Hire-Purchase Vehicles and Special Powers of Sale: More Exceptions to the Nemo Dat Rule
In our previous post, we explored two exceptions to the strict nemo dat rule—voidable titles and sellers still in possession. These rules showed how, in certain cases, the law protects innocent buyers who purchase in good faith.
Today, we’ll complete the picture by looking at two more exceptions:
Both cases show that, although ownership rights are fundamental, the law will sometimes prioritise commercial certainty and fairness—especially when the buyer is truly innocent.
Part 1: Motor Vehicles Under Hire-Purchase
Imagine buying a second-hand car from a private seller. The price is fair, the documents look genuine, and the car is delivered without issue. You have no reason to believe anything is wrong.
Later, you discover the vehicle was still subject to a hire-purchase agreement. The seller wasn’t the true owner—they were merely hiring the vehicle and had no right to sell it.
Under the general nemo dat rule, this would be a problem: you can’t acquire better title than the seller had. But here comes the exception.
The Legal Rule
According to Part III of the Hire-Purchase Act 1964, as re-enacted by the Consumer Credit Act 1974, a private buyer who:
acquires good title, even though the seller wasn’t yet the legal owner.
This rule only applies to motor vehicles and to private purchasers. A company or professional trader buying the same vehicle would not receive the same protection.
Why This Rule Exists
The policy behind this rule is simple: to protect everyday buyers from losing their cars to finance companies, even though they acted honestly and reasonably. Without this rule, the second-hand car market would become deeply unstable, since buyers would always face the risk that their vehicle might later be claimed by a finance provider.
Limits and Clarifications
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The buyer must give value: if someone receives the vehicle as a gift or in barter, the protection doesn’t apply.
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Notice defeats the claim: if the buyer knows (or should reasonably know) that the car is under finance, they cannot rely on this rule.
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Business buyers are excluded: the law expects professionals to do proper due diligence.
Part 2: Powers of Sale and Resale
Another important exception occurs when goods are sold under a legal power of sale. In these cases, the seller can transfer full ownership even if they are not the original owner—because the law has given them that authority.
Legal and Statutory Powers of Sale
Section 21(2)(b) of the Sale of Goods Act clarifies that the nemo dat rule does not affect the validity of a sale made:
In such cases, the buyer acquires good title, even though the seller was not the original owner.
Let’s look at some situations where this might apply:
1. Pawnbrokers and Pledges
If someone leaves a valuable item (e.g., a camera, watch, or musical instrument) as security for a loan and fails to repay, the pawnbroker has a legal power to sell the item. This power allows them to pass good title to a buyer, even though the borrower still owed money.
2. Self-Storage and Warehouse Operators
Under many contracts, warehouse or storage operators have the right to sell stored goods if the customer fails to pay storage fees. When these powers are exercised lawfully, the buyer acquires good title—even if the original owner protests.
3. Insolvency and Liquidation
If a business enters liquidation, the liquidator may sell off company assets to pay creditors. These sales, authorised by statute, pass clean title to buyers—even if the directors had no authority to trade or sell during insolvency.
4. Court-Ordered Sales
Courts can authorise sales of goods in many situations—for example, to enforce debts or resolve disputes over ownership. A buyer at such a court-sanctioned sale receives good title, regardless of earlier claims.
5. Resale by an Unpaid Seller
Under Section 48 of the Sale of Goods Act, a seller who has retained possession of goods because the buyer has failed to pay may resell those goods. The second buyer then receives good title. The original buyer may sue for breach of contract, but cannot recover the goods.
Final Thoughts: Knowing When Nemo Dat Does Not Apply
These exceptions to the nemo dat rule remind us that context matters.
Yes, the general principle is that you can’t get better title than the seller had.
But when:
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the buyer is a private purchaser of a motor vehicle,
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the sale is made under a statutory or legal power, or
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the seller retains possession and resells to recover payment,
then the buyer may be protected—even against the original owner.
For buyers, this highlights the importance of:
For owners and creditors, it’s a reminder to act quickly, assert your rights early, and ensure your arrangements (like finance agreements or bailments) are properly documented and monitored.
Because in commercial law, timing, paperwork, and good faith still matter more than ever.
Who is protected under the hire-purchase exception to the nemo dat rule?
Private buyers of motor vehicles who act in good faith and give value
Any buyer, including businesses, regardless of notice
Buyers who receive the vehicle as a gift
What is required for the hire-purchase exception to apply?
Buyer must act in good faith, pay value, and not know the vehicle is under hire-purchase
Buyer can ignore whether the seller is under hire-purchase or not
Only applies if the buyer is a business
Which of the following is an example of a legal or statutory power of sale that allows nemo dat exceptions?
A pawnbroker selling a pledged item after the borrower defaults
Selling goods secretly without informing the original owner
Selling a stolen car to a friend
Under Section 48 SGA, what happens if an unpaid seller resells goods?
The second buyer acquires good title; the original buyer may only claim breach of contract
The original buyer keeps the goods automatically
Both buyers share ownership of the goods
