DRT 6571 – DROIT DES BIENS : ÉLÉMENTS COMMERCIAUX
Table des matières
INTRODUCTION .....................................................................................................................6
WHAT ARE SECURED TRANSACTIONS IN PERSONAL PROPERTY ................................................................6
SECURITY .................................................................................................................................7
HISTORY ..................................................................................................................................8
SCOPE OF THE ONTARIO PPSA LEGISLATION ...........................................................................8
INTRO ....................................................................................................................................8
SECURED TRANSACTION ........................................................................................................................ 9
TRANSACTION ...........................................................................................................................9
PERSONAL PROPERTY ................................................................................................................ 10
THE STATUTORY CLASSIFICATION OF PROPERTY ........................................................................................ 10
WHAT IS PROPERTY ............................................................................................................................ 11
SECURITY INTEREST............................................................................................................................. 12
a) Trust........................................................................................................................................... 12
b) Setoff ......................................................................................................................................... 13
c) Guarantees ................................................................................................................................ 14
d) Negative Pledge / covenants ..................................................................................................... 14
IS IT A PERSONAL PROPERTY? ............................................................................................................... 15
SECURITY INTERESTS IN INVESTMENT PROPERTY....................................................................................... 15
DEEMED SECURITY INTERESTS ............................................................................................................... 15
a) Transfers of Accounts and Chattel Paper .................................................................................. 16
b) Leases ........................................................................................................................................ 16
A conditional sale agreement ........................................................................................................ 16
Consignments ................................................................................................................................ 16
EXCLUSION FOR THE SCOPE OF THE ACT ......................................................................................... 16
A) LIENS GIVEN BY STATUTE OR RULE OF LAW - 4(1)A) ............................................................................ 17
B) INSURANCE - 4(1)C) ....................................................................................................................... 17
C) INTEREST IN REAL PROPERTY (REAL ESTATE) – 4(1)E) ............................................................................ 18
VALIDITY AND ENFORCEABILITY OF THE SECURITY INTEREST ................................................. 19
CONDITION IN A CONTRACT ........................................................................................................ 19
STATUTE OF FRAUDS REQUIREMENT .............................................................................................. 21
ATTACHMENT ...................................................................................................................... 23
OVERVIEW OF ATTACHMENT ....................................................................................................... 23
SECTION 9(1) AND EFFECTIVENESS OF SECURITY AGREEMENT .............................................................. 25
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REQUIREMENTS FOR THE CREATION OF ATTACHMENT ........................................................................ 25
1. THE NEED FOR A SECURITY AGREEMENT (11(2)A)) ............................................................................... 25
2. SECURE PARTY MUST GIVE VALUE (IT DOESN’T SAY THAT IN SECTION11) .................................................. 25
3. THE DEBTOR MUST HAVE RIGHTS IN THE COLLATERAL OR AT LEAST RIGHTS TO TRANSFER THE COLLATERAL ..... 26
Introduction ................................................................................................................................... 26
After-acquired property ................................................................................................................ 27
The floating charge ........................................................................................................................ 28
SECURITY AGREEMENTS ............................................................................................................. 28
CHARGING CLAUSE ............................................................................................................................. 29
FUTURE ADVANCES AND PAST ADVANCES (CLAUSES) ................................................................................ 29
PERFECTION......................................................................................................................... 30
INTRO ................................................................................................................................... 30
HOW TO PERFECT ..................................................................................................................... 31
POSSESSION ...................................................................................................................................... 31
What is possession ........................................................................................................................ 32
What is repossession ..................................................................................................................... 32
What is constructive possession ................................................................................................... 32
PERFECTION OF A SECURITY INTEREST IN INVESTMENT PROPERTY.......................................................... 33
CONTINUITY OF PERFECTION ....................................................................................................... 33
CHANGE IN PERFECTION METHODS ........................................................................................................ 33
GAPS IN PERFECTION .......................................................................................................................... 34
PERFECTION FOLLOWING ASSIGNMENT BY SECURED PARTY ........................................................................ 35
CONSEQUENCES OF NON-PERFECTION ........................................................................................... 35
UNPERFECTED SECURITY INTERESTS, LIENHOLDERS, AND SIMILAR PERSONS .................................................. 35
TRUSTEE IN BANKRUPTCY..................................................................................................................... 35
RECEIVERS ........................................................................................................................................ 37
TRANSFEREE OF COLLATERAL ................................................................................................................ 37
WHEN DO YOU HAVE TO ASK WHETHER SMTG IS PERFECTED OR NOT? ................................................... 37
REGISTRATION ..................................................................................................................... 37
INTRODUCTION ........................................................................................................................ 37
WHY DO YOU HAVE REGISTRATION? WHAT ARE THE BENEFITS? ................................................................. 38
STRUCTURAL UNITY OF SUBSTANTIVE PROPERTY SECURITY LAW ................................................................ 39
NOTICE REGISTRATION........................................................................................................................ 39
ELECTRONIC REGISTRATION SYSTEMS .................................................................................................... 40
DEBTOR’S NAME-BASED REGISTRATION AND SERIAL NUMBER REGISTRATION ............................................. 40
EXACT MATCH AND CLOSE MATCH RETRIEVAL SYSTEMS........................................................................... 40
THE REGISTRATION PROCESS ....................................................................................................... 41
INTRO .............................................................................................................................................. 41
FORM AND CONTENT OF FINANCING STATEMENT ..................................................................................... 41
REGISTRATION AMENDMENTS, RENEWALS ...................................................................................... 41
CORRECTING ERRORS .......................................................................................................................... 41
CHANGES TO REGISTRATION PERIOD ...................................................................................................... 41
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INADVERTENT REGISTRATION DISCHARGES .............................................................................................. 42
ASSIGNMENT BY SECURED PARTY .......................................................................................................... 42
TRANSFER BY DEBTOR AND DEBTOR NAME CHANGE.................................................................................. 42
DISCHARGE ............................................................................................................................. 43
DEMAND FOR DISCHARGE OF REGISTRATION ........................................................................................... 43
Demand to discharge .................................................................................................................... 43
Demand to amend the collateral description ............................................................................... 44
MANDATORY DISCHARGE .................................................................................................................... 44
VEXATIOUS REGISTRATION ................................................................................................................... 44
SEARCHING THE REGISTER........................................................................................................... 45
ERRORS AND OMISSIONS IN FINANCING STATEMENT ......................................................................... 45
NAMES............................................................................................................................................. 45
COLLATERAL ...................................................................................................................................... 47
BASIC PRIORITY RULES ......................................................................................................... 49
STEPS TO SUCCESSFUL SECURITY ................................................................................................... 49
