Urman, Re, (1983) 1 O.A.C. 339 (CA)

• Judge: Brooke, Weatherston and Thorson, JJ.A.
• Court: Court of Appeal (Ontario)
• Case Date: December 14, 1983
• Jurisdiction: Ontario
• Citations: (1983), 1 O.A.C. 339 (CA)

Urman, Re (1983), 1 O.A.C. 339 (CA)

MLB headnote and full text

Re Urman

Indexed As: Urman, Re

Ontario Court of Appeal

Brooke, Weatherston and Thorson, JJ.A.

December 14, 1983.

Summary:

A mortgage broker gave an assignment of book debts to his bank as security for a line of credit. The assignment was registered under the Personal Property Security Act, R.S.O. 1980, c. 375. The broker later assigned two mortgages as security for other debts. This assignment was not registered under the Act. In another transaction, the broker sold interests in another mortgage to investors, becoming a trustee of their interests under trust agreements. The broker became bankrupt. A conflict arose respecting the priorities of the bank, the trustee in bankruptcy, the assignee of the mortgages, and the trust beneficiaries. A motion was brought to determine the priorities.

The Ontario High Court, in a decision unreported in this series of reports, held that the bank waived its rights under its assignment of book debts. The court further held that the mortgage assignment and the trust agreements created security interests within the meaning of the Personal Property Security Act and, because they were unregistered under the Act, were subordinate to the claim of the trustee in bankruptcy. The bank, the assignee of the mortgages and the trust beneficiaries all appealed.

The Ontario Court of Appeal allowed the appeal in part. The Court of Appeal agreed that the bank's security was a floating charge regardless of its form, and that the bank waived its priority. The Court of Appeal further held that because the Personal Property Security Act did not apply to either the assignment of mortgages or the trust agreements, the assignee of the mortgages and the trust beneficiaries took priority over the trustee in bankruptcy, as well as the bank.

Choses in Action - Topic 1082

Assignment of book debts - Floating charge - What constitutes - A mortgage broker gave an assignment of debts to his bank as security for book credit - The assignment was registered under the Personal Property Security Act - The bank thus gained a perfected security interest in all present and future debts due to the broker - The credit obtained from the bank was used to buy and sell mortgages - The arrangement implied that the broker could give clear title to a mortgagee free from the bank's interest - The Ontario Court of Appeal held that regardless of its form, the bank's security interest was a floating charge - See paragraphs 24 to 28.

Choses in Action - Topic 1084

Assignment of book debts - Floating charge - Fixing or crystallizing of charge - A bank held a floating charge on all future debts owing to the debtor - The debtor was a mortgage broker and became the holder of several mortgages - The debtor assigned one of the mortgages as security for a debt, and sold equitable interests in another mortgage to investors - The Ontario Court of Appeal held that because the bank's floating charge did not crystallize until after the equitable interests of the assignee and the investors were acquired, the bank was subject to these equitable interests - See paragraphs 24 to 30.

Mortgages - Topic 22

Mortgage, defined - Nature of mortgage - The Ontario Court of Appeal discussed the nature of a realty mortgage - The court held that a mortgage consisted partly of the estate in the land and partly of the debt and the priorities were governed by the rules applicable to interests in land - See paragraphs 11 to 14.

Personal Property - Topic 6002

Security interests - Application of legislation - The Ontario Court of Appeal held that the Personal Property Security Act, R.S.O. 1980, c. 375, did not apply to a realty mortgage or the absolute assignment of a realty mortgage - See paragraph 11.

Personal Property - Topic 6002

Security interests - Application of legislation - A mortgagee assigned the mortgage to a creditor as security for a debt - He retained the right to pay off the debt and reobtain the mortgage from the assignee - The Ontario Court of Appeal held that the Personal Property Security Act did not apply to the assignment - See paragraphs 12 to 15.

Personal Property - Topic 6002

Security interests - Application of legislation - A mortgage broker assigned mortgages as security for his own debts - The assignment was not registered under the Personal Property Security Act - The broker became bankrupt - An issue arose respecting priorities between the trustee in bankruptcy and the assignee - The Ontario Court of Appeal held that because the Act did not apply to the assignment of mortgages, the assignment was valid as against the trustee; thus the assignee took priority over the trustee to the extent of its security interest in the mortgages - See paragraphs 4 to 5, 12 to 15.

