THE BUYER IN POSSESSION EXCEPTION TO THE NEMO DAT

RULE REVISITED
REXAHDAR,LL.B. (Hons) LL.M. (Cantuar)
Lecturer in Law, University of Otago
It is an all too frequent experience for buyers of goods, usually motor
vehicles, to find their title now challenged by someone claiming to be the
rightful owner. The buyers had purchased in good faith seemingly from the
owner or the owner's duly authorised agent. Now they discover otherwise.
Their seller had no right to sell the goods.
The purpose of this article is to consider one of the principal exceptions
to the general rule that the buyer acquires no better title to the goods than
the seller had: nemo dat quod non habet.' Under section 27(2) of the Sale
of Goods Act 1908~a so-called buyer in possession is able, under certain
conditions, to pass a good title to an innocent buyer taking delivery of the
goods. Two recent and fully reasoned decisions of the highest level in Australia
and England have shed significant light on the buyer in possession exception:
Gamer5 Motor Centre (Newcastle) Pty Ltd v. Natwest Wholesale Australia
Pty ~ t and
d National Employers' Mutual General Insurance Association Ltd
v. b ones^ respectively.
Before proceeding further, it seems salutary to return to the basic dilemma
facing the courts in these unfortunate contests between innocent owners and
buyers. The tension engendered by the conflicting principles at work in these
unenviable situations is never far below the surface. Given the difficult issues
raised by the, at times, complex statutory provisions governing transfer of
title by non- owner^,^ the courts are inevitably forced back to the competing
policies underlying the sections.

The classic statement of the dilemma posed by sales by non-owners is,

of course, that by Lord Denning in Bishopgate Motor ~ i n a n c e . ~
In the development of our law, two principles have striven for mastery. The first is the protection
of property: no one can give a better title than he himself possesses. The second is the protection
of commercial transactions: the person who takes in good faith and for value without notice
should get good title. The first principle has held sway for a long time, but it has been modified
by the common law itself and by statute so as to meet the needs of our own times.

Both competing principles can be justified on an economic basis7. Buyers

I

'

Literally - "He who hath not cannot give" BlackS Law Dictionary (5th ed.1979) at 935.
The English equivalent to the New Zealand provision is s.25(1) Sale of Goods Act 1979
(U.K.) (formerly s.9 Factors Act 1889). In Australia see e.g. s.28(2) Sale of Goods Act 1923
(N.S.W.) and s.31 Sale of Goods Act 1958 (Vic.).
(1987) 163 C.L.R. 236.
[I9881 2 W.L.R. 952.
See ss.23-27 Sale of Goods Act 1908 (N.Z.); s.4 Mercantile Law Act 1908 (N.Z.).
Bishopsgate Motor Finance Corp.Ltd v. Transport Brakes Ltd 119491 1 K.B. 322 at 33637.
See B.Kozolchyk, "Transfer of Personal Property by a Nonowner: Its Future in light of
its Past" (1987) 61 Tulane L.Rev. 1453 at 1455.

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may be wary of purchasing unless there is an assurance they will not be deprived
by an unknown owner or creditor. But trade may also be stifled unless entrusting
owners' expectations of recovering their goods are protected. Whether
protection of the owner in such circumstances is less detrimental to the free
flow of trade than protecting the buyer or vice versa, is a difficult empirical
question which no one so far has satisfactorily answered.'
Whatever the economic ramifications of the choice, the common law has
firmly favoured the protection of proprietary rights. As Goode ~ b s e r v e d : ~
It is an article of faith in the common law that only in exceptional cases should the owner
of goods be deprived of his title to them otherwise than by his own voluntary act. Nemo dat
quod non haber . . . The fact that the transferee takes possession in good faith and for value
is in most cases irrelevant. It is for him to check on his seller's title, if he can, not for the
owner to take steps to safeguard his property.

Whilst the Sale of Goods Act 1908 (the Act) enshrined the nemo dat rule
in section 23(1) it also, as Lord Denning noted,'' provided certain exceptions.
Conceivably the positing of the exceptions immediately alongside the general
rule might lead one to surmise that the two competing principles are evenly
balanced or even that the protection of commercial transactions supersedes
the protection of property. However any suggestion that the general rule has
somehow been "swamped" by the exceptions has been firmly rejected. A "gulf'"2
still remains and the "succeeding sections [to section 23(1)] enact what appear
to be minor exceptions to that fundamental principle"'3. An illustration of
the loyalty to the preservation of proprietary rights (which also exemplifies
the dilemma judges face) is provided by the New Zealand decision, Elwin
v. O'Regan & Maxwell.14 One of the more interesting arguments raised was
whether there came a point in a lengthy chain of transactions at which the
original owner's title must be extinguished. Surely the nemo dat rule must
only stretch so far. Somewhat reluctantly, Beattie J. felt obliged to reject this
contention which might otherwise have seriously eroded the fundamental
principle: Is
While I can appreciate the hardship that is demonstrated by finding against this argument and
the difficulty that later purchasers in the chain are confronted with concerning making of fruitful
inquiries, regrettably it seems to me the principle of 'nemo dat quod non habet' is applicable.

In grappling with this invidious choice between the two innocents, it seems
only natural that the courts should move towards conceptualising the problem
This, in many commentators' views, is the achilles heel dogging reform efforts. See e.g.
P.S. Atiyah's criticism of the U.K. Law Reform Committee's Twelfth Report and its failure
to canvass the empirical evidence concerning sales by non-owners: Atiyah, The Sale of Goods
(7th ed.1985) at 306.
R.M. Goode, Commercial Law (1982) at 392.
Bishopgate, supra n.6. The principal exceptions in New Zealand are: estoppel (s.23(1)); sale
by a mercantile agent (~.23(2)(a));sale under a voidable title (s.25), and sales by sellers (s.27(1))
or buyers in possession (s.27(2)). See generally J.H. Farrar (ed.) Butrerworths Commercial
Law in New Zealand (1985) ch. 15.
Atiyah, supra n.8 at 268.
Goode, supra n.9 at 393.
Lord Goff of Chieveley in National Employers', supra n.4 at 961 (emphasis mine).
[I9711 N.Z.L.R. 1124.
Ibid. at 1132.

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151

in terms of gradations of innocence. Is one party "more innocent" than the

other? Certain themes from the caselaw emerge.16
Sometimes the courts emphasise the innocence of the buyer who would
be "inevitably unaware of the legal rights which fetter the apparent power
to dispose"." As the Minister of Consumer Affairs recently remarked: I*
The consumer purchases the vehicle in good faith and does nothing wrong. Why should she
or he have to suffer through a long song and dance to receive what was paid for?

Related to this is another persistent theme emphasising that since it was

the owner who initiated the process and put the transaction in motion it
seems fairer he should bear the loss.'g The well-known dictum of Ashhurst
J. in Lickbarrow v. Mason best exemplifies this attitude."
[Wlherever one of two innocent parties must suffer by the acts of a third, he who has enabled
such third person to occasion the loss must sustain it.

The owner in entrusting the goods to an intermediary necessarily takes

a chance on the latter's integrity and must appreciate that there is a risk
of unauthorised disposition.21Of course this argument is a double-edged sword.
For when the owner is parted from the goods in a non-voluntary way and
there is no semblance of consent to the intermediary's possession (not even
consent induced by fraud or deception) the sympathy of the court is reversed.
There is nothing blameworthy on the owner's part to point to when his goods
are stolen. He should not be held responsible where he did not entrust goods
nor trigger the unfortunate chain of events. He is the "more innocent" of
the two. Moore J. in Brandon v. Leckie articulates this solicitude for the
owner in such situation^:^^
It simply does not seem logical that the Legislature of this Province, in its wisdom, would enact
legislation the effect of which would be to preclude a true owner, who has done no wrontlful
acr, from attempting to regain and in fact regaining a chattel stolen from him.

The distinction between consensual entrustment of possession and

involuntary dispossession due to theft implies another distinction. Is the
intermediary a mere "rogue" or, to use the American term, "rascal" (the
entrustment scenario) or is he a "thief'? If the latter, then the original owner
would seem more worthy of protection. It may appear odd in ordinary parlance
to distinguish between thieves and rogues but the caselaw does, at least implicitly,
reveal such a dichotomy. If such a distinction seems artificial one can only
reply that it illustrates the lengths judges go to in resolving the dilemma.
As to abandoning the nemo dat doctrine altogether in favour of some other
l6

"

l9

20

21

22

see D.Tiplady, "When is a seller not a seller?"(1988) 51 M.L.R. 240 at 244.

Pacific Motor Auctions Pry Ltd v. Moror Credits Ltd [I9651 A.C. 867 at 886 per Lord
Pearce.
The Hon.Margaret Shields, 1988 N.Z. Parliamentary Debates 3864.
See Goode, supra.n.9 at 393; C.L.Kunz, "Motor Vehicle Ownership Disputes Involving
Certificate of Title Acts and Article Two of the U.C.C." (1984) 39 Bus.Law. 1599 at 1604.
(1787) 2 T.R. 63 at 70.
Gamer's Motor Centre (Newcastle) Pry Ltd v. Natwesr Wholesale Australia Ply Ltd [I9851
3 N.S.W.L.R. 475 at 491 per McHugh J.A.
(1972) 29 D.L.R. (3d) 633 at 637 (emphasis added).

