Nemo Dat & Its Exceptions Under Subsection 26(1.2)

ABCD Remoteness Problems: Nemo Dat & Its Exceptions Under Subsection 26(1.2) of

Saskatchewan’s The Sale of Goods Act

Clayton Bangsund*

I would have been out here a little bit sooner, but they gave me the wrong

dressing room, and I couldn’t find any place to put my stuff. And I don’t know

how you are, but I need a place to put my stuff. So that’s what I’ve been doing 2018 CanLIIDocs 365 back there—just trying to find a place for my stuff. You know how important that

is. That’s the whole meaning of life, isn’t it? Trying to find a place for your stuff.

George Carlin

Universal Amphitheatre

Los Angeles, California,

19861

* Assistant Professor, University of Saskatchewan, College of Law. I am thankful to Professors Ronald C.C.

Cuming, Tamara Buckwold, Mohamed Khimji, Thomas Telfer and Roderick J. Wood, and all others in

attendance at the Second Annual Commercial Law Symposium held in Saskatoon in the fall of 2017, for

your insight and constructive feedback. Thanks also to Marek Coutu for your valuable research assistance.

Finally, I am grateful to the Law Foundation for funding this research.

1 “Stuff”, online: Youtube ,

archived: (clip taken from 1986 Comic Relief) [Carlin,

“Stuff”]. Carlin introduced this material during the live component of an album titled A

Place for My Stuff (Atlantic, 1981). In his memoir, Carlin explained that the “stuff”

routine “eventually became a signature piece” for his next generation of material. See

George Carlin, Last Words: A Memoir (New York: Free Press, 2009) at 214 [Carlin,

I. INTRODUCTION

Goods come in all shapes and sizes, serve countless purposes, and are an important—in fact, inescapable—form of personal property for consumers and commercial parties alike. As a general matter, “goods” are physical objects (i.e. stuff),2 encompassing all non-negotiable tangible personal property;3 examples include automobiles, boats, agricultural implements, mining equipment, livestock, electronics, precious gems, extracted minerals, portraits, books, 2018 CanLIIDocs 365 bananas, and paperclips.4 Indeed, goods, whether animate or inanimate, range significantly in monetary value and size—from fractions of a cent for a grain of rice, to billions of dollars for an aircraft carrier. Some goods are aesthetically pleasing and hold value as items of wardrobe or décor, while others are consumed for enjoyment, sustenance, or survival. Goods serve as devices of communication, navigation, calculation, and transportation, to name only a few.5 They fulfill innumerable useful purposes in the delivery of services and the production, manufacturing, and raising of yet other goods. Simply put, goods perform prominent roles in many aspects of consumer and commercial life.

Memoir].

2 Carlin, Memoir, supra note 1 at 215: “Stuff is a funny word and bears repetition. A lot of it.”

3 See The Sale of Goods Act, RSS 1978, c S-1, s 2(1)(h), “goods” [SGA]; The Personal Property Security

Act, 1993, SS 1993, c P-6.2, s 2(1)(u), “goods” [PPSA].

4 Carlin, Memoir, supra note 1 at 282: “Sometimes I’ll be in the middle of a list—I love to rattle off twelve

things in a row.”

5 This list of functions is nowhere near exhaustive. In an ode to Carlin, I name a dozen more: organization,

amplification, magnification, recordation, illumination, obfuscation, extension, protection, preparation,

collection, sanitation, and beautification.

Suppose that A sells goods to B, but, borrowing Carlin’s words, B has no place for his stuff.6 A accommodates B’s logistical dilemma by retaining possession of the goods while B arranges suitable storage. B agrees to pick up the goods from A’s premises once he has found a place for his stuff. Before that time arrives, A sells the goods to C who takes possession and on- sells them to D. Upon discovering the location of the goods, B seeks their recovery by suing D in conversion.7 This basic series of events is referred to as the “Sale Scenario.” Between B and D, the two parties asserting ownership of the goods, who has better title? On what grounds? 2018 CanLIIDocs 365 Now imagine, under an alternate set of facts—the “Secured Transaction Scenario”— instead of selling the goods to B (as in the Sale Scenario), A grants B a non-possessory security interest in the goods to secure repayment of a debt. Otherwise, the facts remain the same; A subsequently sells the goods to C who takes possession and on-sells them to D. In this instance,

B pursues the goods in D’s hands on the basis that D holds them subject to B’s security interest.

All other things being equal, does this factual twist—imagining B as a non-possessory secured party (as in the Secured Transaction Scenario), not a buyer/owner out of possession (as in the

Sale Scenario)—alter the outcome of the dispute between B and D? Should it?

My questions are not rhetorical. Given the ubiquity of goods in our society, and the pervasiveness of transactions involving their disposition, it is important that the law of property furnish straightforward, sensible answers to these questions. Enter The Sale of Goods Act8 and

6 Carlin, “Stuff”, supra note 1.

7 B would also be able to sue A for breach of the sale contract pursuant to s. 50 of the SGA (supra note 3). In

this article I focus solely on the competing proprietary entitlements of B, C, and D. See Ronald CC

Cuming, Catherine Walsh & Roderick J Wood, Personal Property Security Law, 2nd ed (Toronto: Irwin

Law, 2012) at 250.

8 SGA, supra note 3.

The Personal Property Security Act, 1993,9 which share (along with several other provincial statutes10 including, notably, The Factors Act)11 legislative scope and modern electronic Personal

Property Registry (“PPR”) regulatory infrastructure.12 Both statutes are enacted under the exclusive jurisdiction of the provincial legislatures to make laws in relation to matters of property and civil rights.13 Each contains provisions that apply to determine priority entitlements to goods in certain defined circumstances, including those described above in the Sale Scenario and Secured Transaction Scenario. The statutes were enacted in different eras, and are founded 2018 CanLIIDocs 365 on distinctive underlying philosophies, yet in the modern age they generally work in conjunction with each other and the PPR to facilitate transactions involving goods, and produce clear, consistent, and coherent priority outcomes when disputes arise.

In this paper, I highlight circumstances, derived from the two basic ABCD scenarios

9 PPSA, supra note 3.

10 Other statutes that operate under the Personal Property Registry infrastructure include: The Commercial

Liens Act, SS 2001, c C-15.1; The Enforcement of Money Judgments Act, SS 2010, c E-9.22; The Factors

Act, RSS 1978, c F-1 [Factors Act]; The Summary Offences Procedure Act, 1990, SS 1990-91, c S-63.1;

The Seizure of Criminal Property Act, 2009, SS 2009, c S-46.002.

11 Factors Act, supra note 10. The Factors Act contains provisions that are, for all intents and purposes,

identical to the SGA provisions discussed in this paper. Specifically, ss. 9(1), (2) and (3) of the Factors Act

substantively replicate SGA ss. 26(1), (1.1) and (1.2), respectively. To streamline and simplify discussion,

and to make the paper more comprehensible for the reader, I primarily discuss SGA subsections in the main

body, and identify, in the footnotes, concordant provisions of the Factors Act. Other authors have employed

the opposite strategy (see e.g. Ewan McKendrick, ed, Goode on Commercial Law, 4th ed (London: Penguin

Books, 2010) at 465).

12 The Personal Property Security Regulations, RRS, c P-6.2, Reg 1 [Regulations].

13 Constitution Act, 1867 (UK), 30 & 31 Vict, c 3, reprinted in RSC 1985, Appendix II, No 5, s 92(13).

introduced above, in which Saskatchewan’s SGA and PPSA produce inconsistent outcomes. I argue this inconsistency is undesirable and it ought to be eliminated, to the extent possible, via legislative reform. In my view, the SGA should be brought more closely in line with the PPSA to promote greater harmony and coherency in the comprehensive statutory framework governing priority entitlements to goods. Reforming the SGA would create greater predictability, simplicity, and uniformity in Canadian law. In short, I believe that s. 26(1.2)14 of the SGA should be repealed, and careful consideration should be given to the possibility of amending ss. 26(1)15 and 2018 CanLIIDocs 365 (1.1).16 In this paper, I make the case for the first aspect of proposed reform, namely, repealing s.

26(1.2). While I briefly touch upon other aspects of potential reform, any argument for amending ss. 26(1) and (1.1) must wait for another day, and another paper.

