Calidon Financial Services Inc.- Calidon Equipment Leasing Appellant (Applicant) v. Landon Dwight Magnes, Howard Magnes, 2021 SKCA 106

Court of Appeal for Saskatchewan Docket: CACV3652 Citation: Calidon Financial Services Inc. – Calidon Equipment Leasing v Magnes , 2021 SKCA 106 Date: 2021-07-30 Between: Calidon Financial Services Inc.- Calidon Equipment Leasing Appellant (Applicant) And Landon Dwight Magnes, Howard Magnes and Farm Credit Canada Respondents (Respondents) And Valley Side Sales Inc. and Brice Reynoldson Respondents (Respondents) Before: Caldwell, Ryan-Froslie and Barrington-Foote JJ.A. Disposition: Appeal dismissed Written reasons by: The Honourable Madam Justice Ryan-Froslie In concurrence: The Honourable Mr.

Justice Caldwell The Honourable Mr. Justice Barrington-Foote On appeal from: QBG 634 of 2019, Saskatoon Appeal heard: March 4, 2021 Counsel: John Rozdilsky for the Appellant M. Kim Anderson, Q.C., and James Steele for the Respondents, Landon Dwight Magnes, Howard Magnes and Farm Credit Canada No one appearing for the Respondents, Valley Side Sales and Brice Reynoldson Ryan-Froslie J.A. I.

INTRODUCTION [ 1 ] Calidon Financial Services Inc.- Calidon Equipment Leasing [Calidon] appeals against an April 28, 2020, unreported decision of the Court of Queen’s Bench: Calidon Financial Services Inc. – Calidon Equipment Leasing v Magnes (28 April 2020) Saskatoon, QBG 634/2019 (Sask QB) [ Chambers Decision ].

In the Chambers Decision , the judge held that Calidon’s perfected security interest in a tractor had, pursuant to s. 30(2) of The Personal Property Security Act, 1993 , SS 1993, c P-6.2 [ PPSA ], been defeated by Landon and Howard Magnes’s [collectively, the Magneses] purchase of the tractor from Valley Side Sales Inc. [Valley Side]. [ 2 ] The sole issue for determination by this Court is whether the Chambers judge erred in finding the transaction fell within s. 30(2) of the PPSA . [ 3 ] For the reasons set out herein, I would dismiss the appeal. II.

BACKGROUND [ 4 ] The facts are not in dispute. [ 5 ] Valley Side was engaged in the business of selling farm equipment—it is now bankrupt. The respondent, Brice Reynoldson, was its majority shareholder and president. Calidon provides financial services with respect to the sale and lease of farm equipment and it also sells and leases equipment that it has repossessed.

In February of 2015, Valley Side began a relationship with Calidon under which Calidon would place farm equipment with it for sale on consignment. [ 6 ] In November of 2015, Calidon placed the tractor in issue – a 2011 Case IH Tractor Model STX 535, serial number ZAF122565 [tractor] – with Valley Side for sale. In October of 2016, when Valley Side was unable to sell the tractor, it entered into an agreement to lease the tractor from Calidon. On October 25, 2016, Calidon registered a security interest in the tractor with the Personal Property Registry.

Valley Side continued to advertise the tractor for sale. [ 7 ] In late 2016, the Magneses began looking for a tractor with track technology to purchase. Landon Magnes learned that Valley Side had such a tractor, namely, the tractor in issue. On April 13, 2017, he attended at Valley Side to look at it. At that time, Mr. Reynoldson advised Landon that Calidon had repossessed the tractor and, incorrectly, that Valley Side had purchased it from Calidon. [ 8 ] When Landon expressed an interest in purchasing the tractor, Mr.

Reynoldson provided him with a Form B Contract for Sale of a Second Hand or Used Farm Implement under The Agricultural Implements Regulation , 1982 , RRS c A-10, Reg 1 , which included a description of the tractor and its sale price [Form B contract]. Mr. Reynoldson entered the wrong serial number for the tractor in the Form B contract. He transposed the last two digits, so it appeared as ZAF122556 rather than ZAF122565. The Form B contract was signed on behalf of Valley Side but was never signed by the Magneses.

[ 9 ] On April 19, 2017, Landon returned to Valley Side to look at the tractor with his father, Howard. That same day, the Magneses agreed to purchase the tractor for $235,000.00. They advised Mr. Reynoldson that they intended to finance the purchase through Farm Credit Canada [FCC]. [ 10 ] FCC typically enters into a memorandum of agreement [MOA] with equipment dealers that want to have FCC financing made available to their customers. Valley Side and FCC had entered into such an agreement in October of 2016.

The MOA between them specifically provided that Valley Side was not authorized to act as an agent for FCC. The purpose of the MOA was described in Clause 2.1: 2.1 The Program. The Parties hereby agree to enter into a business arrangement, upon the terms and conditions set out in this Agreement, for the purpose of establishing and administrating the financing of Product purchased or leased, as the case may be, by Customers from the Alliance [i.e., Valley Side]. The terms and conditions of the Program are set out in the attached schedule(

s) and the Program Instructions. (Emphasis added) [ 11 ]

Schedule “A” to the MOA set out how the “Equipment Program – Financing and Leasing” would work. Clause 3.1 of that

Schedule provides in part: 3.1 All Credit Facilities must be secured by the Customer by the following: (

a) a conditional sales agreement, installment sales agreement, lease agreement or leasing agreement, as the case may be, loan agreement, credit agreement or any other instrument or document evidencing and securing indebtedness arising out of a sale, conditional sale or installment sale or lease of Product , which may be assigned by the Alliance to FCC, all in a form satisfactory to FCC and all of which provide a purchase money security interest in (or, in Quebec, a reservation of ownership and a hypothec over) the Product to FCC (the ‘Contract’); … (

c) such other security as the Alliance or FCC may require; (the “Credit Facility and Security Documents”). (Emphasis added) [ 12 ] In practical terms, FCC would prepare all of the financing documentation pertaining to the transaction, whether it was a sale or lease. For its part, Valley Side was to ensure that the financing documentation had been completed accurately and had been executed by its customers. For this service when equipment being purchased from Valley Side was financed through FCC, Valley Side was paid a commission. [ 13 ] In this case, Mr.