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more equitable alternative, the common law has only briefly flirted with other
approaches. One might lean entirely in the opposite direction, giving primacy
to the second principle, protection of commercial transactions. Many civil
jurisdictions have as their general rule (with narrow exceptions) the possession
vaut titre principle: the buyer in good faith acquires an overriding title provided
he takes possession.23 However one of the few modern committees to even
consider this option cautiously rejected it. In their 1979 Report, the Ontario
Law Reform Commission commented: 24
[W]e have found no significant support in favour of a general adoption of the civil law principle;
nor do we know enough about its practical operation in those jurisdictions that have adopted
this principle.

A less radical step would be to retain the nemo dat rule but further mitigate
its harshness by giving innocent buyers greater protection. So the English
Law Committee in its Twelfth Report recommended the enactment of a
provision under which an innocent buyer at retail trade premises or public
auction would acquire a good title.25This "really far reaching re~ommendaton"~
however foundered, perhaps as Atiyah stingingly argued:' because the empirical
basis for the change was never clearly established. Along similar lines has
been a suggestion that a broad merchant entrustment exception to nemo dat
be adopted modelled closely upon section 2403(2) and (3) of the U.S. Uniform
Commercial
So the Ontario Law Reform Commission r e ~ o m m e n d e d : ~ ~
Any entrusting of possession of goods to a merchant who deals in goods of that kind should
give him power to transfer all rights of the entruster to a buyer or lessee in the ordinary course
of business.

Arguably however, this proposal is similarly bedevilled by the lack of

evidence supporting such a change. Is the greater preference now for innocent
buyers merely an altered value judgment grounded in growing disenchantment
with caveat emptor or is it instead based upon the fact that "modern business
conditions [now] demand commercial transactions . . . be concluded without
elaborate investigations of proprietary rights and in reliance on the possession
of goods"'0?
Finally, the solution most obvious to a logician - apportioning the loss
Article 2279 of the French Civil Code provides: "En fait de meubles, la possession vaut
titre" (in matters of personalty, possession is equivalent to title). See generally Goode, supra
n.9 at 393.
Report on Sale of Goods (1979) vol.11 at 308.
Law Reform Committee, Twelfth Report on the Transfer of Title to Chattels (Cmnd.1958,
1966) (Lord Donovan dissenting on this point).
A.L. Diamond (1966) 29 M.L.R. 413 at 414.
(1966) 29 M.L.R. 541 at 545: "The moral of this Report is that we are unlikely ever to
have really satisfactory law reform in this country until those responsible for it see that
the basic research is undertaken on which sensible proposals can be formulated."
Section 2-403(2) reads: "Any entrusting of possession of goods to a merchant who deals
in goods of that kind gives him power to transfer all the rights of the entruster to a buyer
in ordinary course of business." See generally A.M. Squillante & J.R. Fonseca (eds.) Williston
on Sales (4th ed. 1974) at 364-385.
Supra n.24 at 317 (The Hon.J.C.McRuer, one of the six Commissioners, dissenting from
this recommendation).
K.C.T. Sutton, "The Reform of the Law of Sales" (1968-69) 7 Atla.L.Rev. 130 at 187.

R e Buyer in Possession exception to the Nemo Dat Rule Revisited

153

between the innocent victims - has also been mooted. This elegant, Solomonic
answer to the dilemma certainly appealed to Lord Devlin in Zngram v. ~ i t t l e . ~ '
The idea of apportionment he noted could hardly be described as novel given
judicial power to apportion loss in other fields of law such as frustrated contracts
and contributory negligence. Hence his Lordship argued: 32
[ q h e loss should be divided between [the two innocent parties] in such proportion as is just
in all the circumstances. If it be pure misfortune the loss should be borne equally; if the fault
or imprudence of either party has caused or contributed to the loss, it should be borne by
that party in the whole or the greater part.

The English Committee in its Twelfth Report however rejected this solution
on two bases.33 First, it would introduce uncertainty intrinsic to any wideranging discretion. Second, it would be impractical or unworkable, given the
usual situation of a lengthy chain of transactions. For example, should
apportionment be between the original owner and the ultimate buyer only
or between the owner and all innocent buyers including the final one?34Arguably
neither of these difficulties is insurmountable. As to uncertainty, one might
ask whether this is too high a price to pay for a fairer solution. Besides,
this merely resurrects the familiar dilemma between rigid yet certain rules
versus flexible yet vague discretions. Admittedly the practical obstacles loom
large, yet to abandon the possibility entirely would seem to place undue
pessimism in judicial ingenuity.35 Notwithstanding this, the promise of
apportionment as a resolution to the dilemma seems for now to be in a moribund
state.

The buyer in possession exception contained in section 27(2) of the Act

states:36
Where a person, having bought or agreed to buy goods, obtains, with the consent of the seller,
possession of the goods or the documents of title to the goods, the delivery of transfer by that
person, or by a mercantile agent acting for him, of the goods or documents of title, under
any sale, pledge or other disposition thereof, to any person receiving the same in good faith
and without notice of any lien or other right of the original seller in respect of the goods, shall
have the same effect as if the person making the delivery or transfer were a mercantile agent
in possession of the goods or documents of title with the consent of the owner.

1.

History and purpose

The New Zealand Act is of course a near identical replica of the United
Kingdom Sale of Goods Act 1893 which was consolidated with minor
amendments in 1979. As the foregoing citation of the subsection indicates,
"
32

"
34

35
36

[I9611 1 Q.B. 31.

Ibid., at 73-74.
Supra n.25 at paras.8-13.
Atiyah, supra n.8 at 307.
See Sutton, supra 11.30at 185.
Proviso omitted. It reads: "Provided that if the lien or other right of the original seller
is expressed in an instrument duly registered under the Chattels Transfer Act 1924, and
if the person selling, pledging, or disposing of the goods or agreeing to do so is the mortgagor
or bailee named in such instrument, then the person receiving the goods shall be deemed
to have notice of the contents of such instrument."

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the buyer in possession exception is hardly a paragon of conciseness or clarity.

It becomes essential then to understand its origins and objectives.
The precise history of the current provision was painstakingly undertaken
by Lord Goff in the appeal to the House of Lords in National Employers'
Insurance v. ones.'^ A series of five Factors Acts beginning in the first quarter
of last century, culminated in section 25(2) of the 1893 Sale of Goods Act,
which in turn became our section 27(2).
The first Factors Act of 1823 had a very narrow focus. Innocent consignees
who dealt with shipping mercantile agents entrusted with goods by the owner,
were entitled to a lien in respect of monies advanced to the named shipper.
Thereafter, successive Factors legislation saw a two-fold expansion. First, the
nature of thing entrusted was extended: beyond goods to documents of title
(1825 Act), restricted to documents of title alone (1877) and finally covering
both goods and documents of title (1899). Secondly, the nature of the person
to whom goods (or documents of title) were entrusted was extended: beyond
factors and mercantile agents to vendors and vendees in possession of the
goods etc.(1877). One might pause to note that the concept of entrustment
by the original owner of the goods was an integral characteristic of all the
Factors Acts.
The object of the subsection is straightforward. As Mason C.J. succinctly
observed in Gamer's Motor Centre v. Natwest: 38
The mischief aimed at is a sale by a buyer in possession of goods or documents of title who
is not the owner of them, the object being to protect the sub-buyer who is deceived by the
appearance of ownership arising from possession.

Given entrustment of possession by the owner, the legislature's sympathies

lie with the innocent sub-buyer duped by the apparent ownership of the buyer
in possession.
It may appear somewhat surprising to have a brief excursus on interpretation
at this point. However the two important decisions to be examined in depth
next, both turned upon differing views on how one should interpret the
provisions of the Act.
and e ones^' were unified
The dissenters in both Gamer's Motor
in one respect - they favoured the "ordinary and natural meaning" over
a technical or legal meaning for certain words in section 27(2). Coupled with
this was a shared dislike for judicial "sleight of hand" in construing the Act's
provisions.41 For example, in warning of the dangers in departing from the
clear literal meaning, Sir Denys Buckley in Jones referred to the error against
which Lord Halsbury counselled in Leader v. ~ u f f e ~ : ~ '
37

39

40

41

42

Supra n.4 at 957-061.

Supra n.3 at 249 (emphasis mine).
The President of the N.S.W. Court of Appeal, Kirby P. and on appeal to the High Court,
Toohey J. Gaudron J. dissented on the application of the facts to the law but not on the
legal issue.
Sir Denys Buckley in the Court of Appeal: [I9871 3 W.L.R. 901. Lord Goff delivered the
unanimous judgment of the House of Lords on appeal.
D.G. Powles was particularly critical of "complex display[s] of mental and semantic juggling"
in earlier commentary on judicial resolution of the seller/owner problem: "Stolen Goods
and the Sale of Goods Act 1893, s.25(2) - A Surrejoinder" (1975) 38 M.L.R. 83 at 86.
13 App.Cas.294 at 301, referred to at [I9871 3 W.L.R. 901 at 924.