II. DESCRIPTION

A. EVOLUTION

The Latin maxim “nemo dat quod non habet”—translation: “no one can give what he does not have,” or, stated alternatively, “one cannot give better title than he has”—carries considerable importance in property law. The maxim provides that a transferor can only confer her limited title to a transferee, and, as a corollary, a transferee takes subject to any prior interests in the property. With reference to the Sale Scenario, B prevails over D according to a strict application of nemo dat.17 Since B is the owner of the goods, A is unable to pass title to C. C is similarly

14 Factors Act, supra note 10, s 9(3).

15 Ibid, s 9(1).

16 Ibid, s 9(2).

17 See MG Bridge, Sale of Goods (Toronto: Butterworths, 1988) at 570:

A legal system concerned with the protection of private property, and not open to any

unable to pass title to D. Stated alternatively, any interest D acquires in the goods is subject to

B’s ownership interest. This maxim, nemo dat, which focuses on locus of title to goods, once enjoyed preeminent legal stature in our society, and still does in some instances.18 In Bishopsgate

Motor Finance Corporation, Limited v. Transport Brakes, Limited,19 Lord Denning explains our move away from strict adherence to nemo dat:

In the development of our law, two principles have striven for mastery. The first

is for the protection of property: no one can give a better title than he himself 2018 CanLIIDocs 365 possesses. The second is the protection of commercial transactions. The person

who takes in good faith and for value without notice should get a good title. The

first principle has held sway for a long time, but it has been modified by the

common law itself and by statute so as to meet the needs of our own times.20

To be sure, nemo dat retains significance in modern property law, but in Saskatchewan the maxim has been modified or supplanted by legislation that resolves priority competitions on the basis of time of registration in the PPR—a clear factual signpost. The PPSA and SGA, along with their accompanying PPR infrastructure, have embraced a philosophical shift in the law of property through their recognition of registration as an alternative to, or pre-condition of, nemo dat.21 These statutes set out clear and predictable priority rules which hinge, chiefly, on objective

countervailing interests, would assert with unabated vigour the maxim nemo dat quod

non habet, by which the transferee’s title could never exceed the title of the transferor

and would always be vulnerable to the claim of another whose title is superior.

18 See e.g. Bank Act, SC 1991, c 46, ss 425-436.

19 [1949] 1 KB 322, 1 All ER 37 (CA) [Bishopsgate cited to All ER].

20 Ibid at 46.

21 The PPSA determines priority according to time of registration, and thus rejects nemo dat as a priority

evidence that is easily and inexpensively produced. The PPR, and the statutory framework within which it operates, is designed to (i) facilitate registration and perfection of non-possessory interests in personal property,22 and (ii) furnish objective evidence of fact and time of registration for the efficient resolution of priority disputes.23 The PPR principally serves these purposes.24

Broadly speaking, s. 26 of Saskatchewan’s SGA, and its functional equivalent, s. 9 of the

Factors Act (footnoted throughout), is my focus. To prepare the reader for the comparative analytical exercise undertaken below, I must first furnish a general overview of the PPSA and its 2018 CanLIIDocs 365 interface with the PPR.

B. PPSA

Saskatchewan’s original The Personal Property Security Act25 came into force by proclamation in 1981. The statute was inspired by and adapted from Article 9 of the United States of

America’s Uniform Commercial Code, sharing a vision and mandate of unifying the fractured registries and modernizing, rationalizing, and consolidating personal property security law.26 In

1993, the Original PPSA was replaced by an updated generation of the statute, referred to herein

determinant. Meanwhile, the SGA does not reject nemo dat; instead, s. 26(1.1) makes registration a pre-

condition to the application of nemo dat for sales outside the ordinary course of business (supra note 3).

22 PPSA, supra note 3, s 25; SGA, supra note 3, s 26; Regulations, supra note 12, ss 2(1)(r.1)(i)-(ii).

23 PPSA, supra note 3, ss 48(2)-(3).

24 David L Denomme, “Name/Number Tie-Breaker (for now): Stevenson v. GMAC Leaseco Ltd.” (2003-04)

19 BFLR 295 at 299.

25 SS 1979-80, c P-6.1 [Original PPSA].

26 Cuming, Walsh & Wood, supra note 7 at 5.

as the “PPSA.”27 The PPSA facilitates secured transactions involving nearly every type of personal property, including goods. It contains provisions that govern the creation of consensual security interests, their enforcement, and priority ordering. While nemo dat retains significance under the PPSA insofar as attachment is concerned,28 the statute typically focuses on time of registration as the appropriate “peg” for priority determination involving non-possessory security interests in goods.29

The PPSA’s registration paradigm is predicated on the idea that greater certainty and 2018 CanLIIDocs 365 predictability results where priority disputes are settled, not according to locus of title (a contrived legal fiction) and the application of nemo dat, but with reference to easily ascertainable objective evidence, namely, time of registration in the PPR. A bright-line priority rule based on time of registration is simple, egalitarian, fair, and competitively balanced.30 A predictable rule of this sort allows competing parties to resolve their disputes without resorting to expensive and protracted litigation.

Under the PPSA, a secured party’s unregistered—and consequently, unperfected— security interest in a debtor’s goods is vulnerable to the interests of subsequent buyers and secured parties, among others.31 A diligent secured party is therefore heavily incentivized to effect registration at the PPR to preserve his priority position. One helpful feature of this system

27 Supra note 3.

28 PPSA, supra note 3, s 12(1)(b).

29 Clayton Bangsund, “PPSL Values” (2016) 57 Can Bus LJ 184 at 192.

30 Clayton Bangsund, Control v. Registration: Contemplating a Potential Paradigm Shift in the PPSA’s

Governance of Security Interests in Deposit Accounts (PhD Thesis, University of Alberta Faculty of Law,

2017) [unpublished] at 269, 313.

31 PPSA, supra note 3, ss 30, 35.

is that, provided B effects valid registration and gains perfected status, C will be in a position to discover B’s non-possessory interest in the goods by conducting a PPR debtor name search of A.

Upon learning of B’s registration, C can avoid a subsequent dispute by obtaining a release of B’s interest. If B is unwilling to release her interest, C can simply refrain from entering into the sale transaction with A. This legislative and regulatory framework, which encourages registration of non-possessory security interests, concomitantly enhances transparency, risk assessment, and dispute avoidance.32 A registration-based legal framework facilitates commerce. 2018 CanLIIDocs 365 Under PPSA governance, the PPR is a convenient tool for conducting due diligence into a prospective contractual counterparty, but searchers must remain wary. The PPR’s due diligence function, while useful to a variety of creditors, is technically ancillary to its principal functions of facilitating perfection of non-possessory security interests and furnishing objective evidence for efficient priority dispute resolution. A secured party’s perfected PPSA security interest in goods generally33 endures notwithstanding that the debtor subsequently disposes of them, particularly where that disposition occurs outside the ordinary course of business.34 Thus, referring to the

Secured Transaction Scenario, B’s perfected security interest continues as the goods enter the hands of C.35 Subject to a narrow exception,36 a party like D, who subsequently acquires an

32 See Bangsund, “PPSL Values”, supra note 29 at 193.

33 There are, of course, various exceptions to this rule. See e.g. PPSA, s. 30(2), which permits a buyer to take

free and clear of a security interest given by the seller where the sale takes place in the ordinary course of

the seller’s business (supra note 3).

34 PPSA, supra note 3, s 28(1)(a): “Subject to this Act, where collateral is dealt with or

otherwise gives rise to proceeds, the security interest: (a) continues in the collateral

unless the secured party expressly or impliedly authorizes the dealing”.

35 The PPSA requires a secured party, who becomes aware of a debtor’s unauthorized transfer of collateral

interest in the goods from C, also takes subject to B’s perfected security interest. It might be said that the PPSA implicitly invokes a form of nemo dat at the second level of disposition, and beyond.37 All subsequent parties take the goods subject to B’s perfected security interest whether or not the associated registration is readily discoverable via a PPR search.38 With reference again

(and possibly subsequent transfers), to amend his or her registration to disclose the name of the most recent

transferee with possession of the collateral. See PPSA, supra note 3, ss 51(2), (4). Failure to register in a

timely fashion can result in subordination to subsequent buyers and secured parties. To a certain extent, this 2018 CanLIIDocs 365 feature of the PPSA also mitigates ABCD remoteness problems by incentivizing updated, useful disclosure

of non-possessory security interests in PPR financing statements.

36 PPSA, supra note 3, s 35(8).

37 See e.g. Royal Bank v Wheaton Pontiac Buick Cadillac GMC Ltd. and Deschner (1990),

88 Sask R 151 (QB) [Wheaton Pontiac].

38 Royal Bank of Canada v Steinhubl’s Masonry Ltd., 2003 SKQB 299 at para 14, [2004] 1

WWR 267, Klebuc J (as he then was):

It follows that s. 35(4) of the PPSA and ss. 2(1)(o), 2(1)(u), 12, 13 and 14

of the Regulations (“the serial number registration regime”) are intended

to eliminate, or at least abate, what is often described as the “A-B-C-D

problem” associated with personal property registry systems that employ

the debtor's name (i.e., “B”) as their registration and search criterion. The

following example illustrates the noted deficiency:

A obtains a security interest in B's goods. B sells his goods

to C who in turn offers to sell them to D. D conducts a

registry search based on C's name, being the only search

criterion available to him/her. The search does not reveal

to the Secured Transaction Scenario, if B’s security interest in the goods is perfected and prioritized over C’s interest, then D too takes subject to B’s security interest. The fact that D is unable to discover B’s interest in the goods by conducting a PPR debtor name search of C, does not invalidate B’s registration or subordinate B’s interest to D’s. A critical limitation of the PPR, as a reliable risk assessment tool, is thus revealed. Here lies the ABCD remoteness problem.

