That's not what the law states.
It actually says:
(1) A purchaser of goods acquires all title which his transferor had or had power to transfer except that a purchaser of a limited interest acquires rights only to the extent of the interest purchased.
The part you're quoting refers to the recipient being the fraud, not the seller. The recipient never acquires more rights than the seller had. This is why stolen goods can be seized by police, even from innocent purchasers.
[Edit:] Actually more complicated than that. The provision contemplates the middle-man acquired the rights to the goods sold through fraudulent means. In this case, it still requires the middle-man to have acquired the rights from the original seller in a transaction in which the seller gave up the rights to the goods. I.e., theft by fraud would suffice but mere theft would not. It's hard to explain theft by fraud. In a nutshell, the original seller is deceived as to one or more details of the transaction itself, such as price, identify of the seller, or even as to what they are exchanging. The UCC expects all parties to a contract governed by the UCC to exercise due diligence with respect to a contract, so if the transaction includes the "stolen" goods, the UCC doesn't provide any relief. Generally in a situation like this, it would happen where the language of the transaction clearly would include the goods at issue, but the middleman misrepresents to the original seller that those goods aren't included in the contract.