Section 12 of Sale of Goods Act

*L.Q.R. 221 SECTION 12 of the Sale of Goods Act 1979 contains the implied condition relating to the seller’s ability to transfer title in the goods to his buyer. This fundamental obligation does not stipulate that the seller should transfer either “ title” or “ property” but demands, instead, that he must have a “ right to sell” the goods. Although section 12 has been liberally interpreted in favour of the buyer (see Niblett v. Confectioners’ Materials Co. [1921] 3 K.B. 387 and Rowland v. Divall [1923] 2 K.B. 500), one difficulty remains unresolved: might a seller without title who is enabled to transfer title by virtue only of sections 21-25 of the Act be, nevertheless, in breach of section 12? There is no authority directly in point but in Niblett Atkin L.J. opined that there would be no breach of the implied condition in section 12 “ … if the seller is able to pass to the purchaser a right to sell notwithstanding his own inability” (at pp. 401-402; see also Anderson v. Ryan [1967] I.R. 34). This orthodox view is supported in Benjamin’s Sale of Goods (3rd ed., at para. 237) and Chitty on Contracts (26th ed., vol. II, at para. 4732). A seller need not warrant an existing and indefeasible title vested in himself but promises only that he will endow his buyer with the appropriate title at the relevant time (see The Elafi [1982] 1 All E.R. 208 at p. 215). It is tempting to conclude therefore that if the buyer acquires an unencumbered title by reason of an exception to nemo dat he suffers no loss and there is no breach of section 12, its purpose being fulfilled. Alternatively, Professor Goode argues (Commercial Law (1982) at p. 240) that section 12 is breached in this situation, for, vis-à-vis the true owner, the seller’s disposition is unlawful, meaning that he has no right to sell: a right to sell is not synonymous with a power of sale.

In its recent decision in R. v. Wheeler (1991) 92 Cr.App.R. 279, the Court of Appeal appeared to assume that the seller could be in breach of section 12 even where title was transferred in market overt. A quantity of military antiques which had been stolen from their owner were bought by the appellant antiques dealer. The buyer agreed to purchase a medal from the appellant’s market stall, the latter agreeing to keep the medal for the buyer until later in the day when he would return and pay for it. In the meantime the owner of the antiques and the police visited the appellant’s stall and informed him that the medal in question was stolen property. When the buyer *L.Q.R. 222 returned he had learned of the police’s visit and consequently asked whether the medal was on their list of stolen property, but was told, dishonestly, that it was not so listed. The buyer therefore paid £150 for the medal. Subsequently the appellant was arrested and a large amount of the stolen property was found at his home. The Court of Appeal held that the appellant’s conviction for obtaining property by deception (£150 from the buyer) must be quashed as (i) the sale was in market overt, (ii) property in the specific goods had passed to the buyer at the time of contract and, (iii) it was impossible for the appellant to represent later that he was the owner of the medal and entitled to sell it as the medal then belonged to the buyer.

It appeared that the buyer would not have bought the medal had he been apprised of the truth, and the court consequently alluded to available remedies. Stuart-Smith L.J. dismissed the possibility that the buyer might rescind the contract for fraudulent misrepresentation (there being no dishonesty before or at the time of sale) and left open the question of rescission for innocent misrepresentation. Most importantly, although expressing no firm opinion, he seemed to assume that, on the facts, rejection of the goods for breach of section 12 was an available option.

Two difficulties are apparent from the judgment. First, the indisputable and often criticised effect of a sale in market overt is to transfer an indefeasible title to the bona fide buyer even where the goods in question are stolen property. Perplexingly, his Lordship conceded this fact yet considered that, by virtue of section 12(3), the effect of a sale in market overt might be to transfer only a limited title. With respect, this controversial contention seems to negate the purpose of market overt. Should the buyer have intimation of any dubious history of the goods such knowledge would surely relate to his bona fides rather than the possible acquisition of a limited title. Secondly, what is the scope of section 12 in the context of the exceptions to the nemo dat rule? If the title obtained is defective there is clearly a breach of section 12, but where a clean, unfettered title is guaranteed by virtue of the sale in market overt it is difficult to ascertain any loss, even if there is a technical breach of section 12. Goode therefore argues that in this case there is such a breach but with no operative effect “ since the buyer is given in fact as well as in law a right just as good as that for which he bargained” (op. cit. supra, at p. 241). However, it is arguable that a right of rejection should nevertheless be available: a buyer may find that although indefeasible, his title is nugatory. The Crowther Committee referred to the fact that a private purchaser of a motor vehicle acquiring valid title under Part III of the Hire Purchase Act 1964 might find the vehicle unsaleable, as a dealer will discover that it is still subject to a hire-purchase agree *L.Q.R. 223 ment and decline to accept it (Consumer Credit (1971): Cmnd. 4596, vol. I, para. 5.7.32). Similarly, with stolen antiques and fine art sold in market overt, the buyer’s title could become stigmatised and barren where the provenance of the goods is known (see Clayton v. Le Roy [1911] 2 K.B. 1031). Surely a buyer should not have to accept such a blemished title with the possible expense attendant upon its verification? Most particularly, if the seller is guilty of a criminal offence directly connected with the sale of goods in question (the alleged offence, for example, in Wheeler ) it is submitted that, even with an ability to transfer a valid title, he would have no “ right to sell” within section 12. This conclusion is fortified by Scrutton L.J.’s wide interpretation of that phrase in Niblett (at p. 398). Where there is an identifiable loss, it is suggested that such a buyer should be afforded the refuge of section 12.

These issues are at the point of convergence between the title to goods and their quality and fitness for purpose. If section 12 concerns only the narrower notions of unfettered proprietary rights then it is arguably the function of sections 13 and 14 of the Sale of Goods Act 1979 to remedy the defects complained of here. The courts show a marked reluctance however to extend the latter sections beyond anything other than physical defects in the goods themselves (see Harlingdon & Leinster Enterprises Ltd. v. Christopher Hull Fine Art Ltd. [1991] 1 Q.B. 564). A fissure is thus opened in the protection available which must be bridged in order to secure the totality of the buyer’s rights.