Reynoldson advised the Magneses that he would contact FCC to obtain the necessary financing documentation. As would be expected, FCC requested a copy of an invoice for the tractor and confirmation of its serial number. Mr. Reynoldson sent FCC a copy of the Form B contract with the wrong serial number. Thus, when FCC conducted a personal property registry search of the serial number, there was no indication that Calidon had registered a security interest against the tractor. FCC then sent Mr.

Reynoldson the financing documents for execution by the Magneses. [ 14 ] On April 20, 2017, the Magneses signed FCC’s standard form financing documentation, which included a “Credit Application” [Credit Application] and an “Instalment Sale Contract and Security Agreement” [Agreement]. They paid Valley Side a deposit of $47,000 and took possession of the tractor on the same day.

At the same time, Valley Side executed the assignment portion of the Agreement, under which it assigned all of its interest in the Agreement and the tractor to FCC. [ 15 ] On April 28, 2017, Valley Side sent the executed financing documentation to FCC and FCC then paid Valley Side the balance of the purchase price plus a commission. [ 16 ] All the parties to the Agreement acknowledge that the Magneses intended to purchase the tractor from Valley Side in the ordinary course of its business; that Valley Side intended to sell the tractor to the Magneses and did not intend to finance the purchase but rather expected to be paid in full by FCC; and that FCC financed the balance of the purchase price.

The Magneses have, since taking possession of it, used the tractor in their farming operations and have made all the required payments to FCC in accordance with the Credit Application and the Agreement. [ 17 ] On the other side of things, Valley Side did not advise Calidon of its transaction with the Magneses nor did it remit to Calidon the deposit it received from the Magneses or the proceeds of FCC’s financing. Instead, Valley Side continued to make its lease payments to Calidon until October of 2018, when it stopped due to its financial difficulties and its later bankruptcy.

When Calidon took steps to seize the tractor from Valley Side, it learned of the Magneses’ purchase. In March of 2019, a bailiff attended at the Magneses’ farm to seize the tractor. It was at that point that the Magneses learned of Calidon’s security interest. [ 18 ] Calidon applied to the Court of Queen’s Bench for a declaration that its security interest took priority over the interests of the Magneses and FCC and that, as such, it was entitled to the tractor.

Given the circumstances, Calidon agreed to allow the Magneses to retain possession of the tractor pending the hearing of its application in the Court of Queen’s Bench—and that situation has continued throughout the appeal process. III. THE LEGISLATION

[19] As is apparent, this appeal engages the PPSA and, in particular s. 30, the relevant portions of which read: 30(1) For the purposes of this section: (a) “buyer of goods” includes a person who obtains vested rights in goods pursuant to a contract to which the person is a party, as aconsequence of the goods becoming a fixture or an accession to property in which the person has an interest; (b) “ordinary course of business of the seller” includes the supply of goods in the ordinary course of business as part of a contract forservices and materials; (c) “seller” includes a person who supplies goods that become a fixture or an accession pursuant to a contract with a buyer of goods orwith a person who is party to a contract with a buyer of goods.

(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 orunperfected security interest that is given by the seller or lessor or that arises pursuant to

section 28 or 29, whether or not the buyer orlessee knows of it, unless the buyer or lessee also knows that the sale or lease constitutes a breach of the security agreement pursuant towhich the security interest was created. (Emphasis added) IV.

THE CHAMBERS JUDGE’S DECISION [20] At the request of FCC, and with the consent of all of the parties, the Chambers judge rectified the Agreement to reflect thetractor’s correct serial number. [21] The principle issue before the Chambers judge was whether the tractor had been “sold” within the meaning of s. 30(2) of thePPSA. [22] It was Calidon’s position that the transaction between Valley Side and the Magneses was not a sale because, pursuant to theAgreement, Valley Side was to retain title to the tractor until the purchase price had been paid in full.

It contended the Agreement wasmerely an agreement to sell the tractor. In support of its position, Calidon relied on this Court’s decision in Royal Bank of Canada v216200 Alberta Ltd. (1986), (SK CA), 51 Sask R 146 (CA) [Royal Bank]. [23] FCC and the Magneses both conceded that the Agreement included retention of title language in the clause granting a securityinterest over the tractor.

They submitted, however, that it was a security device orchestrated by FCC to ensure the Magneses performedtheir obligations under the financing aspects of the Agreement and did not have the effect of turning the sale transaction into an agreementto sell. In support of their position, they relied on the Ontario Court of Appeal’s decision in Spittlehouse v Northshore Marine Inc. (1994), (ON CA), 114 DLR (4th) 500 (Ont CA) [Spittlehouse]. [24] With the dispute framed in this way, the Chambers judge began her analysis by noting that the term “sale” is not defined in thePPSA.

She indicated that of key importance to her decision was the impact of the title retention language and whether it precluded afinding that the transaction between Valley Side and the Magneses was a sale. In the result, the Chambers judge held it did not precludesuch a finding. In arriving at that conclusion, she reasoned that Royal Bank and Spittlehouse were not “wholly contradictory” (ChambersDecision at para 60). She cited Ronald C.C. Cuming and Roderick J.

Wood, Saskatchewan and Manitoba Personal Property Security ActsHandbook, (np: Carswell, 1994) at 238 [PPSA Handbook], in support of the following conclusion: [62] … This was a sale of a specific and ascertained piece of property that was in a deliverable state. Indeed, the Magneses test drovethe Tractor–the only tractor of its make and model on the Valley Side lot. The very next day, the Agreement was signed and the Magnesestook possession of the Tractor.

FCC advanced funds to Valley Side such that the purchase price for the Tractor was paid in full. [63] Valley Side clearly intended to sell the Tractor and the Magneses clearly intended to purchase the Tractor. Valley Side reservedtitle to the Tractor solely in order to secure the Magnes’ obligations under the Agreement and not to retain ownership of it. [64] I find that the title retention clause in the Agreement was simply a device used to secure the payment of the purchase price.

