Court File and Parties
COURT FILE NO.: CV-23-00000508-0000 DATE: 2023-09-15 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Rui DONG, Applicant AND: J. LOCKWOOD LEASING, Respondent
BEFORE: Kurz J.
COUNSEL: Jimmy Nakano Ding, for the Applicant Kevin Pinkoski, for the Respondent
HEARD: September 15, 2023
Endorsement
Introduction
[1] The Plaintiff (“Rui”) moves for an order for the interim recovery of a motor vehicle that it had purchased from the Defendant (“Lockwood”), but which Lockwood later repossessed from his driveway. Lockwood did so despite the absence of a conditional sales agreement, possession of the subject vehicle or a validly registered lien.
Undisputed Facts
[2] There is little dispute regarding the facts. Rui purchased a black 2018 Lexus GX460 (the Lexus” or the “vehicle”) from Lockwood. He did so without financing. The purchase price was $57,617.52. Rui was originally required to pay $20,000 down and a further $37,617.52 before delivery. The parties later agreed that the downpayment would be reduced to $10,000. When Rui attended at Lockwood’s premises to pay the balance, Lockwood prepared a bill of sale that only required the payment of $37,617.52, despite the reduced down payment. Rui paid that amount and a short time later the Lexus was delivered to him, along with both the vehicle’s keys and a vehicle permit, showing Rui as its sole owner. Rui signed no documents that entitled Lockwood to a security interest in the Lexus.
[3] A few days after delivery, Lockwood discovered that it had made a mathematical error and had undercharged Rui by $10,000. It made seven unsuccessful attempts to contact Rui and his girlfriend (who assisted him in the purchase) during December 2022.
[4] Ultimately, despite the absence of a security agreement or possession Lockwood decided that it was entitled to a security interest and a lien against the Lexus. Unbeknownst and without notice to Rui, Lockwood then registered a lien against the Lexus under the Personal Property Security Act, RSO 1990, c P.10, as amended (“PPSA”). Shortly thereafter, on January 13, 2023, it purported to repossess the vehicle from Rui’s driveway. Lockwood has since refused to return the Lexus to Rui unless a further payment was made. It has refused to return the vehicle and discharge the lien.
[5] For the reasons that follow, I find that Lockwood was not entitled to either a security interest in or a lien against the Lexus. It was not entitled to repossess the Lexus, much less do so on Rui’s private property. It is not entitled to possession of it at this time as that amounts to execution before judgment. I order that the Lexus be returned, that the lien be vacated, that Lockwood pay $500 to Rui for the improper lien registration and that this action be transferred to small claims court.
Test for Interim Possession of Property
[6] The jurisdiction to grant interim recovery of personal property is found in s. 104 of the Courts of Justice Act, R.S.O. 1990, c.C-43, as amended. The test for that relief, was set out by C.J. Brown J. in Baca v Tatarinov, 2017 ONSC 2935, at para. 27-28 as follows:
27 The test for an Order pursuant to section 104 of the Courts of Justice Act and Rule 44.01(1) of the Rules is as follows:
- There are substantial grounds for the plaintiff's assertion that it is the legal owner or entitled to possession of the property;
- There are substantial grounds for its claim that the property is being unlawfully detained by the defendants; and
- The balance of convenience favours the plaintiff.
Clark Door of Canada Ltd. v Inline Fiberglass Ltd. P (1996), 45 C.P.C. (3d) 244 at paras 11, 17 and 18; Knew Order Co. Ltd. v 2291955 Ontario Inc., cob Tai Groupss Inc. and Chia Yang Shen 2012 ONSC 3091
28 In order to establish entitlement to an Order pursuant to Rule 44.01, the moving party must establish the following:
- A description of the property sufficient to make it readily identifiable;
- The value of the property;
- That the plaintiff is the owner or lawfully entitled to possession of the property;
- That the property was unlawfully taken from the possession of the plaintiff or is unlawfully detained by the plaintiff; and
- The facts and circumstances giving rise to the unlawful taking or detention.
[7] There is no issue that Rui has sufficiently described the Lexus and offered proof of its value. The key issues are whether:
a. There are substantial grounds to find that he is the owner of the Lexus or entitled to its possession, b. There are substantial grounds to find that Lockwood unlawfully detained the Lexus and c. The balance of convenience favours the return or retention of the vehicle.
Issue No 1: Rui is the Lawful Owner of the Lexus
[8] There can be no question that Rui is the lawful owner of the Lexus. Lockwood itself passed title in the vehicle to Rui. Lockwood’s mistake with regard to the balance of the sale price, which represented less than 20% of its value, does not alter the fact that Rui is its registered owner. With that finding, it is not necessary to determine whether he is entitled to possession of the vehicle although, as set out below I find that he is so entitled.
