The Nemo Dat Rule in Commercial Law

Before shedding light on the Nemo Dat Rule, let’s take a look at the categorization of goods and some sections. The SGA categorizes goods as existing, future and specific or unascertained.
Existing goods are those owned or possessed by the seller at the time of the contract under (s.5(1)). Future goods are to be manufactured or acquired by the seller after the making of the contract under (s.5(1)). So, if the goods do not yet exist or exist but are the property of someone other than the seller, they are future goods.
Existing or future goods will also be specific or unascertained goods. The significance is that property will not pass where the goods are unascertained. The distinction between specific and unascertained goods depends on when they are identified:
the goods are identified and agreed upon at the time of the contract they are specific goods (s.61(1)).
they are not identified at the time of the contract they are unascertained goods.
There are three main categories of unascertained goods:
Generic goods, or goods referred to only as being of a particular kind or description: the sale of ‘100 tons of barley’.
Goods not yet in existence, which are to be manufactured or produced or acquired by the seller: the sale of a reaping machine owned by a third party at the time of sale.
A part, which is as yet unidentified, of a specified bulk: ‘500 tons out of the 1,000 tons on board Challenger’.
Once the goods are identified and connected by consent of the parties to the contract they become ascertained goods.
When studying commercial law and more specifically the SGA, there are some important sections that one needs to remember. Let’s take a look at them.
First is Section 18, rule 1: goods in a deliverable state.
Where there is an unconditional contract for the sale of specific goods in a deliverable state the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment or the time of delivery, or both, be postponed.
S.18 rule 2: goods not in a deliverable state.
Where there is a contract for the sale of specific goods and the seller is bound to do something to the goods for the purpose of putting them into a deliverable state, the property does not pass until the thing is done and the buyer has notice that it has been done.
Section 18, rule 3: price to be ascertained
If the seller of specific goods in a deliverable state is required to carry out some procedure to ascertain the price, such as weighing or measuring, property will not pass until that has been done and the buyer notified
Section 18, rule 4: sale or return
In sale or return there is no contract or agreement to sell; there is only an offer by the ‘seller’, which the ‘buyer’ may accept or reject.
Lets now come to the NEMO DAT RULE
The nemo dat rule is that the transferor of goods cannot pass a better title than he himself possesses. The rule represents the common law’s traditional favour of the preservation of property rights. The rule is now stated in section 21(1) of the Sale of Goods Act.
The rule can be demonstrated by the case of Greenwood v Bennett. [4] Where A the owner of a car gave it to B to repair it who then sold it to C who spent money on its repairs. Now before selling it to C, B had caused extensive damage to the car. It was held that the car belonged to A since B did not have the title and therefore could not transfer, however, A had to compensate C for the work done to it.
There are exceptions to the Nemo Dat Rule.
This includes where:
Sale has occurred under a voidable title
Under section 29 of the Goods Act 1958, this exception enables a buyer to acquire good title over the goods, provided they were purchased in good faith and without notice of the seller’s defect in title.
The doctrine of estoppel applies
This situation exists where the owner of the goods has acted in a manner that their own conduct precludes the seller of the goods having authority to sell (in keeping with the matter of Kino).
For this exception to be found to apply, a party is required to satisfy the court that:
The true owner owed a duty of care to the buyer;
The true owner’s conduct was negligent; and
The breach of the duty of care had a real cause impact on the buyer being induced into purchasing the goods.
Dispositions have been made by sellers in possession
An exception exists where goods (sold without questionable title) remain in the custody of seller beyond the sale under section 30 of the Goods Act 1958 and the 1965 decision of Pacific Motor Auctions Pty Ltd v Motor Credits (Hire Finance) Ltd.
Buyer has continued in possession of goods bought
In this instance, the goods may be ‘bought or agreed to be bought’ in keeping with sections 31 and 6(3) of the Goods Act 1958.
Last is where the purchase is made by a bonafide purchaser.