nan 1999 SKQB 151 Q.B.G. A.D. 1998 No. 1988 J.C. R. IN THE QUEEN’S BENCH JUDICIAL CENTRE OF REGINA BETWEEN: CASE CREDIT LTD. and GUY POIRIER DEFENDANT R.S. Smith, Q.C. J.C. Krueger for Case Credit Ltd. C.M. Richmond for Guy Poirier JUDGMENT KRAUS J. October 26, 1999 [1] Guy Poirier farms with his father and brother. They operated 5000 acres in 1997 but reduced their operation to 2000 acres the following year because of losses caused by low grain prices. [2] In 1997, Mr. Poirier acquired sprayer. Its value was agreed to be $94,600.00 by the parties. Mr. Poirier did not have $23,650.00, being 25% of the agreed value, as down payment, but he did have trade-in which was agreed to have value of $10,000.00. The dealer and Mr. Poirier entered into a standard form Finance Lease Agreement which provided for an "advance payment" of $9,320.67 and the same amount by semi-annual installments commencing December 15, 1997, and continuing until December 15, 2001, with the final "termination value" payment of $23,650.00 due on June 15, 2002, to be paid at Mr. Poirier's option if he elected to purchase the sprayer. The evidence is clear that the parties treated the trade-in as the advance payment (but the Agreement does not define it in that way) even though the value of the trade-in does not equal the amount of the advance payment; the difference being $679.33 (between $10,000.00 and $9,320.67). [3] The central issue is whether the Agreement is a lease or a security agreement. Case Credit argues that it is a lease and that liquidated damages should be awarded in accordance with clause two. Mr. Poirier argues that it is a conditional sales agreement and that Case Credit's right is restricted to repossession and sale by s. 46(2) of The Saskatchewan Farm Security Act. Case Credit framed the Agreement as a lease, but the Agreement itself uses notions such as retail financing and secured party. In written notices and other communication to Mr. Poirier, subsequent to his default of the first payment on December 15, 1997, Case Credit used nomenclature such as principal, past due interest, conditional sales contract, purchase of equipment, realize on security and retail sales contract. On January 6, 1998, Case Credit wrote Mr. Poirier demanding payment of $10,122.72 which, according to Case Credit, was comprised of $9,973.12 for "principal" and $149.60 for "past due interest". In its letter, Case Credit gave Mr. Poirier notice of his default under "... the conditional sales contract that you signed for the purchase of equipment...". On the same date, Case Credit also sent to Mr. Poirier "Notice of Intent to Realize on Security" which specified the "Retail Installment Contract", as being the security held. Framing the Agreement as lease is not solely determinative of the nature of the transaction, any more than subsequent reference by Case Credit to the Agreement as being conditional sales contract makes it such. The construction and interpretation of the nature of the Agreement is a question of law. [4] The primary incidents of ownership are use of the sprayer for all of its useful life with the obligation to pay the capital cost plus the cost of investment, acquisition of substantial interest in the sprayer, and loss or gain from unusual depreciation or appreciation of the value of the sprayer (Saskatchewan and Manitoba Personal Property Security Acts Handbook, Cuming, R.C. Wood, R.J., Carswell Professional Publishing, 1994). There is no evidence as to the useful life of the sprayer, nor the capital cost, nor the cost of investment, nor whether there was depreciation or appreciation of value. There was evidence that the total of all payments ($107,536.03) under the Agreement, including the final termination value option payment, is equivalent to the total payments if made under sales contract; that equivalence is achieved by the dealer employing the same interest rate to lease as to sales transaction but that interest rate is undisclosed in the Agreement relating to the amount of the payments. The termination value of $23,650.00 was the balance at the due date (June 15, 2002), payable in the event of exercise of the option, and was determined by the agreed initial value of the sprayer, less the value of the trade-in and the amount of payments employing an interest component. The termination value was not determined by the anticipated value of the sprayer in June, 2002; rather, it is 25% of the value of $94,600.00, as agreed in June, 1997. The evidence is that the value of the sprayer at the end of five years (June, 2002) would depend upon market fluctuations. Case Credit argues that this option price is substantial, and, the reasoning found in Re Ontario Equipment (1976) Ltd. (1981), 1981 CanLII 2593 (ON SC), 33 O.R. (2d) 648 supports its contention that the Agreement is lease. Mr. Poirier argues, on the basis of the same case, that the option payment was merely the deferred down payment and is not substantial portion of the fair market value. However, the court must be able to ascertain the probable value of the