The PPR occasionally fails remote parties, like D, who may be unable to discover prioritized security interests in goods notwithstanding their diligent usage of the PPR’s search 2018 CanLIIDocs 365 functions. This problem is alleviated, to some degree, by the PPR’s specialized registration and search functions for serial numbered goods.39 But since not all goods are serial numbered goods, and since not all serial numbered goods require registration by serial number, the PPR’s serial number registration-search structure offers only a partial solution to the ABCD remoteness problem. I will return to these issues below as I compare outcomes produced by the SGA under various iterations of the Sale Scenario with outcomes produced by the PPSA under analogous iterations of the Secured Transaction Scenario.

For now, I simply observe that where C acquires his interest subject to B’s interest, and the PPR is therefore unable to protect both B (a duly registered secured party) and D (a diligent

A’s security in the goods because A’s security interest was

perfected by registration based on B's name. In the result,

the registry system will not afford D any protection vis-á-

vis A, notwithstanding his/her search.

39 Regulations, supra note 12, s 2(1)(u): “‘serial numbered goods’ means a motor vehicle, a trailer, a mobile

home, an aircraft, a boat or an outboard motor for a boat.”

searching party), the PPSA favours registrant B over searcher D.40 The virtue in this approach lies, not in its fairness,41 but in the certainty it provides to speculators in trade.42 It is consistent with the PPSA’s general policy aim of facilitating secured transactions.43 If the PPSA were to instead favour D over B, the price of secured credit would increase for A (i.e. higher interest rates would be charged on loans supported by collateral security), perhaps dramatically, because secured creditors in B’s position would be placed at heightened, possibly intolerable, risk of investment loss. The value of taking security in goods would be seriously undermined if the 2018 CanLIIDocs 365 PPSA were to abandon nemo dat at the second level and beyond.

C. SGA

1. Subsection 23(1): Nemo Dat Starting Point

Quite unlike the PPSA, the SGA represents a codification of the late nineteenth century common

40 See Lambert (Re) (1994), 119 DLR (4th) 93 at 105, 20 OR (3d) 108 (CA), Doherty JA: “That system has

two constituencies: those who register financing statements; and those who search the system for prior

registrations. The integrity of the overall system must address the interests of both groups.” For a powerful

critique of the decision in Lambert (Re), see Roderick J Wood, “Registration Errors Under the OPPSA:

Lambert (Re)” (1994-95) 24 Can Bus LJ 444.

41 See generally, Clayton Bangsund & Jasmine Lothian, “Inequity in Equitable Set-Off: Telford v Holt

Revisited” (2016) 94(1) Can Bar Rev 149 (for a discussion about the difficulty of resorting to a residual

fairness standard in a separate context).

42 Vallejo and another v Wheeler (1774), 98 ER 1012 at 1017, 1 Cowp 143 (KB), Mansfield LJ: “In all

mercantile transactions the great object should be certainty: and therefore, it is of more consequence that a

rule should be certain, than whether the rule is established one way or the other. Because speculators in

trade then know what ground to go upon.”

43 Bangsund, “PPSL Values”, supra note 29 at 191.

law of sales.44 With several key exceptions, Saskatchewan’s current SGA closely resembles the original Sale of Goods Act that took force in England in 1894.45 In settling priorities, this

Victorian era statute focuses on title to goods, and embraces nemo dat quod non habet as its starting point. Subsection 23(1) of the SGA is reproduced below:

Subject to this Act 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 2018 CanLIIDocs 365 of the goods is by his conduct precluded from denying the seller’s authority to

sell.46

2. Exceptions to Nemo Dat under Section 26

In addition to the generic estoppel exception embodied in the closing language of s. 23(1), the

SGA sets out a number of explicit statutory exceptions to the foundational nemo dat principle.47

Those exceptions constitute priority rules which in some cases hinge, like their PPSA counterparts, on fact and time of registration. Consider s. 26 of the SGA, for example, which in

Saskatchewan was amended in 1981 to dovetail with the freshly enacted PPSA and its modern electronic PPR infrastructure.48 This provision is unusually complex in that it is an omnibus

44 Roderick J Wood, “Codification of Commercial Law” (2016) 79(2) Sask L Rev 179 at 183; Bridge, supra

note 17 at 2.

45 Sale of Goods Act, 1894 (UK), 56 & 57 Vict, c 71 [Original SGA].

46 Supra note 3.

47 Ibid, ss 23(2)-26.

48 The Sale of Goods Amendment Act, 1980, SS 1979-80, c 39; The Factors Amendment Act, 1980, SS 1979-

80, c 26.

provision with implications pertaining to attachment,49 title and priority. Section 26 contemplates successive transactions and thus requires tiers of legal analyses in order to distill the numerous rules contained in its various subsections. To gain comprehension of s. 26(1.2), the chief focus of this article, one must first understand ss. 26(1) and (1.1). Accordingly, each subsection of this statutory trio is reviewed in turn, starting with s. 26(1).50

3. Subsection 26(1): First Level Exception to Nemo Dat 2018 CanLIIDocs 365 (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 a sale,

pledge or other disposition thereof to a person receiving the goods or documents

in good faith and without notice of the previous sale shall have the same effect as

if the person making the delivery or transfer was expressly authorized by the

owner of the goods to do so.51

a. Overview

Subsection 26(1) of the SGA sets out an explicit exception to nemo dat in the Sale Scenario

49 PPSA, supra note 3, s 12(1)(b): “A security interest attaches when: …(b) the debtor has rights in the

collateral or power to transfer rights in the collateral to a secured party” (emphasis added). See Cuming,

Walsh & Wood, supra note 7 at 249-254.

50 Subsection 26(2) of the SGA, which sets out the buyer in possession exception to nemo dat, is rendered

irrelevant on account of s. 26(4) and its invocation of and deference to the PPSA (supra note 3).

Meanwhile, SGA s. 26(3) merely clarifies that the term “mercantile agent”, as used in the various

subsections, has the same meaning as in the Factors Act (supra note 10).

51 SGA, supra note 3.

where a buyer with title, B, leaves goods or documents of title in the possession of a seller, A, who subsequently sells, pledges, or otherwise disposes of those goods or documents of title to C, who receives them in good faith and without notice of B’s interest.52 Although A no longer owns the goods, the subsection provides that he is able to convey title as if B had expressly authorized him to do so. Accordingly, C can rely on A’s possession of the goods or documents of title as sufficient proof of his ownership or authority to sell or grant some other possessory interest in them. Subsection 26(1) furnishes an exception to nemo dat based on a policy of protecting 2018 CanLIIDocs 365 innocent purchasers who rely, in good faith, on seller possession as a badge of authority.

b. History

The provision was originally introduced in England’s Factors Act, 187753 as a statutory response to a controversial pair of decisions—Johnson v. The Credit Lyonnais54 and Johnson v.

52 Bridge, supra note 17 at 547, 633-34.

53 40 & 41 Vict, c 39, s 3:

Where any goods have been sold, and the vendor or any person on his behalf continues or

is in possession of the documents of title thereto, any sale pledge or other disposition of

the goods or documents made by such vendor or any person or agent entrusted by the

vendor with the goods or documents within the meaning of the principal Acts as amended

by this Act so continuing or being in possession, shall be as valid and effectual as if such

vendor or person were an agent or person entrusted by the vendee with the goods or

documents within the meaning of the principal Acts as amended by this Act, provided the

person to whom the sale pledge or other disposition is made has not notice that the goods

have been previously sold.

54 (1877), 2 CPD 224, 36 LT 253 (CP Div); aff’d Johnson v The Credit Lyonnais and Johnson v Blumenthal

(1877), 3 CPD 32, 37 LT 657 (CA) [Appeal Decision].

Blumenthal.55 In both cases, B prevailed over C despite C’s unawareness of B’s interest. In neither case was C a true buyer of goods under a “sale”; C had instead advanced credit to A on the security of documents of title, via “pledge”. Under pressure from the financial industry,

Parliament swiftly enacted the Factors Act, 1877 which, among other things, empowered good faith financiers to advance credit on the security of goods or documents of title without fear of subordination to prior unpublicized interests.56 Indeed, s. 3 of the Factors Act, 1877 was largely aimed at facilitating secured transactions involving goods and documents of title.57 In this sense, 2018 CanLIIDocs 365 it was a forerunner to modern personal property security legislation aimed at facilitating secured transactions more generally.

With s. 3 of the Factors Act, 1877 in force, financiers were able to advance credit on the security of documents of title. The new provision was soon restated, and slightly reformulated,58

55 Unreported.

56 Parliament’s response was so quick that the provision became law (prospectively) before the appeals in

Johnson v. The Credit Lyonnais (supra note 54) and Johnson v. Blumenthal (supra note 55) were decided

by the Court of Appeal in accordance with prior law. Both appeals were dismissed (Appeal Decision, supra

note 54).