Theinclusion of the clause does not detract from the characterization of the transaction between Valley Side and the Magneses as a “sale”within the meaning of s. 30(2). [65] To accept Calidon’s argument that this was not a sale within the meaning of s. 30(2) of the PPSA as a result of the security clausewould be to rely upon a common security device to contort a sale into something different in order to avoid the application of s. 30(2). If aclause such as the security interest clause in the Agreement precludes a finding that the transaction was a “sale”, s. 30(2) would berendered nugatory in many cases.

This would be inimical to commercial efficacy- a fundamental principle underlying s. 30(2) of thePPSA. [25] The Chambers judge went on to find that the tractor had been sold in the ordinary course of Valley Side’s business and thatneither the Magneses nor FCC had knowledge of Calidon’s security interest at the time of the sale, satisfying the remaining conditions ofs. 30(2). As such, she concluded that all the requirements of s. 30(2) of the PPSA had been met and that “[t]he respective interests of FCCand the Magneses take priority over Calidon’s interest” (Chambers Decision at para 77). V.

STANDARD OF REVIEW [26] The Chambers judge’s

interpretation of s. 30(2) is reviewable on a standard of correctness: Housen v Nikolaisen, 2002 SCC 33at paras 8–9 and 33, [2002] 2 SCR 235 [Housen]; TELUS Communications Inc. v Wellman, 2019 SCC 19 at para 30, [2019] 2 SCR 144;

Heritage Capital Corp. v Equitable Trust Co., 2016 SCC 19 at para 23, [2016] 1 SCR 306; and Canadian National Railway Co. v Canada(Attorney General), 2014 SCC 40 at para 33, [2014] 2 SCR 135. VI. ISSUES [27] Calidon appeals against the Chambers judge’s decision on the sole ground that the Chambers judge erred in finding the tractorhad been “sold” within the meaning of s. 30(2) of the PPSA. VII.

ANALYSIS [28] It was common ground before this Court that Calidon has a perfected security interest in the tractor; that Valley Side’s dealingswith the Magneses were within the scope of its ordinary course of business; and that neither the Magneses nor FCC knew of Calidon’ssecurity interest until Calidon had tried to seize the tractor. A. Position of the Parties [29] Calidon contends that Royal Bank sets out the proper legal approach for determining when goods are sold within the meaningof s. 30(2) of the PPSA.

It argues that the provisions of The Sale of Goods Act, RSS 1978, c S-1 [SGA], apply to the question of whetherthere has been a sale of goods within the meaning of the PPSA. In essence, it is Calidon’s position that the Agreement is not an agreementof sale of goods but rather an agreement for sale of goods and that the retention of title language sets out the parties’ mutual intention,namely, that title to the tractor would not pass until the purchase price had been paid in full by the Magneses.

As such, Calidon says thetractor was not sold to the Magneses and s. 30(2) of the PPSA does not apply to the transaction. [30] On the other hand, FCC and the Magneses contend that the Chambers judge was correct and that her decision is consistent withboth the public policy underpinning s. 30(2) of the PPSA and the jurisprudence. They argue that Royal Bank and Spittlehouse are notinconsistent with each other as Royal Bank did not involve consideration of a title retention security device.

In their view, there was noneed for the Ontario Court of Appeal in Spittlehouse to “reject” the Royal Bank decision and there is no reason for this Court to reject thefindings in Spittlehouse on the basis of Royal Bank. B. Background Law [31] The PPSA was enacted to establish “a comprehensive statutory framework to govern the creation, perfection, priority andenforcement of security interests in all types of personal property” (Ronald C.C. Cuming, Catherine Walsh and Roderick J. Wood,Personal Property Security Law, 2d ed (Toronto: Irwin Law, 2012) at 6 [PPS Law]).

Section 2(1)(qq) of the PPSA defines what is a“security interest”. The relevant portion of that definition is as follows: “security interest” means: (

i) an interest in personal property that secures payment or performance of an obligation, but does not include the interest of a seller whohas shipped goods to a buyer under a negotiable bill of lading or its equivalent to the order of the seller or to the order of an agent of theseller, unless the parties have otherwise evidenced an intention to create or provide for a security interest in the goods; and (ii) the interest of: (

A) a transferee pursuant to a transfer of an account or a transfer of chattel paper; (

B) a consignor who delivers goods to a consignee pursuant to a commercial consignment; or (

C) a lessor pursuant to a lease for a term of more than one year; that does not secure payment or performance of an obligation; [32] Based on the definition, a security interest exists if the interest: (

i) relates to personal property; (ii) arises from an agreementbetween the parties; (iii) functions to secure payment or performance of an obligation; and (iv) creates or evidences an interest in propertyin favour of a creditor.

On this basis, a conditional sale – i.e., one where a vendor reserves title and ownership of the goods sold until theconditions of the contract have been satisfied by the buyer –creates a security interest in accordance with the provisions of the PPSA. [33] As stated in PPS Law, a “‘[s]ecurity interest’ is defined by the PPSA in functional terms to mean an interest in personalproperty that secures payment or performance of an obligation, without regard to the form of the transaction and without regard to thelocation of title of the collateral as between the secured party and the debtor” (at 6).

In the words of the learned authors of PPS Law:“[d]istinctions between security interests are instead drawn along functional lines designed to accommodate both existing commercialpractices and new financing techniques” (at 6). [34] At common law, a priority dispute between two legal interests in the same personal property is determined in accordance withthe maxim nemo dat quod non habet: one cannot convey what one does not have: Innovation Credit Union v Bank of Montreal, 2010 SCC47 at para 51, [2010] 3 SCR 3.