PRIORITY BETWEEN WHAT KINDS OF CREDITORS? ............................................................................. 49
UNSECURED VS SECURED: SECTION 20 ................................................................................................... 49
SECURED VS SECURED: SECTION 30(1)................................................................................................... 49
WHY GO FOR FIRST IN TIME?................................................................................................................ 51
DOES KNOWLEDGE MATTER? ...................................................................................................... 51
PRIOR LENDER’S COMPETITIVE ADVANTAGE .................................................................................... 52
TIME FOR DETERMINING PRIORITIES .............................................................................................. 52
SECURITY FOR FUTURE ADVANCES ................................................................................................ 53
THE LAW .......................................................................................................................................... 53
PRIORITY OF REPERFECTED SECURITY INTEREST ................................................................................ 53
SUBORDINATION AGREEMENTS .................................................................................................... 53
SUBORDINATION ................................................................................................................................ 53
SUBROGATION VS SUBORDINATION ....................................................................................................... 54
ESTOPPEL LETTERS.............................................................................................................................. 54
CIRCULAR PRIORITIES PROBLEMS .................................................................................................. 54
THE DOUBLE DEBTOR CONTROVERSY ?? ......................................................................................... 56
PURCHASE-MONEY SECURITY INTERESTS - PMSI ................................................................... 56
INTRO ................................................................................................................................... 56
THEORY OF PMSI PRIORITY ........................................................................................................ 58
SCOPE OF THE PRIORITY ............................................................................................................. 58
GIVING VALUE TO ACQUIRE RIGHTS IN COLLATERAL .................................................................................. 58
REFINANCING PMSIS ......................................................................................................................... 60
PRIORITY RULES ....................................................................................................................... 61
MIXED PMSIS AND NON-PMSIS.......................................................................................................... 63
ALLOCATION OF PAYMENTS.................................................................................................................. 63
SUBORDINATION ARGUMENTS .............................................................................................................. 64
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LIENS ................................................................................................................................... 64
LIENS BY STATUTES ................................................................................................................... 64
LIENS IN FAVOUR OF PRIVATE CREDITORS ....................................................................................... 65
HOW LIENS WORK .................................................................................................................... 66
PENSION FUND ........................................................................................................................ 66
GOVERNMENTAL LIENS .............................................................................................................. 66
TRANSFER OF COLLATERAL ................................................................................................... 68
PROTECTION OF TRANSFEREES IN ORDINARY COURSE......................................................................... 68
INTRODUCTION .................................................................................................................................. 68
SALE OF GOODS IN ORDINARY COURSE ................................................................................................... 69
Buyer ............................................................................................................................................. 70
Security interest given by seller .................................................................................................... 71
Ordinary course of business .......................................................................................................... 71
Quist close trust............................................................................................................................. 72
TRANSFER OF CHATTEL PAPER OR SECURITIES................................................................................... 72
MOTOR VEHICLE ...................................................................................................................... 73
PROCEEDS ........................................................................................................................... 73
TRACING .............................................................................................................................. 75
FIXTURES, ACCESSIONS AND COMINGLED GOODS................................................................. 77
FIXTURES ............................................................................................................................... 77
FIXTURES AND THE LANDLORD RIGHT TO DISTRESS ................................................................................... 80
ACCESSION ............................................................................................................................. 81
COMMINGLED GOODS ............................................................................................................... 82
ENFORCEMENT OF THE SI ..................................................................................................... 83
DEFAULT ................................................................................................................................ 83
ENFORCEMENT ........................................................................................................................ 84
PROCEDURAL AND SUBSTANTIVE LIMITS ON ENFORCEMENT RIGHTS (NOTICE) ............................................... 84
SEIZURE OF COLLATERAL ...................................................................................................................... 85
APPOINTMENT OF RECEIVER-MANAGER ................................................................................................. 86
VOLUNTARY FORECLOSURE .................................................................................................................. 87
SELLING OF THE COLLATERAL ................................................................................................................ 88
DEFICIENCY CLAIMS ............................................................................................................................ 89
SECURED PARTY’S COLLECTION RIGHTS: ACCOUNTS, CHATTEL PAPER, AND INSTRUMENTS ............................... 90
RIGHT OF REDEMPTION ....................................................................................................................... 90
AUTRES ............................................................................................................................................ 90
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CONFLICT OF LAWS .............................................................................................................. 91
BANK ACT ............................................................................................................................ 91
IS IT A SALE/LEASE OR AN SI ................................................................................................. 91
SET OFF................................................................................................................................ 92
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INTRODUCTION
What are secured transactions in personal property
The CL doesn’t think as property like civil law, so doesn’t think security the same way either. In
civil law, no distinguishing between the type of property that are sold. In CL we have different law
of sell for goods vs personal property.
Its about consensual relationships : A and B enter into an agreement to borrow money (CALLED
COMMITMENT). A does smtg for B and B promises to do smtg for A later in return. It’s a personal
obligation.
o In a loan, A gets money and in return he needs to repay + possibly pay interest.
o But if you step back and look at the parties, there are risks for the parties in the
transactions.
o From A’s perspective, the major risk is that B promise to lend the money, but doesn’t do
it.
 A can't force B to give him money in CL
 A could only sue B for breach of contract and sue for damages. But can't sue for
the amount originally owed.
o From B’s perspective, if interest rates go down, it’s bad for him. Another risk is if A doesn’t
pay back (the principle [the actual loan] + the interest)
 How to make sure A pays back? Get A to agree to not do certain things. A will
agree to repay AND to uphold certain amount of convenants (promises). The
purpose of the covenants is to make sure the risk of not getting repaid doesn’t
get bigger: to make sure A doesn’t do anything stupid to increase B’s risk
 Ex of what A can't do : not getting more debt, can't borrow more money from
other ppl, can't get rid of the assets that generates you income, rules on what you
can't do w your business your business - These are CONTRACTUAL ways to
protect yourself as someone who lends money
Since it’s a contractual security, you can only impose the contract to the parties in the contract.
Only effective to the extend that you can enforce the contract. Ex : Can't be enforced if there's
bankruptcy.
The other way to protect yourself. Ex of if there is no repayment from A.
The debtor can sue for breach of contract. Then you have a judgement of the court : its an order
where the court tells A to pay some amount of money to B. If they don’t do it, B can seek execution
of the judgement by seizing A’s assets. You can only do that if you have a judgement (bc getting
the money back form A is B’s personal right)
What is an asset?
 Its simply property rights in certain things.
 Two categories : 1. land 2. and all else
o Creditors have dibs on the economical value on the assets of A. the reason why we
distinguish land and all else is bc land was first recognized as an asset
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o
o
Ex w land = mortgage (a good way to guarantee repayment and create security). AB
have a personal obligation. A would have a right in land and this right would be
transferred to B and B would keep the right until repayment.
(différence avec hypothèque : au qc on ne transfère pas le droit de prop. En CL, oui)
Security interest
o Pure statutory invention
o Purpose : if A doesn’t perform the promise, B can use the security interest to make sure that
the promise is satisfied (can A use the interest against B too?)
o Why would the parties agree to this?
 Smith v. Landstar Properties Inc
 B loaned money to A. A promised to give a security interest to B. A didn’t create the
security interest, but paid back the loan.
