Wandering Creek Farms Ltd. v. Sphenical Capital Inc., 2010 ABQB 825

Court of Queen ’ s Bench of Alberta Citation: Wandering Creek Farms Ltd. v. Sphenical Capital Inc., 2010 ABQB 825 Date: 20101223 Docket: 1001 15300 Registry: Calgary Between: Wandering Creek Farms Ltd. Plaintiff - and - Sphenical Capital Inc. Defendant _______________________________________________________ Reasons for Judgment of the Honourable Madam Justice C.L. Kenny _______________________________________________________ [ 1 ] These are further to my reasons issued orally on October 22, 2010 and should be read in conjunction with those earlier reasons.

I was asked to decide who was entitled to a freightliner grain truck which was in the possession of Wandering Creek Farms Ltd. (Wandering Creek) but seized by Spherical Capital Inc. (Spherical) who say they have a secured interest in the vehicle. [ 2 ] Upon delivering my oral reasons, I indicated that I was missing an important piece of information. RKC Alberta Inc. (RKC) and Roger K. Coppock gave security on the vehicle to Spherical. They then sold the vehicle to Buckshot Truck Sales Inc. (Buckshot). Wandering Creek was a subsequent purchaser down the line.

The missing information is whether Buckshot purchased the vehicle form RKC in the ordinary course of business without notice of the security interest.

[ 3 ] If the first sale from RKC and Coppock was to a purchaser in the ordinary course of the seller’s business, then the purchaser would take the vehicle free and clear of any security interest in the vehicle given by the seller by virtue of section 30(2) of the Personal Property Security Act, R.S.A. 2000, c. P-7 (PPSA), which states:

(2) A 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 in the goods given by the seller or lessor or arising under

section 28 or 29, whether or not the buyer or lessee has knowledge of it, unless the buyer or lessee also has knowledge that the sale or lease constitutes a breach of the security agreement under which the security interest was created. [ 4 ] That purchaser would be able to sell the vehicle again with each subsequent purchaser also taking the vehicle free and clear of any encumbrances.

If on the other hand, the vehicle was not sold in the ordinary course of the seller’s business, the encumbrance would survive the sale and each subsequent purchaser would also take the vehicle subject to that encumbrance. [ 5 ] After my oral reasons, I received further information from the parties. RKC is a used sales, wholesale sales, and agent broker company registered with the Alberta Motor Vehicle Industry Council (AMVIC). Roger Coppock is a registered salesperson for RKC. [ 6 ] RKC also advertises on the internet as being in the business of heavy equipment sales and finance.

The contact individual is Roger Coppock. [ 7 ] Wandering Creek followed up with Buckshot, who originally purchased the vehicle from RKC. Buckshot provided a letter which indicated they purchased the vehicle for valuable consideration from RKC. They provided a copy of the Bill of Sale dated August 30, 2008 signed by RKC which indicated the vehicle was clear of any liens or encumbrances. The Bill of Sale is a form document with the logo for AMVIC on the top. Buckshot indicated that RKC is a registered dealer with AMVIC and they had done business with them before.

Buckshot then sold the vehicle to another dealer. [ 8 ] It is the position of Wandering Creek that Buckshot purchased the vehicle in the ordinary course of the business of RKC and Buckshot therefore takes the vehicle free and clear of any encumbrances as set out in Section 30(2) of the PPSA .

Buckshot says it had no knowledge of the security interest and in fact RKC represented to it that there were no encumbrances on the vehicle. [ 9 ] Spherical says that RKC and Roger Coppock entered into a lease agreement with them with respect to the vehicle which lease agreement was registered at the Personal Property Registry. They say that RKC and Coppock did not operate a commercial business such as a car lot but instead operated their business from their farm.

They provide details about what they believe RKC and Coppock were doing with the vehicle, the type of businesses they were in, how Spherical came to buy the vehicle initially from Buckshot before leasing it to RKC and Coppock and what they believe Buckshot should have known about the transaction. [ 10 ] Wandering Creek argues that it does not matter what the prior arrangements were between Spherical and RKC and Coppock.

What matters is whether Buckshot purchased the vehicle from RKC in the ordinary course of RKC and Coppock’s business without knowledge of the security interest or if aware of the interest, without knowledge that the sale was a breach of the security interest. LAW [ 11 ] Spherical refers to a number of decisions which have considered the issue of “the ordinary course of the seller’s business.” These include: Quigley v. General Motors Acceptance Corp. of Canada (1983), 3 P.P. S.A.C. 43 (Ont. Co. Ct.) ; Ford Motor Credit Co. of Canada Ltd. v.

Centre Motors of Brampton Ltd. (1982), 1982 CanLII 1926 (ON SC) , 137 D.L.R. (3d) 634 (Ont. H.C..); Alberta Pacific Leasing Inc. v. Petro Equipment Sales Ltd. (1996), 1995 CanLII 9213 (AB KB) , 175 A.R. 175 (Master); Saskatchewan Wheat Pool v. Smith (1996), 11 P.P.A.C. (2d) 212 (S.K.Q.B.); and Re 547592 Alberta Ltd. (c.o.b. Dollar Rent-A-Car) (1995), 1995 CanLII 18111 (AB KB) , 171 A.R. 63 (Q.B.) [ 12 ] A number of the above authorities refer to Fairline Boats Ltd. v. Leger (1980), 1 P.P.S.A.C. 218 (Ont. Sup Ct.

