General Motors Acceptance Corp. of Canada, Ltd. v. Town and Country Chrysler Ltd. et al.

  • Document:
  • Date: 2018

General Motors Acceptance Corp. of Canada, Ltd. v. Town and Country Chrysler Ltd. et al.

[Indexed as: General Motors Acceptance Corp. of Canada, Ltd. v. Town and Country Chrysler Ltd.]

88 O.R. (3d) 666

Court of Appeal for Ontario, Armstrong, Juriansz and LaForme JJ.A.

December 28, 2007

Conflict of laws — Foreign law — Standard of review on questions of foreign law being correctness — Trial judge erring in determining Qubec law without reference to expert evidence — Failure of trial judge to make findings in respect of evidence of foreign law leaving appellate court free to reach its own decision on Qubec law.

Personal property security — Ontario dealer buying car in Qubec and selling it to Ontario wholesaler — Finance company’s security interest not registered against car under Qubec Civil Code as of day of transactions — Company registering its security interest 12 days later — Civil Code providing that registration was retroactive to day before dealer made initial purchase — Ontario purchasers presumed to have knowledge of finance company’s security interest

— Presumption of good faith of Ontario purchasers rebutted by their failure to take steps which prudent purchaser would have taken in circumstances — Civil Code of Qubec, S.Q. 1991, c. 64, Arts. 932, 1745, 2943.

An Ontario car dealer purchased a car in Qubec and sold it to an Ontario wholesaler. At the time of the transactions,

neither of the Ontario purchasers conducted a search under the new Qubec equivalent of the Personal Property Security Act,

R.S.O. 1990, c. P.10. If they had done so on the day of the transactions, they would have found nothing registered against the car. Twelve days later, a finance company registered its security interest in the car under the Qubec [page667] legislation. Under Qubec law, that registration was said to be retroactive to the day before the Ontario dealer made the purchase. In a trial to enforce the finance company’s security interest against the Ontario purchasers, evidence of Qubec law was adduced by the parties. The trial judge made no reference to that evidence in his reasons, but held that both Ontario purchasers were presumed to have knowledge of the finance company’s security interest, and that their presumed good faith conduct in proceeding as they did was rebutted by their failure to act with due diligence. The purchasers appealed.

Held, the appeal should be dismissed.

The rationale that supports a high degree of deference for findings of fact made by a trial judge does not apply to findings and determinations made in respect of foreign law. The standard of review on questions of foreign law is correctness.

The trial judge erred in determining Qubec law without reference to the expert evidence. Where the trial judge fails to make findings in respect of the evidence of foreign law, the appellate court is free to apply its own mind to the questions of foreign law. Article 932 of the Civil Code of Qubec

provides that “A possessor is in good faith if, when his possession begins, he is justified in believing he holds the real right he is exercising”. In his testimony at trial, the finance company’s expert on Qubec law set out the steps a prudent purchaser would take in a case such as this one. The purchasers’ failure to take those simple steps rebutted the presumption of good faith. In the circumstances, they could not be said to be justified in believing they had an unfettered right to the vehicle.

Cases referred to

Bank of Nova Scotia v. Wassef, [2000] O.J. No. 4883, [2000]

O.T.C. 954, 11 C.P.C. (5th) 338 (S.C.J.); Banque Nationale du Canada v. Michel et Serge Auto Inc., [1989] R.J.Q. 2905 (C.Q. civ.); Caisse populaire Pointe-Gatineau v. Martel, [2002] J.Q. no 5022, [2002] R.J.Q. 3267 (C.Q. civ.); Honda Canada Finance Inc. v. Guvremont, [2003] J.Q. no 1175, J.E. 2003-639 (C.Q. civ.); Housen v. Nikolaisen, [2002] 2 S.C.R. 235, [2002] S.C.J. No. 31, 219 Sask. R. 1, 211 D.L.R. (4th) 577, 286 N.R. 1, 272 W.A.C. 1, [2002] 7 W.W.R. 1, 30 M.P.L.R. (3d) 1, 2002 SCC 33, 10 C.C.L.T. (3d) 157; Rouyer Guillet et Cie v. Rouyer Guillet & Co., [1949] 1 All E.R. 244 (C.A.); Schwartz v. Canada, [1996] 1 S.C.R. 254, [1996] S.C.J. No. 15, 133 D.L.R. (4th) 289, 193 N.R. 241, 17 C.C.E.L. (2d) 141, 96 D.T.C. 6103 (sub nom. M.N.R. v. Schwartz)