The Buyer in Possession exception to the Nemo Dat Rule Revisited

155

But it appears to me to be arguing in a vicious circle to begin by assuming an intention apart

from the language of the instrument itself, and having made that fallacious assumption to bend
the language in favour of the assumption so made.

In a similar vein, Kirby P. dissenting in Gamer's Motor Centre criticised

resort to "subtle" common law concepts which preceded the Code (i.e. the
A C ~ )Such
. ~ ~concepts, unless carefully circumscribed, had a tendency to encrust
the Act with meanings which were "unnatural, artificial or e ~ c e ~ t i o n a l . " ~
However, the plea for a plain, natural meaning gained little favour with
the majorities in both cases. The tenor of their rebuttal was that undue adherence
to natural or literal construction was misplaced or simplistic. The present
writer agrees.
First, any supremacy that the literal ap roach formerly enjoyed has now
passed. As J.F. Burrows recently observed:4 P
Nevertheless, speaking in general terms the trends are clear enough. Just as 50 or even less
years ago, one could say the approach to interpretation was more literal than purposive, one
can now say the reverse . . .. It is quite clear that there is an overwhelming tendency today
for courts to attempt to effectuate the parliamentary intent in interpreting statutes.

Secondly, the courts have always been prepared to depart from the natural,
ordinary meanin toward a secondary, more technical meaning should the
.
occasion require.$6 Typical
instances are where the ordinary meaning would
produce "some injustice, absurdity, anomaly or contradiction"' or where the
technical subject matter of the statute dictates certain words being treated
as terms of art.4s The comments of Priestley J.A. in Gamerk are particularly
apposite:49
No matter how hard a draftsman tries to keep the language of a statute clear and simple, the
statute is a legal document. The Sale of Goods Act . . . is a legal instrument using words with
legal significance in an overall context where all concerned . . . knew . . . that the meaning to
be put upon the words in cases of such doubt as would lead to litigation would be decided
by lawyers . . . The object of the approach is not to find the legal as opposed to the 'ordinary'
meaning, but to find from the range of legal and ordinary meanings, which in any event will
seldom be watertight compartments, the meanings best suited to the statutory document as a
whole.

Finally, Kirby P. was only relating half the picture when invoking Lord
Herschell's well-known words in Bank of England v. Vagliano rot hers^' to
eschew "encrusting" pre-Code decisions and concepts.51His Lordship in that
case went on to say resort to the ~reviouslaw was perfectly legitimate if
the provision "be of doubtful import,' which was precisely the case in Gamer 's.
Supra 11.21 at 479.
Idem.
"Approaches to Statutory Interpretation" Paper presented at the N.Z. Law Commission
Seminar, Legislation and Its Interpretation (Wellington, 18-19 March 1988) at 11-12.
See generally Burrows ibid.; R.Cross, Staturory Interpretation (2nd ed. 1987) ch.4.
Lord Simon in Maunsell v. Olins [I9751 A.C. 373 at 391.
Idem.
Supra n.21 at 483-84.
[I8911 A.C. 107 at 14445 (the proper course is, in the first instance, to ascertain the natural
meaning uninfluenced by the previous state of the law).
Supra n.21 at 479.
Supra n.50.

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Is the delivery of the goods by the buyer in possession (Bl) to the innocent
buyer (B2) confined to actual delivery, i.e. physical delivery? Or does the word
"delivery" in section 27(2) extend to forms of constructive delivery, e.g. where
B1 attorns to B2 and continues to hold as bailee for B2? This was the crucial
issue in Gamer's Motor Centre v. atw west.^^ In the New South Wales Court
of Appeal, Priestley J.A. was candid enough to admit that the pros and cons
in favour of either construction were "not far from evenly balanced.ld4
In Gamer's the appellant, a vehicle wholesaler, agreed to sell eight motor
vehicles to a dealer. It was a term of the sale that property in the vehicles
was not to pass to the dealer until the appellant was paid in full. The appellant
was never paid. Under a so-called "Used Vehicle Bailment Agreement" between
the dealer and the respondent finance company, the dealer purported to sell
the vehicles to the respondent, who paid the dealer for them. The dealer signed
eight documents, each addressed to the respondent, described as "delivery
receipts" in which it acknowledged the dealer had taken delivery of the vehicles
according to the terms of the bailment agreement. Under the agreement the
dealer would retain possession of the vehicles as bailee for the respondent
pending sale in the course of the dealer's business. Not having received payment
the appellant seized the vehicles and was sued by the respondent in detinue
and conversion. The majority of both the Court of Appeal and thereafter
the High Court of Australia held that the reference to "delivery" in section
27(2) of the Act included constructive delivery. Consequently the respondent
acquired a good title under the buyer in possession exception since there had
been a constructive delivery by the dealer (Bl) to the respondent (B2), i.e.
when B1 acknowledged it held as bailee for B2.
The curious implication of the above holding is that the owner can lose
his title even though the goods remain with his buyer (Bl) after the sale to
the innocent sub-purchaser (B2). I shall return to this later.55
The complex arguments raised in Gamer's for and against constructive
delivery can be reduced to three major points of difference.
1. Plain ordinary or legal technical meaning?
Both Kirby P . ~
(Court
~
of Appeal) and later Toohey J.~' (High Court)
emphasised the natural, ordinary meaning in their dissenting judgments. The
plain meaning of delivery was actual delivery or despatch.
However, as McHugh J.A. pointed out, it is doubtful if an ordinary citizen
would necessarily have given delivery its popular meaning.58
The ordinary citizen, on examining the Act, would see that 'delivery' is defined by the Act to
mean 'the voluntary transfer of possession'. If he was asked the meaning of that expression,
he would reply, I suspect, as Lord McNaghten once said a layman would reply to a similar
query about charitable trusts: 'That sounds like a legal phrase. You had better ask a lawyer'.

Moreover, as already outlined,59 Parliament may well have been using the
53
54
55
56
57
58
59

Supra n.3.
Supra n.21 at 483.
See infra n.88 and accompanying text.
Supra n.21 at 478-79.
Supra n.3 at 271.
Supra n.21 at 494.
See supra nn.46-48 and accompanying text.

i%e Buyer in Possession exception to the Nemo Dat Rule Revisited

157

word delivery in its technical or legal sense. The technical definition in our
section 2(1) of delivery (voluntary transfer of possession) suggests this was
the case here. Possession is "an established legal concept'*0 and both the
common law6' and the Factors
clearly established that possession could
be constructive as well as
Likewise delivery could be constructive
and
~ Mason c.J.~' invoked Sir MacKenzie Chalmers'
also. Both McHugh J . A . ~
Commentary on the original Act, wherein the draftsman had accepted that
the statutory definitions of delivery and possession reflected the antecedent
common law. Chalmers wrote:66
Delivery may be actual or constructive. Delivery is constructive when it is effected without any
change in the actual possession of the thing delivered, as in the case of delivery by attornment
or symbolic delivery.

2. Are the previous authorities decisive?

Kirby P. relied heavily upon an "unbroken chain of legal authority" holding
that delivery meant actual and not constructive delivery.67 However, the
reasoning in this small handful of cases it, to borrow McHugh J.A.'s phrase,
"to say the least, quite perfunctory.'s8 Quite rightly the majorities in GamerS
felt free to decide the issue unconstrained by earlier authorities.
r , ~ ~
The first case in the unbroken chain, Nicholson v. ~ a r ~ econcerned
section 27(1), i.e. the seller in possession exception. A merchant owned wine
which was stored in the cellars of a warehouseman and the wine remained
in the cellars. The merchant sold the wine to the plaintiff but no notice of
the sale was given to the warehouseman and the wine remained in the cellars.
Later, the merchant pledged the goods to the warehouseman who acted in
good faith. It was held that the plaintiff acquired good title as there had
been no actual delivery of the goods to the warehouseman after the previous
sale by the merchant to the plaintiff. North J. said "there must be some delivery
or transfer, whatever that may mean, after the sale without notice that such
a sale had taken place."70 However Nicholson did not expressly say there
could not be a constructive delivery. The better view is that all North J.
decided is the uncontroverted proposition that there must be a delivery in
addition to the sale, i.e. sale and delivery are two distinct event^.^' Further
as K.C.T. Sutton points out,72to hold as North J. did is to take a very narrow
Mason C.J., supra n.3 at 243.
See e.g. Mills v. Charlesworth (1890) 25 Q.B.D. 421 at 425.
Section l(2) Factors Act 1889 (U.K.). The New Zealand equivalent is s.2(2) Mercantile Law
Act 1908.
See s.31(4) Sale of Goods Act 1908 (N.Z.).
Supra n.21 at 490.
Supra n.3 at 244-245.
Chalmer's Sale of Goods Act 1979 (18th ed.1981) at 264.
Supra n.21 at 479. There is a certain irony here as Kirby P. only 2 months earlier had
felt quite prepared to abandon a much greater chain of unbroken authority requiring a
duty relationship in situations of estoppel by negligence. Again McHugh J.A. (for the majority)
corrected the President: Thomas Wholesale Vehicle Trading Pty Ltdv. Marac Finance Australia
Ltd [I9851 3 N.S.W.L.R. 452.
Supra n.21 at 493.
[I8951 2 Ch.415.
Ibid. at 418.
See Mason C.J., supra n.3 at 249; Gaudron J., supra n.3 at 275.
Sales and Consumer Law in Australia and New Zealand (1983) at 336. See also McHugh
J.A., supra 11.21 at 491-92.

