In the matter of the bankruptcy

of Frederick L. Foster of the City of Mississauga and the claim of William Tuz, creditor

 

[Indexed as: Foster (Re)]

 

Ontario Court (General Division) in Bankruptcy, Mr. Justice Dennis Lane J.

February 27, 1992

Personal property – Meaning – Depending upon regulatory framework, taxicab owner’s licence may be personal property – Personal Property Security Act, R.S.O. 1990, c. P.10 – O. Reg. 372/89.

Personal property security – Security interests – Agreement to transfer of taxicab owner’s licence absolute and not security interest – Personal Property Security Act, R.S.O. 1990, c. P.10.

Personal property security – Security interests – Security interest in taxicab owner’s licence – Registration – Irregularities – Failure to include debtor’s middle initial invalidating registration – Interest not perfected by possession – Personal Property Security Act, R.S.O. 1990, c. P.10, s. 22 – O. Reg. 372/89.

On November 2, 1987, F obtained a taxicab owner’s licence from the City of Mississauga. For three years, the licence was not transferable except by petition to city council. F was indebted to T, and in 1988 and 1990, T registered financing statements under the Personal Property Security Act (PPSA) claiming a security interest in F’s licence.

On May 24, 198S, F signed an agreement with S under which the licence was security for repayment of a $30,000 loan. A financing statement was not registered until July 5, 1990. The financing statement did not include F’s middle initial as required by regulation.

On April 16, 1989, F entered into two agreements with Th. The first concerned a $1,500 loan and provided as security a three-year lease from November 1, 1990 if the sale price for the purchase of the licence could not be negotiated. The second provided that Th would lend $15,000 to F in return for an "interest" in the licence. Subsequently, F leased the licence to Th. On July 11, 1989, an agreement dated July 4, 1989 amending the lease and providing for an option to purchase should F default in repaying $45,000 in loans was registered under the PPSA. The financing statement did not include F’s middle initial. Th possessed and used the taxicab licence after June 23, 1989 until November 1, 1990.

On October 16, 1989, O purported to buy the licence for a purchase price of $35,000. O then leased the licence back to F pending expiry of the three-year period after which the licence could be transferred.

On October 22, 1990, 11 days before the licence became transferable as of right, F made an assignment into bankruptcy. F’s trustee in bankruptcy disclaimed any interest in the licence. T, Th, S, and O each claimed the licence and Mrs. F, from whom F was separated, filed a claim against the licence based on her claim for support. T and O agreed that if either obtained the licence, it would become the property of T.

Held, O was a transferee for value without notice within the provisions of s. 20(1)(d) of the PPSA, and he took his interest subject to the perfected interest of T.

Whether a licence is personal property within the meaning of the PPSA depends on the extent to which the licence holder can be said to have a vested right and not just a privilege wholly dependent on the discretion of the regulatory authority issuing the licence. The regulatory framework is a decisive factor. Where the regulator’s control is absolute and unfettered, no property interest exists even though there is a market for the licence. Where there is a market and a practical and historical assurance of renewal, the licence holder has a right akin to a chose in action and hence property. A review of the Mississauga by-law showed that in its regulatory framework, the taxicab licence that was granted had the characteristics of property.

National Trust Co. v. Bouckhuyt (1987), 61 O.R. (2d) 640, 38 B.L.R. 77, 21 C.P.C. (2d) 226, 43 D.L.R. (4th) 543, 23 O.A.C. 40, 7 P.P.S.A.C. 273, 46 R.P.R. 221 (C.A..), revg (1987), 59 O.R. (2d) 556, 39 D.L.R. (4th) 60, 7 P.P.S.A.C. 113, 44 R.P.R. 2G4 (H.C.J.), consd

F’s agreement with S should be characterized as a security agreement. His claim was as a lender and not as an owner. The failure to include F’s middle initial in the financing statement invalidated S’s registration. A searcher conducting a name search using F’s full name would not turn up the registration and would he misled. Similarly, Th’s claim was also invalidated. Th’s lease agreement was by its terms a security agreement and, unless perfected, it could not prevail against any other claimants with perfected interests. Th’s claim was not saved by his having registered his interest with the licensing authority nor was his interest perfected through possession under s. 22 of the PPSA. Assuming that Th held the licence as collateral, it was an "intangible" and thus not included in the operation of s. 22.

Weber (Re) (1990), 73 O.R, (2d) 238, 48 B.L.R. 1, 78 C.B.R. (N.S.) 224, 1 P.P.S.A.C. (2d) 36 (Bkcy.), consd

O’s interest did not fall within the definition of "security interest" under the PPSA. The interest obtained in property by one who has ahead to buy it and has paid the price without receiving delivery was not a security interest. O’s agreement with F did not involve a temporary interest that secures payment or performance of an obligation, but rather was the permanent transfer of the property to O with the lease-back as a means of characterizing the continued possession of the licence by pending transfer. It was not contemplated that the title would ever revert back to F and this distinguished the situation from sale and lease-back arrangements that were in substance loans. There was unchallenged evidence that F would hold the licence in trust for O until it was possible to effect a transfer. Property subject to a trust does not pass to the trustee in bankruptcy. O became entitled to an absolute transfer of the licence on the third anniversary of its issue. There was no basis for an order giving Mrs. F an interest in the licence. Accordingly, O was a transferee for value without notice within the provisions of s. 20(1)(d) and he took his interest in the licence free except for the perfected interest of T.

