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“Finding Nemo (Dat)”: B.C. Court of Appeal Confirms that Contracts are Not Invalid under the Nemo Dat Rule if Purported Seller Does Not Own Subject Property

In NV Highway Properties Ltd. v. 1155204 B.C. Ltd.,[1] the B.C. Court of Appeal considered the the nemo dat quod non habet rule (a Latin phrase meaning “one cannot give that which one does not have”, and often referred to in shorthand as the “nemo dat rule”), holding that the rule did not invalidate the share purchase contract in question. The Court of Appeal emphasized that a seller who does not own a subject property may nonetheless enter a valid and enforceable contract to sell that property. A prospective buyer in that circumstance cannot invalidate the contract on the basis of the nemo dat rule, but if the seller is unable to complete the transaction the prospective buyer has a damages claim against the seller for default.

Facts

The case centred on a contract for the sale of certain properties in North Vancouver, B.C. The contract was structured as an asset sale but also contained an option clause, pursuant to which the buyers could elect to purchase the shares of the seller companies rather than the properties directly. Catalina Facilities Holdings Ltd., the owner of the sellers’ shares, was not a party to the contract, though its only directors were also directors of the sellers.

The buyers paid a $1.25 million deposit under the contract. Rather than proceeding with the asset purchase, they elected to purchase shares. The option clause in the contract provided that the parties “agree to execute such further and other agreements as may be commercially reasonable and necessary to give effect to the transfer of the shares”.

Before the completion date, the buyers informed the sellers that they viewed the contract as unenforceable. The buyers did not prepare the required closing documents nor pay the outstanding purchase price. The sellers exercised their option to cancel the contract and notified the buyers that their deposit was forfeited as liquidated damages.

The buyers brought a claim seeking the return of the deposit. They alleged that the contract was unenforceable on the basis of the nemo dat rule because the sellers did not own the shares to be transferred in the share purchase option.

Trial Decision

At trial,[2] the judge held that the contract was unenforceable based on the nemo dat rule and the Court of Appeal’s decision in Badesha v. Aujla.[3] The trial judge did not accede to the sellers’ argument that the nemo dat rule applies only in cases involving competing claims to property.[4] Accordingly, the trial judge held that for a contract for the sale of shares to be enforceable, the owner of the shares must be a party to the contract. As the contract was unenforceable, the trial judge ordered the return of the deposit.

Appeal Decision

The Court of Appeal overturned the trial judge’s decision, finding that she had erred in her interpretation of both the nemo dat rule and the Badesha precedent. The Court of Appeal explained that the nemo dat rule does not render a contract unenforceable if the seller does not own what they contract to transfer.[5]

In Badesha, share purchase transactions intended to effect a land swap failed to complete. The courts found that the contracts were invalid. While there was mention of the nemo dat rule, the contracts failed for several other reasons including a lack of consensus as to the proper parties, clarity as to the intentions of the parties, and evidence that the parties were able to effect the transfer of the shares.

The Court of Appeal noted that the treatment of the nemo dat rule in Badesha did not alter the requirements for a valid contract.[6] Instead, the nemo dat rule is simply a principle of property law which protects the “true owners” of assets where another purports to sell them, and establishes priorities among competing claims to the same property.[7]

In the case at hand, the share purchase option expressly included the proviso that the parties agreed to execute “such further and other agreements” to facilitate the share transfers. While the buyers would have had a claim in damages for breach of contract had the sellers failed to take such steps, there was no evidence that they had failed to do so. Instead, the buyers did not meet their obligations under the contract by failing to prepare necessary closing documents or pay the balance of the purchase price.

In these circumstances, given the contract was valid, the buyers had repudiated and there was no basis on which their deposit should be returned.

Key Takeaways

First, viewed alongside the Court of Appeal’s decision in Badesha, this case highlights the importance of drafting share purchase options in a manner which includes an obligation for the parties to take any necessary steps to effect the transfer.

Second, this dispute may have been avoided if the parties had included the owner of the shares as an additional seller party to the contract from the outset.  Parties should consider taking this approach to avoid similar disputes about the ability of the seller to transfer shares on closing.

Finally, parties seeking to preserve their rights to damages in similar circumstances should avoid repudiating the contract prior to closing. Although in this case the buyers may very well have been looking to use this as an excuse not to complete the purchase, in circumstances where a buyer wishes to proceed but has questions about the seller’s ability to convey shares, the buyer would be much better served by holding up its end of the deal and then enforcing its rights if the seller is in fact unable to effect the share transfer.

 

[1] 2025 BCCA 8 [NV Highway BCCA].

[2] 2024 BCSC 248 [NV Highway BCSC].

[3] 2016 BCCA 294.

[4] NV Highway BCSC at para. 78.

[5] NV Highway BCCA at para. 55.

[6] NV Highway BCCA at para. 63.

[7] NV Highway BCCA at para. 62.

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