MacPhee Chevrolet Buick GMC Cadillac Ltd. v. S.W.S. Fuels Ltd., 2011 NSCA 35

NOVA SCOTIA COURT OF APPEAL Citation: MacPhee Chevrolet Buick GMC Cadillac Ltd. v. S.W.S. Fuels Ltd. , 2011 NSCA 35 Date: 20110419 Docket: CA 333521 Registry: Halifax Between: MacPhee Chevrolet Buick GMC Cadillac Limited Appellant v. S.W.S. Fuels Limited, C. Dixon Fuels Limited, Charles E. Dixon and Judy M. Dixon Respondents Judge: The Honourable Justice Joel Fichaud Appeal Heard: March 22, 2011 Subject: Personal Property Security Act - Priorities

Summary: In 2005, S.W.S took general security for a truck leased by the debtor from GMAC. MacPhee took title to the truck from GMAC in 2007 and gave the debtor a new lease. The debtor defaulted. The Supreme Court said S.W.S. had priority over MacPhee. MacPhee appealed. S.W.S. registered a Financing Statement for its security in 2005 and MacPhee registered a Financing Statement for its lease in 2007, under the Personal Property Security Act . Issue: Did S.W.S. or MacPhee have priority? Result: MacPhee had a purchase money security interest. The debtor had possession of the Truck since 2004.

So the debtor did not “obtain” possession within 15 days of MacPhee’s registration of its Financing Statement (December 2007). This meant MacPhee did not have super- priority under s. 35(1) (

a) of the Personal Property Security Act . Rather, S.W.S had priority as the first registered interest under s. 36(1)(a)(

I) of the Act . The Court of Appeal dismissed the appeal.

This information sheet does not form part of the court’s judgment. Quotes must be from the judgment, not this cover sheet. The full court judgment consists of 16 pages. NOVA SCOTIA COURT OF APPEAL Citation: MacPhee Chevrolet Buick GMC Cadillac Ltd. v. S.W.S. Fuels Ltd. , 2011 NSCA 35 Date: 20110419 Docket: CA 333521 Registry: Halifax Between: MacPhee Chevrolet Buick GMC Cadillac Limited Appellant v. S.W.S. Fuels Limited, C. Dixon Fuels Limited, Charles E. Dixon and Judy M. Dixon Respondents Judges: Hamilton, Fichaud and Farrar JJ.A.

Appeal Heard: March 22, 2011, in Halifax, Nova Scotia Held: Appeal dismissed per reasons for judgment of Fichaud, J.A.; Hamilton and Farrar, JJ. A. concurring. Counsel: Steven G. Zatzman, Q.C. for the appellant Gavin D.F. MacDonald and Jack Townsend, Articled Clerk, for the respondent S.W.S. Fuels Limited respondents C. Dixon Fuels Limited, Charles E. Dixon and Judy M. Dixon not appearing

Reasons for judgment : [ 1 ] In 2004, Dixon Fuels leased a GMC truck from GMAC. Dixon Fuels bought fuel products from SWS further to a line of credit from SWS that was secured by a General Security Agreement, signed in 2005, from Dixon Fuels to SWS. In 2005, SWS registered the Financing Statement for that General Security Agreement under the Personal Property Security Act . SWS’ General Security Agreement and Financing Statement identified the GMC truck by serial number as secured collateral. In 2007, GMAC conveyed the truck to MacPhee.

Dixon Fuels as lessee then signed a new lease with MacPhee as lessor, and MacPhee registered the Financing Statement for this 2007 lease under the Personal Property Security Act. Dixon then defaulted to SWS, who sought to realize on the truck under its 2005 General Security Agreement in priority to MacPhee’s title. [ 2 ] The Supreme Court of Nova Scotia held that SWS had priority over MacPhee. MacPhee appeals. The issue is whether MacPhee has super-priority, as holder of a Purchase Money Security Interest, under s. 35(1) (

a) of the Personal Property Security Act , that ranks before SWS’ earlier registered interest under s. 36(1)(a)(

i) of that Act . Background [ 3 ] The record in some respects is leaner than it could have been and, as a result, counsel in argument had to avoid assuming facts that are not in evidence. I will exercise the same restraint. The evidence comprises affidavits and supplementary affidavits of Ms. Donna Larkin, General Manager of S.W.S. Fuels Limited and of Donald Hartigan, Senior Leasing Manager of MacPhee Chevrolet Buick GMC Cadillac Limited. [ 4 ] The centerpiece is a 2004 GMC Truck. On January 7, 2004, the truck’s owner, GMAC Leaseco Corporation (GMAC), leased the truck to C.

