a valid sale and the property in goods transfers to the buyer:
1) Sale by a person having title by estoppel: Estoppel may arise where the owner by any act or omission leads the buyer to believe that the seller has the right to sell. In such cases, though the seller may not have the entire consent of the owner, the buyer gets a better right than what the seller has. Again, an owner may be estopped if he receives the sale proceeds with the knowledge that the sale is without authority. To raise an estoppel, the owner must have so acted as to mislead the buyer into a belief that the seller was entitled to sell the goods. Therefore, when a man, by his words or conduct or acquiescence leads another to believe that he is not the owner and has no interest in the goods whereupon the other buys them or sells them, to an innocent purchaser, the true owner cannot afterwards assort that they were his own goods and the seller could not make a valid sale.
- T says to B that the car belongs to S. In fact, the care belonged to T. Believing the statements of T, B purchase the car from S for consideration in good faith. Afterward, T cannot refuse to transfer the ownership of car to B or he cannot deny the authority of S to sell the car. S is owner of goods by estoppel.
- In the presence of T, a true owner of a goods, S says to B that I am the owner of goods and going to sell it. Even knowing the statement, T does not make any objection, hence, remains silence. B believing that S as a true owner enters into an agreement for the sale of the goods. T, afterward cannot deny the authority of S to sell the goods. S is the owner of the goods by estoppel.
2) Sale by a mercantile agent: A mercantile agent is a person who in the course of business has authority as like an agent either to sell or buy goods or raise on the security of the goods or can consign the goods for the purpose of sale. A person who purchased the goods from a mercantile agent who has no authority from the principal to sell gets a good title of the goods if:
- The seller is the mercantile agent.
- He is in possession of the goods or documents of title of goods.
3) Such possession obtained with the consent of the owner.
- He acts in the ordinary course of business as a mercantile agent.
- The buyer acts in good faith or is bonafide.
- The buyer has not noticed of the want of authority of the mercantile agent.
- Sale by one of the several joint owners: Where there are two or more owners of goods called joint owners and the goods are sold by a joint owner without the participation of remaining owners the sale becomes valid if.
- The goods were possession of a joint owner with the consent of other joint owners.
- If the buyer purchased the goods in good faith without having notice of the want of authority of the joint owner to sell the goods.
- Sale by a person in possession of goods under a voidable contract: Where a seller happens to be a person having possession of goods under a voidable contract, the sale becomes valid and the buyer acquires a good title in the goods if:
- The seller has obtained the goods under a voidable contract, not a void agreement.
- The goods must be in possession of the seller.
4) The sale is executed before the invalidation of contract.
- The buyer purchased the goods without notice of the prior irregularities in the transaction or such voidable contract.Example: S obtained a bike under a voidable contract, i.e., by fraud or coercion from T. Before avoiding the contract, i.e., making it as void, if S sells it to B who purchased in good faith without notice of the prior transaction and for value, he obtains the good title in the goods. The true owner even succeeds the case after sale cannot recover back the goods from the buyer.
5) Sale by seller in possession after sale: Where a seller having sold goods, continues to be in possession of goods and sells them to a person who buys them in good faith and without having notice of the prior sale, the buyer gets a good title in the goods. After sale the seller becomes non-owner of the goods but while the goods still in possession of the seller if the sells them to a buyer in good faith, the buyer is protected and the earlier buyer cannot sue against the new buyer for compensation nor recover the goods against him.
6) Sale by the buyer in possession before sale: Where there is an agreement to sell, therefore, no property has transferred to the buyer yet but the goods in his own possession as they are delivered by the seller. If the buyer, who is non-owner of goods, sells the goods to a buyer in good faith without notice of such agreement to sell, he acquires a good title though the seller had not title in the goods.
- Example: S who obtains possession of goods under an agreement to sell. S before transfer of property to him sells the goods to B, a buyer in good faith. B obtains the title in the goods, though S had defective title in the goods sold by him.
7) Sale by an unpaid seller: The seller of good to whom the whole price is not tendered known as an unpaid seller. The sale by unpaid seller becomes valid.
8) If the goods are in this possession.
9) If the buyer had refused to pay the price even after notice of the seller to sell them.
If the unpaid seller sells the goods to a buyer he obtains a good title to the goods as against the original buyer.
10) Sale by the finder of lost goods: The person who finds some lost articles of other and keeps them in his own charge, in law, he is called the finder of lost goods. The finder of lost goods in not the true owner though sale by him becomes valid if.
- The true owner is not found even with due care and skill.
- His expenses in the goods amount two-third or more than the price of the goods.
The true owner cannot sue against the buyer who has purchased the goods from such finder of lost goods.
11) Sale by pawnee or pledge: In a contract of pledge, if the pawnor, the owner of goods, makes any default in the repayment of a debt, in case of such default, the pawnee or pledgee can sell the goods. The sale by the pawnee or pledge becomes valid.
