QUEEN’S BENCH FOR SASKATCHEWAN Citation: 2010 SKQB 122 Date: 2010 03 26 Docket: Q.B.G. No. 1553 of 2009 Judicial Centre: Saskatoon BETWEEN: INLAND CONTRACTING LTD. and BRUCE BAKKEN, GIANTS HEAD EXCAVATING LTD., MIKE DERY HOLDINGS LTD., 101138096 SASKATCHEWAN LTD. and JAMES LEONARD LANGLEY RESPONDENTS Counsel: Grant A. Richards for Inland Contracting Ltd. Lyle W. Zuk, Q.C. for the respondents FIAT ACTON J. March 26, 2010 [1] This is an application by Inland Contracting Ltd. (“Inland”) for an order pursuant to s. 63(2) of The Personal Property Security Act, 1993, S.S. 1993, c. P-6.2 (“the Act”), requiring the respondents, 101138096 Saskatchewan Ltd. (“101138096”), or those in possession to deliver to the applicant four pieces of equipment, namely, a 1996 Ingersoll-Rand Roller, a 2005 cat skid steer loader, a 2005 Komatsu excavator, and a 2008 Trailmax TRD. [2] The four pieces of equipment were rented by Inland to Mike Dery Holdings Ltd. and Giants Head Excavating Ltd. (“Giants Head”) pursuant to an equipment rental contract entered into at Penticton, British Columbia, between April 21, 2008 and August 6, 2008. [3] Inland did not register any security interest in the equipment in British Columbia or Saskatchewan until October 20, 2009. [4] In the fall of 2008, the equipment was transported to Saskatchewan by Mike Dery Holdings Ltd. and/or Giants Head for the purpose of doing heavy equipment work in Saskatchewan. In February of 2009, 101138096 purchased the equipment which is the subject of this application from Mike Dery Holdings Ltd. and Giants Head (and other trailers and gravel crushing equipment from unrelated third parties) all for valuable consideration. Searches were completed to establish no registrations against the equipment. In April of 2009 the equipment was leased to Giants Head and security agreement registered in Saskatchewan on May 5, 2009 listing the equipment as general property but not specifically registering the equipment by serial number. [5] The security agreement was taken by 101138096 to secure the rental payments owed to it under the lease by Giants Head who had possession of the equipment. Mike Dery Holdings Ltd. and Giants Head defaulted under their payments to Inland and Giants Head defaulted in its payments to 101138096. [6] September 18, 2009, 101138096 seized the equipment leaving it in the possession of Giants Head. The equipment was subsequently removed from Giants Head’s possession and stored at the farm of Bruce Bakken, an acquaintance of the owner of 101138096 with the equipment advertised for sale by tender. Tenders closed October 10, 2009. No satisfactory tenders were received. On October 19, 2009, 101138096 forwarded letter to Giants Head confirming that 101138096 had elected to retain the equipment as payment for the outstanding indebtedness. As of this date Personal Property Security registry search in Saskatchewan disclosed no security interest other than that of 101138096 in the equipment. [7] Inland subsequently registered both British Columbia and Saskatchewan Personal Property registry interest by serial number respecting the equipment and its original agreements of 2008. [8] The issue before the court is whether Inland by virtue of its Personal Property Security registration by serial number on October 20, 2009 has priority over the interest of 101138096 which registered earlier as general security without serial numbers but who alleges to have taken possession of the equipment and elected to retain the equipment seized in satisfaction of Giants Head’s indebtedness October 19, 2009. This occurred one day prior to the registration of the security interest by serial number of Inland. [9] Counsel for the parties have referred the court to the cases of Bank of Nova Scotia v. Royal Bank of Canada, 1987 CanLII 4656 (SK CA), [1987] S.J. No. 541 (QL), 58 Sask. R. 304 (C.A.) and the Royal Bank of Canada v. Steinhubl’s Masonry Ltd., 2003 SKQB 299 (CanLII), 237 Sask. R. 297, being judgment of Klebuc J. (as he then was), which cites as authority the earlier Bank of Nova Scotia v. Royal Bank, supra, decision of the Court of Appeal. [10] Section 35(1)(b) of the Act provides that: perfected security interest has priority over an unperfected security interest. [11] The two ways to perfect security interest in collateral is: (a) by registration or (b) by taking possession of the collateral. [12] With respect to serial numbered goods, s. 35(4) of the Act states: security interest in goods that are equipment and are of kind prescribed as serial numbered goods is not registered or perfected by registration for the purposes of subsection (1), (7) or (8) or subsection 34(2) unless financing statement relating to the security interest and containing description of the goods by serial number is registered. [13] Section 19 of the Act states: security interest is perfected when it has attached and all steps required for perfection pursuant to this Act have been completed, regardless of the order of occurrence. [14] Section 