Dixon Fuels Limited (Dixon Fuels) and the company’s principal, Charles Dixon. That lease (the GMAC Lease) is not in evidence. Neither is there evidence of the GMAC Lease’s term, payment schedule, whether it had an option to purchase, or whether a Financing Statement for the GMAC Lease was registered under the Personal Property Security Act, S.N.S. 1995-96, c. 13, as amended ( PPSA ). [ 5 ] S.W.S. Fuels Limited (SWS) supplies fuel and petroleum products to fishermen and their companies.

In May 2003, SWS agreed orally to sell fuel products to Dixon Fuels under a credit arrangement where SWS would be paid when Dixon Fuels was paid by Dixon Fuels’ customers. On December 14, 2005, SWS and Dixon Fuels signed a written credit agreement (SWS Credit Agreement) by which SWS agreed to provide Dixon Fuels with a new line of credit for $750,000 to be secured by a written General Security Agreement from Dixon Fuels. That General Security Agreement (GSA), signed by Dixon Fuels and SWS, also was dated December 14, 2005. The SWS Credit Agreement and GSA are in evidence.

The GSA says that Dixon Fuels’ indebtedness is secured by collateral including the GMC Truck, identified by its serial number. [ 6 ] On December 20, 2005, SWS registered a Financing Statement for the GSA under the PPSA . The Financing Statement listed the collateral as including the GMC Truck, identified by its serial number. [ 7 ] On November 22, 2007, GMAC transferred the GMC Truck to MacPhee Chevrolet Buick GMC Cadillac Limited (MacPhee). The Motor Vehicle Title Transfer document dated November 22, 2007, filed with Service Nova Scotia, is in evidence.

On December 12, 2007, Service Nova Scotia issued a certificate that MacPhee owned the GMC Truck. This was a transfer of the truck’s title. By cheques dated November 29 and 30, 2007, respectively, MacPhee paid GMAC $27,415.09 plus $1,500. HST for the GMC Truck. There is no evidence that GMAC assigned the 2004 GMAC Lease to MacPhee, or why GMAC and MacPhee may have chosen not to assign the GMAC Lease. The GMAC Lease is not the source of any claim in this proceeding. [ 8 ] MacPhee and Dixon Fuels signed a Lease Agreement for the GMC Truck (MacPhee Lease). The MacPhee Lease, dated November 29, 2007, is in evidence.

The term is four years with monthly payments, then an option to purchase. There is no evidence whether, or how these terms altered Dixon Fuels’ credit or equity in the truck from the earlier GMAC Lease.

[ 9 ] On December 5, 2007, MacPhee registered a Financing Statement for the MacPhee Lease under the PPSA . The Financing Statement described the Collateral as the GMC Truck, identified by its serial number. [ 10 ] Dixon Fuels then defaulted on its payment obligations to SWS and, by January 21, 2009, owed SWS $393,610.84. SWS sought to realize on the GMC Truck under its GSA. [ 11 ] The Affidavit of SWS’ Ms. Larkin says that Dixon Fuels or Mr. Dixon possessed the GMC Truck continuously from January 7, 2004 until March 2009, when SWS took possession under its GSA.

There is no other evidence on the truck’s possession. [ 12 ] In 2008, Dixon Fuels, Mr. Dixon and Judy Dixon sued SWS. [ 13 ] On February 10, 2010, SWS applied under Civil Procedure Rule 22.11 and the PPSA for an order that SWS has a first charge on the GMC Truck. Justice Simon MacDonald of the Supreme Court of Nova Scotia heard the motion on April 22, 2010 in Yarmouth. Justice MacDonald issued a written decision ( 2010 NSSC 259 ) followed by an Order of August 26, 2010. The judge added MacPhee as a necessary party, then decided that SWS had priority over MacPhee.