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view of the section. Arguably there had been a constructive delivery in that
the character of the warehouseman's possession changed from that of bailee
for the merchant to possession as pledgee of the merchant. To quibble there
was no attornment by the warehouseman is "hardly surprising since the
~~
it would seem
warehouseman would be both attornor and a t t ~ r n e e . "Finally,
dangerous to rely upon Nicholson as an authority for actual delivery only,
when North J. expressly said there must be some delivery "whatever that
may mean"74after the sale.
Re orriso on,^' the one discordant link in the unbroken chain, was a brief
and unsatisfactory decision of the New Zealand Court of Appeal. It was held
there that a constructive delivery between the seller and the buyer in possession
sufficed to enable the second buyer to obtain good title under section 27(2).
This was a different fact situation than that in Gamer's where the issue was
whether constructive delivery between Bl and B2 would suffice. Moreover
the court appears, from the rather obscure report, to have simply assumed
there was delivery to the grantee (B2) under the bill of sale.76
In Bank of New South Wales v. palmer7' a boat builder contracted to
build a catamaran for the defendant with property in the boat to pass to
the defendant from the commencement of construction. Thereafter the builder
gave the plaintiff bank a bill of sale over the boat. The builder remained
in possession throughout. The bank relying on section 27(1), sought to take
possession of the boat upon the bankruptcy of the builder and sell it. Helsham
J. held that the seller in possession exception had no application and the
delivery was restricted to a change in physical possession of the goods or
documents of title. His Honour placed particular emphasis upon the word
"receiving". 7 8
'Receiving' is not a word that one would normally use except in relation to the actual physical
article, namely the goods or documents of title.

However, as McHugh J.A. noted,79 Helsham J. was not referred to cases

on the meaning of the term "actual receiving" in the Statute of Frauds. A
long series of cases under section 17 of that Act equated actual receipt with
delivery which in turn was construed as including a change in possession
without any change of actual custody.80 Hence, if "actually receiving" can
include constructive delivery then a fortiori "receiving" can extend this far
also. So far as Nicholson was concerned, Helsham J. simply read that as
requiring "delivery or transfer" to be read distrib~tivel~,~'
an obvious point
one would have thought. The state of the authorities was such that he felt
free to make his own decision as to the correct construction of the section.*'
Finally, in the New Zealand decision N.Z.Securities & Finance v.
~ r i ~ h t c a r sO'Regan
,*~
J. simply agreed with the construction put upon the
"
74
75
76

"

''79
"

''

Dawson J., supra n.3 at 265.

Supra n.70.
(1905) 25 N.Z.L.R. 513.
Sutton, supra 11.72; Kirby, P., supra 11.21 at 480.
[I9701 2 N.S.W.L.R. 532.
Ibid. at 536.
Supra 11.21 at 492. 80. These are reviewed by McHugh, J.A., ibid. at 488-490 and Mason,
C.J., supra n.3 at 245-247.
Supra 11.77 at 535.
Ibid, at 535-36.
[I9761 1 N.Z.L.R. 77 at 80-82.

The Buyer in Possession exception to the Nemo Dat Rule Revisited

159

words by Helsham J. and for the reasons he gave with no further discussion.
This brief perusal of the authorities would strongly suggest that the majorities
in Gamer's were justified in tackling the issue afresh.
3.

Which construction is more consonant with the object of the subsection?

The idea that the owner could lose his title to B2 despite B1 retaining
phlsical custody of the goods after the sale was too curious a result for Helsham
J.:
. . . it seems to me quite consistent with the intended operation of the section that it is the
acquisition of physical possession that warrants statutory deprivation of the true owner of the
property in his goods and not something less.

A related concern of Kirby P." (and the New South Wales Law Reform
commissionx6)was the deceptive effect a holding of constructive delivery might
have upon purchasers after B2, i.e. B3 or B4. Conceivably Bl's continued
physical possession might induce B3, another innocent buyer after B2, to buy
the goods.
At first glance these arguments did not appear easy to rebut. However,
McHugh J.A. in a carefully reasoned judgment provided a forceful rejoinder.
Firstly, the object of the subsection is, as we have already seen, to protect
the innocent sub-buyer deceived by Bl's ostensible ownership arising from
possession of the goods. Accordingly 87
Why should any distinction be made between the buyer who takes physical custody and the
buyer who does not? Each was or may have been deceived by his seller being left in possession
by the original vendor. The problem arises because the original buyer is in possession not because
of what the sub-buyer does.

Admittedly it does seem curious that B2 could obtain a good title even
though the goods remain in Bl's custody yet the alternative construction (actual
delivery) can also produce curious results:x8
If the sub-buyer takes delivery by driving a car onto the street and then hands the car over
to his seller to hold as bailee, the sub-buyer obtains title even on the defendant's submission
[i.e. actual delivery required]. Why should it be inferred that the legislature intended that the
second buyer go through this ritual to obtain title? What of goods which because of their bulk
are not easily or immediately moveable? Does the sub-buyer obtain no title until he takes the
goods into his custody notwithstanding that he has paid for them and that the seller has
acknowledged the change of possession?

And as to purchasers subsequent to B2 being misled? All this meant, McHugh

J.A. explained, was that if B2 failed to take delivery he ran the risk that
he in turn would lose his title to B3. However "as between himself and the
original vendor this [was] an irrelevant ons side ration.''^ There would be a
certain irony in B2 being deprived of title by his entrustment of possession

84

85

86
87

89

Palmer, supra n.77 at 536-67.

Supra n.21 at 482-83.
Sale of Goods: Issues Paper (March 1988) at 31.
Supra n.21 at 493.
Ibid. at 490.
Ibid. at 493.

Canterbury Law Review [Vol. 4 , 19891

160

to Bl but that should be of little moment to the original owner who is now
thwarted by B3's acquisition of good title under the subsection.
Overall, the compelling reasoning of McHugh J.A. together with the
recognition of the legal technical meaning of delivery in the Act itself (sections
2(1) and 31(4)) satisfy the present writer that the majority result in Gamer's
was justified - constructive delivery from B1 to B2 will suffice to enable
good title to be passed to the latter.
CONUNDRUM
IV. THESELLERIOWNER

1. Z4eproblem
No doubt the draftsman envisaged that normally the "owner" and "seller"
would be the same person. Nonetheless by making express reference separately
to owner and seller in section 27(2), the room seems open for a buyer in
possession (Bl) to be entrusted with possession by a non-owner seller. In
other words, instead of the straightforward sequence:

> buyer in possession(B1) > innocent sub-buyer (B2)

owner(O)/seller(S)

we have a more complex chain of transactions:

owner(0) ->

seller@)

->

buyer in possession(B1) ->

innocent subbuyer (BZ)

If one takes a literal reading of the subsection then a curious result may
occur.90 Although Bl must obtain the goods with the consent of the seller
the delivery by him under a sale to B2 takes effect as if he (Bl) had the
consent of the owner. So if the seller should be a thief, then under this literal
reading B1 would be deemed to deliver the goods not with his (the seller's)
defective consent but with the owner's consent. Thus even though the seller
(i.e. the thief) did not have good title, the innocent sub-purchaser (B2) from
the buyer in possession (Bl) could obtain good title since he would be deemed
to have taken with the consent of the true owner and not the seller (the
thief). As Goode succinctly puts it:9'
[A literal interpretation] would produce the result . . . that whilst a thief could not pass title
in the stolen goods to his purchaser, yet that purchaser could pass title on a resale.

One might ask why is this a problem? Why is the proposition that "a buyer
from a thief has greater power to pass title than the thief himself"' so curious?
Why have commentators and judges alike condemned the literal reading in
no uncertain terms as absurd or startling?93
The answer lies in the firmly entrenched Anglo-American belief that (subject
to the much-maligned "market overt" exception now subsisting in England
90

91

92
93

The original perception of the problem is attributed to W.R.Cornish, "Rescission without

notice" (1964) 27 M.L.R. 472 at 477.
Supra n.9 at 413.
Atiyah, supra n.8 at 303.
E.g. "a startling conclusion which at first sight seems so contrary to everything one knows
about the law that it cannot be right" (Atiyah); "absurd in policy terms" (Goode).