As a general rule, the PPSA embodies this maxim but there are exceptions to it, one of which is set out in s.30(2). This appeal turns on how that subsection is properly interpreted. [35] In Rizzo & Rizzo Shoes Ltd. (Re), (SCC), [1998] 1 SCR 27 [Rizzo], the Supreme Court of Canada set out theanalytical framework to be used by judges engaged in statutory

interpretation. It endorsed the principle expressed by Elmer A. Driedger,

Construction of Statutes, 2d (Toronto: Butterworths, 1983) at page 87, that the words of

an Act must be read in their entire context and intheir grammatical and ordinary sense, harmoniously with the scheme of the Act, the object of the Act and the intention of Parliament.Section 2-10 of The Legislation Act, SS 2019, c L-10.2, codifies this approach with respect to the

interpretation of Saskatchewanlegislation and, in addition, provides in subsection (2) that “[e]very Act and regulation is to be construed as being remedial and is to begiven the fair, large and liberal

interpretation that best ensures the attainment of its objects”. [36] PPS Law identifies a number of “inherent interpretive policies” to be applied when interpreting individual provisions of thePPSA, including “the advancement of commercial certainty and predictability”; the need “to establish an efficient system for giving publicnotice of security interests”; and the “need to preserve the internal coherence of the PPSA” (at 51–52).

See also: Agricultural CreditCorporation of Saskatchewan v Royal Bank of Canada (1994), (SK CA), 120 Sask R 205 (CA) at paras 30–32. [37] One purpose of s. 30(2) is undoubtedly to facilitate commerce by giving protection to ordinary course buyers. Justice Tallis inCamco explained the subsection’s purpose in these terms: [15] In my opinion s. 30(1) represents an outgrowth of the notion that a “buyer in the ordinary course of trade” should take free of asecurity interest.

In our commercial law the holder in due course of negotiable instruments, the bona fide purchaser of negotiableinstruments, the bona fide purchaser of investment securities and various other bona fide purchasers have been accorded privileges — withthe result that they sometimes acquire rights better than the rights of some kinds of claimants who did not authorize or approve of the saleor transfer. Thus a special kind of bona fide purchaser of goods is described in s. 30(1) — he must buy goods sold in the ordinary course ofbusiness of the seller.

Under such circumstances the secured party has no claim against the buyer: he must look to the seller only forsatisfaction. The statutory protection extended to such a buyer undoubtedly rests on principles of justice and commercial utility. In manycases the collateral involved is of such a kind that the debtor’s ability to dispose of it in the usual course of business may be important sothat he can continue his business as a going concern and thereby pay his indebtedness to the secured party. Such a consideration wouldapply with equal force to authorized sales.

But even if this is not so — the security agreement may stipulate to the contrary — the securedparty who permits a businessman to have possession of the goods runs the risk that the buyer taking from the businessman may qualify asa “buyer of goods sold in the ordinary course of business of the seller”. [16] Furthermore, one can discern a public policy consideration in the legislation which favours the safeguarding of sales transactionsover the safeguarding of secured transactions in such a case.

In most cases the seller will pay the secured party but whether he does ordoes not is of no concern to a person with the status of buyer under s. 30(1). This result is desirable where the buyer is an uninformedconsumer buyer. (Emphasis added) While Tallis J.A. was dealing with s. 30(1) of The Personal Property Security Act, SS 1979-80, c P-6.1, that subsection is identical to s.30(2) of the current PPSA. [38] The learned authors of PPS Law explain the purpose of s. 30(2) in similar terms (at 385): The policy underlying the

section is that persons who buy or lease goods in the ordinary course of business should not be required to takemeasures to protect themselves against the risk that the goods they buy or lease are subject to prior perfected or unperfected securityinterests given by sellers or lessors with whom they deal. A secured party who takes the security interest in goods of a debtor who is in thebusiness of selling or leasing goods of that kind can expect that its security interest will be defeated by transactions with customers of thedebtor. (Footnotes omitted) [39] Keeping in mind the purpose of s. 30(2), the object of the PPSA, and the principles of statutory

interpretation, I turn first toconsider the grammatical and ordinary meaning of s. 30(2). For ease of reference, I will again set out that provision: 30(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 orunperfected security interest that is given by the seller or lessor or that arises pursuant to

section 28 or 29, whether or not the buyer orlessee knows of it, unless the buyer or lessee also knows that the sale or lease constitutes a breach of the security agreement pursuant towhich the security interest was created. [40] Based on a plain reading of this subsection, three requirements must be met to bring a transaction within its ambit: (

i) theremust be a buyer; (ii) the goods sold must be goods sold in the ordinary course of the seller’s business; and (iii) the buyer must not knowthat the sale violates a prior security agreement. In this appeal, we are only concerned with the first requirement as all parties agree thatthe second and third requirements have been satisfied on the facts of this matter. [41] Nonetheless, some assistance may be found in how appellate courts have interpreted the two other requirements.

As to whatconstitutes a sale in the ordinary course of business, the Court said in Camco that “the trier of fact should consider whether the person wasa person in the business of selling goods of that kind and whether the transaction(

s) took place in the ordinary course of that business” (atpara 23). As Tallis J.A. explained: [23] … the court should give a generally liberal

interpretation to the phrase “buyer of goods sold in the ordinary course of business ofthe seller”, in order to carry out the purpose of s. 30(1)–to protect the buying public in cases where the secured party furnishes goodswhich are sold to the public by the debtor in the regular course of the debtor’s business. This comports with the underlying philosophy ofthe partition to protect the security interest so long as it does not interfere with the normal flow of commerce.

This approach is consistent with s. 2-10(2) of The Legislation Act. [42] In Royal Bank, the Court said that whether a set of circumstances constitutes a “sale” within the meaning of s. 30(2) must bedetermined by reference to the SGA. Referring specifically to ss. 18, 19 and 20, Vancise J.A., writing for the Court in Royal Bank, stated:

[12] I am of the opinion that before a buyer can take property free of the security interest of the appellant, he must establish that there has been a sale and that he is a buyer in the ordinary course of business. The application of the provisions of the Sale of Goods Act , while not being specifically referred to in s. 30 , must be referred to to determine whether or not there has been a sale.

Section 3(4) of the Sale of Goods Act defines “sale” as follows: “3(4) Where under a contract of sale the property in the goods is transferred from the seller to the buyer the contract is called a sale; but where the transfer of the property in the goods is to take place at a future time or is subject to some condition thereafter to be fulfilled the contract is called an agreement to sell.” [ 43 ] Justice Vancise noted that title is not relevant for the purpose of determining whether a transaction creates a security interest under the PPSA .