 Question : did B suffer a loss? Yes. B bore a higher risk of default for non-repayment
for which it was not compensated. Therefore, what's the benefit to A of giving a
security? A got a loan where he would’ve not gotten one or A paid less for the money
(bc the risk of nonpayment is reduced : that’s the benefit of the security. Ex unsecured
rate : 5% and secured rate: 2%).
How did we get to this?
 Until 19th century, we had a few different types of transactions that functioned as a security
interest. They tended to be really diverse. Then we also had equitable ones. We had to
know lots of complicated laws that didn’t interact w each other. It didn’t work well. It was
useful for commerce.
 How did we improve the system? The answer comes from the US. Developing the UCC as a
code ; not meant to be legislation originally ; just an academic exercise to be sold to gvts.
Then the gvts adopted UCC as law.
 In Canada, we said we needed a legislation like art9 of UCC but adapted to Canadian law.
Then we adopted the PPSA in Ontario (and other provinces got their own legislation. Same
basis, but some significant differences)
Why do ppl organize their affairs this way since its lengthy and complicated?
• Bc both parties get smtg from the transaction
• From the debtor’s side, you get ability to raise money, possibly at a lower cost
• From the creditor’s side, by agreeing to lend you money, takes on a certain risk. By creating
the security interest, you have a greater chance of repayment.
PPSA DOESN’T COVER LAND! (UNLIKE HYPOTHÈQUE)
Security
It doesn’t have any rational in itself. You generally do secure transaction in order to support some
other transaction.
Loan is a contractual relationship. Usually, we have a creditor that lends money to a debtor/
borrower who promise to repay. There are risks of non-repayment so we put restrictions on the
debtor contractually. EX: promise you pay me back and promise not to go travel, etc. until you
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pay me back. That is a personal contractual promise so if it is breached, have to go to Court and
solve that.
The other way to protect yourself is if the debtor has property and the creditor gets certain rights
in it in case of non-repayment. If they don’t repay or don’t do what they promise, no need to go
to court under personal contractual breached, but go to court and explain that the property is
now mine.
The property that you can take on is either real (mortgage) or personal. The system on how to do
this was very complicated in Canada. The law has been modernised.
There are unsecured and secured loans. Unsecured= personal obligation (better for borrower).
Secured= personal and property obligations (better for creditor).
Smith v. Landstar Properties Inc: the borrower promises property rights, but the Court didn’t give
them property rights, but they repaid the loans. The company is suing the creditor because he
didn’t do a secured transaction. Not getting the security was something of value because usually
when you have a secured transaction, the risk is lower.
When the assets are lower than the debts of the borrower, the secured transactions are much
more likely to be repaid.
History
CL had a bunch of different way to deal with loan with property. It was complicated to use. How
to bring all of these ways together. It is really driven by function thinking rather than conceptual.
We still don’t have uniformity in Canada, because refuse to unify, but in big picture they all work
the same.
SCOPE OF THE ONTARIO PPSA LEGISLATION
INTRO
What transactions are covered by this course? The problem that arises is that the definition is not
in some sense essentialist, it is much more a functional definition (if the transaction serves a
certain rule, then it is a secured transaction). (we don’t care if we call it a sale or a transaction.
What matters is what does it do?)
What kind of transaction are covered by the PPSA legislation?
- They need two elements: Section2
(1) they must involve property.
(2) Attachment has to deal with this idea of property.
What kind of property is captured by it? Pretty much everything unless it involves real estate OR
unless it is specifically exempted by the act.
What is the purpose? It doesn’t matter how you formally structured the transaction, what you
care is how you do it. If it is a transaction where there is movement of property right done in order
to secure an underlying transaction (protect something else), then the transaction has to be
covered by the PPSA. Unless it’s in the exception.
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Goal of PPSA: Almost every secured transaction involving security should be covered by the PPSA,
that’s the goal of creating it. If it isn’t covered, it’s a failure of the objective of the legislation. They
want this absolute coverage is to only have one place you need to go to know if a security exists
or not and every dispute are covered by uniformed rules, every one is on the same page. The
scope of the PPSA should be as wide as possible.
Secured transaction
(1) Agreement: answer the question what did the parties intended. Security is consensual, not
oblige to give one.
(2) Core obligation: in order for this to be triggered. EX: transaction between A and B. B owes
obligations to A. Usually it is a loan. The obligation to repay is in the future and there is a risk of
uncertainty of repayment. Another risk is inflation, cannot be helped by secure transaction.
(3) Creation of the protection in multiple ways / property transfer:
- Surety: A can go after C if B doesn’t pay. This only kicks in when B doesn’t repay.
- Assets: B will give property rights to A in its assets. Creation of a property interest. There
is a transfer of a property right. It can be done in many ways. (a) It could be transfer of
the property rights. If B pays, need to give back the property. Yes, keeping it until
payment. (b) Creating a property interest in the asset, so they are not mine, but if it’s not
paid, I have the ability to go and get them and I can sell them. They can become mine.
Technically, any CL property can be transfer, unless there are some limitations. EX: family home,
some cases say that both people need to agree to give a security on homes.
Transaction
However, you want to install this security device, is it playing the role of support from another
transaction? If yes, then subjected to the rule of the PPSA. Secured interest replaces a whole
bunch of transactions.
2 PPSA: Application
Subject to subsection 4 (1), this Act applies to,
(a) every transaction without regard to its form and without regard to the person who has title
to the collateral that in substance creates a SI including, without limiting the foregoing,
• transaction = consensual contract between the parties
- SA = the contract between the creditor and the debitor (1.1)
• SI = an interest in assets (in personal property)
- the asset in which you create a SI = collateral
• the goods will be defined by the function they play in (i)(ii) (ex equipment, inventory,
consumer good)
• without regard to the title, because it doesn’t matter in whose hands it is for the
moment.
◦ EX : A has an asset. CL doesn’t have a notion of ownership, there is an intensity
of the rights in property. To identify, we look at how long we have the
property.
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•
Also, opposability, which means your rights is good against many people. Everybody=
very strong rights. Some people = rights is weaker. Title is the nature of your property
right. When transfer property, transfer title.
(i) a chattel mortgage, conditional sale, equipment trust, debenture, floating charge, pledge,
trust indenture or trust receipt, and
(ii) an assignment, lease or consignment that secures payment or performance of an
obligation;
(b) a transfer of an account or chattel paper even though the transfer may not secure payment or
performance of an obligation; and
• An obligation is usually a chose in action. But you can write it in a document which is
called a chattel paper : it gives you rights in the obligation : the paper is valuable bc
you can transfer the rights. So you can create security in the abstract right and the
document creating that right
• There is another doc with which you can transfer rights: document in title.
(c) a lease of goods under a lease for a term of more than one year even though the lease may not
secure payment or performance of an obligation.