7he Buyer in Possession exception to the Nemo Dat Rule Revisited

161

onlyy4)an owner cannot be deprived of her goods by a thief.95 Stolen goods

always remain recoverable by the true owner. As we have already seen,y6
where there is no voluntary assent to the parting of possession, no semblance
of consent to the intermediary's possession, then the law's sympathies lie with
the owner. Having in no way initiated the process, she should not now suffer.
All of the exceptions to the nemo dat rule are grounded in the concept of
entrustment of possession.
The conundrum, however, is to find an "acceptable" means of avoidin
the literal construction. Acceptable in the sense that little or no "violence ,A
is done to the subsection and one is not forced to adopt any "artificial
~onstruction.''~ Is there a solution sufficiently elegant to appease critics
concerned about artificiality of reasoning and disregard for the letter of the
law? Certainly one cannot simply cursorily dismiss the literal interpretation
as repugnant or absurd by appealing to "comrn~nsense.'"~Academics and
judges have struggled over the years with varying degrees of success to resolve
the puzzle.

2. National Employers' Znsurance v. ones'"

Several Commonwealth cases have addressed the issue but none might be
said to have satisfactorily resolved it.''' In the first English decision to confront
it however, National Employers' Insurance v. Jones, the problem after
exhaustive exploration by the Court of ~ ~ ~ e aand
l ' House
' ~ of ~ o r d s "might
~
at last be said to be laid to rest.

94

95

96

97
98

99

IW
101

'02
103

The market overt exception to the nemo dat rule (s.24) was abolished in New Zealand
in 1961: s.2 Sale of Goods Amendment Act 1961. The United Kingdom still preserves it
however: s.22 Sale of Goods Act 1979 (U.K.). The exception is universally viewed as an
historical anachronism: see e.g. Atiyah, supra n.8 at 288 and Goode, supra n.9 at 401. The
U.K. Law Reform Committee has recommended its abolition: see supra n.25.
Ontario Law Reform Commission, supra n.24 at 305; Cahn v. Pockett's Bristol Channel
Steam Packet Co. Ltd [I8991 1 Q.B. 643 at 658 (per Collins L.J.). Williston on Sales, supra
11.28 at 366, accurately summarises the U.S. position: "[Ilt is a fundamental rule of law
that one who has no title at all can transfer none, and any buyer who buys from that
person, even if in good faith and for value and without notice of defect, gains no title
from that person. A thief cannot transfer a good title even to a bona fide purchaser for
value."
See supra n.22 and accompanying text.
Atiyah, supra n.8 at 303.
May L.J. in Jones, supra n.40 at 914.
As Beattie J. was prone to do in Elwin, supra n.14 at 1131. See especially Tiplady, supra
n.16 at 240 on the need for careful analysis. Having said that, there is a kernel of truth
in Croom-Johnson L.J.'s closing words in Jones, supra n.40 at 920: ". . . the more selfevident a proposition is, the harder it is to find authority for it."
[I9881 2 W.L.R. 952
Elwin v. O'Regan v. Maxwell, supra 11.14; Brandon v. Leckie, supra n.22; Murabak Ali
v. Wali Mohamede & Co. (1938) 18 Kenya L.R. 23; Ford Credit Australia v. Auto Trade
Auction [I9821 V.R. 795. Both Elwin and Murabak were non-theft situations and the reasoning
is quite perfunctory. In Ford the wording of the Victorian provision made it much easier
for Gray J. to equate owner as seller. For further commentary on Brandon and Murabak
respectively see A.A.Zysblat "Sale of Goods [Note upon Brandon]" (1974) 9 U.B.C.L. Rev.
186 and A.L.Diamond "Sale of Goods in East Africa" (1967) 16 I.C.L.Q. 1045 at 105456.
[I9871 3 W.L.R. 901.
Supra n. 100.

Canterbury Law Review [Vol. 4, 19891

162

In Jones,lo4a Miss Hopkin had her Ford Fiesta motor vehicle stolen. The
thieves purported to sell the car to one Lacey who sold it to Thomas. Thereafter
it was sold by Thomas to Autochoice Ltd and that company sold it to MidGlamorgan Motors Ltd which finally sold it to the defendant. All this occurred
within a relatively short space of time. Both companies and the defendant
bought in good faith and without notice of the theft. The plaintiff, Hopkin's
insurer, bought out her interest and asked the defendant to return the vehicle.
The defendant resisted the claim on the basis that he had acquired good
title by virtue of the English equivalent of section 27(2). The literal interpretation
was pleaded - Mid-Glamorgan Motors (Bl) obtained possession of the car
with the consent of the seller, Autochoice, hence the delivery by Mid-Glamorgan
under the sale to the defendant (B2) would operate as if Mid-Glamorgan
were a mercantile agent entrusted with the consent of the owner (Hopkin).
The appeal by the defendant against the decision of the County Court Judge,
who eschewed the literal reading, was lost. Both the Court of Appeal (Sir
Denys Buckley dissenting) and the House of Lords rejected such a construction
albeit upon differing grounds.

3. Alternative solutions to the problem

The various methods of "escaping" the literal construction can be divided
into four. All four were canvassed in the course of Jones with the majority
of the Court of Appeal favouring the first solution whilst the House of Lords
adopted the fourth, and surely now, the decisive solution. I shall now turn
briefly to each.
(a) Valid sale is a condition precedent to the subsequent operation of the
subsection
Both May and Croom-Johnson L.J.J. preferred this solution.'05 The way
out of the problem could be solved by concentrating on the earlier part of
section 27(2) which predicates an effective transaction or at least one capable
of transferring the true title. May L.J. stated:lo6
[I]n my opinion the opening words of section [27(2)], those which lay down the condition precedent
for the consequences provided for by the later words of the section, only contemplate a transaction
in which the general property in the goods has been acquired or it has been agreed should
be acquired. A transaction whereby a thief purports to sell goods to A (B1) in which he purports
to but cannot pass the general property in the goods to A because it is not vested in him,
is not one which can bring section [27(2)] into operation at all.

However,
that a thief
had not, in
must surely
104

105
106

lo'

Sir Denys Buckley (dissenting) could see no reason why the fact
could not transfer a good title should therefore mean that he
law, contracted to sell the goods.'07 In this regard Sir Denys
be correct. The majority in their valiant attempt to resolve the

Diagramatically:
H -> Thief -> L -> T -> A -> M -> Defendant
B2
"owner"
"seller"
B1
Sir D.Buckley, supra n.102 at 923, observed that in such long chains, section 27(2) only
requires consideration of the circumstances relating to the last three members of the chain,
the last of whom will be the party invoking the subsection's protection.
Again the origins of this solution lie with Cornish, supra n.90 at 478.
Supra 11.102 at 915.
lbid. at 925.

The Buyer in Possession exception to the Nemo Dat Rule Revisited

163

literal problem by a novel route have merely stumbled into the familiar fallacy
that a contract of sale re uires the seller to be the owner. This smacks, as
Tiplady accurately notes," of the much-misunderstood dictum of Atkin L.J.
in Rowland v. Diva11 that "there can be no sale at all of goods which the
seller has no right to
Battersby and Preston in their 1972 article clearly
showed that definition of contract of sale merely serves to distinguish a sale
from other transactions and is silent as to the quality of title to be transmitted.
~hus"O
Provided that the transaction involves the transfer of a title to the absolute interest, it is a sale
as defined by the Act: it is not the transfer of a good title which is fundamental to the transaction,
but the transfer of a title. Thus, the mere fact that a possessory title is transferred does not
prevent the transaction from being a sale.

If a contract of sale requires perfect title to be transferred then section

14(1) would seem to be otiose; the words "or possessed" in the definition
in section 7(1) of existing goods ("goods owned or possessed") would become
meaningless and the statement of the nemo dat rule itself ("where goods are
sold by a person who is not the owner") would sit uncomfortably alongside
it."' Moreover, the majority's emphasis upon the general property having passed
at some stage1'*ignores the part of the definition of a contract of sale (sections
2(1) and 3(1)) embracing agreements to se11.Il3 The majority's cure would seem
as unfortunate as the disease itself.
(b) Equation of seller and owner
This equation may take two forms, though both lead to the same r e ~ u l t . " ~
First, by focusing on the earlier part of the subsection the consent of the
seller could simply be read as the consent of the owner. Thus section 27(2)
would have no application at all to the transaction between S (the thief) and
B1 (buyer in possession). Two Commonwealth cases have adopted this
Alternatively, by focusing on the latter part of the subsection,
consent of the owner could be read as consent of the seller. The subsection
would still apply as between S and B2 (the innocent sub-buyer) but it would
not protect B2 against the true ~ w n e r . "In
~ other words, section 27(2) upon
this construction, would be effective to pass to B2 such title as S had, namely
a possessory title - good against everyone except the owner. Beattie J. in
Supra 11.16 at 243; see also J.W.A.Thornley, "Thieves, Rogues, Innocent Yurchasers ana
Legislative Tangles" 119881 C.L.J. 15 at 16.
[1$3] 2 K.B. 500 at 506.
"The Concepts of 'Property' 'Title' and 'Owner' used in the Sale of Goods Act 1893" (1972)
35 M.L.R. 268 at 273 (emphasis added).
Ibid. at 274; ~hornle;, sGpra n.8 at 16-17. See also Mustill J . in Karlsharnns OljeSabriker
v. Eastport Navigation Corp. [I9821 1 All E.R. 208 at 215 (cited by Atiyah, supra n.8 at
70) where his Honour remarked that "[a] contract of sale can perfectly well be performed
by a seller who never has title at any time, by causing a third party to transfer it directly
to the buyer."
See May L.J., supra n.102 at 915.
Tiplady, supra 11.16 at 243-244.
Once more the solution was proferred by Cornish, supra 11.90 at 477-78.
Murabak, supra n.lO1 (per Thacker J.) and Ford Credit, supra n.101 at 797 (per Gray J.).
Diamond preferred this approach for this reason: see supra n.lO1 at 1055.