Later I will discuss the judge’s reasons. [ 14 ] MacPhee appeals. Issues [ 15 ] A passage of the judge’s decision described SWS’ interest as a “lease” and a “PMSI” - ie a purchase money security interest. The initial three issues in MacPhee’s factum challenge these descriptions of SWS’ security. I will address these together as the first issue. [ 16 ] The remaining issues in MacPhee’s factum challenge elements of the judge’s priority ruling. I will consider those points together as the second issue - whether the judge erred by ruling that SWS had priority over MacPhee.

Standard of Review [ 17 ] There is no dispute on the underlying facts. The priority issues are legal, involving the

interpretation and application of the PPSA . This court applies correctness to legal issues appealed from a decision of a judge. That standard applies whether the judge’s supposed error is characterized as “law” or “principle”, and whether the appeal is from an interlocutory or final ruling. First Issue-Judge’s Characterization of SWS’ Security [ 18 ] I will start with MacPhee’s submission that the judge wrongly described SWS’ security interest. The judge’s reasons say: 37...Furthermore, the lease between S.W.S. and Dixon Fuels would be covered under the definition of security interest.

It thus follows a security interest in the lease would thereby become a PMSI and as such be subject to registration under the Act.

[ 19 ] MacPhee says that SWS’ security was neither a lease nor a PMSI. [ 20 ] Clearly this passage of the judge’s reasons mis-described SWS’ security. Perhaps the judge meant to discuss MacPhee’s interest, but inadvertently referred to “S.W.S.” instead of “MacPhee”. In any case, SWS’ only security interest was its GSA to secure a line of credit. SWS never was a lessor. Later, dealing with priority, I will discuss the PPSA ’s treatment of a purchase money security interest, or PMSI.

Section 2 (ai) of the PPSA defines “purchase money security interest” as (1) security given to enable the debtor (Dixon) either to purchase, or (2) acquire a right in the collateral, or (3) an interest of either a lessor for over one year or (4) a commercial consignor. There is no evidence or finding that SWS advanced funds to enable Dixon either to purchase or acquire any interest in the GMC Truck. SWS was neither a lessor nor a consignor of the GMC Truck. SWS did not hold a PMSI. [ 21 ] The judge’s mis-characterization of SWS’ security interest does not mean that MacPhee has priority over SWS to the Truck.

It remains necessary to apply the PPSA ’ s priority provisions to the properly described interests of SWS and MacPhee, the topic that occupies MacPhee’s other submissions and which I will address in the rest of these reasons. Second Issue- Priority Between SWS and MacPhee [ 22 ] I will track the judge’s reasoning path to the point of contention. [ 23 ] The judge (para 36) found that “the security agreements taken by both parties are valid and enforceable security agreements” and “the security interests of both parties attach to the vehicle”.

Section 20 of the PPSA says that a security interest cannot be perfected until it has “attached”.

Section 13 defines “attachment”, which depends principally on the contractual relationship between the creditor and debtor: Ronald C.C. Cuming, Catherine Walsh, Roderick J. Wood, Personal Property Security Law , (Toronto, Irwin Law Inc., 2005), pp 161-62. Nobody contests that both SWS’ General Security agreement and MacPhee’s Lease are valid contractual instruments against Dixon Fuels. Both security interests “attached” to the GMC Truck. The only issue relates to priority between SWS and MacPhee under the PPSA. [ 24 ] The judge found (para 36) that “both parties [SWS and MacPhee] have a security interest in the vehicle” under the PPSA .

Section 2 (ar)(

i) of the PPSA defines “security interest” to include “an interest in personal property that secures payment or performance of an obligation”. The GSA gives SWS such a “security interest”.

Section 2 (ar)(ii)(

B) of the PPSA defines “security interest” as including “the interest of ... a lessor under a lease for a term of more than one year”. So MacPhee’s title as lessor also is a “security interest” under the PPSA . [ 25 ] Turning to the statutory priority regime, the judge said (para 36) that “the security interests of S.W.S. and MacPhee were perfected by the registration of financing statements”, and “S.W.S. registered its financial [ sic - financing] statement first in time”.