Statutes referred to

Civil Code of Qubec, S.Q. 1991, c. 64, Arts. 932, 1745 [as

am.], 2805, 2846, 2847, 2943, 2944, 2969, 2970

Personal Property Security Act, R.S.O. 1990, c. P.10, s. 5(2) Authorities referred to

Malek, Hodge M. et al., eds., Phipson on Evidence, 16th ed. (London: Sweet & Maxwell, 2005)

APPEAL from the judgment of Forget J., [2005] O.J. No. 1378 (S.C.J.), in an action to enforce security interest.

Ronald G. Slaght, Q.C., and Jennifer King, for appellants. Rolf M. Piehler, for respondent. [page668]

The judgment of the court was delivered by ARMSTRONG J.A.: —

Introduction

  1. This appeal raises issues of foreign law. The first issue concerns the standard of appellate review to be applied to questions of foreign law determined by a trial judge. The second issue concerns the application of the personal property security legislation in Qubec to two Ontario car dealers who purchased a car initially located in Montral without knowledge of a finance company’s registered security interest.

  1. A Smiths Falls, Ontario, car dealer purchased a Corvette automobile from a wholesaler in Montral. The Smiths Falls dealer in turn sold the car to a Belleville wholesaler. At the time of the transactions, neither of the Ontario purchasers conducted a search under the new Qubec equivalent of the Personal Property Security Act, R.S.O. 1990, c. P.10 of Ontario. If they had done a search on the day of the transactions, they would have found nothing registered against the Corvette. Twelve days later, the finance company registered its security interest (pursuant to a conditional sales contract) in the Corvette under the Qubec legislation which registration was said to be retroactive to the day before the Smiths Falls dealer made the initial purchase.

  1. In a trial to enforce the finance company’s security interest against the Ontario purchasers, Justice Forget of the Superior Court of Justice held that both Ontario purchasers were presumed to have knowledge of the finance company’s security interest. The trial judge further found that the purchasers’ presumed good faith conduct in proceeding as they did was rebutted by their failure to act with due diligence. In the result, the trial judge awarded damages against the purchasers, who now appeal to this court.

  1. For the reasons that follow, I would dismiss the appeal.

The Facts

The purchase and sale of the Corvette

  1. A complex chain of transactions gave rise to this case.

On November 24, 1999, 9069-7368 Qubec Inc. (“9069”) of Montral purchased a 1999 Corvette from Wilhelmy Chevrolet Geo Oldsmobile Cadillac Limite (“Wilhelmy”) in Repentigny, Qubec. A conditional sales agreement was signed the same day and Wilhelmy assigned it to General Motors Acceptance Corporation of Canada, [page669] Limited (“GMAC”), who financed the purchase by advancing funds to 9069. After delivery, a second numbered company, 9066-1141 (“9066”), took possession of the vehicle.

  1. On November 25, 1999, one of the appellants, Town and Country Chrysler Limited (“T & C”) of Smiths Falls, Ontario, purchased the Corvette from 9066 for $60,990. 9066 represented to T & C that there existed no interest in the Corvette other than that of the vendor — a long-time wholesale vendor of vehicles to T & C. There was no notice of any interest of GMAC.

  1. The same day that T & C purchased the Corvette, it sold the car to the other appellant, Devolin Auto Group Ltd. (“Devolin”) of Belleville, Ontario, for $62,274.

  1. On December 9, 1999, Devolin sold the Corvette to Brisbee Motor Sales in Michigan for $44,000 (U.S.). The vehicle has since been sold again.

The security interest of GMAC

  1. Although GMAC advanced the funds for the purchase of the Corvette pursuant to a conditional sales agreement of November 24, 1999, GMAC did not register its security interest in Qubec with the Register of Personal and Movable Real Rights (“RPMRR”) until December 7, 1999. The RPMRR was then a new personal property registration system which came into operation in September 1999.