57 Supra note 53, Preamble:

WHEREAS doubts have arisen with respect to the true meaning of certain provisions of

the Factors’ Acts, and it is expedient to remove such doubts and otherwise to amend the

said Acts, for the better security of persons buying or making advances on goods, or

documents of title to goods, in the usual and ordinary course of mercantile business.

58 Factors Act, 1877, s. 3 (ibid) is cast in slightly narrower terms than Factors Act, 1889, s. 8 (52 & 53 Vict, c

45). See Bridge, supra note 17 at 651-52: “Section 3 only applied to transactions involving delivery of the

goods or transfer of documents where the seller had been left in possession of the documents of title.”

as s. 8 of the Factors Act, 1889,59 a consolidated version of England’s growing collection of factors statutes.60 The 1889 formulation of the provision remains extant, affording protection to

C under the statutory exception to nemo dat where she acquires possession of goods or documents of title under a sale, pledge or other disposition in good faith and without notice of

B’s ownership.

In 1894, when England enacted the Original SGA, s. 8 of the Factors Act, 1889 was substantially replicated in s. 25(1) of the Original SGA due to its natural fit with the subject 2018 CanLIIDocs 365 matter of the fledgling sales statute.61 That replication persists to the present day in numerous

Canadian jurisdictions including Saskatchewan, where Factors Act s. 9(1)62 and SGA s. 26(1)63

59 Factors Act, 1889, supra note 58.

60 1823, 4 Geo IV, c 83; 1825, 6 Geo IV, c 94; 1842, 5 & 6 Vict, c 39; Factors Act, 1877, supra note 53. The

official title of the Factors Act, 1889 (ibid) is An Act to Amend and Consolidate the Factors Acts.

61 Original SGA, supra note 45; Factors Act, 1889, supra note 58. The current English statute retains the

Original SGA’s classical formulation of the seller in possession exception to nemo dat. See Sale of Goods

Act 1979 (UK), c 54, s 24.

62 Factors Act, supra note 10, s 9(1):

Where a person, having sold goods, continues or is in possession of the

goods or of the documents of title thereto, the delivery or transfer by that

person or by a mercantile agent acting for him of the goods or documents

of title under a sale, pledge or other disposition thereof, or under an

agreement for sale, pledge or other disposition thereof, to a person

receiving the same in good faith and without notice of the previous sale,

has the same effect as if the person making the delivery or transfer were

expressly authorized by the owner of the goods to do so. (emphasis added,

are substantive replicas of each other, and concordant to England’s Factors Act, 1889 s. 864 and

Original SGA s. 25(1)65 respectively.66 To simplify and streamline this paper, I generally limit my discussion to the modern SGA subsections, leaving parallel discussion of the Factors Act subsections for footnotes and other papers.67

c. Interpretation

It is noteworthy that C need only resort to SGA s. 26(1) if A actually “sold” the goods to B.68 In 2018 CanLIIDocs 365 other words, for B to reap the benefit of nemo dat, the goods must have been subject to a “sale”69 in which title passed from A to B.70 If the goods were subject to a mere “agreement to sell,”71 title remaining with A, then A can “transmit his title to a second purchaser in accordance with normal principles and there should be no need to invoke” SGA s. 26(1).72 This means that B, as buyer under an executory conditional sale contract, does not gain statutory protection until all

highlighting statutory language omitted from SGA, supra note 3, s 26(1)).

63 Supra note 3.

64 Supra note 58.

65 Supra note 45.

66 See Bridge, supra note 17 at 609.

67 See note 10.

68 McKendrick, supra note 11 at 465.

69 SGA, supra note 3, s 3(4): “Where under a contract of sale the property in the goods is transferred from the

seller to the buyer the contract is called a sale.”

70 Ibid, ss 18-20.

71 Ibid, s 3(4): “but where the transfer of the property in the goods is to take place at a future time or is subject

to some condition thereafter to be fulfilled the contract is called an agreement to sell.”

72 See Bridge, supra note 17 at 635.

instalments have been paid. The SGA places significance on locus of title and does not adhere to the PPSA’s “substance over form” mantra. The presumption of nemo dat in SGA s. 23(1) only operates where title has passed from A to B.

To rebut the statutory presumption of nemo dat and access the exception in SGA s. 26(1),

C must first establish that, after the sale to B, A “continues or is in possession” of the goods or documents of title. The phraseology “continues…in possession” refers to “the continuity of physical possession regardless of any private transactions between the seller [A] and the original 2018 CanLIIDocs 365 purchaser [B] which might alter the legal title under which the possession was held.”73

Meanwhile, the peculiar words “or is in possession” contemplate a situation in which A is not in possession of the goods at the time of the sale, but acquires uninterrupted74 possession thereafter.75

To acquire clear title, it is imperative that C “receives”76 the goods or documents of title by “delivery”77 or “transfer”78 from A or his agent under a “sale,”79 “pledge,”80 or other

73 Pacific Motor Auctions Pty. Ltd. v Motor Credits (Hire Finance) Ltd., [1965] AC 867 at 869 (PC), Pearce

LJ [Pacific Motor Auctions].

74 See Bridge, supra note 17 at 645, where the author asserts that even in cases of interrupted possession, A

“should continue to have disposing power when it is by virtue of the original sale relationship that he

resumes possession.”

75 Mitchell v Jones (1905), 24 NZLR 932; Pacific Motor Auctions, supra note 73. See Bridge, supra note 17

at 644, where the author observes, “it will be a relatively rare case that seller and first buyer will agree on

the passing of property to goods not yet in the seller’s possession.”

76 The term “receives” connotes that C must take actual possession of the goods or documents of title;

constructive delivery is insufficient (see Gamer’s Motor Centre (Newcastle) Pty. Ltd. v Natwest Whole

Australia Pty. Ltd., [1985] 3 NSWLR 475 (CA)).

77 SGA, supra note 3, s 2(1)(d): “‘delivery’ means voluntary transfer of possession from one person to

“disposition.”81 To defeat B’s ownership, C must acquire actual possession of the goods or documents of title as part of a consensual transaction with A. For instance, a non-possessory security interest is insufficient; C does not gain protection against B by merely effecting registration at the PPR.82

Finally, C must establish that she acquired the goods or documents of title in good faith

another.”

78 The SGA does not define the term “transfer”, but the term is exclusively referable to “documents of title”,

while the term “delivery” pertains to “goods”. See Bridge, supra note 17 at 646. 2018 CanLIIDocs 365

79 SGA, supra note 3, s 3(4) (subsection reproduced in note 69 and 71).

80 The term “pledge” is not defined in the SGA, but is defined in the Factors Act, s 2(1)(e), “pledge” (supra

note 10). For a more helpful, descriptive definition, see Bridge, supra note 17 at 59: “Pledge is a type of

bailment in which possession of goods or documents of title is granted to the pledgee as a possessory

security for a loan.”

81 The term “disposition” has a broad meaning. See Worcester Works Finance Ltd. v. Cooden Engineering

Co. Ltd., [1971] 3 All ER 708 at 712, [1972] 1 QB 210 (CA), Denning LJ [Worcester v Cooden]:

To my mind the word “disposition” is a very wide word. In Carter v Carter Stirling J

said that it extends “to all acts by which a new interest (legal or equitable) in the

property is effectually created”. That was under an entirely different statute, but I would

apply that wide meaning in this section.

and at 713, Phillimore LJ:

to constitute a disposition the dealing with the goods must go beyond the mere transfer or

delivery of it; there must be some disposal which involves transfer of property.

and at 714, Megaw LJ:

“Disposition” must involve some transfer of an interest in property, in the technical sense

of the word “property”, as contrasted with mere possession.

82 In fact, without the benefit of SGA s 26(1), C may be unable to attach her security interest. See PPSA,

supra note 3, s 12(1)(b). But see Cuming, Walsh & Wood, supra note 7 at 249.

and without notice of B’s interest.83 Discussing this evidential requirement in Alberta Treasury

Branches v. Cam Holdings LP,84 Justice Viet of Alberta’s Court of Queen’s Bench held that C

“must prove that it did not act recklessly or in a grossly negligent fashion.”85 Consequently, C’s knowledge of B’s ownership, whether actual or imputed on account of recklessness or gross negligence, is fatal to the exception.

d. Recap 2018 CanLIIDocs 365 To recap, s. 26(1) of the SGA operates as a defence to an action in conversion.86 To the extent that it operates in the Sale Scenario, C acquires title to the goods thereby defeating B’s interest under this codified exception to nemo dat.87 C is then able to transmit unencumbered title to

83 See McKendrick, supra note 11 at 468 (where the author notes that C must be without notice both at the

time of the disposition and at the time of delivery).

84 2016 ABQB 33, 58 BLR (5th) 314 [ATB v Cam Holdings].

85 Ibid at para 41. See also para 55:

In summary on this issue, I conclude that, in the context of the

interpretation of s. 26(1) of the Sale of Goods Act, there are three possible

degrees of negligence, mere negligence, gross negligence/recklessness and

wilful blindness, and, that only mere negligence is excused. To put this in

another way, a person who claims the benefit of s. 26(1) of the Act must

prove that it did not act recklessly or in a grossly negligent fashion.

