Dated: 19981015 Docket: 2964 THE COURT OF APPEAL FOR SASKATCHEWAN Coram: Vancise, Lane Jackson JJ.A. SASKATCHEWAN VALLEY CREDIT UNION LIMITED APPELLANT (Respondent) and ROBERT LANSON and SHARON SEVERSON RESPONDENTS (Applicants) COUNSEL: Mr. D. Layh for the appellant Mr. L. Francis for the respondents DISPOSITION: On Appeal From: Q.B.G. 580/97, J.C. of Battleford Appeal Heard: 05 October 1998 Appeal Allowed: 05 October 1998 (orally) Written Reasons: 15 October 1998 Reasons By: The Honourable Mr. Justice Vancise In Concurrence: The Honourable Mr. Justice Lane The Honourable Madam Justice Jackson VANCISE J.A. Introduction [1] The issue on this appeal is the priority of security interest in mobile home granted by Johnathon Nickel to Robert Lanson and Sharon Severson (Lanson) and subsequent purchaser for value, the Saskatchewan Valley Credit Union (the Credit Union), having regard to the operation of s. 28(1) and s. 30(2) of The Personal Property Security Act, 1993[1] (P.P.S.A.). [2] The facts are not in dispute and are fully set out in the judgment of the trial judge. To facilitate an understanding of this oral judgment brief recitation of the facts will suffice. [3] Lanson loaned Nickel $16,000 to purchase mobile home. Lanson registered their financing statement giving them security interest in the mobile home. At trial it was found that Lanson knew that Nickel would either rent to sell the mobile home, their only concern being that upon sale Nickel would repay the loan in full. Nickel did sell the mobile home but did not disclose the sale to Lanson. The purchaser, Spruce Meadow Trucking Ltd., did not require financing and did not search the Personal Property Registry. Spruce Meadow Trucking Ltd. later sold the mobile home to Dale Rempel who obtained financing by the Credit Union. The Credit Union registered financing statement claiming security interest in the mobile home and its proceeds. It was at this time that Lanson discovered that the mobile home had been sold and attempted to seize it. The Credit Union resisted seizure and an application was brought before the Court of Queen’s Bench to find priorities as between the parties. At trial, Mr. Justice Krueger concluded that Lanson did not authorize the sale of the mobile home within the meaning of s.28(1) of the P.P.S.A., and the sale did not occur in the ordinary course of business as contemplated by s. 30(2) of the P.P.S.A., with the result that his security interest continues and takes priority over the security interest of the Credit Union. The Credit Union appeals this decision. Issues [4] The issue on this appeal is reduced to whether the security holder, Lanson, authorized Nickel to sell the mobile home as contemplated by s. 28(1) or if he was not authorized, did he sell the mobile home in the ordinary course of business as contemplated by s. 30(2). Applicable Statutory Provisions 28(1) 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; and (b) extends to the proceeds; but where the secured party enforces security interest against both the collateral and the proceeds, the amount secured by the security interest in the collateral land the proceeds is limited to the market value of the collateral at the date of the dealing. 30(2) buyer or lessee of goods sold or leased in the ordinary course of business of the seller or lessor takes free of any perfected or unperfected security interest that is given by the seller or lessor or that arises pursuant to section 28 or 29, whether or not the buyer or lessee knows of it, unless the buyer or lessee also knows that the sale or lease constitutes breach of the security agreement pursuant to which the security interest was created. Section 28(1) [5] Section 28(1) reiterates the common law principle of nemo dat quod non habet. The debtors right to deal with collateral is subject to the security interest granted to the creditor unless certain things occur i.e., the secured party authorizing expressly or by implication the dealing with the security. [6] The trial judge found that Lanson perfected his security interest under the terms of The Personal Property Security Act, 1993 by the registration of the financing statement on April 6, 1995. That registration being prior in time to the registration of the Credit Union takes priority unless the Credit Union can demonstrate that Lanson lost the priority due to the operation of s. 28(1). The security agreement between Nickel and Lanson anticipated Nickel dealing with the security, the mobile home. Section of the security agreement expressly provided: will look after the property and keep it in good repair. will not sell it nor grant another security interest in it, without repaying in full my indebtedness to the secured party. [7] Lanson knew that Nickel was buying the mobile home to rent it out or resell it. Thus, the issue is reduced to whether the agreement or the conduct of Lanson authorized the resale. [8] The trial judge found that Lanson had not authorized the sale to Spruce Meadow Trucking Ltd. He, in effect, found that Lanson, the secured party had to authorize the buyer, Spruce Meadow Trucking, to deal with the property and that the buyer must know of the authorization. With respect, in our opinion, he was in error. Section 28(1) contemplates the secured creditor (Lanson) authorizing the debtor to deal with the secured creditor. It does not contemplate an authorization to a third party to deal with the collateral. The fundamental issue is whether the authorization is subject to the pre-condition of payment in full. The trial judge found that Lanson had no interest in releasing the security interest until he received payment in full. [9] In our opinion, that interpretation is incorrect. The authorization to sell must be given before the sale. Lanson clearly gave Nickel express authority to deal with the security. That dealing would include resale. The fact the debtor failed to pay the secured creditor does not invalidate the sale to the buyer. [10] The appellant relied heavily on Canadian Commercial Bank v. Tisdale Farm Equipment Ltd.