Other cases referred to

209991 Ontario Ltd. v. Canadian Imperial Bank of Commerce (1988), 39 B.L.R. 44, 24 C.P.C. (2d) 248, 8 P.P.S.A.C. 135 (Ont. H.C.J.); Ackerman v. Nova Scotia (Attorney General) (1988), 47 D.L.R. (4th) 6S1, 82 N.S.R. (2d) 238, 207 A.P.R. 238 (T.D.) (affd (1988), 55 D.L.R. (4th) 46, 88 N.S.R. (2d) 75 sub nom. Farmers Co-operative Dairy Ltd. and Farmers Milk Producers Assn. v. Nova Scotia (Attorney General) and Nova Scotia Dairy Commission, 225 A.P.R. 75 (C.A.)]; Bank of Nova Scotia v. International Harvester Credit Corp. of Canada (1990), 74 Q.R. (2d) 738, 3 C.B.R. (3d) 113, 73 D,L.R. (4th) 385, 40 O.A.C. 321, 1 P.P.S.A.C. (2d) 93 (C.A.), revg (1987), 58 O.R. (2d) 493, 35 B.L.R. 299, 63 C.B.R. (N.S.) 319, 36 D.L.R. (4th) 278, 7 P.P.S.A.C. 1 (H.C.J.); Bellini Manufacturing Z Importing Ltd. (Re) (1981), 32 O.R. (2d) 684, 14 B.L.R. 63, 37 C.B.R. (N.S,) 909, 122 D,L.R. (3d) 472, 1 P.P.S.A.C. 259 (C.A.); Bennett (Re) (1988), 24 B.C.L.R. (2d) 34G, 67 C.B.R. (N.S.) 314 (S.C.); Canadian Imperial Bank of Commerce v. Hallahan (1990), 48 B.L.R. 113, 69 D.L.R. (4th) 449, 39 O.A.C. 24, 1 P.P.S.A.C. (2d) 58 (C.A.), leave to appeal to S.C.C. refused (1991), 49 B.L.R. 320; Duke (Re) (1981), 38 C.B.R. (N.S.) 74, 12S D.L.R. (3d) 71, 1 P.P.S.A.C. 281 (Ont. Bkcy.); Federal Business Development Bank v. Registrar of Personal Property Security (1984), 45 O.R. (2d) 780, '25 B.L.R. ‘269, 50 C.B.R. (N.S.) 121, 7 D.L.R. (4th) 479, 3 O.A.C. 241, 4 P.P.S.A.C. 1 (Div, Ct.); Gatx Corporate Leasing Inc. v. William Day Construction Ltd. (19S6), 60 C.B.R. (N.S.) 319 (note), 6 P.P.S.A.C. 188 (Ont. H.C.J.); Gill v. Ontario (Registrar of Motor Vehicles) (1985), 51 O.R. (2d) 705, 21 C.C.C. (3d) 234, 21 D.L.R. (4th) 202, 35 M.V.R. 1, 10 O.A.C. 114 (C.A.) [leave to appeal to S.C.C. refused (1985), 53 O.R. (2d) 488, 64 N.R. 396, 13 O.A.C. 80]; Hannah (Re) (1988), 68 C.B.R. (N.S.) 270, 8 P.P.S.A.C. 181 (Ont. Bkcy.); Johnson u, Ramsay Fishing Co. (1987), 47 D.L.R. (4th) 544, 15 F.T.R. 106 (T.D.); Kutschenreiter v. Kutschenreiter (1983), 46 C.B.R. (N.S.) 1 (Ont. H.C.J,); Laverty v. Laverty (1982), 47 C.B.R. (N.S.) 109, 3 P.P.S.A.C. 1 sub nom. Re Laverty (Ont. Bkcy.); Metropolitan Taxi Ltd. v. Minister of National Revenue, [1967] 2 Ex. C.R. 32, [1967] C.T.C. 88, 67 D.T.C. 5073 (Ex. Ct.) [affd [19681 S.C.R. 496, [19G8] C.T.C. 163, 68 D.L.R. (2d) 1, 68 D.T.C. 5098]; Olmstead (Re); Ernst <k Whinny Inc. v. Uniform Man Woodstock) Ltd. (1984), 4 P.P.S.A.C. 220 (Ont. H.C.J.); One Hundred Simcoe Street Ltd. v. Frank Burger Contractors Ltd., [1968] 1 O.R. 452, 66 D.L.R. (2d) 602 (C.A.) [affd sub nom. Dominion Insurance Corp. u. One Hundred Simcoe Street Ltd. (1969), 2 D.L.R. (3d) 735, [1969] I.L.R. ¶1-257 (S.C.C.)]; Ontario Equipment (1976) Ltd. (Re) (1981), 33 O.R. (2d) 648, 14 B.L.R. 113, 38 C.B.R. (N.S.) 180, 125 D.L.R. (3d) 321, 1 P.P.S.A.C. 303 (H.C.J.), affd (1982), 35 O.R. (2d) 194, 141 D.L.R. (3d) 766, 6 P.P.S.A.C. 230 (C.A.); Restfulcare Inc. v. Regional Assessment Commissioner, Region No. 23 (1986), 53 O.R. (2d) 673, 25 D.L.R. (4th) 477, 13 O.A.C. 156 (C.A.); Roncarelli v. Duplessis, [19591 S.C.R. 121, 16 D.L.R. (2d) 689; Sanders v. British Columbia (Milk Board) (1991), 47 Admin. L.R. 210, 53 B.C.L.R. (2d) 167, 77 D.L.R. (4th) 603 (C.A.); Saunders v. Saunders (1988), 72 C.B.R. (N.S.) 83, 94 N.B.R. (2d) 133 sub nom. S. (I.) v. S. (W.L.), 239 A.P.R. 133, 18 R.F.L. (3d) 29S (N.B. Q.b.); Sifton Credit Union Ltd. v. Barber (1986), 63 C.B.R. (N.S.) 82, 41 Man. R. (2d) 295, 6 P.P.S.A.C. 9, [1986] 4 W.W.R. 341 (Q.B.) [additional reasons (1986), 45 Man. R. (2d) 311, [1987] 2 W.W.R. 245 (Q.B.)]; Speed-rack Ltd. (Re) (1980), 11 B.L.R. 220, 33 C.B.R. (N.S.) 209, 1 P.P.S.A.C. 109 (Ont. Bkcy.); Stabile Coaxial Systems Inc. (Re) (1985), 55 C.B.R. (N.S.) 308 (Ont. Bkcy.); Taypotat v, Surgeson (1985), 55 C.B.R. (N.S.) 218, 18 E.T.R. 195, 37 Sask. R. 205, [1985] 3 W.W.R. 18 (C.A.); Waryk v. Bank of Montreal (1991), 85 D.L.R. (4th) 514 (B.C. C.A.), affg (1990), SO C.B.R. (N.S.) 44 (B.C. S.C.) [leave to appeal to S.C.C. refused May 7, 1992]

Statutes referred to

Bankruptcy Act, R.S.C, 1985, c. B-3, ss. 67(a), 97(1)(c), 178(1)(c) [rep. &; sub. R.S.C. 1985, c. 3 (2nd Supp.), s. 2S]

Personal Property Security Act, R.S.O. 1980, c. 375

Personal Property Security Act, 1989, S.O. 1989, c. 16 (now Personal Property Security Act, R.S.O. 1990, c. F.10), ss. 1(1) "chattel paper", "intangible", "security interest", 2, 2(a)(ii), 20(1)(b), (d), 22, 46(4)

Statutory Power s Procedure Act, R.S.O. 1990, c. S.22

Rules and regulations referred to

O. Reg. 372/89 (Personal Property Security Act, 1989)

Authorities referred to

Williams, Joshua, Williams on Personal Property, 18th ed. (London: Sweet & Maxwell, 1926), pp. 35-36

Motion to determine ownership of a taxicab owner’s licence held by a bankrupt.

M.H. Greenglass, Q.c., for J. Ostrowski.

P. Plener, for F. Thiel.

M. Ross, for T. Scrivo.

Elvira A.M. d’Ambrosio and Joan Brennan, for City of Mississauga.

No one appearing for Mrs. L. Foster.

No one appearing for Carl Rumanek, trustee in bankruptcy.

No one appearing for William Tuz.

Dennis Lane J.: – Frederick L. Foster obtained a standard taxicab owner’s licence from the City of Mississauga. The original date of issue was November 2, 1987. Under the by-laws of Mississauga such a licence is not transferable in the first three years after issue except by petition to City Council. Foster was evidently in financial difficulties because he obtained money against this licence from no fewer than four persons in 1988 and 1989 before making an assignment in bankruptcy on October 22, 1990 just 11 days before the licence would have become transferable as of right. Each of the four persons filed documentation on this motion evidencing the terms on which he dealt with Foster. Messrs. Tuz and Ostrowski have entered into a settlement whereby if either of them obtains the licence it will become the property of Tuz. By letter dated January 30, 1991, Foster’s trustee in bankruptcy disclaimed any interest in the licence. He declined to participate in any way in determining who did have a claim and was not represented before me.