Section 26 of the PPSA says: Subject to

Section 20, registration of a financing statement perfects a security interest in collateral.

Section 20 says that perfection occurs when the security interest has attached, as I have discussed (para 23), and the conditions for perfection under the PPSA are performed. SWS registered the Financing Statement for its GSA on December 20, 2005. MacPhee registered the Financing Statement for the MacPhee lease on December 5, 2007. The security interests were perfected on those dates respectively, with SWS registering first in time. [ 26 ] Section 36(1)(a)(

i) states that “[w]here this Act provides no other method for determining priority between competing security interests in the same collateral, ... priority between perfected security interests is determined by the order of ... the registration of a financing statement”. As the judge determined, this means that SWS’ first registered Financing Statement would give SWS priority over the MacPhee Lease, unless another provision of the PPSA gives priority to MacPhee.

[27] MacPhee claims that s. 35 gives it, as holder of a PMSI, super-priority, meaning priority over SWS’ earlier registeredinstrument. That is the only basis for MacPhee’s claim to priority over SWS. [28] Sections 35(1)(

a) and (

b) say: Subject to

Section 29, a purchase money security interest in ... collateral or its proceeds, other than intangibles or inventory, that isperfected not later than fifteen days after the debtor, or another person at the request of the debtor, obtains possession of the collateral,whichever is earlier, ... has priority over any other security interest in the same collateral given by the same debtor.” [emphasis added] I have emphasized the pivotal wording for the interpretive issue on this appeal. [29] As I noted earlier (para 20), s. 2 (ai)(iii) of the PPSA defines “purchase money security interest” to include “the interest of alessor of goods under a lease for a term of more than one year”.

The MacPhee Lease of November 29, 2007 was a PMSI within thatdefinition. Its financing statement was registered on December 5, 2007, perfecting MacPhee’s PMSI on that date. Fifteen days before thePMSI’s perfection was November 20, 2007. So the appeal turns on whether Dixon Fuels “obtained possession of the collateral” - theGMC Truck - on or after November 20, 2007, within the meaning of s. 35(1)(a). If so, MacPhee has super-priority. If not, s. 35(1)(a)does not apply, and SWS’ first registered security interest prevails under s. 36(1)(a)(i). [30] Under Driedger’s “one principle” of

interpretation, legislation should be read (1) in its ordinary meaning and grammaticalsense, (2) in its statutory context and (3) harmoniously with the legislative objective: R. v. Sharpe, 2001 SCC 2 , [2001] 1S.C.R. 45, para 33; Bell ExpressVu Partnership v. Rex, 2002 SCC 42 , [2002] 2 S.C.R. 559, para 27. [31] I will start with s. 35(1)(a)’s ordinary meaning and grammatical sense. [32] The PPSA does not condition the PMSI’s super-priority on whether the debtor “had” possession within the fifteen days.

Ratherthe standard chosen by the Legislature is whether the debtor - Dixon Fuels- “obtained” possession within the fifteen days. Thatdistinction is important. Clearly Dixon Fuels had possession of the GMC Truck between November 20 and December 5, 2007. But hadDixon Fuels “obtained” it before November 20? [33] The only evidence on the truck’s possession history is the Supplementary Affidavit of Ms. Larkin: 6.

That Dixon Fuels and/or Charles Eugene Dixon was in possession of the collateral as of January 7, 2004 and continued to be inpossession on December 5, 2007 when MacPhee Pontiac Buick, GMC Limited, (MacPhee) registered a financing statement under thePersonal Property Security Act, as submitted in the affidavit of Donald Hartigan on behalf of the Respondents. 7. That Dixon Fuels and/or Charles Eugene Dixon, only ceased to be in possession of the collateral in March of 2009, when it was takeninto possession by S.W.S. from T.L.