He went on to find, however, that “title” was relevant in the context of the transaction in Royal Bank to the determination of whether someone is a buyer of goods sold in the ordinary course of business. [ 44 ] In terms of the time when title is intended to pass, Vancise J.A. explained that, relying on s. 20 of the SGA , in a situation where there is an unconditional sale of unascertained goods, title does not pass until the goods are ascertained.

More importantly, he held that, where there is an unconditional sale of a specific item in a deliverable state, title passes at the time of the making of the contract, unless a different intention appears from the documentation: [13] Goods are sold when title passes to the buyer and sections 18, 19 and 20 are relevant for the determination of that issue. The import of those sections is that no title passes to the buyer in unascertained goods until the goods are ascertained and appropriated to the sale. When there is a sale of specific or ascertained goods, title passes when the parties intend it to pass.

Unless a different intention appears from the documentation, s. 20 sets out the rules for ascertaining the intention of the parties as to the time at which the property or the goods is to pass to a buyer. Rule 1 covers a situation where there is an unconditional sale of a specific item in a deliverable state. Title passes at the time of the making of the contract.

Where there was a sale of a specific item of furniture in the possession of 216200 Alberta Ltd. [i.e., the seller], which was in a deliverable state and identified in some fashion as being the goods purchased, title passed on the making of the contract, notwithstanding that the full amount of the purchase price had not been paid. The purchaser, in those circumstances, is entitled to priority over the appellant’s security agreement.

He is entitled to either the goods, on the payment of the balance of the purchase price, or the return of that portion of the purchase price paid, if the sale was made in the ordinary course of business. (Emphasis added) [ 45 ] In Royal Bank , the Court was concerned with priority to goods (furniture) as between a creditor who had provided inventory financing and purchasers who had bought furniture that was part of the financed inventory, or who had paid deposits with respect to the purchase of the same. Justice Vancise divided the buyers into four categories: (

i) those who had paid the full purchase price for furniture that was not in the seller’s possession (ii) those who had paid part of the purchase price for furniture in the seller’s possession; (iii) those who had paid part of the purchase price for furniture not in the possession of the seller; and (iv) those to whom cash refunds were owed by the seller. The Court found that buyers within categories (

i) and (iii) could not rely on s. 30(2) because there had been “no appropriation of the goods of the sale as contemplated by s. 19 [of the SGA ]” (at para 14). In other words, the goods had not been ascertained. The goods being purchased by buyers who fell into category (ii), however, had been ascertained and were in a deliverable state. Accordingly, those buyers were entitled to those goods upon payment of the balance of the purchase price, whereupon they would take the goods free of the inventory financer’s claim.

The buyers in category (iv) were found to be unsecured creditors and, thus, the inventory financer’s prior perfected security interest took priority over their unsecured interests. [ 46 ] Spittlehouse dealt with the conditional sale of a boat where possession and title were to be retained by the seller until the purchase price had been paid in full. Before that condition was met, a financer holding a perfected security interest in the inventory of the seller took steps to seize the boat.

The Ontario Court of Appeal found the sale fell within s. 28(1) of the Ontario Personal Property Security Act , RSO 1990, c P-10 , which is the equivalent of s. 30(2) of Saskatchewan’s PPSA . It did so on the basis that the transaction was “in common parlance clearly a sale” (at 502) and that the conditional sales contract was merely a device to protect the seller until payment in full had been made. The court found the agreement was valid to the extent that the purchasers could not demand transfer of the title until all of the purchase price had been paid.

In making its decision, the Court found Ontario’s Sale of Goods Act , RSO 1990, c S-1 , was not relevant to the analysis because the terms of the agreement itself contemplated a sale by stating “the dealer agrees to sell and the purchaser agrees to purchase ” the boat in issue and that the boat was “being sold” (at 503, emphasis in original).

Thus, the buyer could rely on s. 28(1) . [ 47 ] In Spittlehouse , the Court rejected the approach taken by this Court in Royal Bank and, in particular, rejected its conclusion that the SGA applies to the question of what constitutes a sale in the ordinary course of business (at 503–504): In my opinion, the Sale of Goods Act is not relevant or material to the resolution of our problem. Here, there was a sale with a seller and a purchaser who between them agreed that title in the goods would not pass until all purchase money was paid.

The agreement between them states “the dealer agrees to sell and the buyer agrees to purchase ” and refers “to the equipment being purchased” and that such equipment “is being sold”. It cannot be regarded as anything but a sale. The Sale of Goods Act may affect the time when property in the goods passes but it cannot change what is clearly a sale in another Act into something it is not. For these reasons, I would not follow the Royal Bank case.

The plaintiff may take advantage of s. 28(1) of our [ Personal Property Security] Act upon tendering the balance of the purchase price and I would dismiss the appeal accordingly. (Emphasis in original) [ 48 ] Commenting on the seemingly divergent approaches taken in Royal Bank and Spittlehouse , the learned authors of PPS Law note that Royal Bank leads to injustice where a sale of specific goods is involved and further is inconsistent with this Court’s position in Camco .

As they explain (at 389): The injustice of the approach taken by the Saskatchewan Court of Appeal is obvious where a sale of specific goods is involved. The buyer

has paid some or all of the purchase price and, for some reason, the property and the goods has not passed to the buyer. Furthermore, on the surface, the approach appears to be inconsistent with the Court’s position, set out in Camco Inc. v Francis Olson Realty ,

(1979) Ltd. , that the ordinary course buyer rule should be given a broad

interpretation so as to give maximum protection to buyers. (Footnotes omitted). [ 49 ] Despite their identification of injustice, the learned authors argue the approach taken by the Court in Royal Bank is “technically more correct” than the approach taken in Spittlehouse . As they put it (at 389–390): Nevertheless, it is the view of the authors that the approach of the Saskatchewan Court of Appeal is technically more correct than that of the Ontario Court of Appeal and is the one that produces the most consistent results. This is demonstrated in the following scenario.