H.C.J.) wherein Linden, J. indicated at page 222, that all of the circumstances of a transaction must be considered and that whether a sale was in the

ordinary course of business is a question of fact. He went on to identify a number of factors to consider (which list is not intended to be exhaustive) which were summarized in Alberta Pacific Leasing , supra , at para. 11 as follows:

I) Transaction type: the transaction should be one that is a normal part of the seller's business; ii) Place of Sale: "If it is at the business premises of the seller it is more likely to be in the ordinary course of business. If it is away from the business premises of the seller, in suspicious circumstances for example, a court may hold that it is not in the ordinary course of business"; iii) Parties to the Transaction: "If the buyer is an ordinary, everyday consumer, the likelihood of his being involved in a sale in the ordinary course of business is greater.

If the buyer is not an ordinary consumer, but a dealer or a financial institution, then the Court may take this out of the ordinary course of business"; iv) Quantity of the Goods Sold: "If there is only one or a few articles sold in the ordinary way, the Court is more likely to hold this to be a sale in the ordinary course of business. On the other hand, if a large quantity of items are sold, many more than are sold in the ordinary course of business and perhaps forming a substantial proportion of the stock of the seller, then the Court is less likely to consider it to be in the ordinary course of business";

v) Price Charged: "if the price charged is in the range of the usual market price, courts are more likely to consider the sale in the ordinary course of business, whereas if the price is unduly low, the courts may hold that this is not a transaction in the ordinary course of business"; vi) Advertising: if the seller advertises to the public, holding itself out as conducting a certain business, then the transaction is more likely one held to be in the ordinary course of business; and vii) Percentage of Overall Volume of Sales: even if the sale forms a small percentage of the overall business, and is indirect and incidental to the main business it may still be in the ordinary course of business.

DECISION [ 13 ] In looking at all of the circumstances of this transaction, I am satisfied that the sale from RKC to Buckshot was in the ordinary course of the seller’s business and as such, Buckshot took the vehicle free and clear of any perfected security interest in the vehicle given by RKC/Coppock to Spherical. Wandering Creek, as a subsequent purchaser for value, would also receive the vehicle free from the encumbrance. [ 14 ] Some of the factors cited by Linden, J. in Fairlane Boats that I consider are as follows: 1) There is nothing to indicate that the sale was not a normal part of the business of RKC.

The Bill of Sale refers to the fact they are licensed under AMVIC, they advertise as being in the business of vehicle sales, and Buckshot says they have done business with RKC/Coppock in the past. 2) It appears RKC conducts its business from its farm. The fact that they do not have retail premises to conduct their business does not mean that the sale was under suspicious circumstances. 3) Both RKC and Buckshot appear to be dealers who buy and sell vehicles. Buckshot would therefore be an ordinary consumer, although at what appears to be a wholesale level.

4) Only one vehicle was sold so it would appear to be a sale in the ordinary course. 5) The vehicle was sold for fair market value. Buckshot paid $29,000 plus G.S.T. for the vehicle. The vehicle was then resold by them for $31,500 plus G.S.T. This would indicate the purchase price was in the range of fair market value. 6) RKC advertises itself as in the business of vehicle sales leading one to conclude the sale is in the ordinary course. [ 15 ] Wandering Creek says that an innocent purchaser such as they should not have to go to this extent to prove they are the owner of the vehicle.

They say section 30(2) of the PPSA is supposed to protect purchasers who purchase vehicles from a dealer or seller in the ordinary course of that seller’s business. I sympathize with their frustration. Unfortunately, the wording of section 30(2) and the case law that has developed in considering this

section seems to require review of the initial purchase transaction between the seller who gave a perfected security interest and the purchaser from that seller. If the words “given by the seller” were not in section 30(2) , one would only need to prove that the vehicle was purchased in the ordinary course of the business of the seller thereby maintaining the commercial practicality the

section was intended to address whereby buyers are not required in every instance to search the Personal Property Registry before buying a vehicle. The current wording however requires an analysis of that initial transaction even though the vehicle may have been sold several times thereafter. [ 16 ] The rogue in this case appears to be Mr. Coppock, the owner of RKC. Spherical properly registered their encumbrance, Buckshot purchased the vehicle for value without any liens as referenced in the Bill of Sale and Wandering Creek eventually purchased the vehicle for value unaware of any encumbrances. COSTS [ 17 ] Wandering Creek seeks deemed damages pursuant to

section 67 of the PPSA for the failure of Spherical to release its interest in the vehicle and for seizing the vehicle pursuant to their security interest when they knew they had no interest in the vehicle. They also seek full solicitor and client costs. [ 18 ] It is not that simple nor clear. Spherical had security on the vehicle. They took the steps they felt they were entitled to take as a secured party. RKC/Coppock sold the vehicle knowing they did not have the right to do so. Both Spherical and Wandering Creek are innocent entities in this transaction.

The fact that I have decided that Wandering Creek is entitled to ownership of the vehicle by operation of law does not attract deemed damages or solicitor client costs in favour of Wandering Creek. Wandering Creek is entitled to taxable costs of the application. Heard on the 19 th day of November, 2010 Dated at Calgary , Alberta this 23 rd day of December, 2010 C.L. Kenny J.C.Q.B.A. Appearances:

Benjamin Kormos for the Plaintiff Daniel D. Peterson, Q.C. for the Defendant