Nemo Dat

Law can be fun! This post should not be considered legal advice, it is simply an exploration of a interesting topic. Also, it is very high-level, and the results in any particular jurisdiction could be quite different.

"Nemo dat" is (possibly ungrammatical) Latin for "no one can give." It is a legal principle that has been part of Anglo-American law for a long time. In essence, the principle states that you generally can't give greater title to property than you have. I'll give an example and then look at some exceptions.

Let's say I check out a library book, remove any indication that it belongs to the library, and then sell it or trade it to a friend as a used book. The nemo dat principle focuses on my property rights, so let's start there. What I had was not outright ownership of the book, but rather the right to possess and use it for a limited period of time. Under the nemo dat principle, that's the most I could possibly transfer to someone else. So depending on the rules of the library, I could maybe give the book to my friend for the remainder of the check-out period.

What I couldn't do, of course, is give my friend what I purported to: outright ownership of the book. Therefore if the library were able to track the book down, the library could recover it from my friend. (Maybe not until the due date! However, defacing the book would probably have terminated my right to keep it until then.)

This brings us to an important point. Imagine that my friend is innocent. He didn't know the book was stolen, and he paid good money for it. The law is therefore confronted with two innocent parties: the library that owns the book and a good-faith acquirer of the book. The nemo dat principle is simply the decision that in this dispute, the library should win and should get the book back. (Both the library and my friend have a good cause of action against me, and the law will never let me defeat either of them in a lawsuit over the book or the sale price. But quite often, it turns out, the dishonest party has fled the jurisdiction by the time the duplicity has come to light, and the only thing the law can do is allocate the losses between two parties who have done nothing wrong.)

There is a second important point here. Imagine that my friend sells the book to another friend, who sells it to someone else, and so on. Subject to an exception we'll get to shortly, the nemo dat principle still applies. The library can theoretically recover the book from the 20th or 200th or 2,000th buyer. By that time, of course, it would have been virtually impossible for the buyer to research the book's "chain of title," but it doesn't matter. Nemo dat, to the extent it applies, means that not one of those sellers was able to give a purchaser greater title to the book than he had, and so the library still wins. As a result the "chain of title" matters tremendously (although in practice, of course, it is often very difficult to track down stolen property and it can also be difficult to prove that it is the same property that was stolen).

Over time a number of exceptions to the nemo dat principle took root. One important exception is that someone who buys property from a retailer in good faith can take good title to the property even if it was stolen at some point. So if a truckload of radios is stolen and then sold, and one of the radios somehow ends up on the shelf in an electronics store, someone who buys it with no knowledge of the theft gets to keep it, even if the original owner later tracks it down. Again there are two innocent parties, but for a variety of reasons the law now awards the property to the good-faith purchaser.

Of course that's another way of saying that a retail store can give better title than it has. The original owner of the radio could have recovered it from the retailer without compensation, as a straightforward application of the nemo dat principle. But the innocent customer was able to take good, clean title to the radio. By the way, that extends to every subsequent owner of the radio (except maybe someone who, coincidentally, was culpable in the original theft). Now that any defect in title has been scrubbed away, the nemo dat principle allows full ownership of the radio to be given to subsequent purchasers or even gratuitous transferees (people who get the radio as a gift).

Why is this? I don't know exactly. The law wants to protect retail customers, or it wants to encourage open commerce, or something. Bear in mind, in the retail store the radio was sitting there on the shelf for all the world to see. The retailer may be dishonest, but his dishonesty is inherently limited by the nature of his business. Anyone, including the original owner, can walk in and examine the merchandise. And if the original owner does so and sees the stolen property (and can prove it is hers), the retailer is out of luck.

You may be wondering about pawn shops—the answer is that pawn shops must generally submit to extremely intrusive government oversight because they are such an obvious vector for stolen property. I do not know whether they can give clean title, but I suspect they can (that is, I suspect they are eligible for the retailer exception to nemo dat). But they have to provide lists of their goods to the state, which can check stolen goods reports and identify any matching property.

Paper currency is another important exception to nemo dat. In the United States, each dollar bill has its own serial number, and you could theoretically prove that a particular bill was stolen from you. Nevertheless, the only person you can recover the bill from is the thief himself (or maybe his collaborators). Note that I'm not talking about monetary damages—I'm talking about the actual piece of paper money that was stolen from you. Someone can obtain good title to a dollar bill simply by taking possession of it lawfully. Doesn't have to be a retail transaction, doesn't have to be a commercial transaction at all. It's extremely important for money to be trustworthy, for it to be worth its face value, and money changes hands so often that if title could be clouded by the nemo dat principle, it could barely function for its intended purpose.

Similar exceptions have been made for certain financial instruments, including securities. Again, the logic is that "negotiability"—the ability to give good title to something regardless of anything that happened in the past—is justified because it facilitates important commercial activity. One share of IBM stock must be exactly the same as another, so people can transact easily and anonymously. And so the policy decision underlying the "nemo dat" principle—to favor the original owner of property over an innocent acquirer—is flipped, and the original owner is out of luck.

The punchline here—and there is a punchline—will have to wait for my next post.