nemo dat quod non habet

Nemo dat quod non habet is a latin phrase for 'no one can give what he does not have'. Legally speaking, this term means that the purchase of a possession from someone who has no ownership right to it also denies the purchaser any ownership title. This rule is deemed to protect the rights of ownership. If no rule was to be created, the interest of the true owner of the stolen goods would be jeopardized.

There are however, a few exceptions to these rule:
1. The operation of estoppel (s. 27)
Subject to this Act and of any other law for the time being in force, where goods are sold by a person who is not the owner thereof, 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, unless the owner of the goods is by his conduct precluded from denying the seller’s authority to sell.

2. Sale by mercantile agent (s.27)
Provided that where a mercantile agent is, with the consent of the owner, in possession of the goods or of a document of title to the goods, any sale made by him when acting in the ordinary course of business of a mercantile agent shall be as valid as if he were expressly authorized by the owner of the goods to make the same; provided that the buyer acts in good faith and has not at the time of the contract of sale notice that the seller has no authority to sell.

3. Sale by one of joint owners (s.28)
If one of several joint owners of goods has the sole possession of them by permission of the co-owners, the property in the goods is transferred to any person who buys them of such joint owner in good faith and has not at the time of the contract of sale notice that the seller has no authority to sell.

4. Sale under a voidable title (s. 29)
Where the seller of goods has obtained possession thereof under a contract voidable under section 19 or 20 of the Contracts Act 1950, but the contract has not been rescinded at the time of the sale, the buyer acquires a good title to the goods provided he buys them in good faith and without notice of the seller’s defect
of title.

5. Sale by a seller in possession after sale (s. 30(1))
Where a person, having sold goods, continues or is in possession of the goods or of the documents of title to the goods, the delivery or transfer by that person or by a mercantile agent acting for him, of the goods or documents of title under any sale,pledge or other disposition thereof to any person receiving the same in good faith and without notice of the previous sale shall have the same effect as if the person making the delivery or transfer were expressly authorized by the owner of the goods to make the same.

6. Sale by a buyer in possession (s. 30(2))
Where a person, having bought or agreed to buy goods, obtains, with the consent of the seller, possession of the goods or the documents of title to the goods, the delivery or transfer by that person or by a mercantile agent acting for him of the goods or documents of title under any sale, pledge, or other disposition thereof to any person receiving the same in good faith and without notice of any lien or other right of the original seller in respect of the goods shall have effect as if such lien or right did not exist.

source: Sales of Goods Act 1957

caveat venditor - why a retailer sells goods at his own peril

Many small business owners that I've encountered are surprised to learn that under New York law, anyone in a product's chain of distribution can be held liable for injury that results from the foreseeable use of the product. This law includes a retailer, who may have just put that product on his shelf without ever opening the box, and a distributor, who merely transported the product from one destination to the other. Under this scenario, neither the retailer nor the distributor was actively at fault for the product's defect or the plaintiff's accident - and they can still be held liable. Does that sound scary from the retailer or distributor's perspective? It sure is.

The Plaintiff's Burden of Proof in a Products Liability Action

In very basic terms, in order to prevail in a products liability action, a plaintiff needs to prove two things: first, that the product is defective, i.e., the product is so likely to be harmful to persons or property that a reasonable person who had actual knowledge of its potential for producing injury would conclude that it should not have been marketed in that condition, and, second, that the defect was a substantial factor in causing plaintiff's injuries.

The plaintiff can meet this burden of proof by demonstrating one of the following: (1) this specific product was defectively manufactured; (2) the product was defectively designed; or, (3) the safety warnings accompanying the product were inadequate.
At first blush, this law seems particularly tough on middlemen like the retailer and distributor, which presumably have little to no input in either the manufacture or design of the product, or the warnings that are placed on the product. However, it bears mention that these entities reap the financial rewards from selling the product. Consequently, the courts have opined that in the interests of assuring that a plaintiff with a legitimate defective products claim has a viable and readily available party from whom he or she can be compensated (as opposed to a foreign manufacturer with no connection to the plaintiff or place of occurrence), it is fair to hold the middlemen liable for the product's failures.

This law does not leave retailers or distributors without recourse; to the contrary, they are still entitled to seek indemnity and/or contribution from the responsible party (generally, the manufacturer). On the other hand, clearing the technical and procedural hurdles necessary to get indemnity from the manufacturer is often far from simple, particularly where the manufacturer is foreign.
Assumption #1: The manufacturer has the requisite minimum contacts with the forum of the claim. In order to obtain personal jurisdiction over the foreign manufacturer, you must demonstrate that the manufacturer either transacts business or has some other tangible nexus with the forum state (see, e.g., New York Civil Practice Law and Rules 302).
Assumption #2: The manufacturer's host country is a signatory to the Hague Convention's Service of Process Rules. If Assumption #1 can be satisfied (which is uncertain at best), you will still need to assure that your legal papers are personally served on the manufacturer. This in turn requires that the manufacturer is not only readily located, but can be served under the Hague Convention's rules.
Assumption #3: The manufacturer is a viable entity with collectible assets. It goes without saying that a paper judgment against a defunct corporation is utterly worthless.