86 See e.g. Bartin Pipe & Piling Supply Ltd. v Epscan Industries Ltd., 2004 ABCA 52 at

paras 1, 6, 42, 236 DLR (4th) 75 [Bartin Pipe].

87 See Worcester v Cooden, supra note 81; National Trust Co. v Kirch (1993), 12 OR (3d) 781 (Gen Div);

Vizza v Kosolofsky, 2000 SKQB 164, 15 PPSAC (2d) 99; Michael Gerson (Leasing) Ltd. v Wilkinson and

subsequent parties, like D, under the doctrine of sheltering.88

4. Subsection 26(1.1): resurrection of nemo dat for sales outside the ordinary course of business

(1.1) Subsection (1) does not apply to a sale, pledge or other disposition of goods or of

documents of title to the goods that is out of the ordinary course of business of

the person having sold the goods, where, prior to the sale, pledge or disposition,

the interest of the owner is registered in the Personal Property Registry in 2018 CanLIIDocs 365

accordance with the regulations made under The Personal Property Security Act,

1993, and Part IV of that Act applies, mutatis mutandis, to such registration.89

a. Overview & History

Subsection 26(1.1) of the SGA90 adopts Part IV (Registration) of the PPSA and the Regulations,

another (2000), [2001] QB 514 (CA) [Gerson v Wilkinson].

88 McKendrick, supra note 11 at 59: “Where, under an exception to the nemo dat rule, a

person acquires an indefeasible title, he can transfer this in all respects as absolute owner,

and those taking from him can shelter under this title and will acquire title in turn, even if

taking with notice of the prior owner’s rights.”

89 SGA, supra note 3.

90 Factors Act, supra note 10, s 9(2):

Subsection (1) does not apply to a sale, pledge or other disposition of goods or of

documents of title to the goods that is out of the ordinary course of business of the

person having sold the goods, where, prior to the sale, pledge or disposition, the

interest of the owner is registered in the Personal Property Registry in accordance

mutatis mutandis, thereby enabling B, a buyer out of possession (the notional “secured party”91 in the financing statement) to register notice of his ownership interest in the PPR92 against A (the notional “debtor”93 in the financing statement). The subsection, whose introduction coincided with the enactment of the PPSA, invokes the PPSA registration system and overrides the traditional exception to nemo dat for subsequent sales outside the ordinary course of A’s business. Subsection 26(1.1) resurrects nemo dat in favour of B, a buyer/owner out of possession, provided B registers in timely fashion in accordance with the Regulations, by serial 2018 CanLIIDocs 365 number in respect of serial numbered goods,94 or by item or kind in respect of all goods other than serial numbered goods.95

with the regulations made under The Personal Property Security Act, 1993, and

Part IV of that Act applies, mutatis mutandis, to such registration.

91 Regulations, supra note 12, s 2(1)(t)(ii): “‘secured party’ means, respecting registrations,

where the registration is: …authorized pursuant to The Sale of Goods Act or The Factors

Act, a person who, having bought goods, leaves the goods or the documents of title to the

goods that are the subject of the registration in the possession of the seller.”

92 Ibid, s 2(1)(r.1)(ii): “‘registration type’ means: … an interest pursuant to The Sale of Goods Act or The

Factors Act.”

93 Ibid, s 2(1)(h)(ii): “‘debtor’ means, respecting registrations, where the registration is: …authorized pursuant

to The Sale of Goods Act or The Factors Act, a person who, having sold goods, continues or is in

possession of the goods or of the documents of title to the goods that are the subject of the registration.”

94 Ibid, s 18(1)(a): “When a registration authorized pursuant to The Sale of Goods Act, The Factors Act, The

Commercial Liens Act or Part V.1 of the Summary Offences Procedure Act, 1990 is to be effected: (a)

goods that are serial numbered goods are to be described pursuant to section 13.”

95 Ibid, s 18(1)(b): “When a registration authorized pursuant to The Sale of Goods Act, The Factors Act,…is

to be effected:…(b) goods other than serial numbered goods are to be described by item or kind.”

The provision is a successor to s. 3 of the repealed The Bills of Sale Act.96 The old Bills of

Sale Act incentivized B to file documentation with the provincial registration clerk with respect to any non-ordinary course sale in which A remained in possession of the goods.97 B’s failure to file such documentation rendered the sale void and ineffective as against subsequent good faith purchasers and mortgagees. The Bills of Sale Act was repealed on the same day that the PPSA and SGA s. 26(1.1) came into force.98 Under the new subsection, B is no longer required to file

96 RSS 1978, c B-1, as repealed by The Bills of Sale Repeal Act, SS 1979-80, c 13. 2018 CanLIIDocs 365

97 The Bills of Sale Act did not employ a notice-registration system, but rather a document-filing system. A

buyer out of possession was required to file the actual bill of sale along with affidavit evidence (see The

Bills of Sale Act, ibid, s 6). For discussion of the difference between a notice-registration system and

document-filing system, see Clayton Darryl Bangsund, “A Critical Examination of Recently Proposed

Amendments to the Bank Act Security Provisions” (2012) 75(2) Sask L Rev 211 at 217-218.

98 The Bills of Sale Repeal Act, supra note 96, s 3. The Law Reform Commission of Saskatchewan considered

including sales without a change of possession within the scope of the Original PPSA, but decided against

it. See Law Reform Commission of Saskatchewan, Proposals for a Saskatchewan Personal Property

Security Act (Saskatoon: LRCS, July, 1977) at 9 [1977 LRCS Report]:

The Commission decided against including in the Act [PPSA] absolute sales of goods

where the seller remains in possession of the articles sold [citation omitted] The

Commission has concluded that there is no need to provide a registry system for this type

of transaction. Section 26(1) of The Sale of Goods Act [citation omitted] provides a large

measure of protection to a purchaser who deals in good faith and without notice with a

seller who remains in possession after having sold goods. If further protection is required,

it can be provided through an expansion of the concept embodied in s 26(1) of The Sale

of Goods Act. Lenders who deal with the seller in possession do not place heavy reliance

on the registry to determine the seller’s ownership rights in the goods.

Subsections 26(1.1) and (1.2) of the SGA appear to have been drafted after completion of the 1977 LRCS

documentation with a government office, but can instead register notice of her ownership interest in the PPR in very much the same fashion as a secured party would register notice of her PPSA security interest. In short, SGA s. 26(1.1) is updated and fully integrated with the PPR’s electronic notice-registration system.99

b. Interpretation

In the Sale Scenario, B is unable to prevent A from conferring good title to C pursuant to an 2018 CanLIIDocs 365 ordinary course sale.100 However, B’s valid registration serves as a pre-condition to the

Report.

99 Registry data indicates that buyers out of possession rarely avail themselves of the SGA’s registration

procedures. Perhaps this rarity reflects the general willingness of buyers to trust that sellers will not resell

purchased goods, i.e. positive relational contracting. Or perhaps buyers generally recognize that registration

is an ineffective means of protection against subsequent good faith buyers in the ordinary course (the most

likely event in the case of a resale). The SGA’s registration procedures only furnish effective protection to

B in a narrow set of circumstances whereby a subsequent sale of the goods takes place outside the ordinary

course of business. Buyers may simply be willing to tolerate this risk since, for it to materialize, the seller

must engage in fraudulent or extremely reckless or forgetful behaviour. Of course, it may also be that the

relatively few registrations effected by buyers out of possession can be explained by the relative obscurity

of SGA s. 26. Perhaps there is a general unawareness of the provision’s existence and effect. The

explanation might lie in a combination of some or all of these factors.

100 Cuming, Walsh & Wood, supra note 7 at 252:

[T]he reason why the seller in possession exception is preserved in the context of

ordinary course sales is because it is not commercially reasonable or practicable to expect

buyers who purchase goods in the ordinary course of business of a seller to conduct a

search of the Personal Property Registry before completing the transaction. This is the

same policy that underpins the PPSA rule under which a buyer in the ordinary course of

application of nemo dat vis-à-vis C where C is a buyer outside the ordinary course. Specifically, s. 26(1.1) demands that B (the buyer/owner who occupies a position analogous to that of a secured party) register notice of his interest in the PPR if he wishes to preserve nemo dat and gain optimal protection against third parties, like C, who deal with A in good faith outside the ordinary course of A’s business.101 B is protected against C provided he properly registers notice of his interest in the PPR; the exception to nemo dat in SGA s. 26(1) no longer applies, and B prevails pursuant to the joint application of SGA ss. 23(1) and 26(1.1). This system enables C to 2018 CanLIIDocs 365 discover B’s ownership by conducting a debtor name search against A in the PPR. The fact that the prior interest is readily discoverable via PPR debtor name search strengthens the case for a priority outcome in B’s favour—a commercially reasonable result.

c. Segue

To this point in the discussion, the SGA and PPSA have produced fairly consistent outcomes in analogous circumstances. Whether B occupies the position of secured party or buyer/owner, she is optimally protected against C provided she effects timely registration at the PPR. In the Sale

Scenario, pursuant to SGA s. 26(1.1), B’s valid registration effectively precludes C from invoking the exception to nemo dat set out in SGA s. 26(1) for sales outside the ordinary course.