sprayer at the end of the Agreement, in June, 2002, and, as Mr. Mohr testified on behalf of Case Credit, that value would depend upon market fluctuations. On its face, the option payment of $23,650.00 does not appear to be nominal amount, but, in the absence of evidence, am unable to determine whether it is "substantial sum" as being the test employed in the Ontario Equipment case. The Agreement does not determine the market value of the sprayer in June, 2002, and in light of the evidence that it depends on market fluctuations, cannot determine whether the option price would be substantially less than the fair market value in June, 2002, or equivalent to it, or more. [5] The Agreement has many of the attributes of ownership and collectively show that Mr. Poirier acquired a substantial interest in the sprayer. First, Mr. Poirier was to have possession and the unrestricted right to use the sprayer (provided that he did not exceed 500 base hours annually, in which event he agreed to pay $75.00 per excess hour. However, the base hours were high and it was reasonably expected that the annual usage would be less than the base hours; indeed, the base hours were not exceeded during the first, and only, year of operation). The sprayer was used (not new) and the Agreement shows that it had 680 hours when it was acquired by Mr. Poirier. The evidence was that new unit would sell for approximately $120,000.00, or approximately $25,000.00 more than the subject sprayer. Second, the total payments under lease are equivalent to the total payments under sales contract. Third, Mr. Poirier had an option to acquire title by making the final termination value payment. Fourth, Mr. Poirier was to bear the risk of loss and obligations for maintenance and insurance. In essence, the Agreement is a conditional sales contract whereby title was reserved until Mr. Poirier elected to pay the final payment. Ergo, the transaction falls within the ambit of The Saskatchewan Farm Security Act, and Case Credit's right to recover the unpaid purchase money is restricted to repossession and sale. [6] References in the Agreement to "the retail financing agreement" and to "secured party" reinforce the interpretation that this transaction falls within the ambit of The Saskatchewan Farm Security Act; s. 46(4) of the Act provides that it applies "... to all sales affected by way of security agreement creating purchase money security interest covering the whole or part of the purchase price of the article sold". Definitions of secured party, security agreement and security interest in The Saskatchewan Farm Security Act apply to Case Credit, its interest, and the Agreement. [7] The second issue is whether the consent by Mr. Poirier to give up possession was conditional upon his release from further liability. However, consideration of this issue is only necessary in the event that the Agreement is lease, and if have correctly interpreted the Agreement to be conditional sales contract, Case Credit's claim is barred by The Saskatchewan Farm Security Act and the issue of consent is nugatory. But, if the Agreement is lease and is covered by The Saskatchewan Farm Security Act, would find that Mr. Poirier's consent to give up possession was conditional upon his being released from further liability. The evidence is uncontradicted that Mr. Poirier's consent was subject to that condition. accept Mr. Poirier's further evidence that he would have continued to use the sprayer to earn income from custom work or he would have made other arrangements to bring current the payment of $9,320.67 due December 15, 1997, had he known that he would continue to be held responsible for payments. Further, Mr. Poirier's past experience with Case Credit in respect of sales contracts of his bailer and tractor was that he gave up possession without claims for deficiencies being advanced against him. But, the evidence is equally clear that Case Credit always cautioned Mr. Poirier that his liability would not be extinguished. [8] What is the effect of this evidence? Case Credit obtained possession of the sprayer earlier than the 40 day notice period provided in s. 52 of The Saskatchewan Farm Security Act, but should have waited to obtain possession after expiration of the 40 day notice period in these circumstances where the effect of the condition imposed by Mr. Poirier upon his consent to early possession was unclear. Certainly, the intention of the legislators in framing the Act (ss. 48, 50 and 52) is clear: Case Credit must serve on Mr. Poirier notice of its intention to take possession of the sprayer, and, 40 days after the date of service, Case Credit may take possession of the sprayer, absent an application by Mr. Poirier for hearing by the court. Case Credit cannot foreclose Mr. Poirier's entitlement to 40 days' notice and take early possession of the sprayer by relying upon Mr. Poirier's consent in these circumstances where his consent was not unconditional nor in writing nor otherwise unequivocal. To validate the early repossession in these circumstances