Nov 18, 2014

Summary of Spittlehouse v. Northshore Marine Inc.

Spittlehouse v. Northshore Marine Inc., 1994 CanLII 1295 (ON CA)

Secured party has a security interest over all the vendor’s assets. Purchaser enters into a conditional sales agreement with vendor for a boat. Purchaser is paying in instalments. It had paid 90% of the purchase price before vendor went bankrupt. Secured party and purchaser are now fighting over the boat. In a conditional sale, the vendor in such a contract retains title to the asset until the entire purchase price is paid. Title here has NOT passed. If we follow RBC, the secured party gets to keep the boat, even though buyer has paid 90% of the purchase price. Who has priority to the boat in this contest? The buyer.

SP has a perfected security interest in the boat. Purchaser does not have title to the boat, but rather, a contractual interest in the boat. On the face of it, they can only rank as an unsecured creditor. However, is the purchaser a “buyer” for the purposes of the PPSA exception detailed in RBC? In this case, title does not have to pass before a purchaser is considered a buyer for the purposes of the act. The court disagrees with the RBC holding: in this case 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.” This transaction cannot be regarded as anything but a sale.

Ontario does not follow Saskatchewan's approach to the buyer exemption in the PPSA. In Ontario, as long as the vendor and purchaser intended for a conditional purchase to be a purchase and sale, then it will be able to fall under the exemption. In this case, the purchaser will have priority over the SP.