  1. GMAC did not register its security interest in Ontario under the Personal Property Security Act (“PPSA”) until January 24, 2000.

  1. On March 17, 2000, GMAC sent a letter to the appellants advising of its security interest in the Corvette and claiming

damages against the appellants.

The action

  1. GMAC sought declaratory relief concerning its security interest in the Corvette and damages in the amount of $50,000 against the appellants. GMAC claimed that when T & C purchased the Corvette from 9066 on November 25, 1999, and when Devolin, in turn, purchased it from T & C, GMAC had a valid registered security interest in the Corvette pursuant to Qubec law. GMAC invoked Art. 1745 of the Civil Code of Qubec, S.Q. 1991, c.

64, which provides that the registration of a security interest has a retroactive effect to the date of sale as long as registration is completed within 15 days of the sale.

  1. In this case, the date of registration (December 7,

1999) is within 15 days of the date of the initial purchase and sale [page670] (November 24, 1999). Therefore, GMAC’s security interest was valid on November 24, 1999. GMAC further argued that pursuant to s. 5(2)(a) of the PPSA, its registration in Ontario on January 24, 2000 (within 60 days after the car entered Ontario), perfected its Qubec security in Ontario and entitled it to recovery in the courts of this province.

  1. At trial, the appellants argued that GMAC’s security interest was not valid in Qubec because under the Civil Code the presumption of knowledge of registration of a purchaser is rebuttable. T & C and Devolin could not reasonably have been expected to know of GMAC’s security interest since no registration existed at the time they dealt with the Corvette. Both appellants were unaware of the RPMRR, which had been established only three months prior to the transactions. In any event, even if searches had been conducted at the relevant times, they would have produced negative results. The appellants submitted that they acted in good faith, which is presumed under Art. 2805 of the Civil Code, and that their good faith rebutted the presumption of knowledge.

  1. The appellants further argued that GMAC’s registration in Ontario gave it no greater right in Ontario than it would have had in Qubec. Since there was no valid registration in

Qubec at the time of the transactions, there could be no valid registration of a security interest in Ontario.

The Trial

  1. Central to the case was whether GMAC’s security interest in the Corvette had been perfected in the Province of Qubec so as to be binding on third parties, including the appellants. This required calling expert evidence on Qubec law and, in particular, on the legal effect of the RPMRR registration system. Each side called a practising commercial lawyer in Qubec to provide such evidence. Before referring to the expert evidence, I will set out the relevant provisions of the Civil Code and of the PPSA.

  1. The relevant statutory provisions of the RPMRR registration system contained in the Civil Code are as follows:

932. A possessor is in good faith if, when his possession begins, he is justified in believing he holds the real right he is exercising. His good faith ceases from the time his lack of title or the defects of his possession or title are notified to him by a civil proceeding.

. . . . .

1745. An instalment sale is a term sale by which the seller reserves ownership of the property until full payment of the sale price. [page671]

A reservation of ownership in respect of a road vehicle or other movable property determined by regulation, or in respect of any moveable property acquired for the service or operation of an enterprise, has effect against third persons only if it has been published; effect against third persons operates from the date of the sale provided the reservation of ownership is published within 15 days. As well, the transfer of such a reservation has effect against third persons only if it has been published.

. . . . .

2805. Good faith is always presumed, unless the law expressly requires that it be provided.

. . . . .

2846. A presumption is an inference established by law or the court from a known fact to an unknown fact.

2847. A legal presumption is one that is specially attached by law to certain facts; it exempts the person in whose favour it exists from making any other proof.

A presumption concerning presumed facts is simple and may be rebutted by proof to the contrary; a presumption concerning deemed facts is absolute and irrebuttable.

. . . . .

2943. … [A] right registered in the register of personal and movable real rights…is presumed known by a person acquiring or publishing a right in the same property.

2944. Registration of a right in the register of personal and moveable real rights or the land register carries, in respect of all persons, simple presumption of the existence of that right.

. . . . .

2969. …a register of personal and movable real rights is kept in the Personal and Moveable Real Rights Registry Office.

2970. …Rights concerning a movable and any other rights are published by registration in the register of personal and moveable real rights. . .

