WBLI Incorporated v. Maxium Financial Services

WBLI Incorporated v. Maxium Financial Services Court Supreme Court Date 2003-04-04 Citation 2003 NSSC 97 Docket SH 193563 Judge/Registrar/Adjudicator Hood, Suzanne M. (Honourable Justice) Document Type Decision Relations Library Sheet - WBLI Incorporated v. Maxium Financial Services - 2003 NSSC 97 - 2003-04-04 - Library Sheet See also - Rankin v. Schoner - 2004 NSSC 95 - 2004-02-05 - Decision Decision Content IN THE SUPREME COURT OF NOVA SCOTIA WBLI Incorporated v. Maxium Financial Services, 2003NSSC097 Date: 20030404 Docket: SH No.193563 Registry: Halifax Between: WBLI Incorporated, Receiver and Manager of Valley Vista Golf Course Limited Applicant - and - Maxium Financial Services Inc. Respondent D E C I S I O N Judge: The Honourable Justice Suzanne M. Hood Heard: April 2, 2003 in Halifax, Nova Scotia (Special Chambers) Written Release of Decision: April 30, 2003 (Oral decision rendered April 4, 2003) Counsel: Maurice P. Chiasson, counsel for the Applicant David Hutt, counsel for the Respondent By the Court: [1] WBLI Incorporated was appointed receiver and manager of Valley Vista Golf Course on May 14, 2002, pursuant to the security agreements with the Nova Scotia Business Development Corporation (hereinafter “NSBDC”) and the Business Development Bank of Canada (hereinafter “BDC”) . [2] Valley Vista Golf Course executed a debenture with NSBDC on April 27, 2000 and a security agreement with BDC on the same day. Subsequently, NSBDC entered a financing statement under the Personal Property Security Act, S.N.S. 1995-96, c. 13, (hereinafter “PPSA”) on April 28, 2002, with respect to that debenture and BDC entered a financing statement under the same Act on the same date, April 28, 2002, with respect to its security agreement. [3] On August 3, 2000, Valley Vista made an agreement with Maxium for lease of certain equipment to be used in the operation of the golf course (the first Maxium lease). The second Maxium lease was entered into on or about May 2, 2001 and was for 21 gas club cars. The financing statement with respect to the first lease was entered under the PPSA on August 10, 2002 and the financing statement with respect to the second one on May 2, 2001. Both the leases and the financing statements by Maxium referred to the debtor as Valley Vista Golf Club Limited, not Golf Course Limited. [4] Subsequently on May 1st, 2002, Maxium entered new financing statements under the PPSA with respect to both leases and changed the name in those registrations to Valley Vista Golf Course Limited. [5] Valley Vista subsequently defaulted on the debentures and on the leases. On May 7 and 8, 2002, Maxium went to the premises of Valley Vista and took possession of the equipment which was secured by those two leases. There followed a letter of May 22, 2002 (which is Exhibit “0" to the agreed statement of facts) from Mr. Chaisson to Mr. Hutt. The third paragraph of that letter sets out in essence how we got here today. Essentially, we have concluded that the original PPSA registrations made on behalf of Maxium on August 10, 2000 and again on May 2, 2001 are deficient in that they do not identify the correct name of Valley Vista. As such, it is our position that sub-sections 44(7) and 44(8) of the PPSA will invalidate the initial registrations in favour of Maxium. In this respect, I attach a copy of a decision of the Alberta Court of Queen’s Bench in KJM Leasing Limited v. Granstrand Bros. Inc. (Receiver of), which is consistent with the argument we are advancing. It is also our position that subsequent registrations made earlier this month by Maxium do not provide it with priority given the pre-existing registrations made in favour of NSBDC and BDC covering all of the personal property (both present and after-acquired) of Valley Vista. [6] The equipment was then returned by Maxium so the golf course could operate for the season. [7] Maxium subsequently, on May 24, 2002, entered another financing agreement under the PPSA with respect to the same equipment listed in the first and second leases, naming as debtors, Gerald Douglas Fulton and Lorna Jean Fulton, pursuant to the guarantee entered into between them and Maxium. [8] On May 29, 2002, BDC and NSBDC registered financing statements with the correct name of the debtor and with the serial numbers in the serial numbered goods field. The on-line registration screens are shown as exhibits to the affidavit of Dawn Cottreau. [9] Section 36(4) of the PPSA provides that a security interest in serial numbered goods is not perfected “unless a financing statement relating to the security interest that includes a description of the goods by serial number is registered.” [10] There are saving provisions in the PPSA which are Sections 44(7) and 44(8): (7) The validity of the registration of a financing statement is not affected by any defect, irregularity, omission or error in the financing statement unless the defect, irregularity, omission or error is seriously misleading. (8) Subject to subsection (10), a registration is invalid if there is a seriously misleading defect, irregularity, omission or error in (a) the name of any of the debtors required to be included in the financing statement other than a debtor who does not own or have rights in the collateral; or (b) the serial number of the collateral if the collateral is consumer goods of a kind that are prescribed as serial numbered goods. [11] Regulations under