The Nemo Dat Rule and the Exception of Estoppel
In our last discussion, we looked at what happens if goods perish before ownership can pass. We saw that the rules change depending on whether the goods are specific and identifiable or still unascertained. That issue raised the question: who bears the risk when the goods no longer exist?
Now we move to another fundamental problem in commercial law: what if the goods do exist, but the seller had no right to sell them in the first place? Can a buyer still become the legal owner, or does the true owner remain protected?
This is where the famous nemo dat rule enters the picture.
The Core Rule: Nemo Dat Quod Non Habet
The phrase nemo dat quod non habet literally means “no one can give what he does not have.”
It expresses the idea that a person cannot pass better ownership rights in goods than the rights he himself possesses.
Section 21(1) of the Sale of Goods Act states the rule clearly:
Where goods are sold by a person who is not their owner, 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.
In practice, this means that if you buy from someone who had no right to sell, you do not become the true owner, no matter how honest or careful you were in making the purchase. The law prioritises the protection of property over the convenience of trade.
Imagine the following example. You purchase a second-hand bicycle at a market stall, paying a fair price and believing the seller is legitimate. A week later, the police discover that the bicycle had been stolen. Even though you acted in good faith, the law says the bicycle must be returned to its rightful owner. You are left to try to recover your money from the seller, who may well have disappeared.
The reasoning is simple: ownership rights are strong and must be respected. Allowing stolen or unauthorised goods to circulate freely without limits would undermine the very concept of property.
Yet, there is a problem. If the rule were applied with absolute rigidity, everyday commerce would become too risky. Buyers would constantly fear that their newly purchased goods might later be claimed by someone else. To prevent commercial paralysis, the law recognises exceptions, allowing good faith buyers to acquire title in certain circumstances.
The Tension Between Two Principles
Lord Denning captured this problem when he explained that in the development of English law, two principles have struggled for mastery. The first is the protection of property: the idea that nobody can transfer more rights than they possess. The second is the protection of commercial transactions: the belief that a person who buys goods in good faith and pays value should be secure in their purchase.
The nemo dat rule firmly supports the first principle. But to protect commerce, the law has carved out exceptions to soften its harshness. These exceptions do not abolish nemo dat, but they limit its effect in carefully defined situations.
The First Exception: Estoppel
The very section that states the nemo dat rule also provides the first exception. Section 21(1) continues with the words:
… unless the owner of the goods is by his conduct precluded from denying the seller’s authority to sell.
This is the doctrine of estoppel.
Meaning of Estoppel
Estoppel prevents the true owner from denying that the seller had authority to sell when, by words or conduct, the owner has created that impression. In such cases, the buyer acquires good title, not because the seller genuinely owned the goods, but because the law will not allow the true owner to contradict the impression they themselves created.
In other words, the owner is stopped—hence “estopped”—from asserting their ownership rights against the innocent buyer.
Example Case
In one classic case, a car owner wanted to raise money on his car without actually selling it. He colluded with a dealer who represented to a finance company that the car belonged to him. The finance company, acting in good faith, provided funds on the strength of that representation. Later, when the fraud was exposed, the true owner tried to recover the car. But the court ruled that he was estopped: by his conduct in helping the dealer present himself as the owner, he could not now deny that the dealer had authority.
Thus, the finance company kept the car, even though the dealer had never truly owned it.
Requirements for Estoppel
For estoppel to apply, there must be some form of representation made by the true owner, either through words or conduct, which leads the buyer reasonably to believe that the seller has authority.
Merely handing over possession of goods or documents is not usually enough, even if done carelessly. The law does not impose a general duty on an owner to protect their property against every possible misuse. As Lord Wilberforce explained in Moorgate Mercantile v Twitchings, a property owner is not under a universal duty to safeguard his property from fraud, and carelessness alone does not deprive him of his rights.
However, if the owner actively or knowingly allows another person to appear as if they had authority, estoppel may arise.
For instance, in Mercantile Credit Co v Hamblin, the owner of a car signed blank forms given to her by a dealer she believed to be respectable. The dealer used those forms fraudulently to sell the car. The court found that although she had been careless, it was not negligence in law, and the fraud, not her conduct, was the real cause of the loss. Still, the case illustrates the fine line between mere carelessness and conduct that amounts to a representation.
Another principle, drawn by analogy from land law, shows that if an owner unreasonably fails to correct a misrepresentation he knows has been made, he may be estopped from later denying its truth. The law will look closely at whether the owner’s behaviour contributed to the buyer’s reasonable belief.
The Scope of Estoppel
It is important to note that estoppel does not create ownership where none exists. Instead, it bars the true owner from asserting his ownership rights in order to protect the innocent buyer. The effect, however, is the same: the buyer keeps the goods.
One limitation is worth mentioning. In Shaw v Metropolitan Police Commissioner, the Court of Appeal took a narrow view of the wording “sold” in section 21(1). They held that estoppel applies only where there has been an actual sale, not merely an agreement to sell.
Why Estoppel Matters
Estoppel represents a compromise between strict property rights and the needs of commerce. It shows that while the law begins with the nemo dat principle, it is willing to shift the burden when the true owner has, by his conduct, helped to mislead the buyer.
Without such an exception, many innocent buyers would face devastating losses, undermining trust in everyday transactions. With estoppel, the law preserves confidence in commerce, while still holding owners responsible for their own representations.
What is the core principle of the nemo dat rule?
No one can transfer better ownership in goods than they themselves possess
Buyers automatically obtain ownership if they pay a fair price
Ownership passes automatically with delivery, regardless of seller’s title
What is the exception to nemo dat described in Section 21(1) of the SGA?
Estoppel – when the owner’s conduct prevents them from denying the seller’s authority to sell
Buyers automatically gain ownership after paying a fair price
Delivery of goods automatically creates good title for buyers
Which of the following is required for estoppel to apply?
Representation by the true owner, through words or conduct, leading a buyer to reasonably believe the seller has authority
Mere carelessness or handing over possession of goods automatically creates estoppel
Estoppel applies whenever the buyer acts in good faith
What is a key limitation of estoppel under Section 21(1)?
Estoppel applies only where there has been an actual sale, not merely an agreement to sell
Estoppel allows anyone to acquire ownership regardless of circumstances
Estoppel automatically applies whenever goods are delivered
