Edwards (Re)

Edwards (Re) Collection Decisions of the Court of Appeal Date 1998-12-18 Docket numbers C29171 Judges Osborne, Coulter Arthur Anthony; Weiler, Karen Merle Magnuson; Abella, Rosalie Silberman Subject Criminal Decision Content DATE: 19981218 DOCKET: C29171 COURT OF APPEAL FOR ONTARIO RE: IN THE MATTER OF THE BANKRUPTCY AND INSOLVENCY ACT, AND IN THE MATTER OF THE BANKRUPTCY OF JUSTIN JOHN MARK EDWARDS, DEBTOR RE: TORONTO DOMINION BANK (Appellant) and THE ROYAL BANK OF CANADA (Respondent) BEFORE: OSBORNE, WEILER AND ABELLA JJ.A. COUNSEL: Sean E. Cumming, for the appellant Denis J. Power, for the respondent HEARD: December 8, 1998 E N D O R S E M E N T [1] This is an appeal from the decision of Chadwick J. dismissing an appeal from an order of the Deputy Registrar in Bankruptcy expunging the secured proof of claim of the appellant, Toronto Dominion Bank. [2] The Bankrupt, Mr. Edwards, is a solicitor and a former partner in the law firm Nelligan/Power. The appeal is, in essence, a dispute between the Toronto Dominion Bank (TD) and the Royal Bank of Canada (Royal) as to which of them should have priority to Mr. Edwards share of the firm=s capital account. [3] The appellant raises two main issues: (1) whether the Royal had an unperfected security interest over the Bankrupt=s interest in his partnership capital account; (2) whether the Letter of Direction by the Bankrupt to Nelligan/Power constituted a subordination by TD of its prior perfected security interest to the unperfected security interest of Royal. [4] With respect to the first issue, we are satisfied that there was sufficient evidence from which an inference could be drawn that Mr. Edwards agreed to an arrangement whereby his capital would not be returned to him without payment to the Royal Bank of $100,000. The amendment to the agreement between Nelligan/Power and the Royal involved a capital injection in the firm by five new partners. Mr. Edwards was one of the five so he had to be aware of the letter. This was also part of the basis on which Mr. Edwards borrowed the $100,000 from the Royal Bank. There is sufficient evidence to warrant the finding that the Royal was a secured creditor but it did not perfect the transaction by registration under the Personal Property Security Act. It is acknowledged by the appellant that the decision of this court in Euroclean Candad Inc. v. Forest Glade Investments Ltd. et al. (1985), 49 O.R. (2d) 769 makes clear that the security interest does not have to be perfected to be recognized as a valid security interest. [5] With respect to the second issue, the letter sent by the TD on December 16, 1996 enclosing the Direction which was signed by Mr. Edwards states: RE: Capital Account with Nelligan Power in the name of JJ Mark Edwards This will serve as your irrevocable Letter of Direction to pay the Toronto Dominion Bank at 106 Sparks Street, Ottawa, one half the net balance of the above mentioned capital account, after all internal adjustments at Nelligan Power (approximately at 25,000), once the Royal Bank capital loan of $100,000 plus interest has been repaid in full. [6] In our opinion, this letter did not, as the appellant contends, merely set out a method of calculation for repayment of Mr. Edward=s capital. It is a clear indication that TD intended to subordinate, and did subordinate, its perfected security interest to the unperfected interest of the Royal. [7] The appeal is therefore dismissed with costs to the respondent.