the PPSA include Section 6 which provides: A registrant who effects a registration in the Registry shall ensure that the information required by these regulations is entered in the appropriate fields on the screen. [12] Sub-section 25(1) says: Where collateral is to be described by serial number, the registrant (a) shall indicate the type of serial numbered goods to which the registration relates; (b) shall enter the last 25 characters of the serial number or all the characters if the serial number contains less than 25 characters; (c) may verify the serial number entered by entering it at second time; and (d) may describe the collateral by make, manufacturer, model, model year or any other particulars. [13] The issue is who has priority. There is no dispute that the financing statements registered by BDC and NSBDC perfected their security interests in the present and after acquired personal property. The issue is whether, since the goods are serial numbered goods, the registrations by Maxium perfected its security interests so that it has priority. [14] WBLI says the first financing statements registered by Maxium are invalid because they incorrectly identified the debtor as Valley Vista Golf Club Limited, not Valley Vista Golf Course Limited. WBLI says that the error in the name is a seriously misleading error pursuant to Section 44(8). A search done by WBLI, a copy of which is at tab (Q) of the agreed statement of facts, lists the search results for Valley Vista Golf Course Limited. It does not disclose financing statements registered by Maxium under the name Valley Vista Golf Club Limited. [15] In KJM Leasing Ltd., 1994 CarswellAlta433, (1994), 7 P.P.S.A.C. (2nd) 197, 158 A.R. 78 (Alberta Queen’s Bench) (the decision referred to in the letter I have already mentioned from Mr. Chaisson to Mr. Hutt), Master Funduk of the Alberta Court of Queen’s Bench concluded in para. 18: There is a very strong presumption that an defective registration is seriously misleading if a search using the correct debtor’s name does not disclose a defective registration at all: [16] In KJM Leasing, the name was entered incorrectly as “Grandstrand”, not “Granstrand”, an additional “d” was inserted and the search under the correct name did not reveal the financing statement with the incorrect name. The Alberta legislation uses the same phrase “seriously misleading” as does the Nova Scotia legislation. [17] I conclude in this case that the presumption of a registration being seriously misleading has not been rebutted. The search at Tab (Q) does not reveal the financing statement. That registration is invalid. [18] The next question is with respect to the May 2, 2002 registration. For collateral that is serial numbered goods the PPSA in s. 36(4) requires that the serial numbers be included in the registration. Maxium says the serial numbers were included. Maxium says it does not matter that the serial numbers were not put in the field on the computer registration form for serial numbered goods but in the general collateral section instead because there is no specific requirement in s. 36(4) as to where the serial numbers must be entered. The correct debtor name was used in that registration [19] WBLI says that the registrations by Maxium were improperly entered and therefore are not valid. WBLI says that the only proper registration against the serial numbered goods was the registration on May 29, 2002 in favour of BDC and NSBDC which included both the correct debtor name and the entry of the serial numbers in the serial numbered goods field. [20] WBLI says that s. 44 of the PPSA requires registration in accordance with the regulations and s. 6 of the regulations properly interpreted requires Maxium to put the serial numbers in the field on the computer screen for serial numbered goods. [21] It is not in dispute that a search by serial number will not find the serial numbered goods listed in the general collateral section but only in the serial numbered good section on the computer registration form. [22] WBLI refers to Cuming and Wood’s Alberta Personal Property Security Handbook, 2nd edition, (1993 Thomson Canada) as authority for its argument. Counsel for WBLI asks this court not to be persuaded by the decision of the PEI Court of Appeal in Business Development Bank of Canada v. ABN Amro Leasing, [2003] P.E.I.J. No. 22, 2003 PESCAD 5 (P.E.I.S.C.-App Div.). In that case, both BDC and ABN Amro had taken a security interest over certain equipment and both had registered notice of their security interest. BDC claimed priority over ABN Amro. The respective security agreements of the parties in that case are similar to those in this. The equipment in issue in that trial was not listed by serial number by ABN Amro but only by a general description. Later ABN Amro registered a financing statement and described the equipment under the heading “General Description Collateral” and entered the serial numbers. BDC advised ABN Amro it was asserting its priority and then registered a financing statement for the same serial numbered equipment and entered those serial numbers under the heading for serial numbered goods. In that case Justice McQuaid said at para. 55: I am unable to agree with the position of the appellant and I agree with the trial judge that the requirements set forth by the Act and its regulations do not make it a requirement that serial numbers must be in the serial numbered field. The only requirement