Swaine’s Garage in Barrington Passage. [34] The judge found: 12 In her affidavit, sworn to on April 21, 2010, Donna Larkin, as general manager of S.W.S. states in paragraph 7, the only time DixonFuels and/or Charles Eugene Dixon ceased to be in possession of the vehicle was in March, 2009. They had possession of the vehicle Iconclude from June 7, 2004 until it was seized in March, 2009. [emphasis added] I assume the judge’s reference to “June 7, 2004" meant “January 7, 2004", the date stated in Ms Larkin’s affidavit. The evidence does

not refer to June 7, 2004. Nothing turns on the difference, because both dates precede November 20, 2007, the key date for Dixon Fuels to “obtain” the possession that would attach MacPhee’s super-priority under s. 35(1) (a). [ 35 ] The judge’s reasons also say: 14. Therefore, I find Dixon Fuels and/or Charles Eugene Dixon had no registered title to the vehicle during the time involved and MacPhee did not have possession of the vehicle at any time during their business transactions together. ... 44.

I find on the facts here there was no asset either new or improved added to Dixon Fuels pool of security assets as between it and MacPhee. Dixon Fuels already had possession of the asset before MacPhee became involved. ... 45. ... The affidavit evidence clearly indicates at all times, the vehicle remained in the possession of Dixon Fuels. ... ... 47. I am not satisfied MacPhee, in registering their security interest increased the asset pool of Dixon Fuels, nor did they finance a new asset. The vehicle, at all times, was in possession of Dixon Fuels .... ... 48. ...

There is no evidence of an enhancement of Dixon Fuels’ assets, nor is this a case where there was any acquisition of new collateral by Dixon Fuels. [ 36 ] Based on this evidence and these findings, and subject to MacPhee’s submissions that I will discuss next, Dixon Fuels obtained possession of the GMC Truck in 2004 and kept possession continuously from 2004 until 2009. [ 37 ] MacPhee cites Guarantee Trust Co. of Canada v. Canadian Imperial Bank of Commerce , [1989] O.J. No. 1081 (H. Ct.) , appeal dismissed [1993] O.J. No. 2152 (C.A.) .

In February, 1981 the CIBC registered a General Security Agreement from its debtor, Northwest. In May, 1981 Mr. Pearson lent Northwest a generator in anticipation of a possible sale of the generator by Mr. Pearson to Northwest. It took Northwest to September, 1981 to arrange financing from Guaranty Trust for the purchase price to complete the purchase. On September 8, 1981 Guarantee Trust advanced the funds that enabled Northwest to pay Mr. Pearson for the generator. Guaranty Trust’s Financing Statement under Ontario’s Personal Property Security Act was filed on September 8, 1981.

Ontario’s equivalent to Nova Scotia’s s. 35(1) (

a) gave priority to a PMSI that was perfected “at the time the debtor obtained possession of the collateral or within ten days thereafter”. Northwest had physical custody of the generator since May, well before the ten day window. The trial judge, affirmed by the Court of Appeal, held that Northwest “obtained possession” only when the transaction closed on September 8, 1981. So Guaranty Trust satisfied the condition for PMSI super-priority against the CIBC. The judge reasoned that, until the transaction closed on September 8, the generator was not “collateral”.

So until then Northwest could not have “obtained possession” of “collateral” within the meaning of the PPSA . [ 38 ] After Guaranty Trust , Ontario’s PPSA was amended to say that the time for a PMSI’s perfection runs backward from the date the debtor “obtain[s] possession of the collateral as a debtor ” (discussed in Cuming, Personal Property Security Law , page 340).

Guaranty Trust was decided before the amendment, under similar wording as appears in Nova Scotia’s s. 35(1)(a), except Nova Scotia uses fifteen, instead of ten days. [ 39 ] Though I agree with this reasoning from Guaranty Trust , in my view that reasoning does not assist MacPhee. [ 40 ] This case has critical facts that did not exist in Guaranty Trust . Dixon Fuels possessed the GMC Truck, under any suggested meaning of “possession”, continuously since 2004. That possession from 2004 to November, 2007 was unrelated to MacPhee or to any potential transaction with MacPhee.

Rather Dixon Fuels possessed the GMC Truck because of its 2004 lease from GMAC. The right to possession inheres in the lessee’s status. Section 13(3) of the PPSA recognizes this principle by stating that, for purposes of “attachment”, a lessee has “rights in the collateral” under s. 13(1) (b) “when the lessee ...obtains possession of them under the lease”.

