This is a vexing question. It generally arises when a rogue has made off with money or assets having perpetrated a fraud and has left behind two or more equally innocent victims. As between those victims, who should bear the loss?
Earlier this week, the Alberta Court of Appeal weighed in on just such a case. The short answer is that the court will look to the statutory rights of the parties to resolve that issue.
A Mr. Salman signed a conditional sales contract with TD for the purchase of a $42,000 vehicle. Part of that contract required him to maintain possession of the vehicle. TD registered the conditional sales contract in the personal property registry. In legal terms, TD perfected its security in the vehicle by doing so. In this case, that turned out to be the difference.
The Mr. Salman made the first four monthly payments but then stopped. TD did nothing for 8 months and wrote the loan off as a bad debt. Meanwhile, Mr. Yan became aware that a Mr. Amshyah was advertising a vehicle for sale. To satisfy himself the sale was legitimate, Mr. Yan got copies of Mr. Amshyah’s drivers licence and passport. He also obtained a vehicle report from the Registrar of Motor Vehicles which confirmed there were no liens on the vehicle. He then bought the car for $19,000. A few months later, the police seized the vehicle and advised Mr. Yan and TD that the vehicle’s VIN had been “re-VINed” or cloned. Following the criminal investigation, the vehicle was released by the police to Mr. Yan.
TD sued to have Mr. Yan declared its debtor. The chambers judge dismissed that application by finding that TD’s delay in taking any steps against its original debtor, Mr. Salman, essentially amounted to an implied consent for the transfer to Mr. Yan. She also relied on the fact TD had written off the loan.
The Alberta Court of Appeal reversed that decision. They relied on the Latin maxim nemo dat quod non habeti, which means that you cannot sell or give away more than you have. The vehicle sold to Mr. Yan was subject to TD’s security interest, perfected under the Personal Property Security Act (PPSA). That security interest persisted and was enforceable against Mr. Yan.
The argument that TD impliedly consented to the transfer through its conduct was defeated because implied consent must mean informed consent. TD knew nothing of the vehicle’s sale or its “re-VINing.” TD also did not expect the vehicle to be transferred as part of the debtor’s business (as would be the case when financing a car dealer). As a result, all Mr. Yan could have purchased was the same interest in the vehicle when in the possession of the original rogue: a right to possession subject to a conditional sales contract.
As the court noted, “the circumstances of this case are unfortunate. Mr. Yan was an unusually careful purchaser. Both parties were duped by a rogue or a series of rogues. However, the legislation, properly interpreted, protects the security interest of the finance company, and provides no recourse for Mr. Yan.”
Like many such cases, this likely comes down to the proposition that if a deal seems too good to be true, it is probably not what it may seem. Mr. Yan was buying a vehicle at a price significantly below its apparent value. That may have been a clue to the trouble that lay ahead.
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