Issue No 2: There are Substantial Grounds to Believe that Lockwood is Unlawfully Possessing the Lexus
[9] While Rui is the moving party and bears the ultimate onus, as found above, he is the legal owner of the Lexus. Thus Lockwood, which repossessed the vehicle and continues to withhold it from its lawful owner, has the onus of proving that it was entitled to the repossession despite title and that it continues to be entitled to its possession. Whatever the onus, I find that it was not entitled to repossess the vehicle and is not entitled to possess it.
[10] The rationale offered by Lockwood for its actions is s. 11(1) and (2) of the Personal Property Security Act, RSO 1990, c P.10, as amended (“PPSA”). Those provisions set out when a security interest attaches and is enforceable against a third party. The relevant provisions read as follows:
Attachment required to enforce security interest
11 (1) A security interest is not enforceable against a third party unless it has attached.
When security interest attaches to collateral
(2) Subject to section 11.1, a security interest, including a security interest in the nature of a floating charge, attaches to collateral only when value is given, the debtor has rights in the collateral or the power to transfer rights in the collateral to a secured party and,
(a) the debtor has signed a security agreement that contains,
(i) a description of the collateral sufficient to enable it to be identified, or
(ii) a description of collateral that is a security entitlement, securities account or futures account, if it describes the collateral by any of those terms or as investment property or if it describes the underlying financial asset or futures contract;
(b) the collateral is not a certificated security and is in the possession of the secured party or a person on behalf of the secured party other than the debtor or the debtor’s agent pursuant to the debtor’s security agreement;
(c) the collateral is a certificated security in registered form and the security certificate has been delivered to the secured party under section 68 of the Securities Transfer Act, 2006 pursuant to the debtor’s security agreement;
[11] Here, Lockwood does not say which specific PPSA provision it relies on. More to the point, there is no signed security agreement and Lockwood was not in possession of the vehicle until it repossessed it from Rui’s property. I note that it could only have done so by trespassing on that property.
[12] Lockwood argues that it is entitled to an “implied” security agreement for $10,000. It states that the security agreement was partially written and partially oral. But the PPSA requires a signed security agreement or possession, neither of which Lockwood ever obtained from Rui.
[13] Rather, Lockwood relies on Bank of Montreal v. i.Trade Finance Inc., 2009 ONCA 615 at para. 25. There, the Ontario Court of Appeal found the existence of a security agreement despite the absence of a formal written security agreement. It made that finding within the context of a unique and complex set of facts that were based on a fraud. There, purloined securities were provided to the plaintiff bank as collateral for a line of credit. Among other findings, the Court of Appeal found that the plaintiff bank was in possession of the collateral and there had been a written agreement stating that a security interest had been granted. Further, the Court of Appeal questioned whether the PPSA even applied. The facts of the iTrade case have no application here.
[14] I note that the Court of Appeal made no reference to the concept of an “implied” security agreement. Its only reference to a partially oral and partially written security agreement that was in respect to an argument that the court did not adopt. Further there is no discussion of any form of oral agreement between the parties to any form of a security agreement. That claim is simply counterfactual.
[15] Looking to the written contract between the parties does not assist Lockwood. The contract between the parties is set out in the bill of sale, which was solely prepared by Lockwood. Its terms are clear. It states that “SALES FINAL … This contract is final and binding once you have signed it…” It also states that the terms on both sides of the contract form “MAKE UP THE ENTIRE CONTRACT”. Nothing in that “entire” contract grants Lockwood a security interest in the Lexus. Rather it calls for a cash sale.
[16] The contract calls for a “TOTAL BALANCE DUE” of $37,617.52. Lockwood does not deny that Rui paid that amount. It has no proof that he knew of Lockwood’s calculation error when title to the vehicle was transferred to him. Unlike the iTrade case cited above, there is no evidence of fraud here.
[17] Simply put, whatever remedies are available to it, Lockwood’s error does not grant it a security interest in the vehicle.
[18] For those reasons I find that Lockwood is not now and was at no material time entitled to a security interest in the Lexus after delivering it, its keys and its title documents to Rui. Lockwood had no right to register a lien against the Lexus. It did so improperly.
[19] I note that Rui makes an argument under the Consumer Protection Act, 2020, S.O. 2020, c 30, Schedule A (the “CRA”). Under s. 25(1) of the CRA a vendor is not entitled to repossession of a good purchased under a future performance agreement, where a consumer has paid two thirds of more of the purchase price, unless the vendor has leave of this court. Lockwood failed to seek that leave.