Security is limited to personal property:
1(1) “security interest” means an interest in personal property that secures payment or
performance of an obligation, and includes, whether or not the interest secures payment or
performance of an obligation,
(a) the interest of a transferee of an account or chattel paper, and
(b) the interest of a lessor of goods under a lease for a term of more than one year
Personal property
It is all property other than land (s.4(1)e))
The statutory classification of property
Art. 1. Personal property
means chattel paper, documents of title, goods, instruments, intangibles, money and investment
property, and includes fixtures but does not include building materials that have been affixed to
real property; (“bien meuble”)
Art. 1 Goods
means tangible personal property other than chattel paper, documents of title, instruments,
money and investment property, and includes fixtures, growing crops, the unborn young of
animals, timber to be cut, and minerals and hydrocarbons to be extracted; (“objets”)
- this category is further divided in three : consumer goods, inventory and equipment
Art1. Chattel paper
means one or more than one record that evidences both a monetary obligation and a security
interest in or a lease of specific goods; (“acte mobilier”)
- it is a form of personal prop on its own right, separate from the goods it relates to. This
means that chattel paper can be transferred or used as collateral by the dealer
- for ex, if a dealer sells a car to a customer on conditional sale terms, the conditional sale
document is chattel paper within the meaning of the defn : it is a record that evidences
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(1) the customer’s obligation to pay the instalments, and (2) a security interest (the
dealer’s reserved title) in the car
Documents of Title
- The most common example of a document of title is an order bill of lading issued by a
carrier (ex a shipping cie). The document of title’s main distinguishing features are (1) it
gives the holder the right to claim from the bailee (that is, the carrier) the goods to which
the document relates and (2) it is transferable, with a transfer of the doc giving the
transferee the right to delivery of the underlying goods.
- A document of title evidences ownership of goods.
Instruments
- The most familiar example of an instrument is a cheque.
- It is negotiable instrument, which evidences ownership of a money obligation.
Art. 1. Investment property
means a security, whether certificated or uncertificated, security entitlement, securities account,
futures contract or futures account; (“bien de placement”)
- Each of these terms are also defined in the PPSA
- You can hold prop directly or indirectly
Intangibles
- Is a residual category intended to cover all types of intangible personal property that do
not fall into any of the other categories.
- Ex : accounts (bank deposits), intellectual property and licenses
Money
- Def depends on the diff gvts
Original collateral and proceeds collateral
What is property
Saulnier v Royal Bank of Canada
• Facts : The bank took security over a fisherman’s business. The question is if the fishing
licence an asset in which you can give security?
◦ Attention, here we’re just answering if its property according to the ppsa, not other
laws
• Different approaches
◦ One way of looking at it is saying its not property, it’s a contractual right, a gvt grant,
its personal to the fisher ; that means you can't give security in it. It’s the gvt that
would define what you can do w the licence bc it’s a gvt grant. So the gvt can say it’s
a void security.
◦ The traditional CL approach : tobacco quota and licence not property.
◦ The regulatory approach : a lot of quotas and licences are property. But not
necessarily for security purposes
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•

In order for the act to apply, you always have to answer what the instrument does, not
what it’s called. Here we can see that licence = property.
◦ Having control over how something can be used is an important factor in deciding
whether or not the thing at issue is indeed private property.
◦ A fishing license gives the holder exclusive right to fishery and a proprietary right in
both the fish harvested and the resulting earnings. The license serves as precondition
for unlocking the appellant's other marine assets; since the value of the appellant's
other business equipment is conditional upon acquisition of a fishing license, it
follows that the trustee was entitled to require Saulnier to transfer his fishing licenses
to a third party purchaser
The Court doesn’t say it is property they say “for the purpose of answering this question it is
property”. So if you ask a different question, it could be different. “Our concern is exclusively
with the extended definitions of “personal property” in the context of a statute that seeks to
facilitate financing by borrowers and the protection of creditors. In my view the grant by the
Fisheries Minister of a licence coupled with a proprietary interest as described above is
sufficient to satisfy the PPSA definition. In this respect, the registration is therefore valid to
include the s. 7(1) fishing licence and, in the absence of any other PPSA defence, the
respondent bank is entitled to proceed with its PPSA remedies.”
Security interest
The proprietary interest. A SI in pp means that it secures performance of an obligation and
includes whether or not the SI secures performance or payment.
356447 British Columbia Ltd v Canadian Imperial Bank Of Commerce : page 21
- Facts : the bank said they have a SI and the other party is saying no. by agreement, BC
corporation agreed to advance certain funds to help a different corporation for the purpose
of a loan to help them pay the bank in exchange of getting 40% of their venture (apartment
building). Much later, BC wanted the money back, but the bank has judgement to get money
against 2nd corporation. No money after the bank gets done for 2nd corporation to repay BC
corporation. The only way to avoid that problem is if BC corporation has a security interest
when they loaned money. BC Corporation had to have a security interest and had to say in
which assets.
- You have to go see the loan contract to decide. In the contract it is said that 2nd corpo will
give 40% of rent from the venture. Does BC corp have a property right in the 40% of rent or
not? That’s the debate. If that 40% is 100% BC’s property, then the only way the bank could
access it is to be a court order against BC corporation.
- Its function over form : so you don’t need any particular wording to create security interest.
- Decision : para11 et ss. 356447's security interest is good. Meets all the requirements:
Signed by the debtor, describes the collateral (“if I get rent, I’ll pay you 40%”. it’s a assignment
in a equitable way. Not really a great description of the collateral, but good enough)
a) Trust
By definition, a trust is not a security device, but it could be used as one (Manning Jamison).
However, a security interest depends on a debtor–creditor relationship and, in the usual case, the
trust lacks this element. On the other hand, the parties may cast their security agreement in the
form of a trust and, if they do, the PPSA will apply.
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Manning Jamison Ltd v Registrar of Travel Services, sub nom Re Skybridge Holidays Inc, 1999:
- Facts : individual who prepaid their vacations to skybridge. Skybridge went bankrupt. There
is not enough asset to pay everybody so the creditors try to have some assets. They have
their eyes on the trust of money that’s been paid for the holidays.
- They are wondering if it is a trust or not? Yes. Is it a security device? Is that money use as a
security device that guarantees performance of underlying or just a prepayment? The court
said it’s just a holding of the prepayment of the money.
- In the case, none of the parties intended to create a security agreement for PPSA purposes
and the parties’ intentions is one of the factors relevant to determining the substance of a
transaction. If a trust is set up to ensure payment or performance of an obligation, it is a
security interest like any other caught by PPSA. (rare)
- “As I have said, the chambers judge was asked to assume the existence of the elements of the
underlying trust. The Trustee accepted the burden of demonstrating the trust was a security
interest. The chambers judge concluded this could not be done by simply applying the words
of the PPS Act to the circumstances. What he did was to adopt an approach which, if there
had been a disguised utilization of the trust as a security instrument, would have revealed
that fact. He looked at the purpose of the transactions; the role and relationship of the
parties; the practicality and commercial reality; and the intention of the parties with respect
to the transactions.”
