Waiving goodbye to statutory exemptions: A discussion of ownership, exemptions and waivers pursuant to The Saskatchewan Farm Security Act

In family farming operations, assets are often shared amongst family members, regardless of who the actual owner is. However, if you are a lender who has taken a security interest in a farming asset that is exempt from seizure pursuant to The Saskatchewan Farm Security Act¹ (the “SFSA”) and you have asked the owner of the asset to execute a waiver of the exemption, determining who owns which asset becomes especially important. The fact that someone is listed as the purchaser on a bill of sale is not necessarily determinative of ownership, and all of the evidence surrounding the purchase and use of the asset must be considered.

The recent case of Dolter v Input Capital Corporation² is a good example of the evidence that the Court will consider in determining ownership of farming assets, and serves as a good lesson to secured creditors to ensure that they have made the necessary inquiries into determining ownership of an asset before having a waiver executed.

What You Need to Know

• Sections 66 and 68 of the SFSA list certain property of a farmer and his family that are exempt from seizure pursuant to the enforcement of a judgment or under a security agreement.
• Section 68(3) provides this exemption can be waived if a waiver in the prescribed form is executed and, if the waiver secures debt previously incurred by the farmer, independent legal advice is obtained.
• Only the owner of the asset can execute the waiver, and the fact that someone is listed as the purchaser of the asset on a bill of sale is not always conclusive proof of ownership.
• Evidence that may assist in determining ownership includes:
  • who is claiming ownership of the asset on income tax returns;
  • who actually purchased the asset (whose credit card was used, or who signed the cheque); and
  • if the asset is registered, whose name appears on the registration.

Facts

Allan, Darren and Brenda Dolter operated a commercial farming operation. They entered into a Canola Streaming Contract with Input Capital Corporation ("ICC") in 2014 (the "2014 Contract"), where the Dolters agreed to sell a certain amount of canola to ICC in exchange for advance payments. As security for the funds, the Dolters granted two collateral mortgages and five security agreements to ICC.

In 2017, the Dolters were in default of their obligations under the 2014 Contract and sought additional funding from ICC (the "2017 Contract"). ICC advanced additional funding to the Dolters, and Allan, Darren and Dolter Farms Ltd. signed additional security agreements and executed waivers pursuant to section 68(3)(a) of the SFSA, which granted ICC the right to seize certain farming assets that would otherwise be exempt from seizure if the Dolters defaulted on repayment.³ Brenda did not execute any waivers.

By 2018, the Dolters had again defaulted on their obligations pursuant to both the 2014 Contract and the 2017 Contract, and the total amount outstanding was $1,454,212.83. On January 18, 2019, ICC served notices of intention to take possession of the implements held as collateral under the security agreements. In response, the Dolters brought an application pursuant to section 50 of the SFSA for relief from seizure.

Brenda claimed that she owned the following assets that ICC was attempting to seize and, because she did not execute any waivers, the assets were exempt from seizure:

1. Case IH 9280 4x4 tractor (the “Tractor”);
2. Spray air pull type high clearance sprayer (the “Sprayer”);
3. Parker 500 grain cart (the “Grain Cart”);
4. 1996 Case 2188 combine (the “Combine”); and
5. 2005 Buick LeSabre vehicle (the “Vehicle”).

Decision

The Honourable Madam Justice Klatt began her analysis by reiterating the object of the SFSA, which is to provide protection to farmers against seizure of their land and equipment in the face of financial instability.⁴

She then noted that in family farming operations, it is not unusual for the bill of sale to be in one person’s name, the purchase of the assets to be made by another, the capital cost allowance to be claimed by another, and the use of the asset to be shared amongst them all, which makes determining ownership very difficult.⁵

Ownership of Assets

Klatt J. weighed all of the evidence presented with respect to the assets in question so that she could make a determination as to who was the owner, and whether the statutory exemptions protecting these assets from seizure had been waived.