The following are the parties.

(1) William Tuz

The taxicab plate secures $50,000 of a $106,583.33 debt owed to Tuz in respect of which financing statements were registered under the Personal Property Security Act, R.S.O. 1980, c. 375 [later the Personal Property Security Act, 1989, S.O. 1989, c. 16, and the Personal Property Security Act, R.S.O. 1990, c. P.10] (PPSA), February 1, 1988, May 6, 1988, and August 30, 1990.

(2) Frank Thiel

Two agreements were entered into by Foster and Thiel on April 16, 1989, The first was with respect to a loan of $1,500 to Foster from Thiel in "partial payment on purchase of Miss. Taxi Plate 1401 final purchase price to be negotiated on or before November 1 1990". It further provided that "as further security" a lease would be given to Thiel for three years from November 1, 1990 if the sale price could not be negotiated. The second agreement provided that Thiel would lend a further $15,000 to Foster in return for an "interest" in the licence "for future negotiation on November 1st 1990 when said plate matures under present by-law. The plate cannot be sold until then". Foster later leased the plate to Thiel by way of agreement entered into on June 20, 1989, which was filed with the licensing authority. An agreement dated July 4, 1989 amended the June 20, 1989 lease. It provided that if Foster defaulted in repayment of $45,000 in loans Thiel would have an option to purchase the plate for $12,500 plus the balance of the loan. A financing statement under the PPSA was registered on July 11, 1989 in respect of this agreement. It did not include Foster’s middle initial as required by O. Reg. 372/89.

(3) Tony Scrivo

An agreement by which a $30,000 debt was secured by the taxicab plate was signed May 24, 1988 and registered under the PPSA on July 5, 1990. The financing statement did not include Foster’s middle initial as required by O. Reg. 372/89.

(4) John Ostrowski

He purported to buy the licence on October 16, 1989 by agreement of purchase and sale for consideration in the amount of $35,000. He then leased the licence back to Foster pending expiry of the three-year period before a transfer could be effected as required by the by-law.

(5) Mrs. Foster

In addition, Mrs. Foster, from whom the bankrupt is separated, filed a claim against the licence based on her claim for support.

This set of facts raises the following issues:

(1) Is the taxicab owner’s licence property for the purposes of the PPSA?

(2) How should Scrivo’s agreement of May 24, 1988 with Foster be characterized?

(3) Does the fact that the financing statements registered by Scrivo and Thiel did not include Foster’s middle initial invalidate registration, so that these parties hold only unperfected security interests over the licence? Was Thiel’s interest perfected by virtue of possession?

(4) Does Ostrowski have a property interest in the licence or is his claim as an unsecured creditor?

(5) Can Mrs. Foster make a claim for an interest in the licence in satisfaction of support arrears?

Question 1

Is the licence property for the purposes of the PPSA?

Any agreement which creates a security interest over personal property falls within the ambit of the PPSA and, if not validly perfected under that Act, is subordinate to the interest of a trustee in bankruptcy, so that the security holder is in the position of an ordinary creditor (see s. 20(1)(b) of the 1990 PPSA). Is the cab owner’s licence personal property within the meaning of the PPSA and thus capable of registration under that Act? There is no hard and fast rule as to the nature of a business or professional licence. It appears that the characterization of such a licence depends on the extent to which the licence holder can be said to have been granted a vested right, on the one hand, or a privilege wholly dependent on the discretion of the issuing Ministry or regulatory body on the other hand. No case law dealing specifically with whether interests in taxi owners’ licences are registrable under the PPSA was cited to me.

The question of whether a licence to carry on the business of tobacco-growing was property for the purposes of the PPSA was addressed by the Court of Appeal in National Trust Co. u. Bouckhuyt (1987), 61 O.R. (2d) 640, 43 D.L.R. (4th) 543 (C.A.), reversing (1987), 59 O.R. (2d) 556, 39 D.L.R. (4th) 60 (H.C.J.). Under the Farm Products Marketing Act, R.S.O. 1980, c. 15S, tobacco farming was regulated by means of assigning individual growers a "basic production quota" (BPQ). The system is fully described in the trial judgment at p, 579 O.R., pp. 83-84 D.L.R.

The BPQ did not entitle the holder to grow tobacco. Rather, it was a fixed allotment which entitled the holder to apply annually to the Board for a licence to produce an annual production quota which was a percentage of the BPQ. The only right conferred was this right to apply. The evidence was that there was a market for BPQs but they could not be directly transferred from seller to buyer. Instead, seller and buyer jointly applied to the Board to cancel the seller’s BPQ and allot it to the buyer. The trial judge (pp, 580-81 O.R., p. 85 D.L.R.) was of the view that the existence of a commercial market, plus what he saw as a power in the court to compel‘ the Board to act to comply with the joint application, combined to create a species of intangible personal property which was subject to the PPSA. The Court of Appeal disagreed, holding that the right conferred was too transitory and ephemeral to be considered property. Cory J.A., for the court, concluded, at pp. 647-48 O.R,, pp. 550-51 D.L.R,:

The regulations do indeed control each and every aspect of the production, sale and marketing of tobacco in Ontario, for example, the regulations provide for the licensing of all persons who are engaged in the producing or marketing of tobacco. As well, no one can produce or market tobacco without such a licence. The regulations provide for the fixing and allotting by the Tobacco Board of quotas for the marketing of tobacco. The Tobacco Board can refuse to fix or allot to any person such a quota and may cancel or reduce or refuse to increase a quota. No one can market tobacco in excess of the quota which has been allotted. The board regulations go so far as to provide for the seizure, removal or destruction of tobacco which has been produced in violation of the regulations to the BPQ. In sum, the control exercised by the Tobacco Board is absolute and complete.

It is true that the BPQ may be leased and, in a rather peculiar form, it may be transferred and pledged. This is accomplished by the board first cancelling the BPQ and then reissuing it to the purchaser. This same formula is utilized for the leasing from year to year of a quota. However, what is of paramount significance is that all transactions pertaining to the BPQ are made subject to the approval of the board and are subject to the unfettered discretion of the board.

There may well be a market for BPQs among licensed producers of tobacco. However, the BPQ, and its allotment, reduction and cancellation are at the complete discretion of the Tobacco Board. The very essence of the authorizing legislation and the relations passed pursuant to it is the control of every aspect of the industry. That control is, as it must be, based upon the control of the quotas themselves. The Act and regulations are such that a tobacco crop cannot even be produced in the absence of a licence and a quota (BPQ). In fact, it is apparent from the Act and regulations that to grow tobacco without such licence or quota would be illegal. The BPQ is thus no move than the manifestation of permission to do that which is otherwise prohibited by statute and regulation; the BPQ represents the granting of a privilege. It is by its nature subject to such discretionary control and is so transitory and ephemeral in its nature that it cannot, in my view, be considered to be property.

The notion of "property" imports the right to exclude others fi am the enjoyment of, interference with or appropriation of a specific legal right. This is distinct from a revocable licence, which simply enables a person to do lawfully what he could not otherwise do.

Although the BPQ might be sold in a limited market, the mere fact that it could be exchanged, sold, pledged or leased does not in itself make it property.

