COURT FILE NO.: 31-1498911
DATE: 20120817
ONTARIO
SUPERIOR COURT OF JUSTICE
IN BANKRUPTCY
RE: IN THE MATTER of the Bankruptcy of
BARBARA JOAN SCOTT
of the City of Greater Sudbury, in the District of Sudbury, in the Province of Ontario
BEFORE: R.D. Gordon J.
COUNSEL: J. Robert Leblanc, for the Bankrupt
IN PERSON: Roger Ringuette
HEARD: June 26, 2012
E N D O R S E M E N T
Overview
[ 1 ] This motion was to determine, as between the Trustee in Bankruptcy and Roger Ringuette, who is entitled to a 2007 Pontiac Grand Prix automobile.
Background Facts
[ 2 ] Barbara Joan Scott (the “Bankrupt”) made an Assignment in Bankruptcy on or about May 18, 2011. Around the time of her assignment, the Bankrupt had entered into a lease agreement with Roger Ringuette, carrying on business as Ringuette Auto Sales (“Ringuette”).
[ 3 ] Ringuette did not register a security interest pursuant to the Personal Property Security Act (the “PPSA”), but the Bankrupt disclosed to the Trustee that her vehicle was a lease. The Trustee sent a request to Ringuette for particulars of the security interest but received no response.
[ 4 ] Following her assignment, the Bankrupt continued to pay Ringuette the required monthly lease payment for several months. When she defaulted in payment, Ringuette seized the vehicle.
[ 5 ] This proceeding ensued to determine who has entitlement to the vehicle and whether Ringuette must pay to the Trustee the lease payments received following the assignment in bankruptcy.
[ 6 ] Following completion of the hearing I invited the parties to make written submissions on the issue of whether, notwithstanding the bankruptcy, Ringuette could subsequently perfect his security by taking possession of the vehicle.
The Position of the Trustee
[ 7 ] The Trustee takes the position that the lease agreement meets the definition of a security agreement under the provisions of the PPSA and that the failure of Ringuette to perfect its security interest prior to the assignment in bankruptcy renders the security of no force. Accordingly, it is argued that the vehicle is an asset that vests in the Trustee.
The Position of Ringuette
[ 8 ] Ringuette admitted that the particulars of the lease were not registered under the provisions of the PPSA. However, he took the position that a lease does not amount to a security interest and accordingly no perfection was required. In any event, he argued that the lease was, in fact, entered into following the bankruptcy and therefore is not subject to the bankruptcy. In Mr. Ringuette’s written submissions, he claimed, for the first time, that the vehicle was exempt under section 67(1)(b) in combination with sections 2 and 3 of the Execution Act .
Analysis
When Was the Lease Entered Into?
[ 9 ] The Bankrupt swore an affidavit that the lease with Ringuette was entered into on or about April 16, 2011. As Exhibit “D” to her affidavit there was filed a copy of the lease agreement which is dated April 16, 2011 and which was signed by her. In that same affidavit, she averred that in January of 2012 Mr. Ringuette required her to sign a new lease agreement which was backdated to June 1, 2011.
[ 10 ] Mr. Ringuette testified that in fact the lease agreement was entered into on June 1, 2011. In support of his position he filed as Exhibit #1 a copy of insurance documentation pertaining to the Bankrupt and the vehicle and which renewed the insurance on the vehicle from June 12, 2011. Mr. Ringuette was of the view that this document proved the transaction took place in June rather than April.
[ 11 ] However, also in Exhibit #1 was a “Modification to your Policy” document which was addressed to the Bankrupt and which indicates that effective April 29, 2011 she had insurance on the vehicle and that Ringuette was listed on the policy as lessor.
[ 12 ] The exhibits to the Bankrupt’s affidavit also establish that she made at least one payment on the lease prior to the date of bankruptcy and that the registrations with the Ministry of Transportation required by the vehicle transaction were completed in April of 2011.
[ 13 ] On a balance of probabilities I have little difficulty finding that the lease was entered into in April of 2011.
Is the Lease A Security Agreement?
[ 14 ] Section 2 of the PPSA provides that it applies to every transaction without regard to its form and without regard to the person who has title to the collateral that in substance creates a security interest including, among other things, a lease.
[ 15 ] A security interest is defined in section 1 of the PPSA to include an interest in personal property that secures payment or performance of an obligation and includes the interest of a lessor of goods under a lease for a term of more than one year.
[ 16 ] The lease in this case was for more than one year. It is clear to me the lease was and is a security agreement and not a true lease. Clearly it anticipates the eventual transfer of the vehicle to Ms. Scott and was a contract for purchase in the form of a lease.
With Whom Does Entitlement to the Vehicle Lie?
[ 17 ] Section 20(1)(b) of the PPSA provides that until perfected, a security interest in collateral is not effective against a trustee in bankruptcy. Section 20(2) provides that the rights of a person under section 20(1)(b) in respect of collateral are to be determined as of the date from which the person’s representative status takes effect.
[ 18 ] The Trustee’s representative status took effect when the assignment in bankruptcy was made, namely May 18, 2011. The security interest of Ringuette was not then perfected. Accordingly, the rights of Ringuette are subordinate to the rights of the Trustee.
[ 19 ] The exemption sought by Ringuette under section 67(1)(b) in combination with sections 2 and 3 of the Execution Act is not made out. Assuming, without deciding, that Ringette can seek the exemption, the burden would be on Ringuette to establish entitlement to it. At the hearing I was provided with no evidence that would allow me to find this vehicle fell within the exemption set out in section 2.6 of the Execution Act .
Repayment of Lease Payments Made by the Bankrupt After her Assignment
[ 20 ] The Trustee has claimed payment of the lease payments made to Ringuette by the Bankrupt following her assignment in bankruptcy, but before the Trustee took any steps to secure possession or ownership of the vehicle. In support of its position the Trustee argues that the right of the bankrupt to commence an action against Ringuette for monies paid following the assignment in bankruptcy vests in the Trustee by operation of law as set out in section 67 of the Bankruptcy and Insolvency Act .
[ 21 ] Notwithstanding that the Trustee was advised by the bankrupt of the existence of the lease upon her assignment, it took no steps to determine the particulars of perfection until some seven months later. Indeed, until the Trustee sent its notice on December 6, 2011 requiring Ringuette to file proof of its security, there is nothing to suggest that Ringuette was even aware of the assignment in bankruptcy or the possibility that the Trustee would have an interest in the vehicle. It strikes me as patently unfair, in such a situation, that Ringuette be called upon to account for funds received. My view might be quite different if there was evidence before me to establish that Ringuette was aware of the bankruptcy of Ms. Scott at any earlier date but I have no such evidence.
[ 22 ] Following the notice of December 6, 2011, it ought to have been apparent to Ringuette that its interest in the vehicle was subordinate to that of the Trustee and it ought to have been aware that payments it received thereafter would be subject to return. Those payments amount to $600 and it is appropriate that judgment issue in favour of the Trustee for that sum.
Costs
[ 23 ] If the parties are unable to agree on the issue of costs, they may make written submissions to me, not to exceed four pages in length each, within thirty days of the date of this decision.
Justice R.D. Gordon
Released: August 17, 2012
COURT FILE NO.: 31-1498911
DATE: 20120817
ONTARIO SUPERIOR COURT OF JUSTICE IN THE MATTER of the Bankruptcy of BARBARA JOAN SCOTT Of the City of Greater Sudbury, in the District of Sudbury In the Province of Ontario endorsement R.D. Gordon J.
Released: August 17, 2012