Pearson v. Rose and Young Ltd (1950)

Section 27 states the rule nemo dat quod non habet: where goods are sold by a person who is not the owner and who does not sell under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had. The proviso then creates the widest of the exceptions: where a mercantile agent is, with the consent of the owner, in possession of the goods or of the documents of title, any sale made by him when acting in the ordinary course of business of a mercantile agent is as valid as if he were expressly authorised, provided the buyer acts in good faith and has no notice of the want of authority.

Pearson v. Rose and Young is the leading case on two of those requirements — consent to possession, and the ordinary course of business — and Denning L.J.'s judgment contains the clearest statement in the books of what the whole exception is for.

The plaintiff gave possession of his motor car to Mr Hunt, a motor car dealer and admittedly a mercantile agent, for the purpose of inviting offers to purchase it.

By means of a trick, Hunt induced the plaintiff to hand him the registration book, or log book, relating to the car. On the judge's findings, the plaintiff did not intend to leave the log book with Hunt.

Later the same day, acting without the authority or knowledge of the plaintiff, Hunt sold the car and handed over the registration book to the fourth party, who acted in good faith and without notice of any absence of authority. The fourth party sold the car to the third party, who sold it to the defendants.

The plaintiff sued the defendants for damages for conversion of the car. Devlin J. decided against him. He appealed.

Where a mercantile agent has possession of a car with the owner's consent but has obtained the registration book by a trick, and sells the car with the book, does the buyer get a good title under the mercantile agent exception?

The appeal succeeded. Hunt was unable to pass a good title.

First: the sale was not in the ordinary course of business

Somervell L.J. began with a matter of commercial fact. On the sale of a second-hand car the vendor will ordinarily deliver, and the purchaser will require the delivery of, the registration or log book. Counsel for the plaintiff did not contend that cars cannot be sold without their log books, but accepted that the price would be substantially reduced. From that the court held that a sale of a car without its log book would not be a sale in the ordinary course of business.

That has a direct consequence. The transaction which the fourth party sought to uphold was the sale of a car with its log book — a more valuable subject matter than a car without its log book.

Second: the owner had not consented to possession of the log book

Hunt, said Somervell L.J., was never in possession of the log book with the consent of the plaintiff. He tested it in a way worth reproducing. If immediately after the plaintiff had left the building he had been asked, did you mean to leave your car? he would have answered yes. If he had been asked, did you mean to leave your log book? he would have answered no, and would have gone back and collected it.

The ostensible authority which enabled Hunt to effect a sale in the ordinary course of business arose because of his possession of the log book without the consent of the owner. The court noted that the log book is, of course, not a document of title; but the point is that the consent necessary to pass a good title under the exception is a consent to possession of both the car and the registration book.

Third: larceny by a trick does not by itself exclude the exception

The case had also been argued on the footing that Hunt had obtained the log book by larceny by a trick, and on whether that excluded the exception altogether. Somervell L.J. held that the appeal succeeded on the judge's findings irrespective of that point, but set out his conclusion because the issue had been fully argued.

Denning L.J. answered it, and his three points of principle are the passage to learn.

He began with the policy. In the early days of the common law the governing principle of our law of property was that no person could give a better title than he himself had got, but the needs of commerce have led to a progressive modification of this principle so as to protect innocent purchasers. The cases show how difficult it is to strike the right balance between the claims of true owners and the claims of innocent purchasers. In the case of mercantile agents, Parliament struck it in this way: the true owner is protected where the goods are taken from him without his consent — as where they are stolen from his house by a burglar who hands them to a mercantile agent, in which case the owner may claim them back even from an innocent purchaser; but the true owner is not protected if he has himself consented to a mercantile agent having possession of them, because by leaving them in the agent's possession he has clothed the agent with apparent authority to sell, and he should not be allowed to claim them back from an innocent purchaser.

The critical question, therefore, in every case is whether the true owner consented to the mercantile agent having possession of the goods.

Point (i): theft by the agent. At first sight it seems obvious that no man consents to the theft of his goods, but therein lurks a fallacy. There are many cases of larceny where the true owner consents to the thief having possession of the goods but not to his stealing them. If the owner allows the agent to have the goods on hire or for repair and the agent later decides to steal them, the agent is guilty of larceny as a bailee, but the owner undoubtedly consented to his having possession. Take the same case, but where the agent intended from the very beginning to steal: the agent is guilty of larceny by a trick, but the owner undoubtedly consented to his having possession of them. His state of mind is the same in both instances. He consented to possession, but not to the theft of the goods. The fact that the agent is guilty of larceny by a trick therefore does not prevent the operation of the exception any more than the fact that he was guilty of larceny as a bailee.

Point (ii): consent obtained by fraud. Again the answer seems obvious, since fraud negatives consent. But the effect of fraud, in this as in other parts of the law, is as a rule only to make the transaction voidable and not void; so if an innocent purchaser has bought the goods before the transaction is avoided, the true owner cannot claim them.

The court also endorsed the reasoning that Parliament had no intention of applying the artificial distinctions of the criminal law to a commercial transaction, defeating the transaction if there were larceny by a trick but not if there were only larceny by a bailee or possession obtained by false pretences.

Under the mercantile agent exception, the owner's consent must extend to possession of everything necessary to make the sale one in the ordinary course of business. Where the agent obtained the car with consent but the registration book by a trick, the sale of the car with the book was not a sale in the ordinary course of business made with the owner's consent to possession, and no title passed. The fact that the agent's conduct amounted to larceny by a trick does not by itself exclude the exception, because consent to possession and consent to the theft are different things.

The proviso to s. 27 has four requirements, and Pearson is authority on the first two.

1. A mercantile agent — defined in s. 2(9) as a mercantile agent having in the customary course of business as such agent authority to sell goods, to consign goods for sale, to buy goods, or to raise money on the security of goods. This was admitted in Pearson.
2. In possession of the goods or documents of title with the consent of the owner. Pearson holds that the consent must cover what is needed for an ordinary-course sale. Denning L.J.'s analysis shows that consent to possession is not destroyed by the agent's dishonest intention.
3. A sale in the ordinary course of business of a mercantile agent. Pearson holds that selling a second-hand car without its log book is not.
4. A buyer in good faith without notice of the want of authority. That was satisfied in Pearson, and still did not save the buyer, because requirements 2 and 3 failed.

Read the case alongside the neighbouring exceptions, all of which turn on the same idea that the loss falls on the party who created the appearance of title: s. 28, sale by one of several joint owners in sole possession by permission; s. 29, sale by a person in possession under a voidable contract not yet rescinded; s. 30(1), seller in possession after sale; s. 30(2), buyer in possession after sale; and s. 54(3), resale by an unpaid seller.

Note the connection with s. 178 of the Contract Act, which contains the same mercantile agent rule for a pledge, and takes the meanings of mercantile agent and documents of title from the Sale of Goods Act by its Explanation.