Bouckhuyt was referred to (albeit in obiter) by Anderson J. in 209992 Ontario Ltd. v, Canadian Imperial Bank of Commerce (1988), 39 B.L.R. 44, 8 P.P.S.A.C. 135 (Ont. H.C.J,). That case dealt with the issue of whether a security interest could be created over a nursing home licence through a mortgage instrument. At p. 54 B.L.R., p. 144 P.P.S.A.C.:

I have already said that it is not strictly necessary that I decide this issue. However, I think similar reasoning is applicable to the nursing home licence. Under s. 3 of the Nursing Home Act, R.S.O. 1980, c. 3‘20, no one may operate a nursing home without a licence, the granting and renewal of which is subject to the discretion of the Director appointed by the Minister of Health. Although it is not an "unfettered" discretion as in Bouckhuyt, the Director has a wide discretion in deciding whether a licence should issue and whether a licence should be revoked or renewed. Thus, the nursing home licence can also be characterized as a privilege, granted at the discretion of the Board, to do that which is otherwise prohibited.

His Lordship also emphasized in the judgment the fact that the nursing home licence was not transferable.

In the context of real property assessment, the Ontario Court of Appeal. ruled that licences issued under the Nursing Homes Act, R.S.O. 1980, c. 320, were not personal property in Restfulcare Inc. v. Regional Assessment Commissioner, Region No. 23 (1986), 53 O.R. (2d) 673, 25 D.L.R. (4th) 477, at p. 675 O.R., pp. 479-80 D.L.R. The decision was largely based on the facts that the licence was not transferable, had per se no market value and was, in effect, attached to the premises for which it was issued. Hence, the value of the licence was not to be deducted from the value of the enterprise to arrive at the value of the land alone.

The reasoning in Bouckhuyt was discussed by another panel of the Ontario Court of Appeal in Canadian Imperial Bank of Commerce v. Hallahan (1990), 69 D.L.R. (4th) 449, 1 P.P.S.A.C. (2d) 58 (leave to appeal to S.C.C. refused (1991), 49 B.L.R. 320). The court ruled that the transfer of an assigned milk quota could not be considered a fraudulent conveyance under the Fraudulent Conveyances Act, R.S.O. 1980, c. 176. The parties agreed that essentially the criteria for determining what constitutes "property" under the PPSA were identical to those under the Fraudulent Conveyances Act. At pp. 451-52 D.L.R., p. 61 P.P.S.A.C., of the judgment:

We were asked to overrule National Trust u. Bouckhuyt but we are not disposed to do so. That decision is a recent one and was reached after careful consideration of the relevant authorities and statutes. It could not be described as rendered per incuriam.

It occurs to us, however, that it would be useful to have Bouckhuyt reconsidered. It seems to us that the court placed too much emphasis on traditional definitions of personal property and did not give enough consideration to the realities of commercial transactions within the regulatory framework of a modern farm products marketing scheme. Bouckhuyt may well be correct in its result in that the issue there was whether the transfer to National Trust created an interest which the Board was bound to recognize. The Board could never recognize that interest because National Trust was not a producer. In the case at bar there is no question that the inter-family transfer was valid on its face and was routinely approved by the Board. The issue was whether that transfer amounted to a fraudulent conveyance. If the reasoning in Bouckhuyt as to what constitutes personal property had been more narrowly focused, it might have permitted a finding that the transfer of quota from Hallahan to Lazy Meadows was in law a fraudulent preference within the meaning of the two statutes for the protection of creditors.

In Re Bennett, Doc. Nos. 628/86 and 628A/86, March 10, 1988 [now reported 24 B.C.L.R. (2d) 346, 67 C.B.R. (N.S.) 314], the British Columbia Supreme Court considered whether a herring gill-net licence could be regarded as "property" within the meaning of the Bankruptcy Act, R.S.C. 1970, c. B-3. Mr. Justice Ryan concluded that although such a licence may not be property at common law, a statute may create new categories thereof. The statute in question defined "property" at s. 2 as:

"property" includes money, goods, things in action, land, and every description of property whether real or personal, movable or immovable, legal or equitable and whether situated in Canada or elsewhere and includes obligations, easements and every description of estate, interest and profit present or future, vested or contingent, in, arising out of, or incidental to property.

The bankrupt in Bennett had a valid fishing licence which expired in 1987. Generally speaking, licence holders were granted renewal on application of expired licences. His Lordship concluded that the licence held by the bankrupt was a property right; however, that right was exhausted after the expiry date of the licence. He found [p. 349 B.C.L.R., p. 317 C.B.R.] that the "right to fish for roe herring must at least be an ‘interest’ or ‘profit’ ‘in, arising out of or incidental to property’ ". However, at pp. 10-12 [of the reasons; p. 350 B.C.L.R., p. 318 C.B.R.]:

I prefer the reasoning of Strayer J. in Joliffe v. R., [1986] 1 F.C. 511 (T.D.). The issue before the court in that case was whether the holders of a purse seine salmon licence renewable yearly could be said to possess a right or rights which existed beyond the expiry date of the licence. Strayer, J. held at p. 520:

... licences terminate each year and by section 7 the Minister has an "absolute discretion" in the issuance of new licences. I am therefore unable to find a legal underpinning for the "vesting" of a licence beyond the rights which it gives or the year in which it was issued.

What counsel characterized as a "right to reapply" for the licence is in reality merely an ability to acquire property, but is not a property interest in itself. It might be suggested that if the licence is property in the sense that it is an "interest or profit incidental to property" then the right to reapply must be a contingent interest in the same thing. The answer lies in the nature of the asserted interest. The licence holder has no right of renewal. The granting of the licence is purely discretionary.

In other words, the licence, having already vested in its owner, might qualify as property under the Act, but it could only be seen as such until 1987 whereupon the legislation required the licence holder to apply for renewal. Although historically the Minister almost always granted requests for renewal, it was entirely a matter for his absolute discretion and thus there was no "right" that could properly be characterized as property. This was so even though the market value of the licence was enhanced as a result of the expectation that it could be renewed. (See also Metropolitan Taxi Ltd. v. Minister of National Revenue, [1967] 2 Ex. C.R. 32, 67 D.T.C. 5073 (Ex. Ct.) [affd [1968] S.C.R. 496, 68 D.L.R. (2d) 1].)

In Johnson v. Ramsay Fishing Co. (1987), 47 D.L.R, (4th) 544, 15 F.T.R. 106, the Federal Court, Trial Division, ruled that a licence to fish roe herring was a right analogous to that of property even though the licence was not transferable and the Crown right to refuse to renew was a matter of unfettered discretion. The case emphasizes the commercial aspect: the existence of a market and the annual renewal of licences for all renewal applicants. These factors meant that the licence became "pretty close to a chose in action, as is a patent right, a bank note, a share in a company. In more vernacular language, it is property" (p. 558 D.L.R., p. 117 F.T.R.).