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Canterbury Law Review [Vol. 4, 19891

Elwin v. O'Regan & c ax well"^ adopted this solution as did the County Court
judge in ones."^ The difficulty with the e uation solution is of course its
"blatant disregard for the letter of the law."' This troubled Croom-Johnson
L.J. in Jones who quite rightly pointed out that as "a matter of construction"
it could hardly be that the statute could, within one section, be using two
different words to describe the same person.'20
(c) The "relevant owner" solution
An elegant solution proposed by Battersby and resto on"' was to treat the
word owner as referring to the "relevant owner."'22 Their submission was
that the literal construction argument was based upon the fallacy of assuming
"owner" means the true owner "whereas to make sense of the provisions as
a whole, it [owner] must be construed as 'the owner of the title which is
the subject-matter of the transaction'
i.e. the title vested in S. Whilst less
violence is done to the language of the subsection, arguably little has changed
from simply equating owner with seller. One reads owner to mean relevant
l~~
in giving owner this meaning
owner which again means the ~ e 1 l e r . Moreover
with the consequence that at most B2 only acquires S's possessory title, section
27(2) becomes otiose, since B2 would anyway acquire a possessory title under
the law of torts.'25
(d) The policy and purpose of section 27(2)
It was left to the House of Lords in Jones to fully uncover the underlying
policy and purpose behind the sub~ection.'~~
As we have already seen,Iz7Lord
Goff carefully traced the origin and development of the current provision
through the various Factors Acts of last century. There was never the "slightest
indication" in these Acts that the cardinal principle (nemo dat) should be
abrogated so as to enable purchasers from a thief to pass good title on a
re~ale."~
Where did the root of the problem lie then? The answer was in a small
drafting change between the 1877 and 1889 Factors Acts. As Goode had earlier
perceived,'29 the draftsman in an effort at conciseness attempted to spell out
117
118

119

Supra n.14 at 1131-32.

Supra n.102 at 905 (per May L.J.) cf. supra n.102 at 903 (Editorial comment reports that
County Court Judge equated both words as meaning owner).
D.G.Powles, "Stolen Goods and the Sale of Goods Act 1893 section 25(2)" (1974) 37 M.L.R.
213 at 214.
Supra n. 102 at 917.
supra n. 110 at 284.
This is Professor Goode's abbreviation for Battersby & Prestons' solution: see supra n.9
at 414.
Supra n. 110 at 284.
Croom-Johnson L.J. in Jones, supra n.102 at 917.
Goode, supra n.9 at 414; Powles, supra n.119 at 216.
Hence the closing plea of Tiplady (supra 11.16 at 245) that "[olne can now only hope that
the House of Lords will be given the opportunity finally to expose the policy basis of the
nemo dat exceptions in modern commercial law" was satisfied, at !east partially.
Supra section 11, 1.
Supra n. 100 at 958.
Supra n.9 at 414.

R e Buyer in Possession exception to the Nemo Dat Rule Revisited

165

the deeming effect of section 27(2) in an abbreviated manner. Rather than

spell out the effect of the subsection in extenso he thought he could achieve
the same result more elegantly by incorporating by reference the effect of
our section 3(1) Mercantile Law Act 1908. By quoting the earlier equivalents
of section 27(2) in full, Lord Goff quickly pinpointed the change.I3O Whereas
the provision in the 1877 Act referred to the transaction taking effect as if
B1 was a person "entrusted by the vendor with possession" one now witnessed
a different wording in the 1889 Act. The provision now referred to the
transaction taking effects as if B1 was a person entrusted by "the owner"
with possession. So clearly then, the word owner was no more than an elliptical
expression or shorthand term meaning the vendor who had entrusted
~ ~an altered phraseology
possession. It was upon this "slender f ~ u n d a t i o n " 'of
between the final two Factors Acts that the appellant had based his case
for a purchaser from a thief being able to pass better title than the thief
had. Unfortunately for the appellant, there was nothing else either from 1899
Act itself nor the preceding Factors Acts, to suggest that Parliament intended
the result now argued for. The legislative history of the subsection was clearly
against this.
It does seem somewhat "surprising" as May L.J. ~bserved,'~'that if one
concedes the draftsman in the 1889 Factors Act made an error in referring
to "owner" instead of "seller" at the conclusion of the subsection, the lapse
was repeated twice - in the original Act of 1893 and again in 1979. However,
upon further reflection, repetition of the error was understandable. Jones was
the first case in virtually a century to uncover the anomaly in England and
' ~ ~ of course does not speak
thereby alert English parliamentary d r a f t ~ r n e n .This
kindly for English awareness of Commonwealth decisions, since well before
the 1979 Consolidation there were three non-English cases'34which had exposed
the anomalv engendered bv a literal construction.
So far the discussion has been premised on the assumption that the drafting
change was an "error" or a "lapse" since giving effect to the plain meaning
would produce a result absurd or repugnant in policy terms. However, not
everyone has thought so.
~ o r n i s h " ' considered ~t arguably better to adopt the literal reading and
allow innocent purchasers protection since they are by definition unaware
that previous misdealings may have affected their title. If anomalies resulted
or the subsection was said to produce illogicality then it was better that these
should favour the innocent buyer. However, this merely restates the dilemma
with a marked preference for the buyer instead of the owner. Cornish's sympathy
for the buyer was buttressed by the recognition that the true owner would
still have his recourse under the English equivalent of section 26 of our A C ~ . ' ~ ~
130

13'

"'
133

134

135
136

Supra n. 100 at 960-6 I .

Ibid. at 961.
Supra n.102 at 914.
Lord Goff put this down to the temerity of prudent counsel who feared the "very short
shrift indeed" should they have advanced the literal argument: see Jones, supra n.100 at
958.
See supra n. 101.
Supra 11.90 at 478.
Section 26(1) reads: "Where goods have been stolen and the offender is prosecuted to conviction,
the property in the goods so stolen revests in the person who was the owner of the goods,
or his personal representative, notwithstanding any intermediate dealing with them, whether
by sale in market overt or otherwise."

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Canterbury Law Review [Vol. 4, 19891

However, the revesting of the stolen goods in the true owner still requires
that the thief be apprehended and "prosecuted to conviction." Furthermore,
there is English authority'37for the view that section 26 must be read subject
to the Factors Act's provisions including section 9, the buyer in possession
exception. Thus the goods will not revest in the owner when the buyer in
possession is convicted. Sutton argues that the same result should follow in
jurisdictions such as New Zealand, where the buyer in possession provision
has been included in the main body of the Sale of Goods Act, for "[oltherwise
it would mean that dispositions of stolen goods by factors would be protected
but not dispositions by buyers in possession since the latter are no longer
covered by reference to the provisions of the Factors ~ c t s . " 'If~ ~
Sutton is
correct then his further submission must also follow. The onlv ~ractical
circumstance left for section 26 to operate at all is where the owner has been
divested by sale in market overt. As New Zealand discarded this archaic
there would then seem to be little or no
exception to nemo dat in 1961,'~~
room for section 26 to aid the original owner. Hence Cornish's callousness
to the plight of the owner becomes less justifiable.
Taking a different tack, Sir Denys Buckley did not consider it irrational
in policy terms to let the loss from the theft fall upon the original owner
"who would . . . very probably be insured, rather than the innocent
purchaser."'40 Yet this is surely an empirical question to which no answer
(unfortunately) has yet been given.'41 Perhaps Sir Denys was influenced by
the fact that in Jones, the true owner's interest was bought out by her insurance
company in contrast to the (presumably) uninsured defendant purchaser. A
stronger argument of Sir Denys was that it would not be irrational for
Parliament to enact that stolen goods be recoverable from a thiefs immediate
purchaser (Bl) but not from a subse uent innocent purchaser (B2, or a fortiori
B5 as the defendant in Jones was$2 ). Why? The latter sub-purchaser (B2)
had less cause to enquire whether her seller's seller was a thief than the immediate
purchaser (B1) who by "diligent inquiry [might] have been able to discover
that his vendor was a thief."I4' Being further down the chain the latter purchaser
would be less likely to be aware of suspicious circumstances putting her on
inquiry. This argument is more difficult to refute, nevertheless it does tend
to come out as no more than greater solicitude for the innocent buyer based
on the fact that the subbuyer is more removed from the misdealing. Moreover
it draws upon the doctrine of constructive notice which, as we shall see later,'44
the courts have persistently disfavoured in commercial transactions.
To summarise, in the writer's view, a careful investigation of the legislative
history of section 27(2) provides the best solution to the literal reading problem.
The thorough examination by Lord Goff in Jones revealed that the purpose
of the subsection never extended to protecting innocent buyers where the owner
had been dispossessed by a thief. The delivery or transfer between the buyer
A

137

138
139

140
14 1

142
'43
144

Payne v. Wilson [I9851 1 Q.B. 653, cited with approval by North J. in Davey v. Paine
Brothers (Motors) Ltd [I9541 N.Z.L.R. 1122 at 1127.
Supra n.72 at 358.
See supra n.94.
Supra n.102 at 924.
See again Atiyah's comments, supra n.27.
Tiplady, supra n.16 at 245.
Supra n.102 at 924.
See infra, section V, 4.

