The Lawyers Weekly - November 19, 2010

Bank
Continued From Page 1

between two competing legal interests in a property, gives priority to the first party to take a legal interest in the property.

Thus, at the time the Bank of Montreal took its Bank Act security interest from the farmer, the credit union already held its statutory interest in the same collateral “which in proprietary terms, is correlative to a fixed charge,” Justice Charron held. “Therefore the bank could only take its interest subject to this prior interest,” she concluded.

Counsel for both credit unions, Donald Layh of Layh & Associates in Langenburg, Sask., said banks will now have to worry about their Bank Act secured loans being compromised by dusty unregistered prior security agreements sitting in credit union vaults.

“Literally we have destroyed
Bank Act security, it seems to
me, because banks will never
know that they have priority,”
Layh told The Lawyers Weekly.
“If they want priority, then what
they have to do is abandon Bank
Act security interest and come
and take a security interest
under the provincial system and
register. If the banks had taken
a provincial interest,…and had
registered their interest in the
[provincial] personal property
registry, they would have
defeated my clients.”
Layh argues Bank Act secur-
ity should be repealed. “We
don’t need it any more,” he said.
“The big thing that banks finally
have got to realize now is that if
they are relying on Bank Act
[security] interest, all it takes to
defeat their interest is for some-
body in the provincial scheme
to sort of stand up and pull out
a prior signed security agree-
ment, notwithstanding the fact
that its not been registered in
the provincial system.”
Counsel for the banks
referred a request for comment
to the Canadian Bankers’ Asso-
ciation (CBA). “We are reviewing
the decision and discussing it
with our members,” CBA media
relations manager Andrew
Addison told The Lawyers
Weekly. He declined further
comment.

“

Literally we have destroyed Bank Act security,
it seems to me, because banks will never
know that they have priority.

provincial property security
acts. And the court made it
clear, certainly in the Innova-
tion case that essentially the old
principle of nemo dat quod non
habet applies, and that is that
when a bank takes a security
interest under the Bank Act in
the debtor’s property, it takes
subject to whatever outstanding
interest is there, including a
PPSA interest that is not regis-
tered.”
Cuming speculated that the
banks may want to get Parlia-
ment to change the Bank Act,
perhaps to give s. 427 Bank Act
security priority over prior
unregistered PPSA interests.
But he noted also that there are
many organizations, such as the
Canadian Bar Association, that
have called for the repeal of
s. 427 on the basis that it is no
longer necessary, given the
presence of modern provincial
personal property statutes.
“And there is another factor
here too and that is that this is
supposed to be a free enterprise
system where everybody com-
petes on the basis of the same
law,” he said. “Why should the
banks have their own law, that
everybody else who competes in
that market, [i.e.] the credit
unions, be subject to a different
law, and can’t have the advan-
ests. “For example, if you are
lending to a farmer in a region,
you could expect maybe that the
farmer is [a] member of a credit
union,” Cuming suggested. “You
would call up the credit union
manager…[and ask] ‘Do you
have an interest?.’ That’s just
good banking.”
The Bank Act does not dir-
ectly state what happens when
there is a conflict between a
Bank Act security interest in
collateral, and an unregistered
security interest in the same
collateral that was acquired
prior to the bank taking its
security.

Reasons: Royal Bank of Canada v. Radius
Credit Union Ltd., [2010] S.C.J. No. 48 &
Bank of Montreal v. Innovation Credit
Union, [2010] S.C.J. No. 47.
We want to hear from you!
Email us at: tlw@lexisnexis.ca 
A LEGAL CLASSIC FOR YOUR BANKRUPTCY
AND INSOLVENCY PRACTICE

NEW EDITION

THE 2011 ANNOTATED BANKRUPTCY AND INSOLVENCY ACT THE HONOURABLE MR. JUS TICE LLOYD W. HOULDEN, MR. JUS TICE GEOFFRE Y B. MORAWETZ AND DR. JANIS P. SARRA, LL.B., LL.M., S.J.D.

This practical softcover is a condensed version of the four-volume classic
Bankruptcy and Insolvency Law of Canada, 4th Edition. It’s the perfect quick
reference you can rely on for immediate access to primary law and concise
commentary.
NEW IN THIS EDITION
• Fully updated case law including: Rowland v. Middlebrook; Re Dilollo;
Royal Bank v. Applied Energy Systems Inc.; Re Infoplace Ticket Centres Ltd.;
Bank of Montreal v. Grafikom Ltd. Partnership; Valastiak v. Valastiak; Re
Pope & Talbot Ltd.; Fifth Third Bank v. MPI Packaging Inc.
• Fully updated legislation with An Act to Amend the Bankruptcy and
Insolvency Act; the Companies Creditors Arrangement Act; the Wage
Earner Protection Program Act; and Chapter 47 of the Statutes of
Canada, 2005, S.C. 2007, c. 36 and An Act to Establish the Wage Earner
Protection Program Act to Amend the Bankruptcy and Insolvency Act and
the Companies’ Creditors Arrangement Act and to Make Consequential
Amendments to Other Acts, S.C. 2005, c. 47. All in force and incorporated
into the text and commentary.

Subscribe to

OFFICE SPACE AVAILABLE
LIBERTY VILLAGE — King St. W. — Toronto

www.lawyersweekly.ca/subscribe

Wonderful loft of;ce space to share with a litigation law ;rm practising commercial and civil litigation ; great opportunity for referral work ; parking, kitchen, photocopying and reception included ; beautiful board rooms and secretarial station ; excellent for lawyers or accountants. $1,000 per month.

ORDER 982670-68933 $158
Softcover October 2010 approx. 1,750 pages
978-0-7798-2670-4
Annual volumes available on standing order
subscription

AVAILABLE RISK-FREE FOR 30 DAYS Order Online www.carswell.com Call Toll-Free: 1-800-387-5164 (In Toronto: 416-609-3800) Shipping and handling are extra. Price subject to change without notice and subject to applicable taxes.