Pearson v. Rose & Young, Ltd. ((1950) 2 Ch. D. 1027)

Facts of the Case

This case deals with the conflict between the fundamental common law rule of nemo dat quod non habet (no one can give what he has not got) and the statutory protection afforded to innocent buyers under the Factors Act, 1889 (the equivalent in India is Section 27 of the Sale of Goods Act, 1930).

• The Goods and Parties: The Plaintiff (Pearson) owned a motor car. He entrusted the car to Mr. Hunt, a motor car dealer and Mercantile Agent.

• Consent Granted (Car): The Plaintiff gave Mr. Hunt possession of the car for the limited purpose of inviting offers to purchase. He did not authorize a sale.

• Consent Vitiated (Documents): Mr. Hunt used a trick to induce the Plaintiff to hand over the car's Registration Book (log book).

• Unauthorized Sale: Mr. Hunt, without authority and in fraud of the Plaintiff, sold both the car and the log book to a fourth party who was an innocent purchaser (acting in good faith and for value).

• Chain of Title: The car eventually passed through subsequent purchasers and was finally sold to the Defendants (Rose & Young, Ltd.).

• The Claim: The Plaintiff sued the Defendants for conversion of the car, claiming that no valid title ever passed from the fraudulent agent, Mr. Hunt.

Issue

Whether the fourth party (the innocent buyer from Mr. Hunt) obtained a good title to the car under Section 2(1) of the Factors Act, 1889, which requires the mercantile agent to be in possession of the goods with the consent of the owner and to act in the ordinary course of business.

Judgment

The Court ruled in favour of the Plaintiff (the true owner), holding that Mr. Hunt could not pass a good title to the car. The subsequent purchasers (including the defendants) were liable for conversion.

Legal Analysis

The Court meticulously dissected Section 2(1) of the Factors Act, finding the agent failed on two critical statutory requirements:

1. Requirement of Consent to Possession

Section 2(1) requires the mercantile agent to be in possession of the goods or documents of title with the consent of the owner.

• Car Possession: The Court accepted that the Plaintiff consented to Mr. Hunt's possession of the car itself (for inviting offers). The fact that this consent was induced by fraud (larceny by a bailee, or fraud rendering the contract voidable) would generally not defeat the application of the Factors Act.

• Document Possession: However, the agent obtained the Registration Book (a highly relevant document for car sales) by a separate trick. The court held that the Plaintiff did not consent to Mr. Hunt's possession of the log book in his capacity as a mercantile agent authorized to deal with the car.

• Consolidated Consent: For a car sale to be valid under the Act, the agent needs the owner's consent to possess both the car and the relevant documents necessary for a proper commercial sale. Since the log book was obtained by larceny by a trick, the possession of the book was fundamentally flawed, vitiating the entire transaction.

2. Requirement of 'Ordinary Course of Business'

Even if consent to the car's possession was valid, the sale itself must be made by the agent "when acting in the ordinary course of business of a mercantile agent."

• Customary Practice: The Court emphasized that the sale of a second-hand motor car without its Registration Book was not a sale "in the ordinary course of business" for a motor car dealer. The log book was considered essential documentation for a legitimate car sale at that time.

• Failure of Exception: Because the transaction failed to meet both the "consent" requirement (for the log book) and the "ordinary course of business" requirement (selling without proper documentation), the statutory exception provided by the Factors Act to the nemo dat rule did not apply.

The original owner's title was therefore upheld, and the innocent purchasers in the chain, including the defendants, acquired no title.