  1. The relevant provision of the PPSA is s. 5(2):

5(2) A security interest in goods perfected under the law

of the jurisdiction in which the goods are situated at the time the security interest attaches but before the goods are brought into Ontario continues perfected in Ontario if a financing statement is registered in Ontario before the goods are brought in or if it is perfected in Ontario,

    1. within sixty days after the goods are brought in.

I should add here that there is no issue concerning the Ontario Act in this appeal. If the Qubec registration applies to the appellants, the appellants concede that the security was properly perfected in Ontario. [page672]

The expert evidence

  1. The respondent’s expert, Stephen Hamilton of the Qubec Bar, gave evidence in respect of two of the Civil Code provisions that are relevant to the RPMRR system. He read into the record Art. 1745 concerning the retroactive effect of publication (registration) within 15 days of the sale. He then made brief reference to the registration in this case. Mr. Hamilton also read into the record the provisions of Art. 2943 concerning the presumption of knowledge by third parties claiming a right in the same property registered in the RPMRR system. Counsel then asked Mr. Hamilton what steps a prudent purchaser would take in a case such as the case at bar. Mr. Hamilton suggested the following steps:

  1. check the RPMRR;

  1. if there is a registration, deal with the registered party;

  1. if no registration is shown, then there are different options which include:

    1. wait for the 15-day period to expire;

    1. retain the purchase price until the expiry of 15 days and check the register again; and

    2. inquire more closely as to the chain of title back to the dealer.

Mr. Hamilton was not asked about and he gave no evidence as to what might rebut the presumption of knowledge under Art. 2943. He was also not asked about and gave no evidence in respect of the presumption of good faith in Art. 2805.

  1. Pierre McMartin of the Qubec Bar testified for the appellants. Like Mr. Hamilton, Mr. McMartin also made reference to Arts. 1745 and 2943 concerning retroactive registration and presumed knowledge of third parties. He then explained that the presumption of knowledge is a simple presumption rebuttable by proof to the contrary in accordance with Art. 2847.

  1. Mr. McMartin referred to three Qubec cases — all three appear distinguishable on their facts from the case at bar. See Honda Canada Finance Inc. v. Guvremont, [2003] J.Q. no 1175,

J.E. 2003-639 (C.Q. civ.), Caisse populaire Ponte-Gatineau v. Martel, [2002] J.Q. no 5022, [2002] R.J.Q. 3267 (C.Q. civ.), and Banque Nationale du Canada v. Michel et Serge Auto Inc., [1989] R.J.Q. 2905 (C.Q. civ.). [page673]

  1. In concluding his evidence in examination-in-chief, Mr. McMartin said that for GMAC to succeed in this case, it would have to prove that the appellants were negligent. While his evidence was not a model of clarity, Mr. McMartin appears to have equated negligence with lack of good faith. He went on to opine that the trial judge could consider the following factors as supporting the presumption of good faith in this case:

  1. the warranty from the seller to Town & Country that the vehicle was free of liens;

  1. the problem-free business relationship for 10 years between Town & Country and 9066;

  1. the reasonableness of the purchase price; and

  1. the fact that there was no registration under the RPMRR until December 7, 1999.

  1. Counsel for the respondent at trial cross-examined Mr. McMartin on the differences between the case at bar and the three cases that he had referred to in his examination-in- chief. For the most part, the cross-examination simply established that the three cases from the Qubec courts were distinguishable on their facts.

  1. In re-examination, Mr. McMartin testified, without objection from counsel for the respondent, that in his view, whether or not a search was made, the lack of registration of the Corvette at the time of purchase by T & C was sufficient to rebut the presumption of knowledge.

The trial judge’s conclusion re GMAC’s security interest in Qubec

  1. The trial judge, without reference to the expert evidence, concluded in respect of GMAC’s security interest in Qubec as follows [at para. 50]:

In my opinion, the Defendants should still be presumed to have known of GMAC’s interest in the Corvette, despite their arguments to the contrary, and despite the apparent unfairness of that conclusion. This presumption has not been rebutted, for four reasons:

    1. If the dispute is governed by the current version of Article 2943, the Defendants are precluded from arguing that their “good faith” conduct rebuts the presumption of constructive knowledge.