The Nova Scotia Supreme Court, Trial Division, ruled in Acherman v. Nova Scotia (Attorney General) (1988), 47 D.L.R. (4th) 681, 82 N.S.R. (2d) 238 [affd (1988), 55 D.L.R. (4th) 46, 88 N.S.R. (2d) 75 (C.A.)], that the Nova Scotia Dairy Commission could not impose a charge upon sales of milk quotas issued under the Agriculture and Marketing Act, R.S.N.S. 1967, c. 3, because this amounted to expropriation of property without compensation. Madam Justice Glube stated, at pp. 690-91 D.L.R., p. 245 N.S.R.:

In the present case, there is evidence before me that fluid milk quota has been treated as property. The affidavit of Mr. Dickie indicates that fluid milk quota has been accepted by recognized lending authorities as security. There is other evidence that fluid milk quotas have been sold on the open market and at auction. There is further evidence that a dairy farmer has to have a milk quota in order to obtain an income from the sale of milk. Even the Commission, in its effort to regulate the sale and the amount that sale of quota commands by introducing a quota exchange, leads me to the conclusion that fluid milk quota is more than just an intangible item. The fact that it has traded freely on the open market shows it is more concrete than goodwill.

In the case of Re Langille (1986), 72 N.S.R. (2d) 418 (C.A.), a case dealing with alleged fraudulent transfers of assets by a bankrupt under the provisions of the Bankruptcy Act, R.S.C. 1970, c. B-3, the court concluded that the milk quota should be declared vested in the trustee on behalf of the creditors. 1t is most unusual to speak of something that is not property in the terms of vesting, and I would suggest that it was considered to be property when the appeal court discussed it and dealt with it in that fashion.

This decision focuses largely on how the quota had been treated, i.e., that it had been subject to transfer and encumbrance by way of security, so that it may be invested with the qualities of property through commercial reality. On appeal the court decided the case on other grounds, declining to determine whether the trial division’s characterization of the quota as property was correct or not.

Driver’s licences have been held to be property in the context of the Highway Traffic Act, R.S.O. 1980, c, 198. In Gill v. Ontario (Registrar of Motor Vehicles) (1985), 51 O.R. (2d) 705, 21 D.L.R. (4th) 202 [leave to appeal to S.C.C. refused (1985), 53 O.R. (2d) 488, 64 N.R. 396], the Ontario Court of Appeal considered whether under s. 26(1) [am. 1983, c. 63, s. 11] of the Act, which imposed a longer period of driver’s licence suspension for subsequent convictions for Criminal Code driving offences, should be interpreted to impose a harsher sentence only where the second offence was committed after the first conviction. At p. 711 O.R., p. 208 D.L.R.:

Certainly it amounts to the deprivation of a property interest (a licence to operate a motor vehicle) and this could have consequences to an individual more serious than a term of imprisonment.

In Sanders v. British Columbia Milk Board) (1991), 53 B.C.L.R, (2d) 167, 77 D.L.R. (4th) 603, the British Columbia Court of Appeal dealt with the issue of whether a forced surrender upon transfer of a percentage of the milk quota being transferred amounted to expropriation without compensation. It held that the quota was not property, adopting the reasoning in Bouckhuyt and considering Hallahan. The court concluded that the trial judge had been correct in finding that the regulations under review were closer to those in Bouckhuyt than to those in Ackerman where the opposite result had been reached upon different legislation.

Another British Columbia case is Warykvu. Bank of Montreal (1991), 85 D.L.R. (4th) 514 (C.A.), affg (1990), 80 C.B.R. (N.S.) 44 (B.C. S.C.) [leave to appeal to S.C.C. refused May 7, 1992], where the issue was whether a corporation held a disposable interest in a fishing licence. The court examined the legislative framework which showed that the class of licence in question was not a personal licence but was issued in respect of a specified vessel and remained the property of the Crown at all times. It never became "an individual and independent article of commerce in which (the appellants) had a disposable title" (per Gow J. at trial, p. 80 C.B.R., summarized by the Court of Appeal at p. 520 D.L.R.; agreed with by the Court of Appeal at p. 524 D.L.R.).

What this case law reveals is a tension between the commercial reality that licences, like any commodity in restricted supply, have a value and may be traded, and the legal impact of the legislator’s desire to maintain, in varying degrees, control over the industry in question. Where the control is absolute and unfettered, no property interest exists even though there is a market: Bouckhuyt and Sanders; where there is a market and a practical, historical assurance of renewal, the licensee has a right akin to a chose in action, and hence property: Johnson and Ackerman. It is obvious from all the cases that the regulatory framework is a decisive factor.

The governing Ontario authorities are Bouckhuyt and Hallahan. The essence of Bouckhuyt, what Cory J.A. called "of paramount significance", is the fact that all transactions pertaining to the BPQ were subject to the unfettered discretion of the Board. It was this feature that rendered the BPQ too transitory and ephemeral to be considered to be property. This is a theme that runs through many of the cases and is, I think, central to the issue I have before me. The essence of Hallahan is the need to have regard to "the realities of commercial transactions within the regulatory framework" as well as to the considerations enunciated in Bouckhuyt. The present question, therefore, is whether the degree of discretion exercisable by the Mississauga City Council in connection with the renewal, leasing or transfer of taxicab owner licences is so great that, notwithstanding the commercial reality that they are traded, such licences are nevertheless too ephemeral and transitory to be regarded as property. I do not include the discretion exercised in issuing the licence in the first place in this analysis because that does not affect the permanence or lack of permanence of the licence once m anted.

I turn therefore to an analysis of the city’s by-law.

The regulations concerning taxicab owner licences are set out in By-law 142-89: s. 9 provides the licensing prerequisites for a taxicab owner. These include possession of a driver’s licence, a valid motor vehicle permit, vehicle insurance and vehicle safety approval.

Section 14 of the by-law sets out the terms for licence issuance or renewal:

14.(1) When an application for a licence or for a renewal of a licence is made in accordance with the provisions of this by-law and the applicant meets all the requirements of this by-law the License Manager shall;

(c) for an owner issue a licence, an owner’s plate or if applicable a licence sticker;

all of which shall set out the expiry date of the licence in accordance with section 16 and the applicant shall thereby be licensed.

And at s. 18:

An applicant is entitled to be licensed and a licensee is entitled to have his licence renewed except where:

(1) having regard to his financial position, the applicant or licensee cannot reasonably be expected to be financially responsible in the conduct of the business which is to be licensed or is licensed;

(2) the past conduct of the applicant or licensee affords reasonable mounds for the belief that the applicant or licensee will not carry on the activity for which he is to be licensed or to continue to be licensed in accordance with law and with integrity and honesty;

(3) the issuance of the licence or renewal of the licence would be contrary to the public interest;

(4) (proof of knowledge of city geography)

(5) the applicant or licensee is carrying on activities that are, or will be, if the applicant is licensed, in contravention of this by-law; or

(6) (not applicable – refers to corporations)

And at s. 22:

22. Council may revoke or suspend a licence where the licensee would be disentitled to a renewal of a licence for the reasons set out under section 18.

The provisions for transfer of taxicab owner licences are as follows:

17. It is provided that certain other classes of licence are not transferable. The omission of taxicab owner’s licences from the list indicates they are transferable.

Section 61(2) deals with leases:

(2) A licensed owner shall file with the licensing section all documents required to report any change, including, if applicable, a lease or sublease agreement or similar documentation relating to ownership or vehicle operation or change relating to any provisions of subsection 61(1).

Section 61(1), mentioned in s. 61(2), requires the filing of motor vehicle permits, proof of insurance, safety inspection and the like.