12) Sale by an official assignee or receiver or liquidator: Sale by an official assignee or official receive on behalf of an insolvent person or by liquidator on behalf of a liquidated company becomes valid though the official receiver or official assignee or liquidator is not the true owner.
13) Sale in the market over: It is sale of goods in an open, public and legally constituted market. Where goods are sold in such market over, the buyer acquires a good title to them irrespective of the seller's title provided:
14) The goods are sold in accordance with the usage of the market, and the buyer bought the goods in good faith and without notice of a defect or want of title on the part of the seller.
A seller of goods is called as an unpaid seller in the following conditions:
- When the whole of the price has not been paid or tendered.
- When the price was paid through a negotiable instrument which was dishonored by the concerned person therein.
- When the goods are sold on credit, the buyer fails to pay on the due date of payment.
Rights of an unpaid seller
When a seller becomes unpaid he is in loss by both as, firstly, he losses his right of ownership in the goods as there is a sale and property passed to the buyer and, secondly, he is deprived of receiving the benefit of the losing his rights in the goods sold. Therefore, the law, to protect the seller's rights has given various right to the unpaid seller these rights, primarily can be classified into two rights, i.e., the rights of an unpaid seller as against goods sold and the right against the buyer personally. The rights of an unpaid seller are shown herein below:
Rights of Unpaid Seller
Rights against the buyer personally
Right to sue for price of goods
Right to sue for interest
Right to rescind the contract
Right to sue for damages
Right of lien
Right to sue for price
Right to stoppage the goods in transit
Right to resale
i. Right of an unpaid seller against the goods: It includes:
- Right of lien: It is right of an unpaid seller of retaining the goods in his own possession until the whole price of the goods sold is paid by the buyer or on his behalf. An unpaid seller may use this right:
- If the goods are in the seller's possession even after the sale.
- If the whole price of goods in not paid or tender to him.
ii. The unpaid seller can retain the goods until the price is not paid the buyer or on his behalf.
- Right of sue for a price: The seller after sale transfers the property in goods to the buyer and if the whole price of the goods not paid, sold the seller can file a case to the buyer of the goods. For the right of sue for a price the property in the goods must necessarily pass to the buyer.
- Right to stoppage the goods in transit: It is the expansion of the right of lien. In the case of lien, the goods must be in the seller's custody or possession or charge, therefore, once he departed his possession in the goods, he cannot use the right of lien. But the seller who once departed the goods can use the right of stoppage the goods provided.
- The goods are in transit, i.e., not actually delivered to the buyer or his agent.
- The buyer, on the other hand, declared as insolvent before receiving the goods by himself or any other person as an agent of the buyer.
When the unpaid seller directs the carrier to stop the goods and return back to his custody which has been not followed by the carrier is under obligation to pay damages to the seller.
- Right of resale: An unpaid seller can use this right of resale in the following cases.
- If the goods are in possession of the seller.
- If he is an unpaid seller.
iii. If the buyer does not pay the prize even after the notice by the seller for the payment of goods.
In case of resale, if there is any loss, the seller can or sue the buyer but if there is any surplus he is not bound to return those benefits.
- Right of an unpaid seller against the buyer personally: It includes:
- Right to sue for a price: Where the property in the goods passed to the buyer and the buyer does not pay the amount agreed, the seller can sue the buyer for the price of the goods. This right is available to the seller even the goods are not delivered to the buyer and are in his own possession.
Similarly, in some cases where the ownership in the goods has not passed to the buyer yet but had agreed on the price at a certain date even without delivery of goods, the seller can sue for the price of goods.
- Rights to sue for damages: Where the buyer neglects or refuses to accept and pay the goods, the seller will have a right to sue for damages for non-acceptance of the goods. This right to claim damages exists ordinarily in cases in which the property in the goods has not passed to the buyer. In such cases, since the seller continues to be the owner of the goods, he has got the right to sell the goods to any other person and he could claim damages based on the difference the contract price and the market price.
- Right to sue for interest: The unpaid seller has not only got right to sue for a price but entitled to sue for the interest of the price if there was an agreement for this and can be claimed from the date on which payment becomes due.
- Right to rescind the contract: It is a right to cancel the contract by the seller if the buyer even before the date of performance refused the contract to perform it. Therefore, if the contract has already breached by the buyer the seller has right to either to wait till the date of performance or treat the contract as terminated and sue the buyer. If he goes to treat the contract as dead, he can rescind or cancel the contract and no need to wait till the date of performance.
Business Law, Ram Prasad Shrestha;M.K Books, Bhotahity, Kathmandu,2013
Merchantile law, ICAI, 2013
Sale by Non-owners
1) Sale by a person having title by estoppel
2) Sale by a mercantile agent
3) Sale by seller in possession after sale
4) Sale by buyer in possession before sale
5) Sale by an unpaid seller:
6) Sale by the finder of lost goods
7) Sale by pawnee or pledge
8) Sale by an official assignee or receiver or liquidator
9) Sale in market over
Rights of An Unpaid Seller
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