Doctrine of nemo dat quod non habet plays very limited, if any, role under PPSA

Lisec America, Inc. v. Barber Suffolk Ltd., 2012 ONCA 37 is a good source for the principle that common law title plays little if any role in determining priority rights to personal property under the PPSA.  The Court holds:

[40]         On this interpretation, there is no need to engage in the debate about whether the common law doctrine of nemo dat quod non habet continues to play a parallel role in the determination of priority disputes involving security interests, or whether it has been ousted by the terms of the PPSA, as counsel have invited us to do.  Suffice it to say, as the Supreme Court of Canada has recently noted, in Bank of Montreal v. Innovation Credit Union, 2010 SCC 47, [2010] 3 S.C.R. 3, at para 41, "the PPSA resolves priority disputes through a detailed set of priority rules rather than on the basis of title or the form of a transaction."

[41]         To the extent that nemo dat principles would otherwise have been applicable in these circumstances, it seems to me that they have been incorporated into – and are given effect through – the upshot of ss. 9, 39 and 48(2) of the Act, taken together: (i) a security agreement is effective according to its terms against third parties (s. 9); (ii) the rights of a debtor in collateral may be transferred, but no transfer prejudices the rights of the secured party under the security agreement or otherwise (s. 39); and (iii) a registered priority does not become unperfected by an unknown transfer to a third party if the secured party registers a financing change statement within 30 days of learning of the information required to do so (s. 48(2)).  Nothing further is required for these purposes.

[42]         Nor does anything in this approach conflict with the well-accepted purpose of the PPSA which, as Gonthier J. noted in Royal Bank v. Sparrow Electric Corp., [1997] 1 S.C.R. 411, at p. 436, is "to increase certainty and predictability in secured transactions through the creation of a coherent system of priorities."

[43]         It is true that lenders in the position of Roynat are vulnerable in situations such as this case presents.  But the legislature has given a clear indication through the operation of s. 48(2) of the PPSA that lenders in the position of Lisec are to prevail.  There is no lack of certainty or predictability when the provisions of the Act as a whole are properly applied.