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Sale By Person In Possession Under Voidable Contract

Sale by Person in Possession under Voidable Contract is mentioned under Chapter III of Sales of Goods Act, 1930, under Transfer of Title in Section 29. This section is one of the exceptions to Transfer of Title. As there are certain circumstances, where the title to the goods may be obtained under voidable contract, and the seller does not have good title or better title or even the title to the goods, then where should the buyer stand who was unaware about all this and signed the deal in the good faith? In this research paper, we will be able to understand what does the above-mentioned provision and section speak and how does it apply to the various issues and the answer to the question raised above here?

Now, firstly we will understand that what does Transfer of Title mean?
Subject to the provisions of this Act and of any other law for the time being in force, 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, unless the owner of the goods is by his conduct precluded from denying the seller's authority to sell.[i]

In simpler words section 27 deals with the sale by the person who is:
  • Not the owner.
  • Does not have the consent from the real owner to sell the goods.
  • Has been not given any authority by the owner to sell the goods on his or her behalf.

This concept is based on a legal maxim that is Nemo dat quod non habet which states that, or which means that 'no one can give what he does not have'. That means a person cannot sell title of the goods whom he himself does not own or possess the title of. As it does no good to the buyer as the buyer cannot have the better title to the goods as the seller do not have the better title to the goods.

Let us understand this concept using an illustration mentioned below:
Suppose a person A steals a laptop from his office and sells it to his colleague, named B. Now, as A is not the real owner of the laptop therefore B will have no title of the laptop and will have to return it when asked by the real owner.

Sometimes, due to this provision, honest people suffer huge loss and therefore to protect them from such loss certain exceptions are provided.

In most cases the buyer does not get any title of the goods obtained if the seller was not the owner, but this rule has exception that is when the sale is made by the person who is in possession of the goods under a voidable contract.

In this research paper, we will be discussing about the same exception that is sale by a person in possession under voidable contract.

Section 29 of the Sales of Goods Act, broadly speaks that when the seller of goods has obtained possession thereof under a contract voidable under section 19 or section 19A of the Indian Contract Act, 1872 (9 of 1872), but the contract has not been rescinded at the time of the sale, the buyer acquires a good title to the goods, provided he buys them in good faith and without notice of the seller's defect of title.[ii]

If a person, acquires possession of certain goods under a contract which is voidable on grounds mentioned in section 19 and 19-A, of The Indian Contract Act that are coercion, misrepresentation, fraud, or undue influence. And if the person who has obtained those goods, sell the goods to some other third person before the contract is terminated by the owner, then the buyer has all the rights to acquire a good title of those goods.

Before proceeding further, it is essential for us to know some major terms and conditions:
  • In the above-mentioned section the goods obtained should be under voidable contract and not void.

What do you mean by voidable contract?
When consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused. [iii]

There is an exception to this section that is when the fraud or misrepresentation did not cause the consent to a contract of the party on whom such fraud was practiced, or to whom such misrepresentation was made, does not contribute to a contract voidable.
  • No notice of rescission should be given.
    A notice of rescission is a form given with the intention of terminating a contract, provided that the contract in which the parties have entered, is a voidable contract.
  • And the buyer should act in good faith.
    Acting in good faith means that a person or party involved in the contract should conduct himself or herself ethically or honestly during the agreement and should act reasonably.
    Let us understand the above-mentioned section in simpler way with the help of an illustration
Suppose a person named X, fraudulently obtains a car from Y, and then sells it to Z who buys the same in good faith. Now, Y has all the rights to hold the contract void as his consent was taken by means of fraud. Now before he realizes the fact that fraud has been done, X sells the car to Z. In this situation, Y cannot ask Z to return the car as he did not void the contract before the sale was made. And the Z will own the better or the good title as Y had even though the seller that is, X has the defective title to the car.

The only possible limitations of the section could be that sometimes it can be very difficult to identify that the buyer really bought the goods with good faith and also, the owner sometimes realizes late that he or she has been frauded by the seller and as a result cannot terminate the contract before the sale and can suffer huge loss or it can be possible that the fraudulent party could have disappeared.

One solution could be that provision could be added that the owner can avoid the contract without even telling the fraudulent party or retaking the possession of the goods but by immediately informing the police. The same was held by the Court of Appeal of UK in Car and Universal Finance Co Ltd v Caldwell. [iv]

So, by far we have learned is that there are always exceptions to every law and so is with the Section 27 i.e., Transfer of Title and we have discussed one of the exceptions in this research paper i.e., Section 29 Sale by person in possession under voidable contract. The general rule states that no one can give what he himself does not have or own. But there are certain situations which act as the exceptions to the general rule.

Taking into consideration one of them that is, Sale by person in possession under voidable contract, where the buyer owns better title even though the seller does not have better title to the goods. Now, the sale by a person who is in possession of certain goods but does not have a better title to them and has obtained such possession under voidable contract i.e., through coercion, fraud or mis representation or any other tactics and tries to sell those goods before the contract has been rescinded, in such a case, the buyer gets the better title to the goods than the seller if he had bought those goods in good faith and was not aware about the defective title of the seller.

Section 27 tries to protect the rights of such an owner of the goods whose goods are sold by the person who is not authorized, or the owner has not given his consent for such sale. But Section 29 protects the rights or the interest of the buyer who has bought those goods in good faith and was not aware about the seller's defective title.

  1. Section 27, Sales of Goods Act, 1930
  2. LAST VISITED 23rd September
  3. Section 19, Indian Contract Act, 1872
  4. Car and Universal Finance Co Ltd v. Caldwell, [1965] 1QB 525

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