Personal Property - Topic 6002

Security interests - Application of legislation - A mortgage broker received money from various persons and gave them each an interest in a mortgage (held by the broker as mortgagee) as security - The interests were established under trust agreements, which set out the rights of the investors and the broker, as the trustee of their interests - The trust agreements were not registered under the Personal Property Security Act - The broker became bankrupt - The Ontario Court of Appeal held that because the Act did not apply, the agreements were valid against the trustee in bankruptcy; thus the trust beneficiaries took priority over the trustee in bankruptcy - See paragraphs 18 to 23.

Personal Property - Topic 6006

Security interests - Security interest defined - The Ontario Court of Appeal held that a realty mortgage or an absolute assignment of a realty mortgage were not security interests as defined by s. 1(y) of the Personal Property Security Act, R.S.O. 1980, c. 375 - See paragraph 11.

Personal Property - Topic 6168

Security interests - Floating charge - Priorities - A bank held a floating charge on all future debts owing to the debtor - The debtor was a mortgage broker and became the holder of several mortgages - The debtor assigned one of the mortgages as security for a debt, and sold equitable interests in another mortgage to investors - The Ontario Court of Appeal held that the bank was subject to the equitable interests of the assignee and the investors, because its floating charge did not crystallize until after the interests were acquired - See paragraphs 14 to 30.

Cases Noticed:

Taylor v. London and County Banking Company; London and County Banking Company v. Nixon, [1901] 2 Ch. 231, appld. [para. 13].

Jones v. Gibbons (1804), 9 Ves. 407; 32 E.R. 659, appld. [para. 14].

Tailby v. The Official Receiver, 13 App. Cas. 523, refd to. [para. 24].

Irving A. Burton Ltd. v. Canadian Imperial Bank of Commerce (1982), 36 O.R.(2d) 703, refd to. [para. 25].

Re Wiarton Lumber Company Limited; Ex parte Canadian Bank of Commerce (1924), 4 C.B.R. 477, consd. [para. 26].

Dedrick v. Ashdown (1887), 15 S.C.R. 227, refd to. [para. 28].

W.H. Fraser v. The Imperial Bank of Canada and others (1912), 47 S.C.R. 313, refd to. [para. 28].

Stave Falls Lumber Co. et al. v. Westminster Trust Co. et al., [1940] 4 D.L.R. 382, refd to. [para. 28].

Evans, Coleman & Evans Ltd. v. R.A. Nelson Construction Ltd. (1959), 16 D.L.R.(2d) 123, refd to. [para. 28].

Lettner v. Poineer Truck Equipment Ltd. and Bank of Nova Scotia (1964), 47 W.W.R.(N.S.) 343, refd to. [para. 28].

Statutes Noticed:

Personal Property Security Act, R.S.O. 1980, c. 375, sect. 1(m)(y) [para. 10]; sect. 2 [para. 10].

Personal Property Security Act (No. 2), S.O. 1981, c. 58, sect. 1(e) [para. 16].

Authors and Works Noticed:

Gower, Principles of Modern Company Law (4th Ed. 1979), p. 476 [para. 29].

Kerr on the Law and Practice as to Receivers (15th Ed. 1978), p. 162.

Counsel:

G.J. Smith, Q.C., and K. Prehogan, for the appellants, Kreindel Investments Limited;

M.B. Page, Q.C., for the appellants, Belle Seigal et al.;

R.S. Thomson, Q.C., and K.R. Aalto, for the appellant, Canadian Imperial Bank of Commerce;

M. Sclisizzi, for the respondents, unsecured creditors;

M.B. Rotsztain, for the respondent, Trustee in Bankruptcy.

This appeal was heard before Brooke, Weatherston and Thorson, JJ.A., of the Ontario Court of Appeal, on October 25 and 26, 1983. The decision of the Court of Appeal was delivered by Weatherston, J.A., and released on December 14, 1983.