    1. If the dispute is governed by the former version of Article 2943, and good faith is available to rebut the presumption of constructive knowledge of GMAC’s security interest, any alleged good [page674] faith on the part of the Defendants is in turn rebutted by convincing evidence that the Defendants did not act with due diligence. Neither Defendant bothered to make any search or inquiry into the validity of their title to the Corvette. It is immaterial that

any such search or inquiry on November 25, 1999 would not have revealed GMAC’s interest; the test is whether, given all the circumstances and adopting an objective standard, the Defendants did all that they reasonably could do in order to inform themselves of the validity of their title to the vehicle. In my opinion, the Defendants’ conduct does not appear to have met this standard.

    1. As in Ontario, a property right in Qubec pre-dates and exists independently of the registration and publication of that right. While publication of a right permits the enforcement of a person’s rights against third parties, the failure to publish or any delay in publication does not extinguish the existence or effect of the right. Therefore, even if the Defendants could rebut the presumption of constructive knowledge of GMAC’s security interest, that interest still exists and is retroactive to November 24, 1999.

    1. Finally, it is clear that GMAC complied with Qubec legislation, and properly registered its security interest in the Corvette within the time limit prescribed by the Civil Code so as to take advantage of a 15-day retroactivity period [that] is a valid part of a legislative provision which is still in force and in effect, and which has yet to be challenged, struck out, read down, or declared inapplicable.

  1. In the result, the trial judge granted the declaratory relief sought by GMAC and awarded damages in favour of GMAC against the appellants in the amount of $49,081.72 plus prejudgment interest.

The Appeal

  1. The appellants raise several grounds of appeal which can be reduced to three:

  1. What is the proper standard of review on questions of foreign law?

  1. Did the trial judge err in determining Qubec law without reference to the expert evidence?

  1. Did the trial judge err in his treatment of the issue of good faith?

(i) What is the proper standard of review on questions of foreign law?

  1. The appellants submit that the standard of review for questions of foreign law is correctness. Although foreign law is a [page675] question of fact, counsel submits that the effect of the proven facts on the rights of the parties is a question of law.

  1. Counsel for the appellant relies upon the following statement of Sedgwick J. of the Superior Court of Justice in Bank of Nova Scotia v. Wassef, [2000] O.J. No. 4883, [2000]

O.T.C. 954 (S.C.J.), at para. 20:

While proof of foreign law is treated in our courts as a question of fact, it is “a question of fact of a peculiar kind”. Parkasho v. Singh, [1967] 1 All E.R. 737, 746 per Cairns J. “To describe it as one of fact is no doubt apposite, in the sense that the applicable law must be ascertained according to the evidence of witnesses, yet there can be no doubt that what is involved is at bottom a question of law. That has been recognized by the courts”. Cheshire

& North’s: Private Inter-national Law (11th Ed.), 106. For example, in a jury trial, a question of foreign law is determined by the judge; not by the jury. In appellate proceedings, the same deference will not be shown to a trial judge’s findings on a question of foreign law as on findings of other facts. The appellate court will examine the evidence of foreign law which was before the trial judge and, may substitute its own interpretation of the foreign law. And while proof of foreign law is a question of fact, the effect of the proven facts on the rights of the parties is a question of law. Re McDonald, [1935] 4 D.L.R. 342 (NSCA).

  1. On the other hand, counsel for the respondent submits that the standard of review on questions of foreign law is palpable and overriding error. He argues that the trial judge’s decision in respect of Qubec law and its application to the facts of this case raises questions of mixed fact and law. Relying on the judgment of the Supreme Court of Canada in Housen v. Nikolaisen, [2002] 2 S.C.R. 235, [2002] S.C.J. No. 31, he submits that the standard of palpable and overriding error governs.

  1. The underlying reasons for applying a palpable and overriding error standard in appellate review of findings of fact and of mixed fact and law were exhaustively reviewed by the majority in Housen. These reasons include:

  1. the trial judge is in the better position to assess witnesses’ credibility at trial;

  1. unlimited intervention by appellate courts would greatly increase the number and length of trials generally;

  1. substantial resources are allocated to the trial courts’ process of assessing facts;

  1. it is important to preserve the autonomy and integrity of the trial process by deferring to a trial judge’s finding of facts.