The Buyer in Possession exception to the Nemo Dat Rule Revisited

167

in possession and innocent buyer was only ever intended to take effect as
if the former was a person entrusted with possession with the seller's consent.
If this ultimately requires one simply to read "consent of owner" as "consent
of seller," so be it.

In this section some of the other issues from section 27(2) will be briefly
examined.

1. "Bought or agreed to buy"

Initially it seems odd why the draftsman bothered to include the words
"bought or" in the subsection. For if BI has bought the goods, title has passed
and there is no need for Bl to rely on section 27(2) to pass a good title
to B2. Atiyah is one commentator who suggests the words ought to be dismissed
as "mere surplusage,"'4s a suggestion adopted in one Australian d e ~ i s i 0 n . l ~ ~
However, Brennan J. in Gamer5 alluded, in passing, to the rationale for
these words. The phrase "bought or" may become meaningful where "the
seller has retained a limited interest in the goods."147The "answer to the puzzle"
was carefully explained by Battersby and ~ r e s t 0 n . IThe
~ ~ subsection
contemplates two quite different factual situations: (i) where B1 has yet to
acquire the seller's title (the situation envisaged by Atiyah) but also (ii) where
Bl's title is either subject to incumbrances or has been avoided by the original
seller. Again the confusion arises because of the draftsman's compression of
language.
So far as agreements to buy are concerned, the courts have, for the purposes
of section 27(2), restricted these to conditional sales agreements of the Lee
v. Butler variety. Hence so-called "true" (Helby v. Matthews type) hire-purchase
agreements involving bailment with an option to purchase, are outside the
ambit of the sub~ection.'~~
It seems artificial for the innocent sub-purchaser's
protection to depend on the kind of hire-purchase agreement entered into
between the seller and Bl .IS0
"Consent"
The law here is plain. Apparent consent will suffice, i.e. even if the buyer
in possession obtains the seller's consent by fraudulent means this does not
negative consent for the purposes of the ~ubsection.'~~
2.

3.

"Possession"
The interesting issue here is whether Bl must have actual custody of the
goods or will constructive possession suffice?15' Having strongly argued for
constructive delivery between B1 and B2 to be enough, can constructive
145
146
14'
148
I49

I50
I5 I
152

Supra n.8 at 294.

Ford Credit, supra n.lO1 at 798.
(1987) 163 C.L.R. 236 at 251.
Supra n. 110 at 281-82.
See Elwin supra n.14 at 1128; Cunningham v. Richardson (1924) 32 N.Z.L.R. 433 at 435
(per Sim J.).
See Ontario Law Reform Commission, supra n.24 at 309, 317.
JefScort v. Andrew Motors Ltd [I9601 N.Z.L.R. 721 at 728-29.
For those who favour the latter view see e.g. Atiyah, supra n.8 at 282; 41 HalsburyS Laws
of England (4th ed., 1983) at para.751 n.3.

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Canterbury Law Review [Vol. 4, 19891

possession by B1 also be adequate to enable him to pass a good title to

B2? Certainly section 2(2) of the Mercantile Law Act 1908 deems a person
to be in possession not just where he has actual custody of the goods or
documents of title but also they "are held by any other person subject to
his control or for him or on his behalf."
The
The issue was squared raised in Four Point Garage Ltd v.
defendant agreed to purchase a new Ford Escort from Freeway, a car dealer.
He paid by cheque and the dealer agreed to deliver the car two days later.
At the time the dealer did not have that particular vehicle in stock so it
arranged to buy it from the plaintiffs under an agreement reserving title to
the plaintiff until payment in full. At the dealer's request the plaintiff delivered
the car directly to the defendant, doing so in the belief that the car was merely
being leased for hire to the defendant. The defendant on his part was completely
unaware of the existence of the plaintiff and believed that the delivery had
been made by the dealer. The dealer subsequently went into liquidation and
the plaintiff, being unpaid, sought recovery of the vehicle from the defendant.
The plaintiff argued that the defendant could not rely upon section 27(2)
as the dealer (B1) had neither taken physical possession nor itself effected
delivery. Simon Brown J. disagreed. The plaintiffs having agreed to effect
delivery to the defendant, thereupon held the vehicle to the order of Freeway,
pending delivery, so that Freeway (the buyer in possession) was in constructive
possession within section 27(2) and itself delivered to the defendant through
the agency of the plaintiffs. In agreeing with the decision, Goode nonetheless
recognised the policy issue involved here:Is4
It might be argued that the seller's attornment to the intermediate buyer ought not to be sufficient
to attract section [27(2)] on the footing that the purpose of the statutory provisions is to prevent
the sub-purchaser from being misled by his own seller's appearance of ownership, which cannot
arise where the goods remain in the original seller's physical possession.

The answer upon the unusual facts of Carter was that the original seller
could hardly complain where he himself had delivered the goods directly to
the innocent s ~ b - ~ u r c h a s e rLeaving
.'~~
aside the particular fact situation in
Carter, it does not seem objectionable for constructive possession to suffice.
Where for example, B2 is misled by Bl's apparent ownership and a
warehouseman holds the goods on Bl's behalf, this should not disentitle him
(B2). To paraphrase McHugh J . A . , ' ~the
~ mischief arises because B1 has been
entrusted with possession by the seller not because of the particular form
(actual or constructuve) that buyer's possession takes. Provided B2 is misled,
it is an immaterial consequence whether he was deceived by Bl's actual or
constructive possession.

"Ingood faith and without notice"

The onus is upon the buyerlS7to prove that she took in good faith and
without notice of any lien or other right of the original seller. An intriguing
issue here is whether "notice" is confined to actual notice or does it extend

4.

Is3
IS4

155
156
157

[I9851 3 All E.R. 12.

"Possession and Delivery under Section 25 of the Sale of Goods Act 1979" [I9851 J.B.L.
496 at 498.
Idem.
See supra n.87.
Heap v. Motorists' Advisory Agency Ltd [I9231 1 K.B. 577.

The Buyer in Possession exception to the Nemo Dat Rule Revisited

169

to constructive notice i.e. although B2 is not actually aware of the true position,
should notice nevertheless be imputed to her because in the (suspicious)
circumstances it is reasonable to regard her as having notice? The comment
of Lindley L.J. in 1895 that "as regards the extension of the equitable doctrines
of constructive notice to commercial transactions, the courts have always set
their faces resolutely against it"'58 still appears to hold. A good modern
illustration is the Australian case, Robinson Motors Pty Ltd v. ~ o w l e r . ' ~ ~
A rogue calling herself O'Malley fraudulently obtained possession of a Holden
Torana sedan from the respondent car dealer in Sydney. The vehicle was
paid for by a cheque which was later dishonoured. O'Malley was given a
receipt upon delivery and the manager of the car dealer sent the change of
registration form to the New South Wales Motor Transport Department
whereupon O'Malley was registered as the owner as from 15 May 1979. O'Malley
two days later sold the car to the appellant at his car yard at Surfers Paradise.
When asked for proof of ownership O'Malley produced the respondent's
delivery receipt in which she had falsified the date of purchase to read 15
March 1979. Coupled with telephone confirmation from the N.S.W. Transport
Department that O'Malley was the registered owner, the appellant went through
with his purchase. Upon dishonour of the cheque and discovery of the vehicle
in the appellant's hands, the respondent sought recovery of it. Delivering the
unanimous judgment of the court, Lucas A.C.J. held the appellant acquired
good title under section 27(2). His Honour rejected the first instance ruling
that the appellant had made no enquiries of the respondent about the earlier
sale and hence could not be heard to say that he had taken the car without
notice. The traditional reluctance to apply the doctrine of constructive notice
to commercial transactions was reaffirmed. The only extension to the word
notice beyond actual knowledge would be the "loophole" recognised by Lord
~ e n n i n ~' ~ "deliberately
'
turning a blind eye to [the previous sale]". Here
there was nothing obviously suspicious in the circumstances to put the appellant
upon enquiry, nothing deliberately to turn a blind eye to. The production
of the delivery receipt which on its face showed O'Malley had paid for the
vehicle two months earlier; the telephone confirmation of her registered
ownership and the absence of significant disparity between what she paid
for the car ($2,990) and what she was now prepared to accept from the appellant
($1,800) for it, all pointed in the appellant's favour. His Honour observed:
If the doctrine of constructive notice is to be applied at all to commercial transactions of this
nature, the effect of the authorities seems to be that it is only to be applied in the plainest
of cases. Perhaps it would be better to regard a failure to make inquiries in a case of this
nature as relevant more to the question whether the person who acquired the chattel acted in
good faith.I6'