- This is a qucics-clause trust, the idea is to put money in an obligation, but if it is not, the
money come back. If it is used as a security device, in order to enforce it, you would have to
follow certain procedure. That’s why it is important to see if it is one.
b) Setoff
Way of protecting yourself. EX: A and B, B owes 10$ to A and A owes 12$ to B. That means A has
to pay 2$ to B if you apply setoff. Setoff comes in legal and equitable. EX: A goes bankrupt, A
cannot pay to B, but B still need to pay, so this is a huge lost on B. That’s why they will setoff.
= The right of a debtor who is owed money by his creditor on another account or dealing to
[ensure] payment for what is owed to him by setting this off in reduction of his own liability.
Caisse populaire Desjardins de l’Est de Drummond v Canada, 2009: Creation of implicit SI
- In the case, we wonder if a security interest was created.
- Facts: There was the bank and there was a business that borrowed money from the bank via
a line of credit. So far, it’s a personal obligation. Bank promises to lend and business promises
to repay the loan. So why is there debate about security? Its bc the bank might’ve been
worried about the business not paying back. So the bank said that in order for them to lend
the money, the business first needs to make a deposit in another account + not to withdraw
before repayment of the loan. So we see there's two agreements: loan + deposit. The thing
is, when you deposit money to the bank, you are making a loan to the bank. So the bank is
the business’ debtor under agreement for deposit. But the business is the debtor under
agreement for loan. The law of set-off says how much the parties owe each other and the
actual debt is the difference. The setoff is a contractual notion (so there needs to be a
contract between the parties).
- The argument of the bank is that bc there's a deposit + setoff, there's a SI. Bc of setoff, the
bank says that the business’ debt to the bank will be paid first, against the business’ all
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other creditors. The SCC says its true. Even tho it wasn’t really said that there's a security
interest, since there's a deposit + set off, then its equivalent of the bank having a security
interest.
Security agreement is a contract. Therefore, you have a security interest when your contract
says that you have one. The problem in this case is that the parties didn’t mention
specifically that there's a security interest, they just said that they have a bunch of rights
and obligations. Turns out, those rights/ obligations = security interest. It works like a
security interest and works like it. So bank has a security interest in the money that was
deposited.
“Security interest” means any interest in property that secures payment or performance of
an obligation and includes an interest created by or arising out of a debenture, mortgage,
hypothec, lien, pledge, charge, deemed or actual trust, assignment or encumbrance of any
kind whatever, however or whenever arising, created, deemed to arise or otherwise
provided for.
“If their mutual intention is to create a security interest to ensure that the right of
compensation or set-off will be an effective remedy, there is no reason to think that a security
interest does not exist simply because the parties have chosen one mechanism for realizing
on the security, rather than another. What must be considered is the substance of the
agreement. If the substance of the agreement demonstrates that the parties intended an
interest in property to secure an indebtedness, then a security interest exists.”
The supreme court say that the transfer of money + the condition of time of non-retraction
+ the setoff, all together, makes it a security device. Because the purpose and the transfer
was to create one. If it was only setoff, it wouldn’t have worked. So, there is a protection
of the underlying right to repay.
c) Guarantees
Generally, are not security device because they are fundamentally personal. It will be an SI if its
gives an interest in property.
A guarantee is a promise by A to B that if C fails to pay a debt owing to B, A will pay instead. A
guarantee reduces the risk of lending by giving B an alternative source of payment if C defaults.
However, a simple guarantee is not a security interest because it gives B only a personal right of
action against A and it lacks a proprietary dimension. The case is different if A gives B an interest
in A’s personal property to secure C’s payment obligation to B or, alternatively, to secure A’s own
obligation to B under the contract of guarantee.
d) Negative Pledge / covenants
A promise, not necessarily a security interest
Usually, the biggest control for risk is not done for security but for negative pledge. To make sure
that repay me, I will prohibit you from doing something. I’m telling you what you cannot do. EX:
can’t take a vacation until repay / if I borrow money to buy a car, and then a sell the car, I have to
give the money back to the creditor immediately.
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Pledge
- Prêt sur gage. EX: borrow money, go to a small business, they will keep the asset and borrow
money. If they don’t resell at some point, they get the right to resell the good.
Negative pledge: promise by the debtor not to create a security interest in favour of a third party
or not to create any such security interest that would rank in priority to, or pari passu with, the
creditor’s own security interest. The negative pledge provision itself does not give the creditor
rights in the debtor’s property.
Is it a personal property?
If you want to have a secured transaction, you need to give away proprietary rights (SI), then you
need to have a property. We only talk about personal property here. (it can't be a personal right
: ex right to fish wont give you a security interest). If you can assign the right, then it’s a
proprietary right that allows SI. SI is a propriety right.
 Distinguishing both types of rights is right.
 Ex you get paid by your employer. Is it a personal or proprietary right here?
There is no rational definition of the term. CL doesn’t classify property in the same way as civil
law. The only property rights defined positively in CL is real property, define through a real action.
Everything else is personal property divided by possession (physical goods) and choses in action
(can’t physical have them, bank account).
Saulnier v Royal Bank of Canada, 2008: voir page 11
Security interests in investment property
Investment property is choses in actions. In order to allow security interest and mediation, the
Canadian law was reformed to make it functions in the way that US law does.
- 9(1) PPSA: Except as otherwise provided by this or any other Act, a SA is effective according
to its terms between the parties to it and against third parties.
EX: a corporation sell share, they could sell it to me directly, that’s the old way of functioning.
Large corporation will put the shares in a warehouse of shares. If I want to buy a share, I contact
a broker. The legal title will remain in the warehouse and the equitable title will transfer to the
broker and then to me. The beneficial title might be sent to me. How to create a security interest
on share that I own?
Can have certain things that do not look at a security device but are, and then (under section 4 of
the act), would be a security device but are exempted.
Deemed security interests
Deemed in common law = would not satisfy the def, but we would nonetheless say that it is.
Deemed security interests are relationships where its not a security interest like the assignment,
but bc it operates close enough, its captured.
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a) Transfers of Accounts and Chattel Paper
b) Leases
Why not extend the PPSA to all hiring agreements, regardless of length? One answer is that the
PPSA is a secured transactions statute; extending its application to longer term hiring agreements
can be justified on the ground that longer term transactions are more likely to be, in substance,
security agreements. The same justification cannot be given for short-term rentals.
Certain of them are deemed to be covered even if there are not designed to be used as a security
interest.
- 2 PPSA: Subject to subsection 4 (1), this Act applies to,… (c) a lease of goods under a lease
for a term of more than one year even though the lease may not secure payment or
performance of an obligation.
If the lease good is for more than one year, it still captures as a transaction under the PPSA.
A conditional sale agreement
(where the seller supplies goods on credit but reserves title to secure payment) is subject to the
statute because the transaction is in substance the same as if the seller had transferred title and
taken back a security interest.
- Ex : a security lease, like a condition sale is a transaction that in substance creates a
security interest and the PPSA applies on that basis (see OPPSA, s 2(a) (ii)).c)
Consignments
Relationship where we transfer possession of a good that you own to someone (agent) that have
the power to sell it. They don’t become the owner of the thing, it’s just possession and rights to
resell.