See Housen at paras. 12 and 13. See also Schwartz v. Canada, [1996] 1 S.C.R. 254, [1996] S.C.J. No. 15, at para. 32. [page676]

  1. In my view, the rationale that supports a high degree of deference for findings of fact made by a trial judge does not apply to findings and determinations made in respect of foreign law. Those factors, supporting a high degree of deference to a trial judge’s findings of fact, are either not present in a trial judge’s consideration of foreign law or, if they are present, they are not significant.

  2. The credibility of an expert witness testifying on legal issues is, in my view, just as easily assessed on appellate review as at trial. A witness testifying on questions of law is testifying on issues squarely within the province of an appellate court, which is well accustomed to evaluating the persuasiveness of legal arguments. The question of time and the allocation of judicial resources is simply not a significant issue when it comes to questions of foreign law. While globalization is a fact of life, Ontario courts do not appear taxed by foreign law issues. Similarly, it is highly unlikely that the autonomy or integrity of trial courts will in any way be put at risk if appellate courts do not defer to the trial judge’s findings in respect of questions of foreign law.

  1. I also find as relevant the following excerpt from Phipson on Evidence, 16th ed. (London: Sweet & Maxwell, 2005) at para. 1-35, which indicates that English courts view foreign law as a question of law on appeal:

Thus, in English courts, although the existence of English law is a question of law to be determined by authorities in argument, the existence of Scots, colonial or foreign law is treated as a question of fact to be determined by evidence; so that, in the House of Lords or Privy Council, what was a question of fact in the court below, to be established by evidence, may become on appeal a question of law to be judicially noticed.

  1. I therefore conclude that the appropriate standard of review on questions of foreign law is correctness.

  1. Did the trial judge err in determining Qubec law without reference to the expert evidence?

  1. I agree with the submission of the appellants that the trial judge erred in determining the issues of Qubec law without reference to the expert evidence. The respondent submits that the trial judge by implication referred to and relied upon the expert evidence.

  1. The trial judge delivered relatively lengthy and

detailed reasons — some 69 paragraphs in 19 single-spaced, typed pages. Yet, these reasons do not contain a single reference to the expert evidence. The trial judge made no findings in [page677] respect of that evidence. He did not indicate whether he accepts or rejects the opinions expressed by either expert. He appears to decide the case as if he were a judge sitting in a Qubec court.

  1. What is the result of this error? I find guidance in the following words of Lord Greene, M.R., in Rouyer Guillet et Cie

v. Rouyer Guillet & Co., [1949] 1 All E.R. 244 (C.A.), at p. 244:

I would add that when you come to the statute law itself, although it is right that prima facie what must be considered is the evidence of the experts and not the text of the law, when the experts differ as to its meaning an English court is entitled and, if it is to perform its function properly, is, indeed, bound, to apply its own mind, fortified by the opinion of the witnesses and giving what weight it thinks ought to be given to it, to the text itself and to examine it in order to make up its mind on the question of interpretation as between the two sets of witnesses.

Although the situation referred to by Lord Greene (that of conflicting expert evidence) was different from that in the case at bar, I conclude that where the trial judge fails to make findings in respect of the evidence of foreign law, this court is at liberty “to apply its own mind” to the questions of foreign law. This approach also comports with the conclusion that the standard of appellate review is correctness.

  1. Did the trial judge err in his treatment of the issue of good faith?

  1. The issue of good faith arises in respect of rebutting the appellant’s presumed knowledge of GMAC’s security interest in the Corvette at the time of its purchase. For convenience, I repeat the definition of good faith found in Art. 932 of the Qubec Civil Code:

932. A possessor is in good faith if, when his possession begins, he is justified in believing he holds the real right he is exercising. His good faith ceases from the time his lack of title or the defects of his possession or title are notified to him by a civil proceeding.

  1. The trial judge gave four reasons for concluding that the presumption of knowledge had not been rebutted by good faith.

