COURT OF APPEAL FOR ONTARIO
CATZMAN, WEILER and ABELLA JJ.A.
B E T W E E N :
GENERAL MOTORS ACCEPTANCE CORPORATION OF CANADA, LIMITED
Plaintiff (Respondent)
–and–
GABRIEL J. CARDINALI
Defendant (Appellant)
Nina Bombier, for the appellant
Rolf Piehler, for the respondent
Heard: February 10, 2000
On appeal from the judgment of Swinton J. dated March 2, 1999.
CATZMAN J.A.:
Overview
[1] The appellant bought a boat from a marina on credit. He entered into a conditional sale contract with the marina, which assigned it to the respondent. The marina agreed to correct certain deficiencies in the boat but failed to do so and, in response to the appellant’s complaints, gave him a newer boat. The conditional sale contract was never amended or replaced. After making payments for several years, the appellant defaulted in the final payment. The respondent repossessed the newer boat, sold it, and sued the appellant for the deficiency. Swinton J. gave judgment for the respondent. This is an appeal from that judgment.
The facts
[2] In August 1988, Gabriel Cardinali purchased a new 1988 Sea Ray recreation marine vehicle from Lackie’s Marina Limited. The boat was purchased on credit, as approved by General Motors Acceptance Corporation of Canada Limited. Cardinali and the marina entered into a conditional sale contract, which provided for payments over a seven-year period: 83 monthly payments of $719.76, beginning in October 1988, and a final “balloon” payment of $44,635.30 in September 1995. The boat was described in the contract as a “new 1988 Sea Ray, Model 268DA, V.I.N. 88268DAO396”.
[3] Upon execution of the conditional sale contract, the marina assigned it to GMAC.
[4] Cardinali began making the monthly payments under the conditional sale contract but did not take immediate possession of the boat because of various deficiencies, which the marina agreed to correct over the winter. When he came to pick the boat up in the spring of 1989, he found that the deficiencies had not been corrected. After a heated discussion, the marina owner handed him the keys to a new 1989 Sea Ray. Neither then nor at any time thereafter did the parties enter into a new conditional sale contract or amend the existing contract to make reference to the 1989 boat.
[5] No question appears to have arisen regarding the conditional sale contract until November 4th, 1991, when Cardinali’s lawyer wrote to GMAC asking whether it had a proper conditional sale contract for the 1989 boat. The letter read, in part:
Mr. Cardinali has not, in fact, been in possession of the [1988] boat since October of 1988, it having been returned to Lackie’s at that time and since replaced with another boat.
[6] Further correspondence followed, including a letter from Cardinali’s lawyer to GMAC dated March 18th, 1992, which referred to the 1988 boat and the conditional sale contract in these terms:
the boat referred to in that agreement was in fact never truly available to Mr. Cardinali and was in the possession of Lackie’s Marina Limited from soon after the date of the contract until the spring of 1989. At that time, Lackie’s Marina Limited determined that the deficiencies Mr. Cardinali had noted in the boat were not able to be remedied by them and a different boat was substituted therefor.
[7] Cardinali continued to make the monthly payments called for under the conditional sale contract until the final balloon payment came due in September 1995. By that time, Cardinali had lost his employment and was experiencing financial problems. He approached GMAC and endeavoured to negotiate a refinancing for a lower monthly price, but GMAC did not accept his proposal.
[8] The final balloon payment was never made. In February 1996, GMAC repossessed the 1989 boat, cleaned it up, made some repairs and eventually sold it.
[9] GMAC then brought action against Cardinali for the deficiency owing under the contract. Cardinali disputed liability on the grounds that there was no conditional sale contract for the 1989 boat; that the notice given by GMAC respecting repossession and disposition of that boat was fatally defective; and that the sale was not carried out in a commercially reasonable manner.
[10] Swinton J. rejected Cardinali’s defences and gave judgment for GMAC for its claim, prejudgment interest and costs.
The reasons of Swinton J.
[11] In her reasons for judgment, Swinton J. dealt with Cardinali’s defences as follows:
i. the conditional sale contract and the 1989 boat
[12] Swinton J. addressed this issue in two paragraphs. In paragraph 10 of her reasons, she set out the definition of “proceeds” in s.1(1) of the Personal Property Security Act, R.S.O. 1990, c. P.10 (“the PPSA”) and the provisions of s.25(1). Those sections read:
- (1) In this Act,
…
“proceeds” means identifiable or traceable personal property in any form derived directly or indirectly from any dealing with collateral or the proceeds therefrom, and includes any payment representing indemnity or compensation for loss of or damage to the collateral or proceeds therefrom.