Assume that, as will almost always be the case where a competition exists between an inventory financer and a buyer in the ordinary course of business, the seller-debtor is insolvent at the time the priority competition arises. If the seller-debtor is also a bankrupt, the buyer in the ordinary course of business will be competing not only with the inventory financer but also the seller-debtor’s trustee. The Spittlehouse approach cannot be applied in the trustee-buyer context because the determination as to whether or not property has passed to buyer from the seller is made under sale of goods rules.

The buyer will defeat the claim of the trustee to the goods only when property in the goods claimed by the buyer passed to her (or the goods have been “ascertained”) prior to the invocation of bankruptcy proceedings or when the court is prepared to order specific performance of the contract. Otherwise the goods will be treated as part of the bankrupt’s estate subject, however, to the prior perfected security interest of the inventory financer. The result is that the Spittlehouse approach provides protection to buyers in the ordinary course of business only in cases where bankruptcy of the debtor is not involved.

The inventory financer can circumvent this protection by obtaining a bankruptcy order against the seller-debtor.

It is well established that it is not an abuse of process for a secured party to invoke bankruptcy for the sole purpose of avoiding a priority rule of provincial law. [ 50 ] Nonetheless, Professors Cuming, Walsh and Wood went on to note in PPS Law that Royal Bank raises public policy concerns that the Legislature should address by amending the SGA (at 390): Acceptance of the approach of the Saskatchewan Court of Appeal as legally the most sound and consistent one should not be viewed as an argument for the position that the law in its present form in Saskatchewan and other jurisdictions following this approach is satisfactory from a public policy perspective.

However, it is the view of the authors that, rather than attempting to address the problem through changes in the PPSA , the Sale of Goods Act should be amended to provide protection for pre-paying buyers of unascertained goods, or specific goods the title to which does not pass at the date of the sale.

The approach of the Ontario Court of Appeal in Spittlehouse is inadequate, not because the court’s policy instincts were wrong but because it provides limited and easily-circumvented protection. [ 51 ] I observe that, in accordance with Professors Cumings, Walsh and Woods’ suggestion, the Legislature amended s. 20 of the SGA to add the following subsections under Rule V: [26]

Section 20 of The Sale of Goods Act is amended in Rule V by adding the following subsections after subsection (1): “

(1.1) In subsection (1.2), ‘contract to sell’ includes an agreement to sell in which the seller retains title or ownership to secure performance of the obligations of the buyer. “

(1.2) If there is a contract to sell unascertained or future goods, the buyer who has paid all or substantially all of the contract price of the goods acquires an equitable interest in goods falling within the description of the goods in the contract immediately on the seller acquiring goods or a right to goods of that description”. See: The Personal Property Security Amendment Act , 2019 , SS 2019, c 15 [ Amendment Act ], which came into effect on June 22, 2020. [ 52 ] In addition, s. 14(1) of the Amendment Act modified s. 30(2) of the PPSA to include:

(2.1) A buyer mentioned in subsection (2) who has paid all or substantially all of the contract price of goods acquires an equitable interest in goods falling within the description of the goods in the contract immediately on the seller acquiring goods or a right to goods of that description. [ 53 ] In light of these amendments, the comments in Royal Bank as to what constitutes a “sale” within the meaning of s. 30(2) have been overtaken in that they no longer reflect the law, though the case continues to stand for the proposition that the SGA may be of assistance in determining when a sale of goods has occurred under the PPSA . [ 54 ] Because the Amendment Act came into effect after the transaction in issue in this matter took place and the transaction involves security interests arising prior to that date, it does not govern this Court’s analysis ( Amendment Act , s. 25 ).

C. Analysis of the Issue Raised [ 55 ] The parties frame the issue before this Court as being a choice between upholding Royal Bank and thereby disqualifying the transaction as a sale for the purposes of s. 30(2) or adopting the rationale in Spittlehouse and thereby recognising that the transaction is a sale within the meaning of s. 30(2) .

In my view, however, this Court need not choose between Royal Bank and Spittlehouse to determine this appeal. [ 56 ] To start, it makes good sense that, absent legislation to the contrary, the courts should attribute similar or consistent meanings to common commercial terms such as “buyer”, “seller” and “sale of goods” when interpreting the PPSA and the SGA . This interpretive approach lines up with s. 2 - 10 of The Legislation Act , promotes stability in the law and lends certainty to commercial and consumer transactions.

These are the reasons why the Court in Royal Bank found that the provisions of the SGA were relevant to the

interpretation of s. 30(2) of the PPSA .

[ 57 ] As pointed out by Richard McLaren in Secured Transactions in Personal Property in Canada , loose-leaf (Rel 2021-6) 3d ed (Toronto: Thomson Reuters, 2013) (WL) at para 7.05, the Court in Spittlehouse could have achieved the same result without rejecting the role Royal Bank assigned to the SGA in interpreting the PPSA : The decision in Spittlehouse has been academically criticized and judicially distinguished.

The crux of the criticism is that the Court could have arrived at the same outcome without rejecting the reasoning in Royal Bank and the role of the Sale of Goods Act in determining whether a transaction is a sale, and whether a party is a buyer, for the purposes of s. 28(1) of the Act. As it was a specific good, the boat was identified in the contract of sale and the buyer acquired title in the boat upon execution of the contract. The title retention clause rendered the contract a conditional sale agreement which pursuant to s. 2 of the Act, is a security agreement.

Upon execution of the contract, the buyer obtained title under the Sale of Goods Act and gave the seller a security interest in the goods.

As this transaction was a sale in the ordinary course of the seller’s business, the buyer was protected by s. 28(1) as against security interests given by the seller in the boat, presuming of course that the buyer did not know that the sale constitutes a breach of the security agreement. (Emphasis added) This view was adopted by the Chambers judge and, in my opinion, she did not err in doing so. [ 58 ] First, Royal Bank and Spittlehouse are both distinguishable on their facts from the circumstances of this case.