  1. The trial judge’s first reason for concluding that the presumption of the appellant’s knowledge of GMAC’s security interest had not been rebutted was that the current version of Art. 2943 precludes the appellants from arguing that their good faith conduct rebuts the presumption. The current version of Art. 2943 expressly provides that, “a person who does not consult the appropriate register … may not invoke good faith to rebut the presumption”. [page678]

  1. The problem with this rationale, which the judge appeared to acknowledge in part, is that the new version of Art. 2943 came into effect on October 9, 2001 — nearly two years after the transactions involving the Corvette. The appellant’s expert was asked in cross-examination why the Legislature made the amendment to Art. 2943 and he responded:

I have not checked that, but I can presume that certain clients such as GMAC or other financing companies must have not been too happy about the way the courts were interpreting section 2493 as it was before, because people could allege — say in good faith, rebut the presumption.

  1. In his second reason, the trial judge asserted that even if good faith was available to rebut the presumption of constructive knowledge, such “good faith on the part of the [appellants] is in turn rebutted by convincing evidence that the [appellants] did not act with due diligence”. As noted above, the trial judge said [at para. 50]:

Neither Defendant bothered to make any search or inquiry into the validity of their title to the Corvette. It is immaterial

that any such search or inquiry on November 25, 1999 would not have revealed GMAC’s interest; the test is whether, given all the circumstances and adopting an objective standard, the Defendants did all that they reasonably could do in order to inform themselves of the validity of their title to the vehicle. In my opinion, the Defendants’ conduct does not appear to have met this standard.

  1. I cannot discern exactly what the trial judge had in mind when he said that it was immaterial that a search of the register would have produced negative results on November 25, 1999. However, in the above paragraph, I believe he was likely alluding to the evidence of Mr. Hamilton who said what a prudent purchaser in the position of T & C would have done if such a purchaser had found no registration against the Corvette. Those steps included:

    1. wait for the 15-day period to expire;

    1. retain the purchase price until the expiry of 15 days and check the register again; and

    1. inquire more closely as to the chain of title back to the dealer.

  1. The third reason that the trial judge gave for his conclusion is that “even if the [appellants] could rebut the presumption of constructive knowledge of GMAC’s security interest, that interest still exists and is retroactive to November 24, 1999”. With all due respect to the learned trial judge, I do not [page679] understand this point. The fact that GMAC still has a security interest in the car has nothing to do with whether a third party purchaser can rebut the presumption of constructive knowledge. If a third party can rebut the presumption, he or she is not fixed with constructive knowledge and is free of the consequences of registration.

  1. Finally, the trial judge asserted that GMAC had complied with the Qubec legislation for registration and was entitled to take advantage of the registration’s retro-active effect. I do not believe that this rationale adds to the analysis.

Conclusion

  1. In my view, the evidence of Mr. Hamilton, as to the steps that a prudent purchaser would take in the circumstances of T & C is sufficient to rebut the presumption of good faith of both T & C and Devolin. This evidence was essentially unchallenged in cross-examination and appears on its face to produce a sensible approach. I include Devolin because, although it was one step removed from the Qubec transaction, it was aware of the Qubec purchase. Also counsel for the appellants, quite properly, did not distinguish between their positions. The result of this analysis also fits with the definition of good faith in Art. 932 of the Civil Code: “a

possessor is in good faith if, when his possession began, he is justified in believing he holds the real right he is exercising”. A purchaser who fails to take the simple steps referred to by Mr. Hamilton cannot be said to be justified in believing he had an unfettered right to the vehicle he/she has purchased. Further, I am not persuaded by the evidence of Mr.

McMartin that the factors he referred to as supporting the presumption of good faith (supra, para. 22) changes the analysis. I also do not agree with the evidence of Mr. McMartin that the lack of registration of the Corvette at the time of purchase was sufficient to rebut the presumption of knowledge.

  1. I should add that during the trial and to some extent on the argument of the appeal much was made of the fact that the Qubec registration system was a new system that had only been in force for some two months and it was therefore unfair to fix its retroactive effect on the appellants whose principals had no knowledge of it. It is undoubtedly what the trial judge was referring to when he described his conclusion as apparently unfair. Unfortunately, I see no basis in law and in the circumstances here for accepting the newness of the system as a relevant consideration.

  1. For the above reasons, I would dismiss the appeal. [page680]

Costs

  1. The respondent is entitled to its costs of the appeal on a partial indemnity scale which I would fix at $10,000 including GST and disbursements.

Appeal dismissed.]