The courts similarly seem slow to infer bad faith from price disparities,
requiring the ultimate purchaser to have bought at an "unduly low price"'62
'51

I59

Manchesfer Trust v. Furness [1895] 2 Q.B. 539 at 545. See generally Sutton, supra n.72
at 318-321.
[1982] Qd. R. 374. See also Feuer Leather Corp. v. Frank Johnstone & Sons [I9811 C0m.L.R.
251.
Worcester Works Finance Ltd v. Cooden Engineering Co.Ltd [I9721 1 Q.B. 210 at 218.
Supra n. 159 at 379 (emphasis added).
Davey, supra n.137 at 1130 (per North J.).
-~ -

160

161
162

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Canterbury Law Review [Vol. 4, 19891

before denying him the protection of one of the statutory exceptions. The
court's reluctance to view the disparity in Robinson Motors with disfavour,
where the resale by the rogue was at sixty percent of the original purchase
price, illustrates this.
"Same effect as if the person making the delivery were a mercantile agent"
The narrow construction of these words by the English Court of Appeal
in Newtons of Wembley Ltd v. ~ l l i a m s 'has
~ ~been widely ~ 0 n d e m n e d . l ~ ~
There the court held that these words impliedly incorporated the requirements
of (our) section 3 of the Mercantile Law Act 1908. Hence the disposition
would only be effective to pass good title if made in the manner it would
have been made had the buyer himself (Bl) been disposing of the goods as
a mercantile agent. Thus Bl would be required to act as a mercantile agent
would act in the ordinary course of business - selling within business hours,
from a proper glace of business etc. This construction, which was arguably
obiter anyway,' was firmly rejected by the New Zealand Court of A peal
in Jeffcott v. Andrew Motors some five years earlier. Gresson P. stated: I&
5.

This is a novel argument which seems to us to be quite unsound. The section operates to validate
a sale as if the buyer in possession were a mercantile agent; it does not require that he should
act as though he were a mercantile agent. The section is derived from sections of the Factors
Act 1877 and 1889 which were enacted only because a buyer in possession was not a mercantile
agent entrusted with the goods.

This view was reaffirmed in both ones'^' and ~amer's'~'

although the
expressions of agreement with Jeffcott are strictly obiter since BI in both
decisions was a recognised dealer acting in the ordinary course of business.
VI. CONCLUSION
It would be remiss to conclude this article without reference to the potential
impact of the Motor Vehicle Securities Bill 1988 upon sales by non-owners.
A detailed commentary is beyond the scope of this paper,'69 nevertheless the
following points are worthy of mention. Broadly speaking the Bill, at least
in its Introductory form, represents a piecemeal reform of non-owner sales.
The basic scheme of the Sale of Goods Act 1908 is preserved. However, the
harshness of the nemo dat rule is further mitigated now by new statutory
exceptions. The explanatory note accurately summarises the thrust of the Bill:

[I9651 1 Q.B. 560 at 579 (per Pearson L.J.) and 574-75 (per Sellers L.J.).
See e.g. Atiyah, supra n.8 at 302: Goode, supra n.9 at 413; Cornish, supra n.90 at 476.
Since on the facts the sale would have been in the ordinary course of business of a mercantile
agent (evidence established cash sales at the kerbside in London was an established trading
method). See Atiyah, supra n.8 at 301.
Supra n.151 at 720. See also Langmead v. Thyer Rubber Co.Ltd [I9471 S.A.S.R. 29 at
39.
Supra n. 102 at 921 (per Sir Denys Buckley).
Supra n.147 at 242-43 (per Mason C.J.); at 252 (per Brennan J.); at 259 (per Dawson J.).
See J.H. Farrar & M.A. O'Regan, Reform of Personal Property Security Law,New Zealand
Law Commission Preliminary Paper No.6 (May 1988) at 4-5, 88-90 (title system preferable
in the authors' opinion).
At i.

The Buyer in Possession exception to the Nemo Dat Rule Revisited

171

The Bill enables intending purchasers of motor vehicles to search a centralised register to discover
whether or not the motor vehicle is subject to a security interest. If no security interest is registered,
and the intending purchaser has no notice that a security interest exists in respect of the vehicle,
then any security interest is, in most cases, extinguished and the purchaser becomes the owner
of the vehicle. 170

The greater protection envisaged only extends to the transfer of motor

vehicles,I7' yet it seems that these are the most common type of chattel subject
to the misdealings of rogues and thieves.'72 Certainly in absolute terms, the
problem in New Zealand is not a minor one, with innocent purchasers of
vehicles losin title to or paying outstanding debts upon vehicles many times
every week.17F The Bill has staggered commencement dates. The registration
and transitional provisions (Parts I and V) are to come into force on 1 October
1989. However, more importantly from a consumer's viewpoint, the provisions
enabling purchasers to secure good title (Part I1 to IV) do not commence
until 1 April 1990.'~~
The nemo dat rule will be further subjugated to the provisions of the Motor
Vehicle Securities Act. However, the Bill makes it clear that the new protection
for buyers is in addition to the remedies she might otherwise enjoy under
the Sale of Goods and Mercantile Law Acts of 1908.'~' Most relevant to
the present discussion is the addition of a new proviso to section 27(2).'76
If the security interest is registered under the Act, then the person taking
the vehicle (B2) "shall be deemed to have notice of the existence of that security
interest". Thus B2 will be imputed with constructive notice of any registered
security interest. On the other hand if the security interest is not registered
(registration is not mandatory'77)then B2 will, subject to actual notice, secure
good title. B2 is in an even stronger position where she buys from a licensed
motor vehicle dealer.178Then, any security interest in the vehicle is, in most
cases, automatically extinguished and she becomes the owner of the vehicle.
The Bill does not protect persons buying from a thief'79 - nemo dat will
still pertain. However, provision is made for the centralised register to record
the fact that a vehicle has been reported to the police as having been stolen.laO
There is no obligation upon owners it seems to report the fact of theft. An
interesting question might be whether omission to register this detail would
give rise to a successful lea of estoppel by negligence by an innocent buyer
against the true owner.' Where the fact of theft is recorded and the buyer
17 1

172
173

174
175
176
177
178
179

181

See Clive Turner who suggested the equivalent Queensland legislation might be extended
further to cover other expensive chattels, particularly boats: "The Queensland Motor Vehicle
Securities Act 1986" (1987) 14 U. Qd.L.J. 101 at 116-17.
See Sutton, supra 11.72 at 35 1.
"Motor Vehicles and Prior Security Interests" An address by the Rt. Hon. G.Palmer, Minister
of Justice, to the Motor Vehicle Dealers Institute A.G.M. (7 October 1987, Wanganui) at
5 (Consumer's Institute survey estimated there were between 20 to 25 cases of unauthorised
sales per week, about 10 of which probably result in the consumer being deprived of title
or paying the debt without compensation). See also the Hon. M.Shields, 1988 N.Z.
Parliamentary Debates 3864 (1986 M.V.D.I. survey of members cited).
A "pity" in the view of some: see Editorial, Otago Daily Times, 1 I May 1988.
See clauses 22(4), 36(3) and 54.
See Second Schedule.
C1.6; Explanatory Note at ii.
Clauses 26-27.
Explanatory Note at ii; Mr. P.Burdon, N.Z. Parliamentary Debates 3865-66.
C1.8.
For an interesting recent discussion of estoppel by negligence, particularly the troublesome
"duty" owed, on occasions, to sub-buyers: see Leonard v Zelasi (1987) 46 S.A.S.R. 495.

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Canterbury Law Review [Vol. 4, 19891

has not checked then he might be fixed with constructive notice. Even without
imputation of notice however, the normal operation of the nemo dat rule
would disentitle him.
This brief sketch of the Bill suggests that the cumbersome protection afforded
by section 27(2) will become largely otiose in motor vehicle dispositions by
non-owners. Whether the Bill when enactedI8' will throw up a host of equally
troublesome interpretation issues remains to be seen. At this embryonic stage
it does appear to be the boon that the Minister of Justice suggests it will
become.
The buyer in possession exception after nearly a century has neared the
end of its useful life. The judgments of the High Court of Australia in Gamer5
and the House of Lords in Jones may well be the last significant authorities
upon section 27(2). They resolved two outstanding issues - the meaning of
delivery and the sellerlowner problem. The innocent purchaser had his
protection extended in Gamer5 by the finding that constructive delivery by
the buyer in possession to him will suffice whereas this protection was denied
him in the situation where the original owner was dispossessed of her goods
by a thief (Jones). Both decisions mark a triumph for purposive interpretation
over adherence to the natural, ordinary or literal construction. These decisions
will retain their significance in New Zealand for a short while longer. But
hopefully with the commencement of the Motor Vehicle Securities Act, both
innocent owners and buyers will no longer be faced with the type of lengthy
litigation required in Gamer5 and Jones to know exactly where they stand.

182

Postscript: this occurred on 17 April 1989, the Bill becoming the Motor Vehicle Securities
Act 1989. The substance of the writer's comments upon the Bill apply equally to the Act.