is that the financing statement contain reference to the serial number which is what the respondent’s filing did. Therefore, the respondent’s filing of a financing statement on April 19, 2001 perfected its security interest in the serial numbered goods first in time before the appellant’s filing on April 22, 2001 and therefore, it has priority over the security interests of the appellant. [23] In the Appeal Court and the Trial Court decisions there is no reference to provisions in the PEI Act or regulations similar to s. 6 of the Nova Scotia regulations referred to above (although WBLI counsel concedes the statutes are almost identical and there likely is a section like s. 6). However, WBLI says that these sections are significant and this means that in Nova Scotia the serial numbers of the serial numbered goods must be inserted in the serial numbered goods field of the registration form because of the difference in the legislation. [24] I do not agree. Section 6 is a general requirement in the regulations and the specific requirements for registering a financing statement for serial numbered goods are contained in regulation 25(1). Section 6 does not expand upon the meaning of “appropriate fields”. Section 25(1) deals in great detail with the information which “shall” be provided and which “may” be provided. It does not refer to a location for that information. In other sections of the regulations specific direction is given with respect to headings or fields. Examples are s. 18, s. 19, s. 21(2) and s. 32. The regulations specifically address these subjects and do not address the location of the serial numbers. If Cabinet in passing these regulations had intended to impose a specific requirement to put serial numbers in a particular field or under a particular heading it would have included that requirement in the regulations as it did for those sections I have mentioned above. [25] The registry system creates a specific field for serial numbered goods information. That is, the person or persons who designed the computer system to carry out the requirements of the PPSA and the regulations put this field on the computer screen. It is no doubt very helpful on occasion. However that does not make it the law. The law is found in the Act and the regulations. I am persuaded that the correct interpretation of the PPSA and its regulations does not require anything more than that the serial numbers be entered according to s. 25(1)(b). Section 25 of the regulations does not specify a particular place for the entry of this information. [26] In BDC v. ABM Amro, supra, BDC argued that the inclusion of serial numbered goods in the general collateral field of the registration was a defect in the registration which is seriously misleading. First, I have concluded that it is not a defect at all. The registration was in compliance with the Act and the regulations because the serial numbers were entered even though not in a specific field created by the registrar. However, I do not conclude, even if it was a defect, that it is a seriously misleading defect. The test is an objective one and it is irrelevant whether anyone was misled. [27] Chief Justice Desroches of the Trial Division in Prince Edward Island, in the trial decision in Business Development Bank of Canada v. ABN Amro Leasing 2002 CarswellPEI17, 2002 PESCTD 14, 211 Nfld. & P.E.I.R. 290, 633 A.P.R. 290, said at para. 71: (5) The key question to be answered is whether a registry search will disclose the incorrect registration. [28] He then considered the practice of reasonable searchers and concluded from evidence before him that a reasonable searcher did not rely solely upon serial numbers when the debtor’s name is also available. I too have that evidence before me. Affidavits were filed by Tim Maher, a paralegal with Maxium’s counsel, and by Lori Lawton, a paralegal with Merrick Holm. Both swore that when they have both the debtor name and a serial number they search both and do not rely only upon a serial number search. A reasonable searcher would find a financing statement by searching the debtor name, which on the May 1, 2002 registration had been corrected by Maxium. [29] Chief Justice Desroches referred to the decision of Master Funduk of the Alberta Queen’s Bench in Comcorp Financial Services Inc. v. R & R Investments Corp., 1995 CarswellAlta259, 31 Alta L.R. (3d) 393, 173 A.R. 1, 10 P.P.S.A.C. (2d) 87 (Q.B.). In that case a financing statement with respect to a truck was registered but the truck serial number was entered in the general collateral field not in the serial number field. In para. 44 of that decision, Master Funduk said: It is not disputed that a serial number search does not disclose the Applicant’s security interest. The evidence is that the Registry will not program serial number equipment unless the security holder puts the description in the “right” space , being the first field in the form. Apparently that is what happened in this case. Even though the truck was specifically described with a serial number and it was the only collateral shown on the financial statement, the Registry limited itself to programming the financial statement by the debtor’s name only. He then said in para. 45: The registry does not drive the Act. It is the other way around. [30] I agree with that statement. If the placing of serial numbers in a specific search field is thought to be a desirable requirement, the legislature can add that