Nov 18, 2014

Two dentists, Dr. P and Dr. C, work together. They leased medical equipment from Medi- Dent. The parties stopped getting along and stopped paying. Medi-Dent seized the equipment, and then sold it to Dr. P without telling Dr. C. Two key facts: (1) There was no appraisal of the assets; (2) No advertisement about the sale. Dr. C was annoyed because the sale ended his dental practice (in the short term). He wanted the sale to NOT be allowed. He wanted the opportunity to buy the assets as well. He argued that the sale was NOT in accordance with the good faith and commercially reasonable standard. Is the sale in accordance with good faith and commercial reasonableness? No.

Fundamental to the issues raised in this case is a determination as to whether or not the sale of the equipment between Dr. P and Medi-Dent was a “commercially reasonable transaction.” In the sale and disposition of seized goods, the creditor must act in a role somewhat akin to that of an agent or fiduciary for the purpose of a sale. This is the appropriate test under the PPSA. Whether a sale is a commercially reasonable one is a question of fact in every case. In this case, not even the most generous test of reasonableness could be met. There was no attempt at advertisement or publicity. There was no attempt at obtaining any opinion of value of the security, let alone an independent appraisal. s. 66(2) of the PPSA requires a creditor to act in good faith and in a commercially reasonable way.

When a creditor seizes an asset under the enforcement provisions in the PPSA, the creditor must sell the goods in good faith and in a commercially reasonable way. This likely includes an effort to appraise the goods and determine the reasonable market value and make a good faith effort to obtain the highest price possible.