Nemo dat is resurrected on account of B’s timely registration, whether or not C had knowledge of B’s ownership. Similarly, under an analogous iteration of the Secured Transaction Scenario, B

business takes free of a security interest created by the seller.

The same outcome is produced in the United States of America under the rules of “entrusting” in Uniform

Commercial Code, Article 2, §§ 2-403(2)-(3).

101 See E. Dehr Delivery Ltd. v Dehr, 2016 ABQB 714 at para 42, 6 PPSAC (4th) 307.

prevails under PPSA governance because she has an attached and perfected security interest in the goods, and C does not meet the statutory requirements, under PPSA ss. 20 or 30, that would permit her to take free and clear of B’s security interest. Thus far, for ABC problems, outcomes have generally been consistent and coherent regardless of which statutory regime—the SGA or

PPSA—applies to settle priority. Next consider SGA s. 26(1.2), which applies to resolve ABCD problems.

2018 CanLIIDocs 365 5. Subsection 26(1.2): Second Level Layered Exception to Nemo Dat & Exception Thereto

(1.1) Subsection (1.1) does not operate so as to prevent a person who receives the

goods or the documents of title to the goods in good faith and without notice of

the previous sale from selling, pledging or otherwise disposing of the goods or

the documents of title to the goods to a person who receives the goods or the

documents of title to the goods in good faith and without notice of the first sale,

unless the goods are of a type or kind which are required by the regulations under

The Personal Property Security Act, 1993 to be described by serial number and

are so described in a registered financing statement.

a. Overview & Interpretation

Subsection 26(1.2) of the SGA102 is unique to Saskatchewan; no other province or territory has a

102 Factors Act, supra note 10, s 9(3):

Subsection (2) does not operate so as to prevent a person who receives the

goods or the documents of title to the goods in good faith and without

notice of the previous sale from selling, pledging or otherwise disposing of

statutory concordant. The provision recognizes a second-level, layered exception to nemo dat in circumstances involving the unauthorized disposition of certain types of goods by an innocent intermediate seller, C, to an innocent remote buyer, D. In short, the provision addresses the

ABCD remoteness problem.

Specifically, SGA s. 26(1.2) provides that, even where B prevails over C pursuant to SGA s. 26(1.1), that subsection “does not operate” to prevent C from conferring good title to D unless the goods are serial numbered goods described by B in the serial number registration field. In 2018 CanLIIDocs 365 effect, this layered exception to nemo dat permits a good faith remote buyer, D, who purchases goods from the good faith intermediate seller, C, to defeat the earlier registered interest of B notwithstanding that B’s registered interest defeats C’s interest pursuant to s. 26(1.1). Also embedded in the subsection is an exception to the layered exception which favours B over D where B registers in the PPR’s serial number field in respect of serial numbered goods.

b. Object & Theory

The layered exception to nemo dat in s. 26(1.2) was introduced in recognition of the PPR’s limited capacity to protect the interests of all diligent users of the registry system. As noted above in my Part II discussion of the PPSA, the PPR cannot protect all registrants and searchers

the goods or the documents of title to the goods to a person who receives

the goods or the documents of title to the goods in good faith and without

notice of the first sale, unless the goods are of a type or kind which are

required by the regulations under The Personal Property Security Act,

1993 to be described by serial number and are so described in a registered

financing statement.

one hundred per cent of the time. Occasionally, where an ABCD problem arises, the system must fail one of B (as registrant) or D (as searcher) due to D’s remoteness from the transaction between A and B.103 As between these two innocent parties, registrant B and searcher D, both of whom utilized and relied on the PPR as prescribed under the relevant statutory scheme, the SGA affords priority to D in some circumstances.104 The subsection aims to protect the remote searcher D who, despite diligently searching C’s name in the PPR, is unable to discover notice of

B’s interest, which is registered against A, not C. 2018 CanLIIDocs 365 Standing alone, the theory supporting the layered exception to nemo dat embodied in

SGA s. 26(1.2) is defensible: Since B’s interest is not disclosed in PPR search results, D ought to enjoy clear title to the goods. However, in broader context, it is anomalous that D does not receive similar protection where B is a secured party. Under PPSA governance, B, as a secured party, enjoys the benefit of second level nemo dat protection against D and any subsequent transferee. In the ensuing Part III analysis, I compare outcomes produced by the SGA under several unique iterations of the Sale Scenario with outcomes produced by the PPSA under analogous iterations of the Secured Transaction Scenario. These iterations assist as I make the case for the repeal of SGA s. 26(1.2) in Parts IV and V.

103 Bridge, supra note 17 at 571:

The rogue invariably disappears or turns out to be not worth suing, taking with him the

purchase price. So the question normally resolves itself into an inquiry that has inspired

countless judicial cris de couer, namely, which of two innocent persons, the owner or the

purchaser, should suffer the consequences of the rogue’s dishonesty.

104 The layered nemo dat exception furnished in SGA s. 26(1.2) is available to D where the goods are non-

serial numbered goods or serial numbered goods not validly registered by serial number.

III. COMPARISON

A. CONSISTENCY

The SGA and PPSA produce consistent outcomes in most instances, typically resolving analogous iterations of the Sale Scenario and Secured Transaction Scenario in like fashion. This is particularly true where the disputed goods are serial numbered goods requiring registration in the serial number registration field. In these circumstances, D is in a position to discover B’s prior registered interest via serial number search. Scenario 1, set out below, illustrates this point. 2018 CanLIIDocs 365 The detailed iterations set out below are introduced in the style of the Sale

Scenario; that is, with B introduced as a buyer out of possession. The equivalent

Secured Transaction Scenario is not reproduced since one need only imagine the

Sale Scenario subject to one change, namely, B is a non-possessory secured party,

not a buyer/owner out of possession. In contrast with Sale Scenario 1, which

begins “A owns a car...A sells the car to B...”, Secured Transaction Scenario 1

instead reads, “A owns a car. A grants a security interest in the car to B....”

Scenario 1—A owns a car, held as a consumer good. A sells the car to B but

retains possession thereof. B effects valid registration at the PPR, identifying the

car by serial number. A then resells the car, outside the ordinary course of

business, to C who takes possession in good faith and without notice of B’s

interest. C on-sells the car to D, who receives it in good faith and without notice

of the sale to B.

In Sale Scenario 1, B prevails over D pursuant to the exception to the layered exception to nemo

dat in SGA s. 26(1.2); since B registered by serial number, s. 26(1.1) operates to prevent C from transmitting good title to D.

In Secured Transaction Scenario 1, B perfected his security interest in the car by registration,105 and such interest endured106 as the car entered C’s hands because C did not satisfy any of the statutory exceptions that would furnish him with clear title.107 D therefore also takes subject to B’s security interest on account of the PPSA’s second level invocation of nemo dat.

2018 CanLIIDocs 365 B. INCONSISTENCY

In other circumstances, where non-serial numbered goods are involved, the SGA and PPSA produce inconsistent or anomalous outcomes. Consider the following:

Scenario 2—A owns a crane. A sells the crane to B but retains possession

thereof. B effects valid registration at the PPR. A then resells the crane, outside

the ordinary course of business, to C who takes possession in good faith and

without notice of B’s interest. C on-sells the crane to D, who receives it in good

faith and without notice of the sale to B.

In Sale Scenario 2, D prevails over B pursuant to SGA s. 26(1.2) even though B prevails over C because of her valid PPR registration. SGA s. 26(1.1) does not operate to prevent C from transmitting good title to D. Consequently, under the layered exception to nemo dat, C is able to transfer to D better title to the crane than C herself enjoyed.

105 PPSA, supra note 3, s 19.

106 Ibid, s 28.

107 See ibid, ss 20, 30.

The PPSA produces the opposite outcome in Secured Transaction Scenario 2. On these facts, B perfected her security interest in the crane by registration, and her security interest endured as the crane entered C’s hands because C did not satisfy any of the statutory exceptions that would furnish her with clear title. Accordingly, D also takes subject to B’s security interest on account of the PPSA’s second level invocation of nemo dat.

IV. POLICY & PRINCIPLE 2018 CanLIIDocs 365 A. INTRACTABILITY

On what grounds, if any, can these discrepant outcomes, highlighted above, be explained or justified? Why should these outcomes turn on B’s identity—secured party or buyer/owner? And why should D be worse off where B is a secured party, and better off where B is a buyer/owner?

If a meaningful distinction can be drawn between these two scenarios, one might reasonably expect the opposite to be true; that D’s claim to the goods should be weaker, not stronger, where his competitor is the titled owner of the goods. Yet, in defiance of this expectation, D is defeated by secured party B (under PPSA governance) in the Secured Transaction Scenario 2 while he defeats owner B (under SGA governance) in the analogous Sale Scenario. It is difficult to reconcile these incongruous outcomes.

