Nemo Dat Quod Non Habet

Nemo dat quod non habet signifies that if you are not the legitimate owner of an item you are not justified to despatch it to anybody else as you cannot give something that does not belong to you, i.e. you do not have. This is designed to protect the true owners. If anybody is trying to sell an item without that legitimate owner’s permission, however, that transaction is unlawful. This principle is clarified in Section 27 of the Sale of Goods Act which explains that anybody purchasing something without the consent of the legitimate owner only attains the same rights to an item as the dishonest seller. An unauthorised vendor only obtains the capacity to sell this item if the rightful owner is disallowed, by some behaviour, from giving permission to this unauthorised sale.

http://www.law-essays-uk.com/2-1-essays/nemo-dat-quod-non-habet.php

What really was to happen if this law was not there? well the answer is quite simple - total and utter chaos!
what would happen is that people would automatically assume that just because something is there lying around, they can easily take it and do with it as they choose, and forget about the person who bought it, and may still need the item.
Say for example, a car. If Aunt Jane was to come by and just decide to take my vase which I bought at an auction for exorbitant amounts, and decide to sell it, or I decide to borrow Uncle Tom my car for the week, and he goes and sells it to his friend because at the time, he considers it his and can do with it as he pleases.
This is exactly what we are trying to avoid. If I bought a good legally, then it is my legal right to sell it when I choose, and not have somebody else buy it.
As such, that is why we have the Sale of Goods Act, which protects people in such situations.