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SECURED TRANSACTIONS - Priority rules - Purchase-money security interests

Friday, May 14, 2021 @ 6:18 AM  

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Appeal by Farm Credit Canada from an order distributing monies paid into court to the respondent, Gustafson. The respondent was a farmer who financed the purchase of two combines and related equipment. To secure payment, the respondent entered into three purchase-money security agreements with the dealership. The lender took a purchase-money security interest (PMSI) in the farm equipment with the right to seize and sell it in the event of a payment default. Thereafter, the appellant extended credit to the respondent. The respondent granted the appellant a security interest in all his present and future personal property. The respondent defaulted on his payment obligations. The equipment lender seized and sold the farm equipment and paid a surplus of $78,000 into court after the terms of its agreements were satisfied. The respondent applied for payout of the surplus. The appellant opposed the application and claimed the surplus under its general security agreement and proceeds from the sale of non-exempt equipment. The chambers judge held that the farm equipment was exempt property under s. 66(d) of the Farm Security Act and that the proceeds were exempt, if they were used to secure remaining farm equipment. Farm Credit Canada appealed.

HELD: Appeal allowed in part. The sole available interpretation of s. 70(2)(a) of the Farm Security Act was that it conferred a right on a PMSI creditor to seize chattels that would otherwise be exempt by virtue of ss. 66 and 68. The provision removed exemption protection to permit a purchase-money secured creditor to enforce its security interest in an otherwise exempt asset that was secured by the PMSI. The effect of s. 93(8) of the Money Judgments Act, in conjunction with s. 65 of the Farm Security Act, confirmed that the exemptions established by s. 93 did not apply to farmers. Instead, s. 66 of the Farm Security Act established what constituted an exemption available to a farmer who was a judgment debtor under the Money Judgments Act. It was a matter of settled law that the proceeds remaining after the forced sale of an exempt asset were also exempt. To give effect to the legislature’s intention of protecting farms and farmers, the common law continued to apply with respect to the distribution of the surplus proceeds from the forced sale of exempt assets listed in s. 66. The enactment of s. 94(8) of the Money Judgments Act and related provisions did not signal an intention to change the common law in relation to a farmer’s entitlement to assert a right to proceeds derived from the forced sale of an exempt asset. This meant that the surplus proceeds from the sale of the Farm Equipment were exempt and must be paid to the respondent without the proviso ordered by the chambers judge.

Farm Credit Canada v. Gustafson, [2021] S.J. No. 110, Saskatchewan Court of Appeal, R.G. Richards C.J.S., G.R. Jackson and L.M. Schwann JJ.A., March 11, 2021. Digest No. TLD-May102021010