Recall that ABCD remoteness problems are typically irresolvable according to a fairness standard. Where two innocent and afflicted parties, B and D, assert competing claims to the same goods, one must win, the other must lose. Whatever the outcome, one or the other will regard it as unfair. This problem cannot be avoided,108 so intuitive notions of fairness offer limited guidance as we decide on, articulate and justify statutory rules to govern entitlements in ABCD

108 See generally, Bangsund & Lothian, supra note 41.

remoteness scenarios. Instead, we must rely on other theories, explanations and justifications for the rules that are chosen to govern these intractable problems.

B. JUSTIFICATION OF THE STATUS QUO: IN DEFENCE OF INCONSITENCY

One might argue that the incongruity in the outcomes produced by the SGA and PPSA can be justified on the basis that each system places unique and appropriate incentives on B to take particular precautionary measures for optimal protection of their proprietary claim to the goods. 2018 CanLIIDocs 365 While conferring some measure of registration-based protection on B, the SGA ultimately incentivizes her to take early possession. On this theory, the statute’s preference for remote searcher D over registered buyer B is grounded in the specific nature of the transaction between

A and B. As a buyer, B presumably has plans for the goods, so she should be encouraged to swiftly take possession and put them to their most productive use. Stated alternatively, B should be discouraged from leaving the goods in A’s possession. By refusing B second level nemo dat protection against D, the SGA appropriately incentivizes B to take early possession of goods that belong to her.

Continuing the explanation, B, as a secured party, stands in a different position in relation to the goods, and thus has distinct incentives and interests that justify stronger protection of his non-possessory proprietary claim vis-à-vis remote parties. In Secured Transaction Scenario 2, the reason B leaves A in possession of the goods is not a lack of storage space, but rather, this is the very essence of a non-possessory security arrangement. In this context, B wants and expects A to retain and use the goods to generate income and repay the loan. From B’s perspective, the goods are valuable as a contingent realization source if A defaults. As a perfected secured party, B is in a position to seize and liquidate the goods in partial or full satisfaction of the delinquent debt.

Until that time, he may advance additional credit to A in reliance on his first registered position.

One might thus argue, in support of the status quo, that B deserves stronger protection as a secured party than as a registered buyer/owner out of possession.

C. REJECTION OF THE STATUS QUO: IN SUPPORT OF CONSISTENCY

The above argument, in favour of the status quo, is unpersuasive. First, it is not only a secured creditor who is at risk of advancing funds in faulty reliance on a first registered financing 2018 CanLIIDocs 365 statement. A buyer out of possession may very well run that same risk. The SGA provides that title to “specific goods”109 in a deliverable state passes immediately upon contract formation110 whether or not the purchase price has been paid. In other words, the SGA, as a default matter, divorces title transfer from the concurrent obligations of payment and delivery.111 As such, B, in her capacity as buyer/owner, may be at risk of advancing the purchase price to A in faulty reliance on a first registered financing statement.

The argument in favour of the status quo also wrongly presupposes that B, as a buyer, cannot have a legitimate reason for deferring possession of goods he acquires ownership of, at least not one deserving of registration-based protection versus remote parties. But one can readily imagine pragmatic, sensible reasons why B might wish to acquire legal title to goods without taking immediate possession. For instance, B may have a job pending at a worksite near

A’s premises that will require use of the goods; if B can comfortably postpone the possession date to coincide with set-up at the new worksite, he is spared the additional and unnecessary

109 SGA, supra note 3, s 2(1)(m): “‘specific goods’ means goods identified and agreed upon at the time a

contract of sale is made.”

110 Ibid, s 20, r I.

111 Ibid, s 28.

expenses and risks associated with moving the goods twice, thereby realizing economic efficiencies.112 As another example, B may not have immediate access to the equipment and labour required for disassembling, loading, and transporting the goods.113 Or, returning to the original Sale Scenario, B may be in search of life’s meaning, trying to find a place for his stuff.114 Indeed, it is not difficult to imagine plausible circumstances in which B has legitimate grounds for deferring possession of goods he has purchased from A.

There is no convincing reason the SGA cannot and should not accommodate B as a 2018 CanLIIDocs 365 buyer/owner to, at least, the same extent the PPSA accommodates her as a secured party. If a modern registration-based system facilitates secured transactions involving goods, protecting secured parties against remote competitors, then surely it should facilitate sales of those same goods on equally robust terms. I argue that resolution of an ABCD remoteness problem— whether in the context of the Sale Scenario or the Secured Transaction Scenario—ought to hinge on the outcome of the ABC problem that preceded it. In my view, SGA s. 26(1.2) should be repealed for reasons of consistency, predictability, simplicity, and uniformity.

V. REPEAL

A. CONSISTENCY & PREDICTABILITY

In an ABCD remoteness scenario, D’s entitlement to the goods should not depend on whether B is a registered secured party or a registered buyer/owner out of possession. From D’s perspective, this distinction is arbitrary and meaningless. In either case, a PPR debtor name search of C will

112 ATB v Cam Holdings, supra note 84.

113 Bartin Pipe, supra note 86.

114 Carlin, “Stuff”, supra note 1: “That’s the whole meaning of life, isn’t it? Trying to find a place for your

stuff.”

produce search results that do not disclose B’s interest. D has good reason to expect that the law will produce consistent outcomes under analogous iterations of the Sale Scenario and Secured

Transaction Scenario.115 This is not to say that the two statutory systems must produce identical outcomes in all instances. But it is to say that these systems should at least be consistent in terms of defining D’s rights against B (and thus B’s rights against D) with reference to the first level outcome between B and C. I submit that this is the soundest basis upon which an ABCD remoteness problem can be resolved: settle the ABC problem between B and C, and then allow 2018 CanLIIDocs 365 the outcome, between B and D, to flow from that result. With this view in mind, repealing SGA s. 26(1.2) would resolve the inconsistency in the outcomes produced by the SGA and PPSA in

Scenario 2. On account of the subsection’s repeal, the duly registered party, B (whether buyer out of possession or secured party), whose interest prevails over C, would also prevail over D pursuant to the second level invocation of nemo dat.

The benefits of repeal are significant because these events are likely to occur in the real world. The vast majority of goods are non-serial numbered goods, meaning the vast majority of sales involve these types of goods for which B, as a buyer out of possession, is presently unable to protect himself against D via registration. Repealing SGA s. 26(1.2) would reverse this, thus affording B the same level of protection under the SGA that he presently enjoys as a secured party under the PPSA.

This is not to say that repeal of SGA s. 26(1.2) would create perfect symmetry in all imaginable iterations of the Sale Scenario and Secured Transaction Scenario. If the subsection were repealed, some inconsistency in SGA and PPSA outcomes would persist. But these

115 For a similar form of this argument, embraced by the Supreme Court of Canada in a different context, see

Keneric Tractor Sales Ltd. v Langille, [1987] 2 SCR 440 at 453-55, 43 DLR (4th) 171.

lingering instances of inconsistency are attributable, not to the presence or absence of SGA s.

26(1.2), but to the peculiarities of other SGA and PPSA provisions that resolve analogous ABC level disputes. Incongruity in ABCD level outcomes is less objectionable to the extent that the underlying ABC level discrepancy can be rationalized.

Repealing SGA s. 26(1.2) would create greater overall consistency in the outcomes produced by the SGA and PPSA in analogous circumstances, and would establish a better integrated statutory system in which B’s position vis-à-vis D, at the second level, consistently 2018 CanLIIDocs 365 flows from, or is defined with reference to, B’s position vis-à-vis C at the first level. This consistency, in turn, would make the law more predictable for parties transacting in the various roles of B, C and D. From a risk assessment perspective, registrant B, whether buyer or secured party, would clearly understand that, provided the financing statement is validly registered, her interest prevails over the subsequent interests of C and D. She would also clearly understand that, should she happen to occupy the role of C or D, her interest could be subject to prior registered interests that endure in the goods including, unfortunately, some that may not be readily discoverable via PPR debtor name search. With a clear understanding of these risks, she can make an informed decision.116

B. SIMPLICITY

116 Of course, no person can ever know, or confidently predict, at the time of entering into a transaction

involving goods, that he occupies or will occupy the role of B, C or D. All he can do is gain a basic

understanding of the risks. Thus, for any particular person transacting with goods, he need only understand,

from the outset of the transaction, that he is vulnerable to prior registered interests that endure in the goods

(including some that may not be readily discoverable), and that his validly registered interest prevails over

subsequent interests (whether or not such interest is readily discoverable via PPR search).

