Appraising the Market Overt Exception
| Author | Ji Lian Yap |
| Position | Teaching Consultant Department of Law, The University of Hong Kong yapjilian@yahoo.com.sg |
| Pages | 254-258 |
Page 254
"This case raises the ever-recurring question: which of the two innocent parties is to suffer by the fraud of a third? It is the familiar contest between the original owner who had been deceived into parting with this property, and the innocent purchaser who has been deceived into buying it."
Lord Justice Denning in Central Newbury Car Auditions Ltd v Unity Finance Ltd (1957)
Imagine a situation where goods have been stolen from their owners and are then sold by the rogue to a purchaser who is unaware that these are stolen goods. The thief then disappears. Who should have title to the goods? The original owners would argue that they deserve title to the goods as the goods have been stolen from them. On the other hand, the innocent purchasers would argue that they had acted in good faith and had paid for the goods, and so should be allowed to retain the goods.
The common law principle nemo dat quod non habet (the "nemo dat" rule) protects the original owners. This maxim embodies the idea that no one can give what he does not have. Applying the principle to our scenario above, the thief has no title to the stolen goods and thus has nothing to pass to the purchasers. Title therefore remains with the original owners who can reclaim the goods from the purchasers. The nemo dat rule is embodied in section 23 of the Hong Kong Sale of Goods Ordinance (Cap. 26). There are, however, various exceptions to the nemo dat rule, as contained within the Sale of Goods Ordinance and the Factors Ordinance (Cap. 48). These exceptions generally seek to protect bona fide purchasers of goods in certain specified circumstances. One of these exceptions is the market overt exception in section 24 of the Sale of Goods Ordinance.
This article first considers the rationale behind the nemo dat rule and the market overt exception. It next considers the problems that the market overt exception creates. It will then suggest reforms to the law in the light of these considerations, for the consideration of legislators, the business community, the Consumer Council and other interested parties (such as the Hong Kong Department of Justice).
"In the development of our law, two principles have striven for mastery. The first is for the protection of property: no one can give a better title than he himself possesses. The second is for the protection of commercial transactions: the person who takes in good faith and for value without notice should get a better title."
Lord Justice Denning in Bishopsgate Motor Finance Corporation v Transport Brakes (1949)
Page 255
The nemo dat rule embodies the idea that the transferee cannot get a better title to goods than that of his transferor. It thus favours the original owner over the innocent purchaser The nemo dat rule is given statutory effect in section 23(1) of the Sale of Goods Ordinance, which provides that where goods are sold by a person who is not the owner thereof, and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had. This rationale of this rule is thus to protect ownership rights.
However, in order to maintain the balance between the original owner and the innocent purchaser, various exceptions to the nemo dat rule have evolved, as contained in the provisions of the Sale of Goods Ordinance and the Factors Ordinance. Amongst the exceptions contained in the Sale of Goods Ordinance are exceptions relating to estoppel (section 23), sales in a market overt (section 24), sales under a voidable title (section 25) and sales by seller or buyer in possession (section 27). An innocent purchaser, faced with a claim for a return of the goods from the original owner, would attempt to argue that one of these exceptions to the nemo dat rule applied to his situation, enabling him to keep the goods.
Of course, the purchaser could also look to the person from whom he bought the goods, on the basis that the seller of goods lacked title to the goods. As against his immediate seller, the purchaser could argue that there has been a breach of the implied contract term with regard to title under section 14 of the Sale of Goods Ordinance. Section 14(1)(a) of the Sale of Goods Ordinance provides that in every contract of sale, there is an implied condition on the part of the seller that in the case of the sale, he has a right to sell the goods, and in the case of an agreement to sell, he will have a right to sell the goods at the time when the property is to pass. However, often under such circumstances, the person from whom the purchaser bought the goods has either disappeared or has insufficient funds. This would then make impossible or meaningless a contract law-based claim. There would then be a contest between the original owner and the innocent purchaser as to who has title to the goods, and it is in this context that the exceptions to the nemo dat rule become significant.
The market overt exception is...
To continue reading
Request your trial