[20] In light of my finding above, the reference to that provision is unnecessary. But if I am incorrect, I find that Rui’s argument is compelling and would adopt it if necessary.
Issue No 3: The Balance of Convenience Favours Rui
[21] I find that in the circumstances of this case, the balance of convenience favours Rui. I say that for the following reasons:
a. As set out above, the error here was that of the dealership, not Rui. There is no evidence before me that he was aware of it. b. I recognize that Lockwood attempted without success to contact Rui seven times between December 6 and 29, 2022, without success. I do not know why it was unsuccessful. But Lockwood never told Rui that it was claiming its “implied” security interest, that it was registering a lien against the Lexus and that it intended to repossess the vehicle. c. Lockwood acted high-handedly in repossessing Rui’s vehicle without legal authority. d. The fact that Lockwood trespassed on Rui’s property makes its conduct more egregious. e. So too does the fact that Lockwood implied that Rui defrauded it when it is the victim of its own error. f. Lockwood has improperly maintained possession of Rui’s vehicle for the past nine months, leaving him to have to obtain a further vehicle, when he was entitled to the Lexus. During the time that Lockwood possessed the vehicle, its value likely decreased. g. The conduct of Lockwood was vastly disproportionate. It needed only to commence a small claims court action to attempt to obtain the funds that it was seeking. Instead, it arrogated to itself the right to execution before judgment.
Claim for $500 for refusal to vacate the Lien
[22] Rui claims the sum of $500, as set out in s. 56(4) of the PPSA for Lockwood’s failure or refusal to vacate its lien against the Lexus when he demanded that it do so under s. 56(2). Section 56(4) reads as follows:
Failure to deliver
(4) Where the secured party, without reasonable excuse, fails to register the financing change statement, or certificate of discharge or partial discharge, or all of them, as the case may be, required under subsection (1), (2), (2.1), (2.2) or (2.3) within 10 days after receiving a demand for it, the secured party shall pay $500 to the person making the demand and any damages resulting from the failure; the sum and damages are recoverable in any court of competent jurisdiction.
[23] Lockwood does not deny that Rui’s counsel made the demand and that it refused to discharge the lien within ten days of the demand. In light of my findings above. Rui is entitled to the $500 payment.
Transfer to Small Claims Court
[24] Rui requests that this action be transferred to small claims court. He points out that if successful, this action will simply be an action for the payment of $10,000, well below the $35,000 small claims court ceiling. He adds that the fact that there have been no discoveries to date means that the transfer would entail no prejudice.
[25] Lockwood offers no arguments in either its factum or oral argument against such a transfer.
[26] In Canaccede Credit LP v. Schulz-Hallihan 2021 ONSC 4851, I found that this court has the inherent jurisdiction to transfer an action to Small Claims Court in appropriate circumstances. As I wrote at para. 10 of that decision:
This court has the inherent jurisdiction, granted by both common law and statute, to control its process. That jurisdiction may be exercised in light of the provisions of the CJA and the Rules. As set out below, I find that this court’s inherent jurisdiction allows it to transfer actions to the Small Claims Court, even absent the consent of one or more of the parties.
[27] Here, after I make the s. 56(4) order the payment of $500 for the improperly filed lien above, and determine costs below, Lockwood’s claim for $10,000 will be set off to the extent that, at best, Rui would only owe it $3,500.
[28] In considering Rule 1.04 (1) and (1.1), I note, as I did in Canaccede, the limited resources of this court. At present, numerous serious criminal cases are at risk of being stayed for delay, numerous family law cases involving children and other cases involving far more than $3,500 to $10,000 may wait months or years to be heard. It is neither reasonable or proportional to continue this action in this court when the financial stakes are so meager and so many other require an audience with this court.
[29] Continuing this action in this court would not represent what the Rules of Civil Procedure are intended to achieve, which they described as “the just, most expeditious and least expensive determination” of the dispute between the parties on its merits.
[30] Thus, I find it appropriate to transfer this action to the Milton Small Claims Court.
Order
[31] For the reasons set out above, I order:
a. Lockwood will immediately deliver possession of the Lexus to whom and where Rui or his solicitor may direct; b. Lockwood will immediately discharge all liens against the Lexus; c. Lockwood shall pay Rui $500 for the improper registration of a lien pursuant to s. 56(4) of the PPSA. d. Rui need pay no security for the release of the vehicle. e. Lockwood will Rui pay costs of this motion, in the sum agreed upon by counsel, fixed at $6,000. f. This action will be transferred to the Milton Small Claim Court.
[32] I thank both counsel for their helpful and reasoned submissions.
“ Marvin Kurz J. ”
Electronic signature of Justice Marvin Kurz