What happen if they create security? Not protected unless you’re registered.
Exclusion for the scope of the Act
4: (1) Except as otherwise provided under this Act, this Act does not apply,
(a) to a lien given by statute or rule of law, except as provided in subclause 20 (1) (a) (i) or section
31;
(b) to a deemed trust arising under any Act, except as provided in subsection 30 (7);
(c) to a transfer of an interest or claim in or under any policy of insurance or contract of annuity,
other than a contract of annuity held by a securities intermediary for another person in a securities
account;
(d) to a transaction under the Pawnbrokers Act;
(d) to a transaction between a pledgor and a person who carries on the business of taking, by way
of pawn or pledge, any article for the repayment of money lent on the basis of the pawn or pledge;
(e) to the creation or assignment of an interest in real property, including a mortgage, charge or
lease of real property, other than,
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(i) an interest in a fixture, or
(ii) an assignment of a right to payment under a mortgage, charge or lease where the assignment
does not convey or transfer the assignor’s interest in the real property;
(f) to an assignment for the general benefit of creditors to which the Assignments and Preferences
Act applies;
(g) to a sale of accounts or chattel paper as part of a sale of the business out of which they arose
unless the vendor remains in apparent control of the business after the sale;
(h) to an assignment of accounts made solely to facilitate the collection of accounts for the
assignor; or
(i) to an assignment of an unearned right to payment to an assignee who is to perform the
assignor’s obligations under the contract.
a) Liens Given by Statute or Rule of Law - 4(1)a)
PPSA s. 4(1)(a): Act does not apply to liens given by statute or rule of law
Commercial Credit Corp Ltd v Harry D Shields Ltd, 1981:
- Facts : This appeal raises a question as to the priority between a chattel mortgagee (the
appellant) and a landlord who distrained for arrears of rent (the respondent). The chattel
mortgage was properly registered. The landlord on its part had distrained properly for arrears
of rent some time after the chattel mortgagee had sent a notice claiming possession of the
secured property for default in payment. A distress, when made, confers on the landlord a
lien within the meaning of s. 3(1)(a) of the PPSA notwithstanding that it has other legal
incidents. The effect of this is twofold. First of all the landlord’s rights after making of a
distress need not be registered in accordance with the PPSA; and secondly, s. 68 has no
application to the case. So here the appellant’s title having been derived by way of mortgage,
the appellant does not have the benefit of s. 31(2) and the landlord therefore has priority as
found by the trial Judge.
- Can be security device that are created by a different statute, not the PPSA. Those are known
as liens. A right to maintain possession of something in order to make sure you repay.
- Once the PPSA is created, one reason why you extend it to be define as broadly as possible,
to capture any security device that you can think of and creating only one system to deal with
it. What is done effectively is the comparison between security device easy. If security
devices are created in other statute, how do they relate to one another? Which one has
priority?
- Held:
◦ Distress is the right of landlord to take and hold possession until rent is paid and
statutory right to sell the distrained goods
◦ Distress = confers a lien within meaning of PPSA thus no need to register AND PPSA
has no application and lien has priority
b) Insurance - 4(1)c)
PPSA s. 4(1)(c): Act does not apply to transfer of interest or claim under any policy of insurance
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Get money by insurance if something goes wrong. If suffer some damages and don’t get repay,
the insurance will step in and pay you. The rational for exempting them is that insurance has its
own very complicated system to deal with. The industry is highly regulated provincially.
Re Stelco inc, 2005:
- Questions: when insured has fully paid for policy of insurance and assigns its rights to receive
a refund of any unearned premiums, is this a security interest that is transferred? Is it
necessary to file notice of security interest under PPSA?
- Assignment of unearned premium falls under policy of insurance under s. 4(1)c), same as
UCC
GE Canada Equipment Financing GP v ING Insurance Company of Canada, 2009:
- Facts : company that leases truck in Brampton. In order to lease truck, they needed truck.
They bought two. The trucks were financed by GE Canada. The deal, was until you pay us
back, the truck are still ours. The trucks were leased by some clients. As part of the lease, the
client got insurance. The truck got stolen. The insurance company pay the truck to the
owners. Once the insurance company pay for something, they usually get the right to that
thing called the right to salvage (get the money and they got the truck). The truck was found.
GE fount out that it was found. They say this is our truck. The insurance company said they
have a right to the truck after we paid for the policy. Competition between the insurance
company and GE. The argument is that the insurance law takes it out of the PPSA so they
have priority. The GE said no you’re wrong, the insurance company are subjected to the
PPSA. The court said GE is right.
- “For its part, ING did not conduct any PPSA searches in this case. It defends this omission by
pointing to what it describes as standard insurance industry practice: in reliance on s. 4(1)(c)
of the PPSA, no PPSA searches are performed by insurers or insurance brokers prior to the
issuance of automobile insurance policies. But, as I have said, the effect of s. 4(1)(c) of the
PPSA is to relieve an insurer from the necessity of protecting its own interests in respect of an
insurance policy by providing notice of those interests in the PPSA registry. Section 4(1)(c)
does not insulate insurers from the PPSA-protected claims of third party secured creditors.”
o S. 4(1)(c) : excludes insurance, so relieves from obligation of notice. Here ING did
not have obligation of notice. So their insurance > SI of GE
c) Interest in real property (real estate) – 4(1)e)
PPSA s. 4(1)(e): does not apply to creation or assignment of an interest in real property
Re Urman, 1984: case overwritten by the statute. In a mortgage, you have a lender and a
borrower. There is the transfer of property. The obligation to repay is a personal property that
should be registered. These things are taken as a package, it’s deemed to be taken together and
seen as real property. Can you split these things? Yes, the mortgage can be a personal property,
without looking at the real estate.
o Facts: registered under ppsa, two mortgages for loan, no financing statement registered
o Mortgage creates interest in land, but does not create security interest as defined by Act,
so Act does not apply
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VALIDITY AND ENFORCEABILITY OF THE SECURITY INTEREST
Assuming the transaction is covered, we can ask a question “have you purposely created a
transaction effectively?” This is the validity and enforceability.
The validity and enforceability of a security interest depend on the following requirements:
i. there must be a concluded security agreement.
ii. the agreement must comply with the Statute of Frauds requirements specified in OPPSA ss
11(2)(a)-(d); otherwise, the security interest will be unenforceable against third parties.
iii. there must be attachment.
iv. the security interest must be perfected, typically by the secured party either taking
possession of the collateral or registering a financing statement; otherwise, it will be
subordinate to or ineffective against the parties listed in OPPSA s 20(1).
Condition in a contract
To protect yourself, you can put a condition precedent, so until the condition occurs, I don’t have
to perform (ex: Ellingsen, don’t have to sell you the truck until you get finances). Just because
there is a condition, doesn’t mean the contract doesn’t exist. It just says that performance is not
absolute, it’s conditional.