67. (1) No taxicab owner... shall transfer or otherwise dispose of a licence unless:

(a) he has held that licence as a standard taxicab owner... for at least three years...

(b) he follows the procedure set out in Schedule 6, and;

(c) he pays the fee set out in Schedule 1.

(2) Notwithstanding the provisions of subsection (1), the holder of a standard taxicab owner’s licence... may petition Council to permit a transfer or other disposition of said licence within three years from the date of issuance...

(4) When transfer is approved by the licensing section, the new taxicab owner... must submit his vehicle for examination in accordance with section 32 of the by-law before the licence and an owner’s plate or, licence sticker is issued.

Schedule 6 to the by-law deals with procedure on transfer of taxicab owner licences. It requires that the owner provide a copy of the contract of sale, return the licence being transferred and file a form with the city.

Upon the death of a taxicab owner licensee, s. 68 provides that the licence becomes an asset of the estate of the deceased owner which may hold it for up to a year and dispose of it to a person qualified to hold it.

A number of aspects of this by-law are of importance. First, it specifically contemplates transfer, including leases and subleases, and after the first three years imposes no restriction on transfer other than the personal suitability of the proposed transferee and the satisfactory inspection of the vehicle. Second, it creates a prima facie entitlement to renewal (s. 18). Third, Council’s discretion in revoking or suspending a licence is not unfettered, but; is, by s. 22, confined to the grounds specified in s. 18. Fourth, there is an appeal procedure entitling the licensee to a hearing by the Appeal Committee of Council under the rules laid clown in the Statutory Powers Procedures Act (now R.S.O. 1990, c. S.22) if it is proposed not to renew the licence. Fifth, the licence is expressly recognized as an asset of the estate of a deceased owner. 'I'hese are not the characteristics of a "transitory and ephemeral" privilege.

One of the grounds for refusal of renewal is that it would be contrary to the public interest to renew. It was argued that this meant the discretion of Council was, in fact, unfettered despite the apparent restrictions on it. I do not agree. At least since Roncarelli u. Duplessis, [1959] S.C.R. 121, 16 D.L.R. (2d) 689, it has been recognized that issuers of licences for the carrying on of business must act in good faith for the legitimate purposes of the regulatory framework. In my opinion, the characteristics of this licence in its regulatory setting are those of property. It is transferable after the three-year waiting period. There is a prima facie right to renewal protected by a right to a hearing and a stated list of criteria. The licence becomes an asset of the estate of a deceased owner. Moving out of the regulatory setting and into the world of commerce, there is clearly a market for these licences. The degree of control exercised by the City is vastly different from the control exercised by the Tobacco Board in Bouckhuyt. In my view, this taxicab owner’s licence is intanble personal property and dealings with it are therefore subject to the PPSA.

 

Question 2

How should Scrivo’s agreement of May 24, 1988 with Foster be characterized?

Mr. Scrivo advanced $30,000 upon this written agreement. He filed under the PPSA on July 5, 1990. Counsel for Scrivo sought to characterize the May 24, 1988 contract between his client and Foster as an agreement of purchase and sale; however, it seems clear that these parties intended to enter into a security agreement. The agreement recites that Foster has pledged the plate as collateral security foe a loan of $30,000. It provides that Scrivo will acquire an "immediate proprietary interest in the aforesaid licence to the extent of $30,000 plus interest in the event that default occurs". It further provides that Scrivo will be entitled to use a power of attorney from Foster to transfer the plate "in the event of default". It also provides that Scrivo will account to Foster for any surplus obtained on a sale of the plate above the amount needed to retire the loan. It was argued that upon default the clause as to an "immediate proprietary interest" turned the transaction into one of sale. This cannot be: the interest is restricted to the amount of the loan. In any event, Foster’s default could not retroactively transform a security agreement into an agreement of purchase and sale. A power of attorney was given as part of the security transaction, and is exercisable only on default. Although at common law such powers could be used to transfer choses in action (Williams on Personal Property, 18th ed. (London: Sweet 8c Maxwell, 1926), pp. 35-36), I am of the view that under a registration regime, a power of attorney given as part of a security transaction cannot confer any priority not attached to the security agreement. Mr. Scrivo cannot claim as an owner; he is a lender under a security agreement.

Question 3

Does the fact that the financing statements registered by Scrivo and Thiel did not include Foster’s middle initial invalidate registration, so that these parties hold only an unperfected security interest over the licence? Was Thiel’s interest perfected by virtue of possession and use of the plate on a taxi from after June 23, 1989 until November 1, 1990?

Counsel argued that Re Weber (1990), 73 O.R. (2d) 238, 78 C.B.R. (N.S.) 224 (Bkcy.), provided a complete answer to the first part of this question. In that case Bell J. ruled that a creditor’s failure to comply with O. Reg. 372/89, which requires that a financing statement include the debtor’s middle initial, was fatal to his priority under the PPSA, despite the curative provision in s. 46(4) of the 1990 Act:

(4) A financing statement or financing change statement is not invalidated nor is its effect impaired by reason only of an error or omission therein or in its execution or registration unless a reasonable person is likely to be misled matorially by the error or omission.

The "reasonable person" standard imposed by that section must be interpreted in view of the fact that the registration system is often used by non-lawyers (p. 242 O.R., pp. 227-28 C B.R. ).

The fact that Thiel also registered his interest with the licensing authority does not assist him on the priorities issue. In Weber the encumbered property was a vehicle, and the prior interest would have appeared had the creditor made a vehicle identification search as well as a name search. The court took the view that a reasonable searcher need conduct only a name-specific search. As such a search would not have disclosed the prior interest, such a searcher would be materially misled and s. 46(4) did not save the prior registration. In the present case a searcher conducting a name search using Foster’s full name would not turn up the Scrivo and Thiel interests, and so would be misled. If it is not necessary for a reasonable searcher to conduct all possible PPSA searches, a fortiori, it cannot be necessary to conduct searches outside the PPSA system altogether. Therefore, I decline to hold that a creditor who failed to check with the city as to the status of Foster’s licence is in any way inhibited from relying on the provisions of the PPSA even though a reasonable person might well have done so.

While Sifton Credit Union Ltd. v. Barber (1986), 63 C.B.R. (N.S.) 82, [1986] 4 W.W.R. 341 (Man. Q.b.) [additional reasons (1986), 45 Man. R. (2d) 311, [1987] 2 W.W.R. 245 (Q.b.)], and Re Olmstead; Exist 4 Whinney Inc. v. Uniform Man (Woodstock) Ltd. (1984), 4 P.P.S.A.C. 220 (Ont. H.C.J.) (in obiter) have regarded financing statements which omitted the debtor’s middle initial as valid, most of the case law seems to support the ruling in Weber (see Re Duke (1981), 38 C.B.R. (N.S.) 74, 128 D.L.R. (3d) 71 (Ont. Bkcy.); Federal Business Development Bank v. Registrar of Personal Property Security (1984), 45 O.R. (2d) 780, 7 D.L.R. (4th) 479 (Div. Ct.); Be Hannah (1988), 68 C.B.R. (N.S.) 270, 8 P.P.S.A.C., 181 (Ont. Bkcy.); Laverty v. Laverty (1982), 47 C.B.R. (N.S.) 109, 3 P.P.S.A.C. 1 (Ont. Bkcy.); Bank of Nova Scotia u. International Harvester Credit Corp. of Canada (1987), 58 O.R. (2d) 493, 36 D.L.R. (4th) 278 (H.C.J,) [revd (1990), 74 O.R. (2d) 738, 73 D.L.R. (4th) 3851. As well, the reasoning in Re Weber is consonant with the decision in the Court of Appeal under the predecessor of s. 46(4) in Re Bellini Manufacturing & Importing Ltd. (1981), 32 O.R. (2d) 684, 122 D.L.R. (3d) 472 (C.A.). In my view, the defect would have materially misled a reasonable person and, accordingly, was fatal to both Scrivo’s and Thiel’s registrations.

