DATE: 20020403
DOCKET: C37353

COURT OF APPEAL FOR ONTARIO

RE: CHARTER FINANCIAL COMPANY (Applicant/Respondent) v. ROYAL BANK OF CANADA and HARRIS & PARTNERS INC., TRUSTEE IN BANKRUPTCY OF 1424684 ONTARIO LIMITED (Respondents/Appellant)

BEFORE: CARTHY, CRONK and GILLESE JJ.A.

COUNSEL: Duncan M. MacFarlane, Q.C. for the appellant

Douglas D. Langley for the respondent

HEARD: March 26, 2002

On appeal from the order of Justice J. Farley dated October 24, 2001.

E N D O R S E M E N T

[1] This appeal concerns a contest between two secured creditors regarding the priority of their security interests under the Personal Property Security Act, R.S.O. 1990, c. P.10, as amended (the “Act”).

[2] In February 1998, the Royal Bank of Canada (the "Bank") obtained a general security agreement from its customer, 1183461 Ontario Limited ("118"), and perfected its security interest under the Act. Early in June, 2000, 118 applied to the Charter Financial Company ("Charter") for the lease of 10 trailers. In its lease application, 118 indicated that it would be amalgamating with another company and that the amalgamated company would continue under the name of 118. Charter purchased the trailers and entered into the lease with 118 and, on July 11, 2000, registered a financing statement under the Act against 118 in relation to the trailers. Charter's security interest was a purchase-money security interest. Accordingly, under s.33(2)(a) of the Act, it had priority over the Bank's security interest in relation to collateral of 118.

[3] On June 20, 2000, however, 118 had amalgamated with another company. The amalgamation agreement, dated May 1, 2000, stated that the name of the amalgamated company was 118. The articles of amalgamation, issued the following month, stated that the name of the amalgamated company was 1424684 Ontario Limited ("142"). Neither the Bank nor Charter had a security interest granted by a company named 142.

[4] The Bank was the first to learn that the name of the amalgamated company appeared to be 142, rather than 118, and it obtained a new general security agreement from 142. Having learned of the apparent change in the name of the debtor, the Bank was obliged under s. 48(3) of the Act to register a financing change statement within 30 days in order to maintain perfection of its security interest. It did not do so until November 17, 2000, with the result that its security interest was unperfected from the end of September, 2000 to November 17, 2000. On the latter date, it registered a financing statement in relation to its security interests under both the new general security agreement and in relation to the original agreement entered into with 118. Accordingly, by operation of s. 30(6) of the Act, effective with its November, 2000 registration, the Bank's security interest was deemed to have been continuously perfected from the time of its original registration in February 1998, except that its security interest was not effective against "any person who acquired...rights in all or part of the collateral during the period when the security interest was unperfected".

[5] Charter did not learn of the issue concerning the name of the amalgamated company until December 19, 2000. When it learned, it promptly registered a financing statement under the Act in the names of both 118 and 142.

[6] The Bank concedes that 118 continued to exist at law following the amalgamation. It argues, however, that the Act requires precision in registrations, including in the name of debtors against whom security interests are registered, that Charter failed to register under the Act in the "correct" name of the debtor and, as the Bank's security interest was perfected against both 118 and 142 in November, 2000, Charter's error in registration is fatal to its priority claim. Charter argued before the motions judge that it did not register its security interest in the name of the "wrong" company but, rather, it registered against one of two equally valid corporate names. As 118 continued after the amalgamation to have sufficient existence to enter into valid and binding agreements, such as the lease, its earlier registration against 118 takes priority. The motions judge agreed with Charter and, on the authority of Witco Chemical Company, Canada, Limited v. The Corporation of Oakville (1975), 1974 7 (SCC), 1 S.C.R. 273 and related cases, held that Charter's security interest has priority over the Bank's security interest.

[7] Before this court, Charter relied on the amalgamation agreement to argue that the 118 name continued after the amalgamation to be a name capable of valid use, that 118 had legal capacity to enter into the lease in July, 2000, and that Charter's registration of a name change concerning 142 and in respect of 118 in December, 2000 was in full compliance with the requirements of s. 48(3) of the Act. Accordingly, it asserts that its July, 2000 registration of its security interest against 118 remained effective, and perfected, such that its security interest, as a purchase-money security interest, continues to enjoy priority over the Bank's interest.

[8] We agree with Charter's submissions. Based on the express language of the amalgamation agreement, the name of the amalgamated company was 118, that company continued after the amalgamation to have sufficient legal existence to enter into binding agreements, and the July, 2000 registration of a financing statement in relation to 118 was a valid registration. Charter complied with the registration requirements of s. 48(3) of the Act and the issuance of articles of amalgamation in the name of 142 appears to have been an administrative error.

[9] Section 46(4) of the Act provides that financing statements are not invalidated or impaired by reason only of an error or omission therein, or in its execution or registration"unless a reasonable person is likely to be misled materially by the error or omission". In this case, had the Bank conducted the usual searches after July 11, 2000, the results would have revealed a purchase-money security interest in favour of Charter in relation to 118. Therefore, no material prejudice was suffered by the Bank. Charter paid for the trailers in question and met its registration obligations under the Act.

[10] We therefore dismiss the appeal. Charter is entitled to its costs of the appeal in the amount of $4000.00, as agreed between counsel, plus disbursements and G.S.T.

“J.J. Carthy J.A.”

“E.A. Cronk J.A.”

“E. Gillese J.A.”