• Combine: Klatt J. found that Brenda was not the owner of the Combine. Although Brenda’s name was listed as the purchaser, she was not present during the transaction. Allan had entered into the transaction with the seller and the Combine was purchased using a cheque drawn on the Dolter Farms’ account, and Brenda testified that she did not repay Dolter Farms for the purchase price of the Combine. Allan had included this Combine on the list of assets that he had provided to ICC when the Dolters entered into the 2017 Contract, and had also included this asset as one of his acquisitions on his income tax returns from 2016-2019. The Combine was not found on any of Brenda’s previous income tax returns, and Allan signed the waiver on behalf of Dolter Farms which included the Combine as one of its assets.
• Tractor: Klatt J. found that Brenda was not the owner of the Tractor. Although Brenda had testified that she owned the Tractor and her name was listed as the purchaser, Allan was the one who had signed the cheque, which was drawn on their joint account. Brenda had stated that she had rented the Tractor to Darren, but when asked, she did not know how much he paid in rent. Further, Brenda had no explanation for the fact that Darren had included the Tractor on the schedule of his acquisitions in his 2016-2019 income tax returns. Allan had included the Tractor on the list of assets that he had provided to ICC as being owned by him, and both he and Darren signed the waiver revoking the exemption protection for the Tractor.
• Grain Cart: Klatt J. found that Brenda was the owner of the Grain Cart. Brenda had testified that she had purchased it, and her name was listed as the purchaser on the bill of sale. The money came from Brenda and Allan’s joint account, but Allan had included this implement as one of his “additions” on his 2016-2019 income tax returns. Most importantly, no waiver had been executed in relation to the Grain Cart.
• Sprayer: Klatt J. found that Brenda was the owner of the Sprayer. Brenda had testified that she had purchased it, and her name was listed as the purchaser on the bill of sale. The Sprayer was purchased with a Visa credit card, but Brenda did not know whose credit card was used. Brenda had further testified that she rented the sprayer out to Allan, Darren and Dolter Farms, but she could not say how much she rented it for and there was no written document detailing the terms of the rental agreement. Significantly, no waiver was executed in relation to the Sprayer, and neither Allan nor Darren included this Sprayer as an asset on their income tax returns.
• Vehicle: Klatt J. found that Brenda was the owner of the Vehicle. Brenda’s name appeared as the buyer on the bill of sale, and she had personally signed the invoice. She had testified that this was her personal vehicle, which she used to run errands, transport her children, and take meals to Allan and Darren when they were farming. There was no evidence that anyone other than Brenda drove this vehicle, and the registration was always in Brenda’s name. Allan included the Vehicle on the list of assets that he and Darren owned, and it was included in the appendix to the waiver executed by both he and Darren.

Were the Assets Owned by Brenda Exempt from Seizure?

After determining that Brenda was the owner of the Sprayer, the Grain Cart and the Vehicle, Klatt J. next had to determine whether these implements were exempt from seizure by ICC. Section 66(d) of the SFSA provides that all farm machinery and equipment, including one automobile or farm truck, that are reasonably necessary for the proper and efficient conduct of the farmer’s agricultural operations for the next 12 months, are exempt from seizure. However, if the implements are not reasonably necessary to continue the farming operation for the ensuing 12 months, they are not exempt from seizure.

In examining the evidence, Klatt J. was satisfied that the Grain Cart, the Sprayer and the Vehicle were all necessary for the efficient conduct of the agricultural operation, and found that they were exempt from seizure. She further found that the Combine and Tractor were also reasonably necessary for the efficient conduct of the agricultural operation, but they were no longer exempt from seizure by virtue of the waivers executed by Allan and Darren, and ICC was permitted to seize them.

Take Away

This case serves as a valuable lesson to secured creditors to ensure that they are certain of which individual owns the various assets that are subject to their security interest so that they can confirm that the proper waivers are in place. In addition to reviewing asset lists, it would be a good practice to also require that the farmer provide a copy of the bill of sale and income tax returns to investigate who is listed as the purchaser of the asset, and who is claiming ownership of the asset on their income tax returns.

If you have any questions about waivers of the statutory exemptions found in the SFSA or the nuances of lending to farmers in Saskatchewan, please reach out to the author or any other member of the firm’s Insolvency & Restructuring Practice Team.