25 states: Subject to section 19, registration of financing statement perfects security interest in collateral. [15] discussion of these sections of the Act was completed by Klebuc J. in Royal Bank of Canada v. Steinhubl’s Masonry Ltd., supra, wherein he referenced the Saskatchewan and Manitoba Personal Property Security Acts Handbook of Ronald C.C. Cuming and Roderick J. Wood (Toronto: Carswell, 1994), at pages 280-81, which reads: Section 35(4) should be read along with section 30(6) and (7) ... and with the collateral description provisions of the regulations. These provisions create special scheme for the description of specific goods by serial numbers on financing statements. This scheme is designed to maximize the protection available through serial number registration without forcing secured parties to undertake unnecessary registration requirements. The Act and regulations provide that all goods may be classified as consumer goods, inventory or equipment. Goods defined by the regulations as “serial numbered goods” held as consumer goods must be described specifically by serial number. The definition of “serial numbered goods” is limited to certain defined types of goods which have unique, easily identifiable serial numbers (such as motor vehicles). ... Different consequences are associated with the decision to describe serial numbered equipment in the general collateral description field. When “serial numbered goods” are held by the debtor as equipment or inventory, the secured party has the option to describe the goods in general terms or specifically by serial number. The choice of one method of registration over the other is not without consequence. If the secured party chooses to describe the equipment by serial number in the appropriate field on the financing statement, the maximum level of protection against competing interests is obtained. The security interest will have priority over the interest of subsequent buyer of the goods who acquired her interest in sale out of the ordinary course of the debtor’s business. It will have priority over any other subsequently perfected security interest in the goods, and priority over judgment creditor or trustee in bankruptcy of the debtor. If the secured party chooses to describe the equipment only in general terms in the general collateral description field of the financing statement, his security interest has priority only with respect to seizing creditors and the trustee in bankruptcy of the debtor. He will not have priority over buyer who acquired the equipment for value and without knowledge of the security interest (section 30(6) and (7) ... nor will he have priority over other perfected security interests in the equipment (section 35(4)). ... Wherein Klebuc J. continues at para. 14: 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 security interest in B’s goods. sells his goods to who in turn offers to sell them to D. conducts registry search based on C’s name, being the only search criterion available to him/her. The search does not reveal 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 any protection vis-à-vis A, notwithstanding his/her search.” In that case Klebuc J. initially had to make determination of whether or not the forklift was required to be registered by serial number. This issue is not before the court as the parties agree that had 101138096 registered by serial number there would not be an issue. [16] However the respondent 101138096 had a general security registered and had actual possession of the equipment in early October 2009 which therefore perfected its security while it retained possession. [17] As of October 19, 2009 when 101138096 elected to take the collateral as satisfaction of the debt the only party to whom notice was required was the debtor Giants Head and his notice is in compliance with s. 61(1) and s. 61(3) which read: 61(1) After default, the secured party may propose to take the collateral in satisfaction of the obligation secured by it, and shall give notice of the proposal to: (a) the debtor or any other person who is known by the secured party to be an owner of the collateral; (b) creditor or person with security interest in the collateral whose interest is subordinate to that of the secured party, and: (i) who, prior to the day on which notice is given to the debtor, has registered financing statement using the name of the debtor or according to the serial number of the collateral in the case of goods of kind that is prescribed as serial numbered goods; and (ii) whose security interest is perfected by possession when the secured party seized or repossessed the collateral; and (c) any other person with an interest in the collateral who has given written notice to the secured party of that interest prior to the day on which the notice is given to the debtor. 