[2] In that case the trial judge found that “dealing” with the security interest was based on the express condition that the security interest would only be released on payment of the entire proceeds in circumstances where all parties, including the vendor the purchaser and the holder of the security interest, had knowledge of the security interest. That is not the case here. Canadian Commercial Bank is restricted to cases where the secured party agrees with the buyer to release the security interest on the express condition that the obligation is satisfied in full and makes it clear to the debtor that he does not intend to rely simply on the proceeds. [11] There is distinction between conditional authorization and an authorized sale subject to conditions that the proceeds be remitted to the secured party. (See: Cuming and Wood, Saskatchewan and Manitoba Personal Property Security Acts Handbook (Carswell, 1994) at pp. 198-99). Section 28(1) provides that “when collateral is dealt with or otherwise gives rise to proceeds, the security interest continues in the collateral unless the secured party expressly or impliedly authorizes the dealing. In other words the security interest in the collateral does not continue when the secured party authorizes expressly or by implication the dealing.” In this case the trial judge clearly found that Lanson authorized the dealing. It follows that the security interest did not continue in the collateral and the title passed to the buyer, Spruce Meadow Trucking Ltd., free from the secured interest. It follows the Credit Union acquired the collateral free of the security interest of Lanson and that the Credit Union therefore has priority over the security interest of Lanson and that Lanson’s rights against Nickle are restricted to the proceeds. [12] It is not necessary for us, given the express authorization by Lanson to Nickel to deal with the collateral, to determine whether one could find on the facts of this case that there was an implied authorization to deal with the collateral as result of the prior commercial dealings of the parties. [13] In light of this finding it is also not necessary for us to deal with the claim for priority of the Credit Union based on s.30(2) of The Personal Property Security Act, 1993. By declining to deal with this matter we are not to be taken as approving of the reasons of the trial judge. [14] The appellant shall have costs in the usual way on double Column V. [1]S.S. 1993, c.P-6.2 [2](1984) 1984 CanLII 2337 (SK QB), 35 Sask. R. 166 (Q.B.) approved in (Sask. C.A.) 1985 CanLII 2883 (SK CA), [1987] W.W.R. 574.
The issue on appeal was reduced to whether the security holder, Lanson, authorized Nickel to sell the mobile home as contemplated by s28(1) or, if not authorized, did he sell the mobile home in the ordinary course of business as contemplated by s30(2). Lanson loaned Nickel $16,000 to purchase a mobile home and registered their financing statement giving them a security interest in the mobile home. The trial judge found that Lanson knew that Nickel would either rent or sell the home but that upon a sale Nickel would repay the loan in full. Nickel sold the home but did not disclose the sale to Lanson. The purchaser, SP Trucking, did not require financing and did not search the Personal Property Registry. SP Trucking sold the home to Rempel who obtained financing from the Credit Union which registered a financing agreement claiming a security interest in the home and its proceeds. Lanson attempted to seize the home. The trial judge found Lanson's security interest continued and took priority over that of the Credit Union as Lanson had not authorized the sale to the trucking company and that Lanson had no interest in releasing the security interest until he received payment in full.  HELD: 1)Section 28(1) reiterates the common law principle of nemo dat quod non habet. The debtor's right to deal with collateral is subject to the security interest granted to the creditor unless certain things occur- ie. the secured party authorized expressly or by implication the dealing with the security. 2)The trial judge was in error in finding the secured party, Lanson, had to authorize the buyer, SP Trucking, to deal with the property and that the buyer must know of the authorization. Section 28(1) does not contemplate an authorization to a third party to deal with the collateral. The fundamental issue was whether the authorization was subject to the pre-condition of payment in full. 3)The authorization to sell must be given before the sale. Lanson clearly gave Nickel express authority to deal with the security which would include resale. The fact the debtor failed to pay the secured creditor did not invalidate the sale to the buyer.  4)Canadian Commercial Bank is restricted to cases where the secured party agrees with the buyer to release the security interest on the express condition that the obligation is satisfied in full and makes it clear to the debtor he does not intend to rely simply on the proceeds. There is a distinction between a conditional authorization and an authorized sale subject to conditions that the proceeds be remitted to the secured party. 5)The trial judge clearly found that Lanson authorized the dealing. It followed that the security interest did not continue in the collateral and the title passed to the buyer. The Credit Union acquired the collateral free of the security interest of Lanson and Lanson's rights against Nickle were restricted to the proceeds.  6)By declining to deal with the matter of s30(2), the appellate court was not to be taken as approving of the reasons of the trial judge. 7)The appellant was awarded costs on double Column V.