Nor could Thiel have perfected his interest through possession under s. 22 of the 1990 PPSA. That provision reads as follows:

22, Possession or repossession of the collateral by the secured party, or on the secured party’s behalf by a person other than the debtor or the debtor’s agent, perfects a security interest in,

(a) chattel paper;

(b) goods;

(c) instruments;

(d) securities;

(c) negotiable instruments of title;

(f) money,

but only while it is actually held as collateral.

Assuming that Thiel held the licence as collateral, the licence would not appear to be a "chattel paper", which is defined under s. 1(1) of the 1990 PPSA:

"chattel paper" means one or move than one writing that evidences both a monetary obligation and a security interest in or a lease of specific goods...

Rather it appears to be an "intangible", also defined in s. 1(1) as

...all personal property, including choses in action, that is not goods, chattel paper, documents of title, instruments, money or securities...

and thus is not included in the operation of s. 22. Hence, possession of the plate and licence as collateral did not perfect his interest.

If the licence is property under the PPSA, neither of the April 16, 1989 agreements between Thiel and Foster create a security interest which is enforceable against claimants with perfected interests because neither was registered under that Act.

I conclude therefore that neither Thiel nor Scrivo have perfected their security interests in the licence.

Mr. Thiel’s lease

The second arm of Mr. Thiel’s claim is that his seven-year lease is effective without registration. This document, dated June 20, 1989, was on its face a lease and not a security agreement. Its only unusual feature was that seven years’ rent had been prepaid. Mr. Thiel actually took the plate and began to use it on a taxicab. A lease, as such and not amounting in essence to a security transaction, does not require to be registered: the 1990 PP.SA, s. 2(a)(ii). However a few days later, on July 4, 1989 the parties entered into an amending agreement which recited the loan by Thiel to Foster of $40,000 to be repaid by November 1. 1990. Upon repayment, the lease was to be cancelled. Upon default of such repayment Thiel could buy the licence for a further sum of $12,500. The agreement stated that it was a security agreement and registrable under the PPSA. Even without the express statement, as amended, the lease is clearly a security agreement which, unless perfected, cannot prevail against any other claimants with perfected interests. Registration was effected on July 11, 1989 under the PPSA. By reason of the failure to include Foster’s middle initial, the registration was void as outlined elsewhere in these reasons. Thiel had filed a copy of the lease with the city on June 20, 1989 but did not send the city copies of the amending agreement and registration until June 21, 1990. Although s. 61(2) of the by-law requires the filing with the city of any lease or similar documentation relating to ownership, such filing does not amount to notice to the world and, in the absence of actual knowledge of such filed documents, cannot assist Mr. Thiel to gain priority over. other claimants. There is no evidence that any other claimant had such actual knowledge. I conclude that as the amended lease is a security agreement, Mr. Thiel’s possession of the plate, if it is possession of the licence at all, must be regarded as possession of it as collateral and therefore subject to the PPSA. For the reasons noted above, possession of an intangible does not perfect an interest.

I conclude therefore that none of Mr. Thiel’s interests have been perfected.

Question 4

Does Mr. Ostrowski have a property interest over the licence or is his claim as an unsecured creditor?

Mr. Ostrowski purchased the licence on October 16, 1989 for $35,000. He says that since the municipal requirements would not permit registration of the transfer of the plate prior to November 1, 1990, it was agreed that the bankrupt would hold the plate in trust for Mr. Ostrowski until then, although the documentation filed says nothing of any trust. It reads:

Condition of Sale for Taxi Plate 0401 is for a sum of $35,000 ($Thirty five thousand) paid in full.

Mr. Fredrick Foster will become the leasee for a period of one year paying Mr. Ostrowski a sum of $500 ($Five hundred) every month, and to ensure prompt payment, this payment transaction will be handled at this Law Office.

Mississauga Taxi Plate No. 401 will be transferred to Mr. John Ostrowski promptly on November 1, 1990.

The substance of this document. is to transfer the property in the licence to Mr. Ostrowski upon registration with the city which will take place later when it becomes possible. The vendor is to retain possession of the plate, not as security for the purchase price, which had been paid in full, but as lessee. It was argued that it was a security agreement within the meaning of the PPSA.

It seems to me that Ostrowski’s interest does not fall within the definition of "security interest" under the PPSA.

"Security interest" is defined in s. 1(1):

"security interest" means an interest in personal property that secures payment or performance of an obligation, and includes, whether or not the interest secures payment or performance of an obligation, the interest of a transferee of an account or chattel paper...

Section 2 of the PPSA reads:

2. Subject to subsection 4(1), this Act applies to,

(a) 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, without limiting the foregoing,

(i)a chattel mortgage, conditional sale, equipment trust, debenture, floating charge, pledge, trust indenture or trust receipt, and

(ii) an assignment, lease or consignment that secures payment or performance of an obligation...

The phrase "in substance" means that, even though the instrument appears in a form not usually associated with security interests, if the intent of the parties was to create a security interest, the transaction is within the PPSA. In Gatx Corporate Leasing Inc. v. William Day Construction Ltd. (1986), 60 C.B.R. (N.S.) 319 (note), 6 P.P.S.A.C. 188 (Ont. H.C.J.), Henry J. said:

It is in each case a matter for the court to decide on the particular facts and circumstances of the case before it. The parties, however, must be left to set up business transactions freely, and to bring themselves within or without the P.P.S.A. as they see fit. The question is whether they have effectively done so. That depends on the substance of the transaction, not its form, not what it looks like and not essentially on business expressions used to describe it, although all those factors may lend colour to their dealings for purposes of characterization.

The interest obtained in property by one who has agreed to buy it and has paid the price without receiving delivery is not a security interest under the PPSA. Such a person is simply an unsecured creditor. A security interest is a temporary interest that "secures payment or performance of an obligation" (s. 1(1) "security interest" of the 1990 PPSA) and, therefore, by definition comes to an end when that obligation is fulfilled. Ostrowski’s agreement with Foster did not involve such an interest, but rather the permanent transfer of the property to Ostrowski as his own. The lease-back was only a means of characterizing the continued possession of the plate by Foster pending transfer and the sum of $500 per month payable for a year is clearly for the use of the plate and not part of the process of buying it back. It is not contemplated that title will ever revert to Foster. This distinguishes the situation from sale and lease-back arrangements which are in substance loans with repayment over a term of years coupled with the right of the vendor-lessee to use the collateral in the interval and to re-acquire it at the end of the term. See Re Speedrack Ltd. (1980), 33 C.B.R. (N.S.) 209, 1 P.P.S.A.C. 109 (Ont. Bkcy.); Re Ontario Equipment (1976) Ltd. (1981), 33 O.R. (2d) 648, 38 C.B.R. (N.S.) 180 (H.C.J.); affd (1982), 35 O.R. (2d) 194, 6 P.P.S.A.C. 230 (C.A.); Re Stark Coaxial Systems Inc. (1985), 55 C.B.R. (N.S.) 308 (Ont. Bkcy.).