61(3) If no notice of objection is given, the secured party is, at the expiration of the 15-day period or periods mentioned in subsection (2), deemed to have irrevocably elected to take the collateral in satisfaction of the obligation secured by it, and is entitled to hold or dispose of the collateral free from all rights and interests of the debtor and from the rights and interests of any person entitled to receive notice pursuant to: (a) clause (1)(b); or (b) clause (1)(c) if the person’s interest is subordinate to that of the secured party. [18] Therefore ownership transferred to the respondent free and clear of the claims of the applicant, October 19, 2009. [19] When the applicant completed its registration on October 20, 2009 the collateral was no longer available because of 101138096’s election on October 19, 2009. [20] The respondent perfected its security interest in the equipment which is subject to this application by taking possession thereof. Electing to take the collateral as satisfaction of the obligation secured and providing the required notices prior to registration by the applicant, transferred title to the equipment to the respondent 101138096 free and clear of the claim of the applicant. [21] Therefore the applicant’s application is dismissed with costs to the respondent, 101138096 Saskatchewan Ltd. It is further ordered that the registration under the Act made by Inland as registration number 300516894 be discharged.
FIAT: This is an application for an order pursuant to s. 63(2) of The Personal Property Security Act requiring the respondents or those in possession to deliver to the applicant four pieces of construction equipment. The four pieces of equipment were rented by applicant, Inland, to respondents, Mike Dery Holdings Ltd. and Giants Head Excavating Ltd. pursuant to an equipment rental contract entered into at Penticton, British Columbia, between April 21, 2008 and August 6, 2008. Inland did not register any security interest in the equipment in British Columbia or Saskatchewan until October 20, 2009. In the fall of 2008, the equipment was transported to Saskatchewan by Mike Dery Holdings Ltd. and/or Giants Head. In February of 2009, respondent 101138096 purchased the equipment from Mike Dery Holdings Ltd. and Giants Head for valuable consideration. Searches were completed to establish no registrations against the equipment. In April of 2009, the equipment was leased to Giants Head and a security agreement registered in Saskatchewan on May 5, 2009 listing the equipment as general property but not specifically registering the equipment by serial number. The security agreement was taken by 101138096 to secure the rental payments owed to it under the lease by Giants Head who had possession of the equipment. Mike Dery Holdings Ltd. and Giants Head defaulted under their payments to Inland and Giants Head defaulted in its payments to 101138096. September 18, 2009, 101138096 seized the equipment leaving it in the possession of Giants Head. The equipment was subsequently removed from Giants Head's possession and stored at the farm of Bruce Bakken. On October 19, 2009, 101138096 forwarded a letter to Giants Head confirming that 101138096 had elected to retain the equipment as payment for the outstanding indebtedness. As of this date a Personal Property Security registry search in Saskatchewan disclosed no security interest other than that of 101138096 in the equipment. Inland subsequently registered both a British Columbia and Saskatchewan Personal Property registry interest by serial number respecting the equipment and its original agreements of 2008. The issue before the Court is whether Inland by virtue of its Personal Property Security registration by serial number on October 20, 2009 has priority over the interest of 101138096 which registered earlier as general security without serial numbers but who alleges to have taken possession of the equipment and elected to retain the equipment seized in satisfaction of Giants Head's indebtedness October 19, 2009. This occurred one day prior to the registration of the security interest by serial number of Inland. HELD: The application is dismissed with costs to the respondents. The respondent 101138096 had a general security registered and had actual possession of the equipment in early October 2009 which therefore perfected its security while it retained possession. As of October 19, 2009 when 101138096 elected to take the collateral as satisfaction of the debt the only party to whom notice was required was the debtor Giants Head and his notice is in compliance with s. 61(1) and s. 61(3) of the Act. When the applicant completed its registration on October 20, 2009 the collateral was no longer available because of 101138096's election on October 19, 2009. The respondent perfected its security interest in the equipment which is subject to this application by taking possession thereof. Electing to take the collateral as satisfaction of the obligation secured and providing the required notices prior to registration by the applicant, transferred title to the equipment to the respondent 101138096 free and clear of the claim of the applicant.