Royal Bank did not deal with a conditional sale agreement and, accordingly, is not authoritative support for the proposition that such sales do not qualify for the protection proffered by s. 30(2) of the PPSA .

In Spittlehouse the dealer had directly financed the purchase price, whereas here a third party, FCC, had provided the financing—meaning all of the contract price of the goods had been paid to the dealer (Valley Side). [ 59 ] Second, the dictum in Royal Bank in question—i.e., that “[g]oods are sold when title passes to the buyer” (at para 13)—was not intended to be absolute or all-encompassing in its application.

Justice Vancise qualified the application of that conclusion immediately after making it by saying that “ss. 18, 19 and 20 [of the SGA ] are relevant for the determination of that issue [i.e., when goods are sold]” in other contexts (at para 13). While Vancise J.A. refers to “transfer of title”, the SGA speaks only in terms of the “transfer of property”. As Vancise J.A. was relying on the SGA to determine what constitutes a sale within the meaning of s. 30(2) of the PPSA , it is reasonable to assume the difference in nomenclature is of no significance.

Furthermore, because the Court in Royal Bank was not dealing with a conditional sales agreement—which is alleged to be at issue in this appeal—Vancise J.A. did not go on to consider what effect s. 19 of the SGA has on the question of whether a sale within the meaning of s. 30(2) of the PPSA occurs under a conditional sale agreement. In my view, Royal Bank is therefore distinguishable on the basis that s. 19 of the SGA is key to that determination in the context of this case and Vancise J.A. did not need to consider it in Royal Bank . That

section provides as follows: 19(1) Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at the time the parties to the contract intend it to be transferred.

(2) For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case. [ 60 ] Third, even if Royal Bank is taken to stand for the proposition that s. 30(2) does not apply to conditional sales, I observe that such an

interpretation of s. 30(2) would be inconsistent with the policy underlying that subsection, which is, as previously stated, that “persons who buy or lease goods in the ordinary course of business should not be required to take measures to protect themselves against the risk that the goods they buy or lease are subject to prior perfected or unperfected security interests given by sellers or leasers with whom they deal” ( PPS Law at 385). If it stood for the contrary proposition, Royal Bank would also be inconsistent with Camco , which indicated a broad

interpretation should be given to s. 30(2) so as not to defeat the public policy purpose underpinning that subsection ( PPS Law at 389). Moreover, the approach to interpreting s. 30(2) in Royal Bank is inconsistent with the approach set out in Rizzo and under s. 2 - 10 of The Legislation Act . This inconsistency is not surprising because Royal Bank was decided before Rizzo and before The Legislation Act became law. Nonetheless, the approach to statutory

interpretation adopted in Royal Bank has been overtaken by authorities such as Rizzo , Bell ExpressVu Limited Partnership v Rex , 2002 SCC 42 , [2002] 2 SCR 559, and Merk v International Association of Bridge, Structural, Ornamental and Reinforcing Iron Workers, Local 771 , 2005 SCC 70 , [2005] 3 SCR 425, among others—all of which call for determination of the intention of the Legislature when interpreting legislation. As a result, Royal Bank does not give s. 30(2) a “large and liberal

interpretation”, ignores the public policy purpose of the

section and overlooks the intention of the Legislature when enacting the PPSA . [ 61 ] In light of this, I conclude that the principles of judicial comity and stare decisis do not bind us to follow Royal Bank , or its approach to the

interpretation of s. 30(2) of the PPSA , in the context of this case. Nonetheless, I agree with Vancise J.A. that ss. 18 , 19 and 20 of the SGA are relevant to the

interpretation of s. 30(2) of the PPSA .

That is, while we may take guidance from Royal Bank and Spittlehouse , I conclude this Court is not restricted by prior jurisprudence in our consideration of whether, when the words of the PPSA are read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of that Act , the object of the Act , and the intention of the Legislature, the transaction in issue in this appeal falls within the ambit of s. 30(2) of the PPSA . [ 62 ] Proceeding to interpret s. 30(2) of the PPSA and apply it in this context, I begin by noting that s. 19 of the SGA provides that, where there is a contract for the sale of specific or ascertained goods, the property in those goods transfers to the buyers “at the time the parties to the contract intended it to be transferred”.

In accordance with s. 19(2) of the SGA , a court must have regard for “the terms of the contract, the conduct of the parties, and the circumstances of the case” to determine the parties’ intentions.

Section 20 of the SGA also sets out rules to aid in the determination of the parties’ intentions. [ 63 ] In my view, when s. 19 is considered in the context of the PPSA and the facts of this case, it is evident that while the Agreement imbodies a conditional sale, the transaction in question nonetheless falls within the scope of s. 30(2) of the PPSA . Indeed, counsel for Calidon candidly acknowledged in oral argument that, if s. 19 of the SGA applied on the facts of this case, then the law favoured that conclusion. [ 64 ] Under a more detailed analysis, s. 2 (

b) of the SGA defines a “buyer” to mean “a person who buys or agrees to buy goods” (emphasis added) and “sale” is defined to include “a bargain and sale as well as a sale and delivery” ( s. 2 (k)). Given those

definitions, the

Magneses would qualify as “buyers” pursuant to s. 30(2) of the PPSA , even if they were purchasing under a conditional sales agreement, and the transaction would constitute a “sale”. The Chambers judge’s factual findings in this respect are unassailable. Further, it is undisputed that Valley Side sold tractors and other farm equipment in the ordinary course of its business.

Given that the Magneses fall within the definition of buyer and that the tractor was sold in the ordinary course of Valley Side’s business, it would ipso facto appear that s. 30(2) applies when the words of the PPSA are read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of that Act , the object of the Act , and the intention of the Legislature.