would defeat the intention of the legislation to afford protection to farmers against loss of property interests without compliance with legislative provisions by creditors who are governed by the Act. If the Agreement is lease, hold that Case Credit is secured party since it has an interest in the sprayer that secures payment or performance of an obligation, and Case Credit cannot take possession of the sprayer except in accordance with Part IV of The Saskatchewan Farm Security Act (ss. 2(1)(y), 2(1)(aa) and 47). Justice Malone determined creditor to be secured party in similar circumstances: Christianson v. Allis-Chalmers Canada Inc. et al. (1990), 1989 CanLII 4584 (SK QB), 79 Sask. R. 232 (Q.B.) at 234. [9] What is the effect of the early repossession? If the Agreement is lease, and is covered by The Saskatchewan Farm Security Act, would hold that Mr. Poirier is released from all liability with respect to the sprayer under s. 55 of the Act. But would not go further. The issue was not plead in defence, although the parties did canvass the circumstances within the framework of this summary trial, albeit without the benefit of discoveries or pre-trial conference. It would be unjust to make any further order under the Act in these circumstances and in the absence of evidentiary basis, for example, of the fair market value of the sprayer at the time of the seizure as required for an order under s. 55(c) of the Act. [10] Only if the Agreement is lease and is not covered by The Saskatchewan Farm Security Act, would hold that Case Credit is not barred by implied acceptance of Mr. Poirier's condition that he be released from further liability, because of exclusionary clause eight of the Agreement. must follow the principles enunciated in Société Generale (Canada) v. Gulf Canada Resources Ltd., 1995 ABCA 259 (CanLII), [1995] W.W.R. 453 (Alta. C.A.). In that event, would grant judgment to the plaintiff for $42,089.00 with costs on the basis of Column of Schedule of the Tariff of Costs. [11] The plaintiff's claim is dismissed. The defendant is awarded costs on the basis of Column 3 of Schedule I of the Tariff of Costs.
The farm implement dealer and the defendant entered a standard form Finance Lease Agreement which provided for an 'advance payment' and semi-annual installments with the final 'termination value' payment to be paid at the defendant's option if he elected to purchase the sprayer. The central issue was whether the Agreement was a lease and liquidated damages should be awarded in accordance with clause two, or a conditional sales security agreement whereby the dealer was restricted to repossession and sale by s.46(2) of the Saskatchewan Farm Security Act. HELD: The plaintiff's claim was dismissed with costs on Column 3. 1)The Agreement was a conditional sales contract whereby title was reserved until the defendant elected to make the final payment. The transaction falls within the ambit of the Saskatchewan Farm Security Act and the dealer's right to recover the unpaid purchase price is restricted to repossession and sale. Although the dealer framed the Agreement as a lease the Agreement itself used notions of retail financing and secured party. Nomenclature such as principal, past due interest, conditional sales contract, purchase of equipment, and retail sales contract were used. The construction and interpretation of the nature of the Agreement is a question of law. The Agreement had many attributes of ownership and collectively showed that the defendant acquired a substantial interest in the sprayer. He had possession and unrestricted right to use the sprayer with high base hours. The total payments were equivalent to the total payments under sales contract. The defendant had the option to acquire title by making the final payment. He bore the risk of loss and obligation for maintenance and insurance. 2)The court could not determine whether the option price would be substantially less, equal or more than the June 2002 fair market value of the sprayer. 3)If the Agreement is lease the defendant's consent to give up possession was conditional upon his release from further liability. Case Credit cannot foreclose the entitlement to 40 days notice and take possession of the sprayer by relying upon conditional unwritten consent. To validate early repossession would defeat the intention of the legislation to protect creditors. Case could take possession only in accordance with Part IV of the SFSA. 4)If the Agreement is lease and covered by the SFSA, the defendant would be released from all liability under s.55. It would be unjust to make any further order in a summary trial without the benefit of discoveries or pre-trial conference and without evidence of the fair market value at the time of seizure. 5)If the Agreement is lease and not covered by the SFSA, it would be held that the dealer was not barred by implied acceptance of the condition the defendant be released from further liability because of the exclusionary clause. Judgment would have been granted for $42,089 with costs on Column 3.