◦ In Ellingsen, no SA so no SI, but there's a constructive trust
◦ In En-plas, there was a contract but the SI only makes sense if you satisfy the condition ;
condition was not satisfied therefore no SI.
Ellingsen (trustee of) v Hallmark Ford Sales ltd, 2000: No agreement so no SI, but there's
constructive trust
- Facts: E has an old truck. Hallmark is a corporation. E want to get a new truck from Hallmark.
The transaction will be buying the new truck and in exchange, he will give old truck plus
money. Problem, E has no money. He needs to borrow it. The person has to agree to lend
money to buy the truck. As they are negotiating the financing, E transfers the possession of
the old truck to Hallmark (bailment) and Hallmark transfer the possession of the new truck
to E, because E was in a rush to go work up north. It’s a bailment because fundamentally
there’s no passing of ownership, the sale is not done yet. They haven’t agreed on what the
transaction is going to be. E goes bankrupt. His assets are transferred to his trustee in
bankruptcy.
- The question is, is the new truck part of the asset that is transferred to the trustee? The
element of why they did it is not satisfied because it can’t be answered because they never
meet an agreement. They would only agree to the transaction so the contract here would
only be formed once the negotiation with the bank is done.
- The court is saying that there is agreement (ex: agree to buy a house) and at some point,
there is closing (everything happened). In the middle there is a condition (ex: getting
finances). Another way to view it is to say the agreement will only be done when financing
happened. The fact that he gave the truck was just to make it easier. The second way is an
easier argument, based on the professor.
- “I do not think the evidence reasonably supports the finding that this was a sale and that
Hallmark retained a security interest after it released the truck. The deal was subject to
financing by a third party which never materialized. There was no enforceable instrument
on which Hallmark could sue Ellingsen for the purchase price. On a full appreciation of all
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the circumstances I think the only reasonable conclusion is that the proposed sale never
occurred because a condition precedent, the proposed financing, was not fulfilled.”
Since there was no agreement, they were only working towards the sale, there is no
security, cause no agreement. Even though, hallmark didn’t register, it didn’t have too
because the asset belonged to him anyway. The creditor of E cannot take advantage of it.
No security agreement was ever signed, so the PPSA does not apply. The buyer therefore
kept the truck in a constructive trust for the dealer.
◦ Constructive trust: by definition not a trust. Trust is usually created consensually.
Constructive trust (remedial) is a way of fixing the problem. It’s widespread in
Canada, but it is pretty controversial. The effect of constructive truck is that E has
possession of the truck and has rights in it. If the judge said that there is a
constructive truck, I don’t care that in law, he has possession in it, he possesses it
for the benefice of Hallmark. So it’s Hallmark truck.
994814 Ontario inc v RSL Canada inc and En-Plas inc, 2006: Condition not fulfilled
- Facts : a manufacturer of three large pieces of injection moulding equipment (‘En-Plas’)
entered into a conditional sales agreement to sell the equipment to RSL Canada Inc (‘RSL’).
The equipment was delivered to RSL’s premises. The agreement made it clear that title to
the equipment would remain with En-Plas until RSL had paid the purchase price. The parties
also agreed however that RSL was under no obligation to purchase the equipment until
certain safety approvals had been obtained from the Ontario Electrical Safety Agency. EnPlas did not register any security interest in the equipment. Another company, 994814
Ontario Inc (‘Ontario Inc’), held a registered general security agreement over all RSL’s
assets. RSL defaulted, and Ontario Inc appointed a receiver to RSL. The receiver refused to
return the equipment to EnPlas, on the basis that Ontario Inc’s security interest had
attached to the equipment – in other words, the receiver maintained that RSL had sufficient
‘rights in the collateral’ for Ontario Inc’s security interest to attach to it.
- The court at first instance held in a short judgment that RSL did not have sufficient rights in
the equipment for Ontario Inc’s security interest to attach. While the equipment may have
been located at RSL’s premises, the court took the view that RSL had not acquired rights in
the equipment because it had not yet become the grantor of a security interest under the
conditional sales agreement with En-Plas. As RSL was not yet under any obligation to
purchase the equipment (because the safety approvals had not been obtained), there was
as yet no secured obligation, and accordingly no security interest.
- RSL had no rights in equipment until certification, which never occurred so NO rights in
machines and no security interest SO PPSA DID NO APPLY (machines stayed the property
of En-Plas)
- “The motion judge found that the conditions of sale had not been satisfied and, as a result,
the sale had not been completed. The machines therefore remained the property of En-Plas
and title had not passed. No debt had been created and, because RSL was not a debtor, a
security interest could not attach to the machines. Thus, the PPSA regime was not yet
engaged.”
356447 BC ltd v Canadian Imperial Bank of Commerce, 1998: Intention of the parties =
Assignment = SA = SI
- The case deal with the intention of the parties and if it led to the creation of a SI
- Facts : A creditor borrows money to debtor and debtor has some rights, (which can be
property and if it is an abstract right, it’s a chose in action). Debtor has the rights to receive
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money. In the contract, the clause says that all the rights entitled to payments, they agree
that they will be used to repay creditor. Does creditor have security in these rights? In CL,
this is called an assignment (transfer of possession). There are 4 kinds of assignment. This
is an equitable one which is to have a right to be repaid and that right is to repay someone
else. This starts looking like security because (1) there is a debt. (2) There is a creation of
property right to support the repayment.
“Accepting, then, that no particular wording is required to create a security interest”. We
look at what the transaction is in substance and met the criteria, it will be under the PPSA.
Even if the parties didn’t realise.
They pushed the idea that it is a property right. If you have the right of the creditor, is it the
right to receive the debtor transfer of payment or you can go directly to the third party to
get the money? The reason why the third party needs to pay now is because the debtor
owns the right now. The assignment is complete when the right is transferred and give
notice to the third party of the new obligation.
“Whether the Agreement was one that created or provided for a “security interest” within
the meaning of the PPSA. The court found that an equitable assignment had been created
when the solicitors for a debtor wrote to a creditor confirming that they had their client’s
instructions to pay the creditor out of the proceeds of sale of certain goods. therefore
conclude that the Agreement “created or provided for” a security interest properly
registrable under the Act.”
Eagle Eye Investments inc v CPC Networks, 2012: intention of the parties + objection
interpretation of the contract
- Facts: a corporation had a debt to the bank. There was an underlying debt and the security
covered “all obligations”. Then, “A” also has debts with the company. A enters into a contract
with the bank and pays the debt of the corporation to the bank and in exchange, it gets the
security and the right to repayment. So now, A has the security. The debate has to do with
what “all obligations” are covered by that security? Possible readings: (1) all obligations of
the bank. (2) All obligations of the bank + all future obligations to A. (3) All obligation of the
bank + all past + future obligations to A.