Repealing SGA s. 26(1.2) would make the law simpler and easier to understand. In the absence of SGA s. 26(1.2), one need only learn the “ABCs” from which the outcome to an ABCD remoteness problem naturally flows: if B defeats C, then B defeats D pursuant to the second level invocation of nemo dat, whereas if C defeats B, then D defeats B pursuant to the doctrine of sheltering. This is far simpler than embarking, in the Sale Scenario, on the multi-tiered analytical approach currently required by SGA s. 26(1.2). Repealing SGA s. 26(1.2) would enhance the law’s simplicity, clarity, and predictability. 2018 CanLIIDocs 365

C. UNIFORMITY

In common law Canada, SGA s. 26(1.2) is unique to Saskatchewan. While the legislative regimes of other jurisdictions vary, to some degree, in the manner in which they address particular iterations of the ABC problem, none confers a second level, layered exception to nemo dat in favour of D in the Sale Scenario. Repeal of SGA s. 26(1.2) would create pan-Canadian uniformity in this regard, while simultaneously aligning Saskatchewan’s SGA with the sale of goods statutes of Alberta, British Columbia, Northwest Territories, and Nunavut. In short, repealing SGA s. 26(1.2) would enhance overall certainty and predictability in Canadian sales law. Tables of statutory concordance are set out below.

Table 1—Table of Statutory Concordance, Existing (2018)

Statutes è Sale of Goods Act Factors Act Personal

Property

Security Act

Jurisdictions Deemed

ê Security

Interest?

Saskatchewan117 26(1) 26(1.1) 26(1.2) 9(1) 9(2) 9(3) No 2018 CanLIIDocs 365 Alberta118 26(1) 26(2) N/C 9(1) 9(2) N/C No

Northwest Territories119 27(2) 27(2.1) N/C 8(1) 8(2) N/C No

Nunavut120 27(2) 27(2.1) N/C 8(1) 8(2) N/C No

British Columbia121 30(1) 30(2) N/C - - - No

Prince Edward Island122 N/C N/C N/C 9(1) 9(2) N/C Yes

Newfoundland123 27(1) N/C N/C - - - Yes

New Brunswick124 31(2),(4) N/C N/C 13(1),(2) N/C N/C Yes

117 SGA, supra note 3; Factors Act, supra note 10.

118 Sale of Goods Act, RSA 2000, c S-2; Factors Act, RSA 2000, c F-1.

119 Sale of Goods Act, RSNWT 1988, c S-2; Factors Act, RSNWT 1988, c F-1.

120 Sale of Goods Act, RSNWT (Nu) 1988, c S-2; Factors Act, RSNWT (Nu) 1988, c F-1.

121 Sale of Goods Act, RSBC 1996, c 410.

122 Sale of Goods Act, RSPEI 1988, c S-1; Factors Act, RSPEI 1988, c F-1; Personal

Property Security Act, RSPEI 1988, c P-3.1.

123 Sale of Goods Act, RSNL 1990, c S-6; Personal Property Security Act, SNL 1998, c P-7.1.

124 Sale of Goods Act, RSNB 2016, c 110; Factors and Agents Act, RSNB 2011, c 153; Personal Property

Security Act, SNB 1993, c P-7.1.

Nova Scotia125 28(2) N/C N/C N/C N/C N/C Yes

Manitoba126 28(1) N/C N/C N/C N/C N/C No

Ontario127 25(1) N/C N/C N/C N/C N/C No

Yukon128 24(1) N/C N/C N/C N/C N/C No

Interpretive Legend

“N/C” means no concordant subsection

“-” means no concordant statute 2018 CanLIIDocs 365

Table 2—Table of Statutory Concordance, Post-Repeal of SGA s. 26(1.2) & Factors Act s.

9(3)

Statutes è Sale of Goods Act Factors Act Personal

Property

Security Act

Jurisdictions Deemed

ê Security

125 Sale of Goods Act, RSNS 1989, c 408; Factors Act, RSNS 1989, c 157; Personal Property Security Act,

SNS 1995-96, c 13.

126 The Sale of Goods Act, RSM 1987, c S10; The Factors Act, RSM 1987, c F10.

127 Sale of Goods Act, RSO 1990, c S.1; Factors Act, RSO 1990, c F.1.

128 Sale of Goods Act, RSY 2002, c 198; Factors Act, RSY 2002, c 82.

Interest?

Saskatchewan 26(1) 26(1.1) N/C 9(1) 9(2) N/C No

Alberta 26(1) 26(2) N/C 9(1) 9(2) N/C No

Northwest Territories 27(2) 27(2.1) N/C 8(1) 8(2) N/C No

Nunavut 27(2) 27(2.1) N/C 8(1) 8(2) N/C No

British Columbia 30(1) 30(2) N/C - - - No 2018 CanLIIDocs 365 Prince Edward Island N/C N/C N/C 9(1) 9(2) N/C Yes

Newfoundland 27(1) N/C N/C - - - Yes

New Brunswick 31(2),(4) N/C N/C 13(1),(2) N/C N/C Yes

Nova Scotia 28(2) N/C N/C N/C N/C N/C Yes

Manitoba 28(1) N/C N/C N/C N/C N/C No

Ontario 25(1) N/C N/C N/C N/C N/C No

Yukon 24(1) N/C N/C N/C N/C N/C No

Interpretive Legend

“N/C” means no concordant subsection

“-“ means no concordant statute

D. IMPOSITION OF LOSS

It is commonly said, if the law must impose a loss upon one of two innocent persons, the loss

should fall on the person best able to prevent it.129 As a practical matter, repealing SGA s. 26(1.2)

129 See e.g. Appeal Decision, supra note 54 at 658, Cockburn CJ:

That Hoffman having thus, by being left in undisturbed possession of the goods and the

will tend to impose the loss on D, the Sale Scenario’s remote searcher, who is unable to discover

B’s registered ownership interest via PPR debtor name search. I contend, as between B and D, D is in a better position to prevent the loss in these circumstances by, for example, conducting more extensive and probing due diligence regarding the goods she acquires from C, i.e. beyond mere review of PPR debtor name search results pertaining to C. Additionally, and in any event, D is in a better position to absorb the loss because she has direct contractual recourse against C,130 whose priority claim has already been adjudged unfavourably as against B.131 In the hard cases, 2018 CanLIIDocs 365 losses should flow downstream, not upstream.

VI. CONCLUSION

No Saskatchewan court has ever interpreted, or even mentioned, SGA s. 26(1.2). This might lead one to believe that the subsection is a dead letter, unworthy of attention, and certainly undeserving of space in the Saskatchewan Law Review. I do not share this outlook. Subsection

26(1.2) of the SGA is a live priority provision which governs property entitlements in ABCD

indicia of ownership—there having been nothing to raise a doubt as to the latter, or any

means open to defendants to ascertain the fact—been enabled to defraud one of two

innocent parties, when the question arises as to which of them the loss should fall upon,

in reason and justice the loss ought to fall on him who might have prevented, and as a

matter of common prudence ought to have prevented, the possibility of fraud, is what I

cannot bring myself to doubt;

Teva Canada Ltd. v TD Canada Trust, 2017 SCC 51 at para 127, [2017] 2 SCR 317, Côté and Rowe JJ

dissenting: “Our approach has the effect of allocating the loss resulting from cheque fraud on the party in

the best position to detect and minimize such fraud, which is both effective and fair.”

130 SGA, supra note 3, ss 14, 52-53.

131 Ibid, s 26(1.1).

remoteness scenarios, past, present, and future. It is important that the law address these intractable remoteness problems in a coherent fashion.

In 2014, the Canadian Conference on Personal Property Security Law (“CCPPSL”)132 tasked a Working Group (of which I am a member) with undertaking an examination of the

Canadian PPSAs and recommending changes and updates to the legislation. The Working Group prepared a report that was presented and ratified at the 2017 annual meeting of the CCPPSL held in Edmonton, Alberta.133 The CCPPSL Report contains recommendations for twenty-one items 2018 CanLIIDocs 365 of reform. If legislators in Saskatchewan embrace the PPSA reform recommended by the

CCPPSL, they should also give serious consideration to reforming ss. 26(1.2) of the SGA.

Carefully attending to this obscure statutory subsection—creating greater harmony in the law—is an important task at this opportune time.

By itself, repealing SGA s. 26(1.2) leaves unaddressed those anomalous ABCD priority outcomes that are attributable to the peculiarities of the old Victorian provision s. 26(1), or the modern incarnation of the old bills of sale system embodied in s. 26(1.1). Additional careful consideration should be given as to whether either or both subsections require tinkering or a

132 The CCPPSL is a non-governmental organization that furnishes an annual forum for the exchange of views

and experiences among civil servants who are involved with operating the personal property registry, and

academics who have an interest and expertise in secured transactions and other registry-based legal

systems.

133 CCPPSL, Working Group comprised of Ronald CC Cuming, Clayton Bangsund, Tamara Buckwold,

Cynthia Callahan-Maureen, Anthony Duggan, Catherine Walsh & Roderick J Wood, Report to the

Canadian Conference on Personal Property Security Law on Proposals for Changes to the Personal

Property Security Acts (Edmonton: ratified at CCPPSL Annual Meeting, June 2017), online:

, archived:

more comprehensive overhaul. It may very well be that they are best left untouched. That is a debate for another paper. For now, I contend that repealing s. 26(1.2) of Saskatchewan’s SGA is a sensible first step toward creating greater consistency, coherency, and predictability in this esoteric area of law governing priority entitlements to goods. 2018 CanLIIDocs 365