However, this conclusion is also supported by ss. 19 and 20 of the SGA in the context of the Agreement, which governed the transaction among Valley Side, FCC and the Magneses. [ 65 ] Although it bears FCC’s trademarks, the first page of the Agreement identifies Valley Side as “the Dealer”, the Magneses as “the Purchaser” and FCC as “the Assignee”. Clause 1 of the first page of the Agreement states that the Dealer agrees to sell and the Purchaser agrees to purchase the tractor in issue: 1. The Dealer agrees to sell to the Purchaser and the Purchaser agrees to purchase from the Dealer the implement(

s) and extra equipment [extra equipment includes all attachments or accessories to the implement(s)] described in this Agreement (or in a

schedule attached to this Agreement) at the price and on the terms and conditions set forth in this Agreement. Delivery of said implement(

s) and extra equipment (both of which are herein collectively referred to as the “Equipment”) shall be made no later than the 9th day of May, 2017 (mo)(yr) (herein referred to as the “Delivery Date”) F.O.B. farm . (Underlining denotes information added by FCC) [ 66 ] The first page of the Agreement is followed by two pages of terms and conditions, which are said to be “part of this Agreement and binding upon the parties hereto” [Terms and Conditions].

Unfortunately, the Terms and Conditions inexplicably introduce the terms “Seller” and “distributor” while still retaining “Dealer”—referring to Valley Side, “Purchaser”—referring to the Magneses, and “FCC”, which is also sometimes called “the Assignee” or “assignee”. The language is ambiguous as to whether “Seller” refers to Valley Side or to FCC. [ 67 ] This uncertainty is unfortunate because the Terms and Conditions contain what was, prior to the 1986 implementation of the PPSA , commonly referred to as a “retention of title clause”, which states: Security interest.

Seller hereby retains title to the Equipment and Purchaser hereby grants to Seller a security interest in the Equipment and all improvements thereon and all equipment and accessories belonging thereto, and all substitutions and replacements and proceeds (including insurance proceeds) thereof and all accessions (the “Collateral”), to secure payment and performance of all existing and future obligations of Purchaser to Seller arising out of this Agreement or any other agreement between Purchaser and Seller or its Assignee ( the “Obligations”). (Emphasis added) [ 68 ] The provision under which Valley Side assigned all of its interests under the Agreement and to the tractor to FCC is, however, straightforward.

It reads: Assignment For VALUE RECEIVED, I, the undersigned Dealer, hereby negotiate, sell and transfer to FARM CREDIT CANADA (the ‘Assignee’) all my interest in the above Agreement together with the Equipment described therein and authorize the Assignee full power and authority to exercise in its name all the rights, powers, privileges and remedies under the above Agreement.

This assignment shall be subject to the Retail Finance Agreement in effect between the Assignee and the Dealer at the date hereof. [ 69 ] The Agreement contains antiquated title retention language, whereby the “Seller” is said to retain title to the tractor until the purchase price has been paid in full, and an assignment clause, whereby Valley Side (as the “Dealer”) was to assign its interest under the contract to FCC.

I find the coexistence of these two clauses supports the Magneses’ and FCC’s position that the title retention language was included in the “Security Interest” portion of the Agreement for the sole purpose of reinforcing the creation, or further evidencing the existence of, a purchase money security interest in the tractor in favour of the “Seller” and FCC, as assignee. [ 70 ] Given s. 19(2) of the SGA , it is relevant that the Magneses attested that they intended, at the time of contract formation, to purchase the tractor from Valley Side. Similarly, Mr.

Reynoldson attested that Valley Side intended to sell the tractor to the Magneses when it entered into the Agreement. The terms of the contract reflect this. The Magneses paid a significant down payment and took possession of the tractor on the date the Agreement was signed. The evidence was that Valley Side had never intended to finance the purchase directly, as had been the case in Spittlehouse , and the Magneses never asked it to do so. Albeit Valley Side handled the documents, the Magneses’ financing came from FCC and all the parties – the Magneses, Mr.

Reynoldson (on behalf of Valley Side) and FCC – attested to that fact. In this respect, Valley Side was merely facilitating the placement of FCC’s financing and security interest by having FCC’s documentation signed in accordance with the MOA. This is evident from the Agreement itself, under which Valley Side assigned its interest in the tractor and under the Agreement to FCC at the same time as the Agreement was signed by the Magneses.

FCC paid the balance of the purchase price to Valley Side in full shortly thereafter. [ 71 ] It is clear from the terms of the Agreement read in context that Valley Side had entered into an unconditional sale of the tractor to the Magneses. And, if it was an unconditional sale in substance, Rule I of s. 20 of the SGA applied given the facts of this case, with the result that property in the tractor passed to the Magneses upon contract formation: Where there is an unconditional contract for the sale of specific goods in a deliverable state the property in the goods passes to the buyer

when the contract is made and it is immaterial whether the time of payment or the time of delivery or both be postponed. [ 72 ] In my view, the terms of the Agreement, the intentions of the parties at the time of contract formation, and the circumstances as set out herein, all support a finding that the Agreement served a threefold purpose. First, it constituted an unconditional sale of a specific and deliverable good – the tractor – to the Magneses by Valley Side under which the purchase price had been paid in full by the deposit and FCC financing.

In accordance with Rule I under s. 20 of the SGA , this means property in the tractor transferred to the Magneses at the time the Agreement was signed. Second, it constituted an assignment to FCC of all of Valley Side’s rights and interests in the tractor as the seller. Third, the Agreement created a purchase money security interest in the tractor in favour of FCC. While there was no legal need for the retention of title language, that is a matter of form, not substance.

That language was a small part of the clause that granted a security interest in the tractor and, although somewhat ambiguous and antiquated, it does not detract from the plain and obvious intention of the parties to create a purchase money security interest under the Agreement. [ 73 ] Accordingly, I find the Chambers judge did not err in determining that a “sale” had occurred and that the transaction therefore fell within the ambit of s. 30(2) of the PPSA . That conclusion accords with the facts and circumstances surrounding the transaction and gives effect to the public policy objects of the

section consistent with the intention of the Legislature when enacting it. VIII. CONCLUSION [ 74 ] I would dismiss Calidon’s appeal with costs to the respondents fixed at $2,000. “Ryan-Froslie J.A.” Ryan-Froslie J.A. I concur. “Caldwell J.A.” Caldwell J.A. I concur. “Barrington-Foote J.A.” Barrington-Foote J.A.