So how can a domestic retailer or distributor protect itself against products liability claims? Here are a few suggestions:

3 Easy Steps to Protect Your Retail Business Against Defective Products Claims

Step #1: Make sure that those entities above you in the chain of distribution carry adequate products liability insurance from a domestic, well-reputed and established insurer that specifically names your company as an additional insured on the policy. Do not rely on the manufacturer's claim that you are named on the policy; get confirmation directly from the insurer (I have seen instances where the declaration sheet provided by the other party to the agreement was a complete fabrication).

Step #2: Make sure that you have an agreement that indemnifies you against any claim of a product defect that is not of your own doing. Stated otherwise, if you are a retailer or distributor, you should be indemnified against any claims of manufacturing or design defect and/or inadequate warnings.

Step #3: Try to assure that those companies directly above you in the chain of distribution have a domestic presence, such as an office or agent for service of process.

While following these rules may cost some time and money in the short run, these safeguards are indispensable, for they may ultimately save your company from needless exposure to financial ruin.


Copyright (c) 2008 Law Offices of Jonathan Cooper
By:
Jonathan Cooper

of tattoos and caveat emptor

'Caveat emptor' is a Latin phrase which simply translates to 'let the buyer beware'. It is a precaution that the buyers should know the condition and quality of the purchase before buying. The seller is not responsible for informing the defects or imperfections of the item or service to be sold. Honesty and frankness are usually non-existent in sellers, unless he's a man who does not prioritise profits as his ultimatum in opening a business. I recently came across an article about a girl who got a tattoo which was mispelt. She saw the preview of the word and the stencil on her arm which was the word 'beatiful'. It was spelled incorrectly but she was not aware of it until someone pointed it out. Guess this is what happens when the literary rate in the U.S. is low. Back to the story. She then wanted to sue the artist for tattooing the mispelt word on her arm. The adjudicator ruled that "...the Claimant is the author of her own misfortune. The Claimant saw the phrase on the computer, on the stencil and then on her arm before being tattooed and she approved of the tattoo”. Hence, caveat emptor applies even when getting a tattoo. If you are illiterate, get a picture instead.

lee v lee air farming ltd.

Mr Lee was a pilot who operated a crop dusting business. Mr Lee formed the corporation, Lee's Air Farming Ltd. Its main business was aerial spraying. He was the director and owned most of the shares(he held 2999 of the company's 3000 shares). As director of the corporation, he hired himself as an employee of the corporation. As one of the administrative tasks in setting up the company, he acted as its agent in setting up insurance, including workers' compensation insurance. The corporation's plane crashed while Mr Lee was flying it as part of his work, and he was killed on the job.

His widow, the plaintiff, attempted to collect what was rightfully due to a widow of a man killed on the job. The actual defendant was the insurance company.
The main question in the case was whether a person could be both a director and major shareholder of a corporation, on the one hand, and also an employee of the corporation, on the other.

Previous cases, beginning with the Salomon case, had confirmed that a corporation has an existence separate and apart from its shareholders and directors. The exceptions to that principle are gathered under the rubric, 'Piercing the Corporate Veil.' Where a corporation is a mere sham, the law can cut through the veil of corporate legitimacy, and reach into it for the shareholders and directors.
The Lee's Air Farming case confirmed the Salomon principle. Lee's Air Farming Ltd. was not a mere sham. It was a legitimate corporation, established for legitimate purposes, and had carried on a legitimate business. His employment by the corporation was well-documented, through government records of tax deductions, workmens' compensation contributions, etc., and was not something his widow had attempted to piece together after the fact of his death. There was no reason in law why a person could not perform corporate functions and employee functions within the same corporation. it was held that Lee was a separate person distinct from that company hence compensation was due to the widow.

fun with dick and jane

"Fun With Dick and Jane" is a remake of the 1977 comedy starring Jane Fonda and George Segal, true to its storyline. Those who do not learn from history are doomed to remake it. This proves true in this comedy starring Jim Carrey as Dick and Tea Leoni as Jane. Dick is an executive of a mega corporation (think Enron), who is promoted to vice president in charge of communications, just in time to be its spokesman on live cable news as the corporation's stocks melts down to pennies a share. Jane, on the morning of his promotion quit her job. After the embarrassing meltdown on national TV, Dick is left jobless, and so is his wife.

What turned out to be a glorious affluence turned sour. They have to sell their possessions to get by. After running out of possessions, they then turn to robbery - first convenience stores and head shops, later private homes and banks - and while that pays the bills and their kid's birthday party, Dick is brewing a brilliant scheme. Namely, revenge on his old boss Jack McAllister (Alec Baldwin), the corporate shark who tanked the company, Globodyne.

