In Short
If you buy a car from someone who does not own it, you usually do not become the legal owner. You may still gain ownership if you bought in good faith and an exception applies, such as purchase from an authorised dealer or with the owner’s consent. These rules aim to balance fairness to true owners with certainty for buyers.
Tips for Businesses
Check that the seller has the right to sell before buying vehicles or equipment. Confirm registration and ownership records, and keep written evidence of the transaction. Act promptly if ownership is disputed, as delay can weaken your position. Seek legal advice where goods are high value or title is uncertain.
Summary
This guide explains ownership of goods for business buyers in New South Wales when purchasing from a non-owner. It is prepared by LegalVision’s business lawyers, a commercial law firm that specialises in advising clients on commercial and contract law.
You have just bought a car in New South Wales and are driving home, feeling good about yourself. Suddenly, someone waves you down to which you stop the car to find out what they want. The person tells you that they are in fact the owner of the car and want it back. It turns out you bought the car from a rogue, who has now disappeared. What do you do? This article explains what happens when you buy a car from someone who does not actually own it.
The General Rule
The general rule is straightforward: a person cannot sell what they do not own. So, if you buy goods from someone who does not own them, you do not become the owner. However, the law recognises a number of exceptions to this rule. These exceptions reflect some of the practicalities of buying and selling goods and aim to prevent uncertainty in commercial transactions.
Basic Requirements
To rely on these exceptions, a buyer must act in good faith and without notice. This means that the buyer was not aware that the person selling them the goods was not actually the owner. If you were aware of this, one of the exceptions to the general rule discussed below will not apply.
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Exceptions of When You May Still Own the Car
If you bought a car from someone who was not the owner, the purchase may be legal if one of the legal exception applies.
Authority or Owner Consent
If the seller has the authority or consent of the actual owner to sell it to you. Then it is as good as if the owner sold the car to you personally. There would higher uncertainty if people could back out of deals that they authorised others to perform on their behalf.
Sale by a Mercantile Agent
Sometimes an owner authorises a person to deal with their goods, but not to sell them. In those cases, the person does not have actual authority to sell the goods. However, if the owner has entrusted the person as a “mercantile agent”, the sale is effective. A mercantile agent is a person who, in the ordinary course of business, has authority to buy or sell goods. So, if the owner of a Ferrari asks a car dealer to display the car, but not to sell it. A person who buys the car from the dealer may still become the owner.
Owner Representation
The sale may also be effective if the owner has somehow represented to the buyer that the person selling the goods had the right to do so. The owner may make these representations through their conduct and may sometimes even occur by omission, where the owner has failed to take reasonable steps to notify a buyer that the seller does not own the goods.
Seller with Defective Title
In some circumstances, a person has title to goods, but that title is bad and the true owner can claim the goods back. Before someone sells the goods to a new buyer, the owner has to claim the goods back and if not, the new buyer will become the owner.
Key Takeaways
When buying goods, it is always best to make sure the person selling them actually has the right to do so. If someone has asked you to return goods that you have purchased, you should talk to a lawyer about your options. LegalVision provides ongoing legal support for businesses through our fixed-fee legal membership. Our experienced contract lawyers help businesses manage contracts, employment law, disputes, intellectual property, and more, with unlimited access to specialist lawyers for a fixed monthly fee. To learn more about LegalVision’s legal membership, call 1300 544 755 or visit our membership page.
Frequently Asked Questions
Do I own a car if I bought it from someone who was not the owner?
Usually, you do not own the car because the seller cannot transfer ownership that they do not have. However, you may gain ownership if an exception applies, such as buying in good faith from a mercantile agent or where the true owner authorised or represented the seller’s authority.
What should I do if the true owner asks for the car back?
Act quickly and seek legal advice. A lawyer can assess whether an exception applies and whether you can keep the car. Do not ignore the claim, as the true owner may have the right to recover the vehicle or take legal action to enforce their ownership.
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