provision to the Act. In fact, it appears that amendments to the Act are being considered by the legislature. [31] WBLI says that, if the registration is defective, resort cannot be made to s. 44 to cure the defect. WBLI says that s. 36(4) is a complete code for registration of serial numbered goods and where one section sets out a complete code reliance cannot be placed on a more general section of the Act. Counsel for WBLI referred me to the decision of the British Columbia Supreme Court in Re Hewstan, 42 C.B.R. (3d) 186, 12 P.P.S.A.C. (2d) 36, 1996 CarswellBC2134. In that case, the debtors changed their names and advised the creditor. Section 51(2) of the British Columbia PPSA dealt with the consequences of failing to file a change in a financing statement in such a case. On the bankruptcy of the debtor the trustee in bankruptcy denied the creditor’s claim as a secured creditor. The trustee said the failure to amend the registration was a defect which was seriously misleading. The registrar in bankruptcy and the Supreme Court on appeal did not agree. The court said in paras. 10 and 11: It is almost trite to say, as a matter of statutory interpretation, that where the Legislature has made specific provision for an eventuality in one section of the statute, (that is s. 51(2) and the failure to file a name change), it is not to be implied that that eventuality is to be treated under more general provisions, (that is ss. 43 and 20 in the case at bar). Clearly the legislation intends that s. 51(2) deal with the consequences of a creditor failing to file a financing change statement upon learning of the debtor’s name change. [32] And in para. 14 the court says: I conclude that s. 51(2) is a code for the purpose of imposing consequences on the creditor who, like here, fails to file a financing change statement upon learning of his debtor’s change of name. [33] Counsel for WBLI says that s. 36(4) is similar in its effect and that one cannot rely on s. 44 to cure a defect which invalidates a registration. [34] I cannot agree that s. 36(4) of the Nova Scotia PPSA is a provision with the same effect as s. 51(2) of the British Columbia Act. The provision of the British Columbia Act states at some length what occurs with a security interest which is perfected by registration and makes it clear that it does not become unperfected but that failure to file an amendment affects its priority. Section 36(4) does not contain a code. As I have said, it sets out the requirement for the registration to include the serial number of the goods, but not where that serial number must be placed. It does not go on, as s. 51(2) of the British Columbia Act does, to set out the consequences of something that occurs that after the security interest is perfected. [35] I therefore conclude that the nature of the two sections is quite different and this argument does not prevail. [36] WBLI also says the registration on May 1, 2002 by Maxium was deficient because it did not refer to the type of serial numbered goods and because Maxium failed to list a full serial number for the goods. The golf carts were described as “gas club car (green)” with a list of serial numbers and the other equipment was named, for example, “PGM Greens Mower” and a “Pushman Turf Truckster”. I do not conclude that these descriptions are seriously misleading. Combined with a serial number for the items and the nature of the business which is obvious from its name, “Valley Vista Golf Course” it would be difficult to conclude that a reasonable searcher would be misled about this goods because they were not put into a category of motor vehicle, trailer, mobile home, air craft, boat or an outboard motor for a boat. [37] Similarly, although the initial digits of the serial numbers were not repeated each time for the 19 gas golf carts listed after the serial number for the first one, a reasonable searcher wold not be misled when reading this information in the general collateral section of the registration. [38] I therefore conclude that the financing statement registered by Maxium on May 1, 2002 is valid and gives priority to the security interest of Maxium in the goods described therein over the claims of WBLI, the receiver manager of Valley Vista Golf Course Limited. [39] Having so concluded, I do not need to address the issues of the financing statement in favour of Maxium with the Fultons as debtors pursuant to a guarantee between Maxium and the Fulton’s. However, if I had to, I think I would say colloquially, “nice try”, but it would not work. [40] Nor do I need to consider the May 29, 2002 registration of the financing statements by BDC and NSBDC. However, I would say that it appears to be to be inconsistent with the nature of the security BDC and NSBDC had in present and after acquired property to later try to gain priority in the face of a receivership by registering a financing statement with serial numbers. I would like to think I would not see that sort of thing occurring in future. It was the same sort of thing that was done in the PEI Business Development Corporation v. ABM Amro, supra, case. In my view, it is trying to take advantage of a slip by a creditor who advanced funds for goods. Nonetheless I should also say that there is a lesson in this for creditors about the need to be careful in registering, although in this case the security interest of the creditor Maxium takes priority over the security interests of BDC and NSBDC. Hood, J.