Executive Summary: Key Legal and Evidentiary Issues

• Classification of collateral as “consumer goods” or “equipment” under the Personal Property Security Act (PPSA) determined the remedies available to Summit.

• The evidentiary burden regarding the use and nature of the collateral at the time the security interest attached was contested.

• Admissibility and weight of affidavit evidence, including attached transaction documents, were challenged and ruled upon.

• Interpretation of PPSA sections 55 and 67 was central to whether Summit’s remedies were limited.

• The absence of evidence from Ms. Rutledge and Falco on the use of the collateral impacted the court’s ability to classify the assets as consumer goods.

• The court had to decide if Summit could pursue further remedies beyond seizure of the collateral based on its classification.

Facts of the case

Summit Leasing Corporation (“Summit”) is a judgment creditor of Donald Graham Rutledge, pursuant to the order of Justice Sharma pronounced September 21, 2023 (the “Sharma Order”). The Sharma Order required Mr. Rutledge to pay Summit $250,000 USD plus interest at 30% per annum, compounded monthly, from December 31, 2021, as well as all legal fees and recovery costs of the action. Mr. Rutledge’s wife, Leslie Anne Rutledge, and her company, Falco Investment Inc. (“Falco”), signed a Collateral Security Agreement (CSA) dated September 29, 2021, with Summit, pledging specific property as collateral for the loan. The collateral included a 2014 Ford Mustang Shelby (owned by Falco), a 2016 Yamaha motorcycle, a 2007 Honda motorcycle, a 2013 Larson 328 LXI boat hull with motor, and a 2013 Shorelander boat trailer (the latter four owned by Ms. Rutledge). Transfer documents for these assets were executed, and Summit registered its security interest in the British Columbia Personal Property Registry on September 29, 2021, renewing it on November 21, 2022.

Summit commenced the action by filing a notice of civil claim on July 20, 2023. The Sharma Order was made on September 21, 2023, following a short summary trial. Despite execution efforts, the terms of the Sharma Order remained unsatisfied, with no payments made by Mr. Rutledge and no response from Ms. Rutledge or Falco regarding the surrender or collection of the collateral. Summit sought declaratory relief regarding the nature of the collateral and whether its remedies were limited by section 67 of the PPSA.

Discussion of policy terms and statutory provisions

The Collateral Security Agreement provided that, upon default, Summit could declare the debt immediately due, take possession of the collateral, and dispose of it in a commercially reasonable manner. The agreement referenced Summit’s rights as a secured party under the laws of British Columbia and Canada, including the PPSA. The classification of the collateral was critical because section 67 of the PPSA limits a secured party’s remedies if the collateral is consumer goods. The court examined the definitions of “consumer goods,” “equipment,” and “debtor” under the PPSA, as well as the timing for determining the nature of the collateral.

Evidentiary issues and arguments

The defendants objected to the admissibility of two affidavits from Allan MacKenzie, a director of Summit, which attached documents relating to the loan and collateral. The court struck certain paragraphs as inadmissible but accepted the balance of the affidavits and attached documents as admissible evidence of the transaction. The defendants did not submit any affidavit evidence regarding the use of the collateral at the relevant time, arguing that Summit bore the burden to prove the collateral was not consumer goods. The court found that, under the PPSA, unless goods can be classified as consumer goods or inventory, they are categorized as equipment.

Court’s analysis and outcome

The court determined that Falco, as the owner of the Ford Mustang Shelby, was a “debtor” for PPSA purposes and that section 67 did not apply to it as a corporation. For the remaining assets, the court found no evidence from Ms. Rutledge or Falco as to their use at the time the security interest attached and therefore could not conclude they were consumer goods. The court accepted Summit’s evidence and classified the collateral as equipment. As a result, Summit was not limited by section 67 and retained its full rights and remedies under the CSA and PPSA.

Ruling and overall outcome

Summit Leasing Corporation was the successful party. The court granted Summit the declaration it sought, confirming that the collateral was not consumer goods and that Summit’s remedies were not limited by section 67 of the PPSA. Summit was awarded full indemnity costs of the application. The precise amount of costs awarded was not specified in the decision.