Since 2004 Dixon Fuels, as lessee, continually “possessed” the GMC Truck as “collateral” and “as a debtor” to GMAC identically to the manner that MacPhee says Dixon Fuels, as lessee, possessed the GMC Truck as collateral and as a debtor to MacPhee beginning in November 2007. Every element of Dixon Fuels’ “possession” under s. 35(1)(

a) that MacPhee cites for its claim to super-priority in November, 2007 was with Dixon Fuels continuously from 2004 to November, 2007 for this same truck. Clearly Dixon Fuels “obtained” that possession before November 20, 2007. [ 41 ] As in Guaranty Trust , the court may adjust the date of the debtor’s initial possession of collateral that is introduced to his asset pool from his dealings with the creditor who claims PMSI super-priority.

This approach follows from the objective of PMSI super- priority (to be discussed later, paras 52-55) - to protect a financier of a debtor’s property acquisition from the sweeping jeopardy of an after-acquired property clause in an earlier creditor’s general security. But the court cannot revise history to erase the fact that, from 2004 continuously to the 2007 MacPhee transaction, Dixon Fuels as a debtor possessed this GMC Truck as current, not after-acquired collateral.

The Legislature has not conditioned the PMSI’s super-priority on the date the debtor “first possesses collateral as a debtor to each new creditor, despite that the debtor earlier had obtained his possession of this collateral as a debtor with another creditor”. Whether s. 35(1)(

a) should embody that language is a policy choice for the Legislature. [ 42 ] The judge, in the decision under appeal, ruled that Dixon Fuels had obtained possession within the fifteen days prescribed by s. 35(1)(a). That conclusion derived from the judge’s acceptance (paras 33-35) of MacPhee’s submission based on Guaranty Trust . The judge then ruled (para 48) that SWS should prevail because of fairness. As I have explained, I do not accept MacPhee’s view of Guaranty Trust . So I disagree with the judge’s conclusion that Dixon Fuels obtained possession within fifteen days before December 5, 2007.

Had I agreed that Dixon Fuels obtained possession within s. 35(1)(a)’s fifteen day window, then MacPhee would have statutory super-priority, fairness notwithstanding. [ 43 ] MacPhee next cites the principle of constructive possession to propose that Dixon Fuels lost, then regained possession in November, 2007.

MacPhee says that (1) when MacPhee replaced GMAC as owner on November 22, 2007, Dixon Fuels constructively lost possession to MacPhee, and (2) when Dixon Fuels and MacPhee signed the new MacPhee Lease on November 29, 2007, Dixon Fuels constructively re-“obtained” possession, which would mean (3) the court should ignore the fact that Dixon Fuels had obtained earlier possession in 2004. [ 44 ] I respectfully disagree with this interpretive manoeuvre. Section 25(1) (

a) of the PPSA , titled “Perfection by Possession”, says that “possession of the collateral by the secured party, or on the secured party’s behalf by another person, perfects a security interest in ... goods”. Section 25(1) might offer support to MacPhee’s submission that, when MacPhee took GMAC’s’ title on November 22, 2007 and until MacPhee and Dixon Fuels signed the new MacPhee Lease on November 29, 2007, Dixon Fuels possessed the truck on MacPhee’s behalf. But that proposition is neutered by s. 25(2)(

a) which says: A secured party does not have possession of collateral for the purpose of subsection (1) if (

a) the collateral is in the actual or apparent possession or control of the debtor or the debtor’s agent. Cuming, Personal Property Security Law , pp. 212-13 comments on this provision: What Constitutes Possession

Perfection by possession requires actual physical possession by the secured party or an agent or bailee of the secured party other than the debtor or debtor’s agent. The Act provides that a secured party does not have possession of collateral that is in the actual or apparent possession or control of the debtor or debtor’s agent.

Consequently, the common law concept of constructive possession has not been imported into the Act since it permits a debtor to be in apparent possession or control of the collateral. [ 45 ] The PPSA gives legal significance to the “actual or apparent possession or control of the debtor”. The reason the PPSA applies to leases is that the lessor has allowed the lessee to have the appearance of power to deal with the asset. Dixon, the debtor throughout, maintained actual or apparent possession or control of the truck without interruption from 2004 until 2009.