McAllister has already looted whatever assets ever existed in the company, leaving with hundreds of millions while his employees face a financial meltdown. This is a typical turnout of the corporation being a separate legal entity. The fact that the company is an entirely separate entity, the directors do not have legal obligations to bail out the company or reduce their pay to help the company survive. While the helpless ex-employees are out there slaving their way through daily survival, McAllister enjoys his looted luxuries with no remorse. Come to think of it, there's the Salomon principle to be blamed for the frauds and criminal activities. Without it, none of this fiasco would have ever happened. The fallouts of Enron and WorldCom would not have taken place. Perhaps this is a time to start re-evaluating the principle so that directors would not be exempted from the meltdown of their corporations.

salomon principle - a blessing or otherwise?

The case of Salomon v Salomon & Co. Ltd has become a landmark law in setting the principle that a corporation is a separate legal entity. The unanimous ruling of the house of the Lords firmly upholds the doctrine of corporate personality. From then onwards, corporations are being treated as a distinct 'person', separated from and independent of the persons who formed it, who invest money in it, and who direct and manage its operations. It follows that the rights and duties of a corporation are not the rights and duties of its directors or members who are, most of the time, obscured by a corporate veil surrounding the company.

The fact that the corporation is a separate legal entity in its own right has birthed many criticisms. What was supposed to be granted as a privilege for legal and business convenience, has turned into a way to commit fraudulent activities and get away with it. The increase of companies going into a state of bankruptcy, workers getting laid off and the poor keep getting poorer are somehow a produce of directors and owners exploiting the Salomon principle. They have billions of dollars stacked away in bank accounts, enough to sustain their succeeding generations of heirs, while the companies are left for doom. This is due to the fact that corporations may have incurred huge losses, but the assets of the directors are to be left untouched as they do not represent the corporation.

Professor Kahn-Freund described the decision of the House of Lords in the case as "calamitious" and called for the abolition of private companies. In his article in the Modern Law Review, he mentioned that the impact on the society by a failing economy and corporations and uses two main approaches whilst at this; first that the interests of the community itself in the distribution, investment of profits of the concern, the prevention of fraudulent transactions affecting the community at large and the measure of publicity should be taken into consideration. The second by the abuse of the principle of a corporate entity and undermining of the company’s capital as a ‘guarantee fund’ by the issue of shares and buy outs in exchange for over valued assets.

The conniving minds of the directors caused the downfall of Fannie and Freddie Mac in the U.S, and now the whole world economy. Such a problem does not call for a legal remedy, but an economic one. Any slight possibility of looking at a legal solution, will be countered by the decision in Salomon.

There is therefore still a debate as to whether the Salomon principle should be applied in a modern legal environment, with directors manipulating the principle for their own good use. Many have referred to this principle as a 'double edged sword', endowing companies with the attributes to be a powerhouse of capitalism yet promoting fraud and the evasion of legal obligations. So what is the final verdict? Yay or nay to the Salomon principle?

Reference:
A Two-Edged Sword: Salomon and the Separate Legal Entity Doctrine
Wikipedia
The Social Blog

holdings and subsidiary

A subsidiary, in business matters, is an entity that is controlled by a separate higher entity[citation needed]. The controlled entity is called a company, corporation, or limited liability company; and in some cases can be a government or state-owned enterprise, and the controlling entity is called its parent (or the parent company). The reason for this distinction is that a lone company cannot be a subsidiary of any organization; only an entity representing a legal fiction as a separate entity can be a subsidiary. Contrary to popular belief,[by whom?] a parent company does not have to be the larger or "more powerful" entity;[citation needed] it is possible for the parent company to be smaller than a subsidiary,[citation needed] or the parent may be larger than some or all of its subsidiaries (if it has more than one).[citation needed] The parent and the subsidiary do not necessarily have to operate in the same locations, or operate the same businesses, but it is also possible that they could conceivably be competitors in the marketplace. (Hewlett Packard is the parent company of Compaq, but both compete against each other in the sale of desktop computers.) Also, because a parent company and a subsidiary are separate entities, it is entirely possible for one of them to be involved in legal proceedings, bankruptcy, tax delinquency, indictment and/or under investigation, while the other is not.

The most common way that control of a subsidiary, is achieved is through the ownership of shares in the subsidiary by the parent. These shares give the parent the necessary votes to determine the composition of the board of the subsidiary, and so exercise control. This gives rise to the common presumption that 50% plus one share is enough to create a subsidiary. There are, however, other ways that control can come about, and the exact rules both as to what control is needed, and how it is achieved, can be complex (see below). A subsidiary may itself have subsidiaries, and these, in turn, may have subsidiaries of their own. A parent and all its subsidiaries together are called a "group", although this term can also apply to cooperating companies and their subsidiaries with varying degrees of shared ownership.

Subsidiaries are separate, distinct legal entities for the purposes of taxation and regulation. For this reason, they differ from divisions, which are businesses fully integrated within the main company, and not legally or otherwise distinct from it.

excerpt from wikipedia

There are many companies which decide to have subsidiary companies. For example,

i) KFC Holdings (Malaysia) Berhad

ii) Telekom Malaysia Berhad

iii)Berjaya Corporation Berhad

iv) Unilever

v) Fraser & Neave Holdings Berhad