- (1) Where collateral gives rise to proceeds, the security interest therein,
(a) continues as to the collateral, unless the secured party expressly or impliedly authorized the dealing with the collateral; and
(b) extends to the proceeds.
13She then said, at paragraph 11 of her reasons:
The 1989 Searay falls within the definition of “proceeds”, as it is identifiable personal property derived directly from dealing with the collateral, in that Lackie’s agreed to give Mr. Cardinali the 1989 boat in substitution for the 1988 boat which he had purchased and on which he had been making payments. Therefore, pursuant to s.25(1)(b), GMAC’s security interest extends to the proceeds.
ii. defective notice
[14] The notice given by GMAC in purported compliance with ss.63(4) and (5) of the PPSA described the collateral as the 1988 Searay. In rejecting the argument that the notice was void and ineffective, Swinton J. found that Cardinali knew that the vessel repossessed was the 1989 boat and that he was given clear notice of the amount needed to redeem. No appeal is taken from this finding.
iii. disposition of collateral in a commercially reasonable manner
[15] Cardinali argued that both the manner in which and the price for which GMAC sold the boat were commercially unreasonable. Swinton J. found that, particularly having regard to the time the boat was on the market and the level of sales activity, the sale was carried out in a commercially reasonable manner. No appeal is taken from this finding.
The appellant’s submissions on appeal
[16] As noted, the defences (asserted at trial) of defective notice and commercially unreasonable disposition were not pursued on the appeal. In this court, Ms. Bombier advanced two submissions on behalf of the appellant:
(1) Swinton J.’s interpretation of “proceeds” was incorrect because it conflicted with provisions of the Consumer Protection Act, R.S.O. 1990, c.C.31 (“the CPA”); and,
(2) no security interest was ever created in the 1989 boat that entitled GMAC to repossess and sell it and to assert a claim for the deficiency.
[17] In order to understand Ms. Bombier’s submissions regarding the CPA, it is necessary to have reference to s.73 of the PPSA, which provides:
- Where there is conflict between a provision of this Act and a provision of the Consumer Protection Act, the provision of the Consumer Protection Act prevails and, where there is a conflict between a provision of this Act and a provision of any general or special Act, other than the Consumer Protection Act, the provision of this Act prevails.
[18] The provisions of the CPA which, according to Ms. Bombier, conflicted with the definition of “proceeds” in s.1(1) and with s. 25(1) of the PPSA were ss.19(2) and 22, which read:
- (2) An executory contract is not binding on the buyer unless the contract is made in accordance with this Part and the regulations and is signed by the parties, and a duplicate original copy thereof is in the possession of each of the parties thereto.
- Any provision in any executory contract or in any security agreement incidental thereto under which the seller may acquire title to, possession of or any rights in any goods of the buyer, other than the goods passing to the buyer under the contract, is not enforceable.
[19] Ms. Bombier’s argument was disarmingly simple. The only written contract between Cardinali and the marina referred to the 1988 boat. There was no written contract that referred to the 1989 boat. As a result, the contract was not binding on Cardinali with respect to the 1989 boat and GMAC had no rights that it could enforce in respect of the 1989 boat.
20I am unable to accept this argument. In my view:
(1) the 1989 boat was not “proceeds” of the 1988 boat; and
(2) having regard to their conduct, the parties agreed to substitute the 1989 boat for the 1988 boat and to modify the contract to apply to the 1989 boat rather than the 1988 boat.
(1) “proceeds”
[21] I begin with Swinton J.’s finding that the 1989 boat constituted “proceeds” within the meaning of ss.1(1) and 25(1)(b) of the PPSA. That finding is crucial to Ms. Bombier’s submission regarding the operation of ss.19(2) and 22 of the CSA, because s.73 of the PPSA applies only where there is conflict between a provision of the PPSA and a provision of the CPA. If no provision of the PPSA enters the equation, there is no conflict and s.73 does not come into play.
[22] I think Swinton J. was wrong to find that the 1989 boat constituted “proceeds”.
[23] Section 1(1) of the PPSA defines “proceeds” to mean “personal property in any form derived directly or indirectly from any dealing with collateral”. Before there can be “proceeds”, there must first be a dealing with the collateral. I am unable to see how the 1989 boat can be said to be “derived … from any dealing” with the 1988 boat. “Dealing” is, admittedly, a broad term, and I agree with the proposition, appearing in J.S. Ziegel and D.L. Denomme, The Ontario Personal Property Security Act: Commentary and Analysis (Aurora: Canada Law Book Inc., 1994) at p. 179, that the definition of “proceeds”
is extremely elastic and appears to encompass every conceivable type of situation in which the original collateral has been exchanged for other personal property, voluntarily or involuntarily, or where an event has occurred in relation to the collateral giving rise to a claim for damages or indemnity.