MacPhee’s submission assumes that legal possession figuratively moved from Dixon to MacPhee when GMAC conveyed the truck to MacPhee, then was figuratively re-“obtained” by Dixon when Dixon and MacPhee signed the MacPhee lease. Such itinerant notional possession is inconsistent with the “actual or apparent” statutory standard that applies to the debtor’s possession under the PPSA . [ 46 ] I will turn to the second aspect of Driedger ’s approach - the statutory context in which s. 35(1)(

a) is embedded. I have discussed ss. 13(1)(

b) and 25. [ 47 ] Section 24(2) of the PPSA says: A transferee of a security interest has the same priority in relation to perfection of the security interest as the transferor had at the time of the transfer. [ 48 ] By section 24(2), an assignee of the security will retain the transferor’s priority. In 2007 GMAC and MacPhee had the option to assign the GMAC Lease to MacPhee. Then MacPhee would have the “same priority” as GMAC had enjoyed.

I add parenthetically that there is no evidence here whether GMAC registered a Financing Statement for its 2004 Lease or, if it did, whether registration occurred within the fifteen days necessary to give the GMAC Lease the benefit of s. 35(1)(a). In any case, in 2007 GMAC and MacPhee, for reasons not in evidence, did not assign GMAC’s Lease to MacPhee.

They chose instead to transfer the truck’s title to MacPhee, leaving MacPhee to enter a new 2007 lease directly with Dixon. [ 49 ] The theory of MacPhee’s submission, if the court agreed, would enable the transferee of the asset to achieve PMSI super- priority, despite that the transferor had not complied with s. 35(1)(

a) and enjoyed no super-priority in his own right. The later security holder, who did not introduce the asset into the debtor’s asset pool, could have better “purchase” money security interest priority than was held by his predecessor, whose transaction did introduce the asset into debtor’s asset pool. The later security holder would bootstrap his priority by circumventing the PPSA ’s express provision that governs transfers of security - s. 24(2).

Compliance with s. 24(2) would mean the transferee of security has only “the same priority”, not better priority. [ 50 ] By my reading, the PPSA intended that the transferee of a security interest enjoy the “same priority” as the transferor, provided the parties complied with s. 24 .

So the PPSA could not have intended that the transferee obtain a better PMSI super-priority than that the transferor enjoyed, simply by performing an end run around s. 24(2) to invoke judge made principles of constructive possession. (See Cuming, Personal Property Security Law , pp. 351-2) [ 51 ] The final aspect of the statutory context relates to MacPhee’s fairness argument. MacPhee submits that it was the true owner of the truck, because a lease does not convey title to the lessee, and it is unfair that the true owner lose its title in a priority dispute with the lessee’s creditor.

MacPhee’s submission addresses the PPSA ’s policy, which is not for the court to reconsider, rather than its

interpretation. Unlike Ontario’s PPSA , which differentiates true leases from security leases, Nova Scotia’s ss. 2 (

y) and 2 (ar)(ii)(

B) define “security interest” as including a true “lease for a term of more than one year”, and subject that security interest to the PPSA ’s regime of perfection and priority: Cuming, Personal Property Security Law , pp. 12-13, 17, 67-68, 165-68, 335. In particular, the authors say (pp. 167-68): The rights of the lessor or consignor as against the holder of a security interest granted by the lessee or consignor are intended to be governed, not by the nemo dat doctrine, but by the PPSA rules governing perfection and priority between competing security interests. ...

As deemed owner, the lessee or consignee has sufficient rights to grant a competing security interest in the goods themselves, not merely in the right to possession of the goods. ... Deemed security interests fall with [ sic - within?] the scope of the PPSA only for the purposes of the rules governing perfection and priority. The Act does not otherwise deem the lessee or consignee to be the owner. A competing secured creditor will prevail only if the lessor or consignor fails to register its deemed security interest, or fails to satisfy the conditions for purchase-money security.