In such cases the transaction is a security agreement because in substance the transfer of title is by way of security for the repayment of the loan. That was the essence of the Thiel transaction as amended. In my opinion, Ostrowski bought the licence outright and the transfer of title to take place in November 1990 was in no sense a security transaction.

Ostrowski’s counsel relied upon s. 20(1)(d) of the PPSA which reads;

20. (1) Except as provided in subsection (3), until perfected a security interest,

(2) in intangibles other than accounts is not effective against a transferee thereof who takes under a transfer that does not secure payment or performance of an obligation and who gives value without knowledge of the security interest.

Where under an agreement between the bankrupt and another party, property in a chattel actually passed to the other party prior to the bankruptcy, the trustee cannot retain the chattel for the benefit of unsecured creditors (see s. 97(1)(c) of the Bankruptcy Act, R.S.C. 1985, c. B-3). The problem here is that there doesn’t appear to have been an effective transfer prior to the bankruptcy given the provision of the by-law prohibiting transfer of the licence for a period of three years. The effect of this clause was inferentially acknowledged by the express statement in the bill of sale that the plate would be transferred on November 1, 1990, which, as it happened, was a few days after the bankruptcy. This would appear to deprive Ostrowski of any immediate property interest and leave him as an ordinary creditor of Foster without any hold on the licence itself. However his evidence is:

That as part of the sale arrangement, it was agreed that since municipal requirements would not allow registration of the transfer of the plate to occur prior to November 1, 1990, the registration of the transfer of the said plate would be delayed until November 1, 1990, and that in the interim, the bankruptcy would be holding the said plate in trust for the claimant...

There is thus evidence, unchallenged by cross-examination, of an express trust affecting this licence, Property subject to a trust does not pass to the trustee in bankruptcy: Bankruptcy Act, s. 67(a). Ostrowski filed a claim with the trustee asserting the trust and, as noted already, the trustee has disclaimed any interest in the licence. Ostrowski’s claim might also be based upon constructive trust: see Taypotat v. Surgeson (1985), 55 C.B.R. (N.S.) 218, 37 Sask. R. 205 (C.A.), but it is unnecessary to pursue this point; given the evidence of an express trust.

It was argued that Ostrowski’s agreement is tainted by illegality and unenforceable. The agreement that Foster is to become a lessee implies that Ostrowski has become the owner and that therefore the parties intended an immediate transfer of title and not a prospective one. But the agreement specifies that the plate will be "transferred" only in November 1990 which tracks the language of the by-law and is prospective. In my view this ambiguity should be resolved against the interpretation that would render the agreement illegal and void and in favour of the prospective transfer of title in line with well-known principles of interpretation: see, for example, One Hundred Simcoe Street Ltd. v. Frank Burger Contractors Ltd., [1968] 1 O.R. 452, 66 D.L.R. (2d) 602 (C.A.) [affd (1969), 2 D.L.R. (3d) 735, [1969] I.L.R. pl-257 (S.C.C.)].

The date fixed for transfer is November 1, 1990 and the evidence shows that the licence was actually issued. November 2, 1987 so that the three years did not expire until November 2, 1990. I regard the one-day difference as de minimis and an obvious error given the circumstances. That it was a mistake is supported by the fact that other claimants made the same error in their dealings with Foster as the documentation discloses. I hold that Ostrowski became entitled to an absolute transfer of the licence for value on the third anniversary of its issue. There is no suggestion that at the time of his purchase on October 16, 1989 he had any knowledge of any of the claimants with unperfected interests. His affidavit indicates he obtained his knowledge of their claims during the bankruptcy process and by investigation.

In my view, Mr. Ostrowski is a transferee for value without notice within the provisions of s. 20(1)(d) of the PPSA and takes his interest in the licence free of the unperfected security interests of Mr. Scrivo and Mr. Thiel, but subject to the perfected interest of Mr. Tuz. Since Messrs. Tuz and Ostrowski have reached a settlement, it is not necessary to explore their situation further.

Question 5

Can Mrs. Foster make a claim against the licence in satisfaction of support arrears?

Mrs. Foster was not represented, but put in a claim in writing. Her right to support is not affected by Foster’s bankruptcy: (s. 178(1)(c) [rep. 8c sub. R.S.C. 1985, c. 3 (2nd Supp.), s. 28] of the Bankruptcy Act). The question raised is whether she can claim to have support arrears in effect secured upon a particular item of property. Her first problem is that by reason of the claim of Ostrowski the property is not in the hands of the trustee at all, and she has no basis for a claim on property in Ostrowski’s hands as purchaser for value. Even if the licence was returned to the trustee she could not make a claim against it, as opposed to a claim against the estate generally; see Saunders v. Saunders (1988), 72 C.B.R. (N.S.) 83, 18 R.F.L. (3d) 298 (N.B. Q.B.), where a husband and wife separated and the husband filed an assignment in bankruptcy some months later. After the assignment, the wife made a claim against the trustee in bankruptcy for proceeds from the sale of the husband’s half of the matrimonial home, now in the trustee’s hands. Guerette J. refused the application on a number of grounds, one of which is stated at p. 86 C.B.R., p. 301 R.F.L.:

Secondly, the husband’s share of the net sale proceeds are now legally in the hands of the trustee in bankruptcy by virtue of s. 50(5) of the Bankruptcy Act. With respect, I am unable to accept the argument that the funds are still in the husband’s hands and still subject to an order under the Family Services Act. No cases have been cited to support that proposition. A retrospective order of support covering a period anterior to the assignment does not take priority over the rights of creditors.

This view finds some support in the ruling of Pennell J. in Kutschenreiter v. Kutschenreiter (1983), 46 C.B.R. (N.S.) 1 (Ont. H.C.J.), wherein a wife requested an order for maintenance payments to be secured against a trustee in bankruptcy’s interest in the husband’s property. At p. 10 C.B.R.:

Given that maintenance is not a claim provable in bankruptcy, the above cases would seem to strongly suggest that a maintenance award against the trustee’s interest is outside the court’s discretion. A holding to that effect has support in the decision of Loukidelis L.J.S,C, in Sundholm v. Sundholm (1980), 17 R.F.L. (2d) 365 (Ont. H.C.). The reasoning in that, case impels me to the belief that I should not grant the order.

In the circumstances, there is no basis for an order giving Mrs. Foster an interest in the licence.

Conclusion

For these reasons I find that Mr. Ostrowski is entitled to succeed to the interest of Foster in the licence, subject to the claims of Mr. Tuz. In view of the settlement between Messrs. Tuz and Ostrowski, the appropriate order is to vest in Mr. Tuz the interest of Foster in the licence. Needless to say the proposed licence will have to be personally suitable under the terms of the by-law. The claims of Messrs. Scrivo and Thiel and Mrs. Foster must be dismissed. Costs may be spoken to.

Order accordingly.


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