But what transpired in the present case falls into neither category. The 1988 boat was not exchanged for the 1989 boat, and no event occurred in relation to the 1988 boat that gave rise to a claim for damages or indemnity.
[24] What did transpire in the present case requires an examination of the conduct of the parties, not only in August 1988 but also in the spring of 1989 and thereafter. I now turn to that examination.
(2) Modification of the contract by conduct
[25] In August 1988, Cardinali agreed to purchase, and the marina agreed to sell, the 1988 boat that was described in the conditional sale contract that they signed and that the marina assigned to GMAC. Although Cardinali’s monthly payments began immediately, the boat remained with the marina in order to correct, at Cardinali’s insistence, certain trim deficiencies. When Cardinali came to pick up the boat in the spring of 1989, he found that the deficiencies had not been corrected. What happened next is best described in the following extract from his examination in chief by his counsel at trial:
Q. … and you went to pick up your boat, and what did you find? A. That the undertakings that they had taken were not met. They did not fix the trim. They did not fix the stains in the re-berth which is the bottom portion … the bottom front portion of the boat. And what they had promised to do, they did not do.
Q. And so you discussed the matter with Mr. John Blair, the president of Lackie’s, is that right?
A. I did. Q. And, as a result of that discussion, you were given the keys to a 1989 Searay, is that right?
A. I was, yes.
Q. And I understand that you were upset, to put it mildly, when you found that the things that had to be done on the ’88 boat hadn’t been done? A. That’s correct.
Q. You had a rather heated exchange with Mr. Blair? A. I travelled to Port Severn, between Toronto and Port Severn three times the same day.
Q. And I suppose we wouldn’t be here now if you had had any discussion or required of Mr. Blair that he provide you with the proper ownership documentation. You didn’t talk to him about that, did you?
A. No, I did not.
Q. And so you have signed your conditional sale contract on the ’88. You don’t get the ’88. You get an ’89. And that’s it for a while. You don’t give it any further thought. You are enjoying your new boat.
A. I was happy to receive a new boat, yes.
[26] So it was that Cardinali took possession of the 1989 boat in the spring of 1989. He continued to make the monthly payments until September 1995, when he failed to make the final balloon payment. He retained possession of the 1989 boat from the spring of 1989 until it was repossessed by GMAC in February 1996.
[27] Although there was no evidence when GMAC first learned what had transpired between Cardinali and the marina in the spring of 1989, GMAC certainly knew of it by November 1991 and March 1992, when it received letters from Cardinali’s solicitor. Significantly, and in my opinion accurately, those letters made these references to the 1988 and 1989 boats:
(a) letter of November 4th, 1991: “Mr. Cardinali has not, in fact, been in possession of the [1988] boat since October of 1988, it having been returned to Lackie’s at that time and since replaced with another boat.”; and
(b) letter of March 18th, 1992: “… [the 1988 boat] was in fact never truly available to Mr. Cardinali and was in the possession of Lackie’s Marina Limited from soon after the date of the contract until the spring of 1989. At that time, Lackie’s Marina Limited determined that the deficiencies Mr. Cardinali had noted in the boat were not able to be remedied by them and a different boat was substituted therefor.”
Both before and after these letters, Cardinali continued to make his monthly payments and GMAC continued to accept them, right up until September 1995, when it became clear that the final payment was not going to be made.
[28] The clearest statement of the legal principle that applies to the circumstances of this case is found in 67 Am Jur 2d (Rochester, N.Y.: The Lawyers Cooperative Publishing Co., 1985), “Sales”, º 360:
º 360. Modification by conduct.
The conduct of the parties to a sales contract may be such as to constitute a modification of their agreement, such as is illustrated in the following cases: … Acceptance of nonconforming goods, especially where they are retained, used, and resold, or when the buyer orally agrees to pay for them at the contract rate, may be conduct evidencing a modification of the contract.
[29] Having regard to the evidence noted above, I consider it clear that, by their conduct, all of the parties – the marina, Cardinali and GMAC – agreed to treat the contract for the 1988 boat as if it were a contract for the 1989 boat. To use the phrase appearing in the passage from American Jurisprudence, their conduct evidenced a “modification of their agreement”. In these circumstances, it was not open to Cardinali to resist GMAC’s claim to repossess the 1989 boat and to sue him for the deficiency owing under the contract on the ground that it did not refer to the 1989 boat.
Disposition
[30] For the foregoing reasons, I reject the submissions made by Ms. Bombier on behalf of the appellant. I would dismiss the appeal with costs.
Released: MARCH 22, 2000 Signed: “M.A. Catzman J.A.”
MAC “I agree K.M. Weiler J.A.”
“I agree R.S. Abella J.A.”