Even then, the lessor or consignor as owner is entitled to claim any residual value left in the collateral after the obligation secured by the competing security interest is satisfied. [ 52 ] The third focal point of Driedger ’s approach to statutory

interpretation is the legislative objective. Cuming, Personal Property Security Law , pp. 330-1, under the heading “Justification for Superpriority”, summarizes the purpose of PMSI super-priority: The rationale for the purchase money security interest superpriority is very much bound up with the approach to security interests in after-acquired property adopted by the PPSA . The PPSA greatly facilitated the ability of parties to take security interests in after- acquired property. The security interest attaches to the new property without the requirement of any new transfer.

The parties may execute a single security agreement that will automatically attach to new inventory that is acquired or new accounts that are generated without the need to execute new security agreements. Although this was also the rule in equity under pre-PPSA law, unlike the rule under the prior law, a security interest in after-acquired property is not afforded an inferior priority status by the PPSA. The effectiveness of an after-acquired property clause when combined with a first-in-time priority rule gives the first secured party a competitive advantage over later secured parties.

The first secured party enjoys a situational monopoly over later entrants. The purchase money security interest priority is introduced into the PPSA in order to blunt this situational monopoly and permit the debtor to obtain future loans from secured parties on competitive terms. This is not seen as unfair to the first secured party, since the new asset would not have been obtained by the debtor but for the new credit provided by the purchase money security interest financer. It is, however, necessary to limit the scope of purchase money superpriority.

A general second in time, first in right rule of priority would completely undermine the institution of secured credit. For this reason, the purchase money security interest priority is restricted in two respects. First, it only applies if the purpose of the extension of secured credit is to enable the debtor to acquire the asset in respect of which the secured credit is granted.

Second, it only applies to the extent that the funds are actually used by the debtor to acquire the new asset. [ 53 ] The authors say the PMSI super-priority (1) is “very much bound up with the approach to security interests in after-acquired property adopted by the PPSA ”, and (2) is meant to counter the situational monopoly “of an after-acquired property clause when combined with a first-in-time priority rule”, and (3) it is not unfair to the earlier registered creditor “since the new asset would not have been obtained by the debtor but for the new credit provided by the purchase money security financer”. [ 54 ] Applying that legislative objective, the GMAC Truck was not an after-acquired asset.

To the contrary, it was an earlier- acquired asset. Dixon Fuels had leased the GMC Truck from GMAC in 2004, before the SWS Credit Agreement and GSA in 2005. SWS’ General Security Agreement and its registered Financing Statement in 2005 identified the GMC Truck by serial number as current, not after-acquired collateral. Registration itself is not notice ( s. 48 of PPSA ). But, before advancing funds, MacPhee had the opportunity to search and learn of SWS’ prior registered Financing Statement that identified this earlier-acquired GMC Truck as collateral. Then MacPhee could have governed itself accordingly.

For instance, under s. 24(2), a succeeding creditor can take an assignment of the first creditor’s security interest and enjoy the “same priority” as the preceding creditor. Or, as I have discussed respecting s. 25, the succeeding creditor can retake “actual or apparent possession” from the debtor. That may perfect the succeeding creditor’s security under s. 25. Or it might allow the debtor to then re-“obtain” possession from the succeeding creditor within fifteen days and, if the statutory conditions for a PMSI exist, trigger the super-priority of s. 35(1)(a).

I disagree with MacPhee’s suggestion that a ruling for SWS would set a precedent that undermines commercial leasing practice. [ 55 ] MacPhee’s security interest, though a PMSI by statutory definition, in the circumstances of this case lies outside the legislative purpose of the super-priority. [ 56 ] Though my reasoning path differs somewhat from that in the decision under appeal, I agree with the result. SWS has priority

over MacPhee under s. 36(1)(a)(i) . Dixon Fuels “obtained possession” of the GMC Truck as collateral before the fifteen day period in ss. 35(1)(a). So MacPhee’s PMSI does not have super-priority under that provision. Conclusion [ 57 ] I would dismiss the appeal, and affirm the ruling that SWS has priority over MacPhee for the GMC Truck and its proceeds. I would order MacPhee to pay SWS $1,500 plus reasonable disbursements for the appeal. Fichaud, J.A. Concurred: Hamilton, J.A. Farrar, J.A.