Donald H. Layh

The Bank of Montreal appealed a decision granting priority to Innovation Credit Union's prior unregistered security interest under the Saskatchewan Personal Property Security Act over the Bank's subsequently acquired and registered Bank Act security interest in the same farm equipment.

The Supreme Court of Canada dismissed the appeal, holding that under the Bank Act, the Bank could acquire no greater interest in the collateral than the debtor had at the time the security was taken.

Because the debtor had already conveyed a statutory interest analogous to a fixed charge to the Credit Union, the Bank took its security interest subject to that prior interest, regardless of the fact that the Credit Union's interest was unperfected.

The debtor executed a General Security Agreement with the respondent credit union covering present and after-acquired property, but the credit union did not immediately register its interest under the Personal Property Security Act (PPSA).

The debtor subsequently granted a Bank Act security interest to the appellant bank, which was registered.

The debtor later acquired additional property, to which both security interests attached simultaneously.

When the debtor defaulted, the bank seized and sold the after-acquired property.

The Supreme Court of Canada held that the bank's security interest was subject to the credit union's prior unregistered PPSA interest.

Under the Bank Act, the bank could acquire no greater interest than the debtor held at the time the security was given.

Because the credit union had already acquired an inchoate proprietary interest in the after-acquired property upon execution of its security agreement, the debtor's title was already encumbered when the bank took its security.