Strach Developers Ltd. and Cree Airways Corp. v. Toronto-Dominion Bank, (1997) 209 A.R. 173 (CA)

• Judge: McClung, O'Leary and Russell, JJ.A.
• Court: Court of Appeal (Alberta)
• Case Date: October 10, 1996
• Citations: (1997), 209 A.R. 173 (CA)

Strach Dev. Ltd. v. TD Bk. (1997), 209 A.R. 173 (CA);

         160 W.A.C. 173

MLB headnote and full text

Temp. Cite: [1997] A.R. TBEd. OC.038

In The Matter Of the Seizures Act, R.S.A. 1980, c. S-11, and amendments thereto;

And In The Matter Of the Alberta Rules of Court.

The Toronto-Dominion Bank (appellant) v. Wayne Strach on behalf of Strach Developers Limited (respondent)

(Appeal No. 9503-0491-AC)

Indexed As: Strach Developers Ltd. and Cree Airways Corp. v. Toronto-Dominion Bank

Alberta Court of Appeal

McClung, O'Leary and

Russell, JJ.A.

October 10, 1997.

Summary:

A bank took a chattel mortgage on an airplane as security for a loan to Cree. Cree defaulted. The bank seized the airplane. Strach Developers claimed that the chattel mortgage was not valid because it leased the airplane to Cree and was the proper owner.

The Alberta Court of Queen's Bench, in a decision reported 172 A.R. 53, held that Strach Developers had priority. The bank appealed.

The Alberta Court of Appeal allowed the appeal, set aside the trial judge's decision and declared that the bank's security interest had priority.

Editor's Note: For a previous decision in this matter, see 110 A.R. 12.

Chattel Mortgages and Bills of Sale - Topic 1002

Validity - Essential elements - Ownership by mortgagor - Cree Airways leased an airplane from Strach Developers - In May 1987, Cree secured a loan from a bank by a chattel mortgage over the airp­lane - Cree claimed to own the airplane - In August 1987, Cree and Strach entered into a lease purchase agree­ment (registered in January 1988) - Cree indirectly paid a deposit of $25,000 - The lease purchase agreement was terminated in October 1987 - The bank seized the airplane in Novem­ber 1987 - Strach argued that the chattel mortgage was invalid - A trial judge held that Strach had priority and the bank was not a mort­gagee in good faith because it knew of Strach's prior interest but made no effort to determine its extent - The Alberta Court of Appeal allowed the bank's appeal - Knowledge of a prior unregistered inter­est did not, by itself, justify a finding of lack of good faith.

Conditional Sales - Topic 1045

Rights of third parties - Subsequent pur­chasers and mortgagees - Effect of notice of conditional sale - At issue was the priority between the seller under an unregistered conditional sale agreement and the bank's interest under a subsequent registered chattel mortgage taken from the condi­tional buyer with knowledge of the seller's interest - In determining whether the bank was a "mortgagee in good faith" under s. 2(1) of the Conditional Sales Act, the Alberta Court of Appeal stated that there must be more than mere notice or know­ledge of a prior unregistered interest to justify a finding of lack of good faith - While it may be an important element of bad faith, standing alone, mere notice of the prior interest is not sufficient to show lack of good faith (now codified in s. 66(2) of the Personal Property Security Act) - A lender or purchaser has no duty to search the registries and failure to do so does not preclude good faith.

Personal Property - Topic 6201.1

Security interests - Priorities - Effect of actual notice - [See Conditional Sales - Topic 1045 ].

Personal Property - Topic 6216

Security interests - Priorities - Lessor's interest - [See Chattel Mortgages and Bills of Sale - Topic 1002 ].

Cases Noticed:

Canadian Bank of Commerce v. Munro, [1925] S.C.R. 302, refd to. [para. 14].

Bank of Nova Scotia v. Webb Valley Stock Farm Ltd. et al. (1988), 86 A.R. 340 (C.A.), refd to. [para. 18].

Strathcona Brewing Co. et al. v. Eldee Investment Corp. et al. (1994), 153 A.R. 63 (Q.B.), refd to. [para. 21].

Canadian Imperial Bank of Commerce v. A.K. Construction (1988) Ltd. et al. (1995), 171 A.R. 326 (Q.B.), refd to. [para. 21].

Statutes Noticed:

Conditional Sales Act, R.S.A. 1980, c. C-21, sect. 2(1) [para. 4].

Personal Property Security Act, S.A. 1988, c. P-4.05, sect. 66(2) [para. 21].

Counsel:

E.S. Cook, Q.C., for the appellant;

W.J. McKenna, for the respondent.

This appeal was heard on October 1, 1997, before McClung, O'Leary and Russell, JJ.A., of the Alberta Court of Appeal.

On October 10, 1996, the following mem­orandum of judgment was delivered by the Court of Appeal.