- “Considering the factual matrix, it does not appear objectively that the Bank and CPC
Networks intended that the General SA would cover the unsecured debts of CPC Networks
that may be owed to a third party upon assignment. Financial institutions, such as the Bank,
are certainly concerned about the debts that may be owed to them, but it is a stretch to
assume, without clear words that a financial institution and the debtor intend that an “all
obligations” clause secures, upon assignment, the debtor’s unsecured debts to the assignee.”
Statute of frauds requirement
PPSA s. 11 (2): Subject to section 11.1, a SI, including a SI in the nature of a floating charge,
attaches to collateral only when value is given, the debtor has rights in the collateral or the power
to transfer rights in the collateral to a secured party and,
a) the debtor has signed a SA that contains,  MACEWEN
i.
a description of the collateral sufficient to enable it to be identified, or
ii.
a description of collateral that is a security entitlement, securities account or
futures account, if it describes the collateral by any of those terms or as investment
property or if it describes the underlying financial asset or futures contract;
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The requirements are that, UNLESS THE SECURED PARTY TAKES POSSESSION OF THE
COLLATERAL the security agreement must be in writing and signed by the debtor, and it must
contain a description of the collateral sufficient to identify it.
- Failure to comply means that the SA is unenforceable against third parties.
- The policy behind the writing requirements is to prevent a party from falsely asserting the
existence of a SA. The function of the writing requirements is to corroborate the parties’
assertion that there is a SA.
Unenforceable means that you cannot go to court to enforce those rights. An area where it
happens is real estate transaction. Need to make sure that there is a document. Modern law
accepts some electronic transaction to replace paper contract. Emails have also been accepted.
Essential terms in respect to a SA would be: what is the security being given over. Property rights
in what? And explain also why are you given those things. Assuming that you have a description
of the property, how precise does it have to be? The provinces differ on it because they differ on
how you register. The difference is the contract and the electronic thing you file (financing
statement which is summary of the security agreement).
MacEwen Agricentre inc v Bériault, 2002: Existant SI, but no attachment so unenforceable SI
- Facts: MacEwen and Bériault are creditors of a farmer. Bériault sold grain to the farmer and
is owed money for it. MacEwan is a supplier that is owed money. Written agreement
between MacEwan and farmer: Farmer sells his crops. Fight between two creditors to know
which one has rights over the money the farmer received by selling its crops.
- McEwen claims that he has security interest bc of the agreement. All the documents are
signed and the property is described, but the purpose is not written. It doesn’t define what’s
the underlying transaction that’s being supported by the security. The court said that all this
information doesn’t necessarily have to be in one document, but everything needs to be
there.
- Attachment of security interest:
(a) signing security agreement; there is no dispute that for a SI to be enforceable against a
third party, it has to be attached, as that term is used in the PPSA. For attachment to occur
when the SP does not have possession of the collateral, at least part of the SA must be in
writing, the part that is in writing must contain provisions relating to security, and that
portion of the documentation must be signed.
- Since MacEwen did not have possession of the crops or of the proceeds from the sale
of the crops, MacEwen’s SI in the crops would only have attached when Mr.
MacLennan signed a SA that contained a description of the collateral sufficient to
enable it to be identified. The purpose of the s. 11(2)(a) requirement is to enable one
creditor to be able to identify that another creditor has a security interest in
identifiable collateral. That could not be accomplished through reference to the
documents Mr. MacLennan signed on July 27.
- In the agreement the parties are not named. It is only labelled a credit application. It
is too far away for the ambit of s.9(2). However, if a short sentence like “I farmer give
MacEwan security in crops” was included, it would create a security agreement.
(b) Value; the second requirement for a SI to attach is that value be given. There is no dispute
in this case that value was given.
(c) Debtor has rights in collateral; the documents signed that date simply evidenced an
agreement for a sale at a particular price to occur at a later date, with liquidated damages
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payable if the sale did not proceed as anticipated. In these circumstances, Mr. MacLennan’s
soybean crops remained his property on July 27, 2001, and he was in the position to pledge
them as collateral to MacEwen.
Conclusion: “a security interest in Mr. MacLennan’s 2001 soybean and corn crops existed in
favour of MacEwen. However, that security interest did not attach as required under s.
11(2) of the PPSA so as to be enforceable against third parties, such as Mr. Bériault.”
It matters how you create the property rights that is security. If the property right is created
through the execution of the document (writing). The other way to create security devices is
taking possession. The idea is to let the world know it’s happening. You have it in writing so
it is clear when it was created and if you take possession, you’re letting the world know that
there is possession. It puts you on notice that there might be rights there. The flaw in the
document is that there weren’t signed (not sure about this).
So in this case, there was a recognized security interest, but it wasn’t enforceable because it
never attached. So the crops are Bériault’s I think
Atlas Industries v Federal Business Development Bank: SKTN Farm and Truck Equipment ltd
(debtor), 1983: Stamp = security agreement? No bc not signed
- Facts : Plaintiff has sells equipment on credit to the plaintiff. Thinking they are in financial
trouble and other creditors exist, the plaintiff stamps “This is a security agreement” on the
invoices it provides when delivering goods.
- Held: The stamp on the invoices is not enough to create a security agreement. Even if it is,
the defendant has not signed them. They are signing an invoice or work order, not a security
agreement. Any condition imposed should be done before the transaction is completed.
Attachment
Chap2 : A and B. contractual relationship
 B lends money. A promises to repay. Both A and B have rights and property over which
security can be given over.
 That means A has property rights in the money of the loan. There can be security in the
money. If A buys an asset with the loan, then the security will move on to the asset.
 B has A’s promise to repay. That is a valuable right. This right can also be given security. For
example, in a business, there is smtg called “accounts receivable” (account to gather money
that can be received in the future) (=right to receive payment): there are rights in that
account. Bc its such a valuable right, the rights to a repayment account is smtg talked about
in the PPSA.
Now we’ll see chapter 3.
Overview of attachment
Attachment is the moment in which a creditor gets a property interest (called a security interest)
in the debtor’s asset (called the collateral). It’s the moment the property intertest is created ;
prior to that, the security interest doesn’t exist.
The section that governs this is section 11 of the PPSA
(1) Attachment required to enforce SI
A SI is not enforceable against a third party unless it has attached
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
Section 11(1) is misleading bc it suggests that maybe there's a possibility that even though
you haven’t followed all these creation rules, the security is enforceable between the two
parties, but it is not the case.
 Also, it doesn’t mean that the creation requirements are met that the security will
automatically be enforceable against third parties. It will only be enforceable against third
parties in certain situations that we will see later on in class. (when there's registration?)
(2) When security interest attaches to collateral
Subject to section 11.1, a SI, including a SI in the nature of a floating charge, attaches to collateral
(1) only when value is given, (2) the debtor has rights in the collateral or the power to transfer
rights in the collateral to a secured party and,
b) the (3) debtor has signed a SA that contains,
iii.
a (4) description of the collateral sufficient to enable it to be identified, OR
iv.
a description of collateral that is a security entitlement, securities account or
futures account, if it describes the collateral by any of those terms or as investment
property or if it describes the underlying financial asset or futures contract;
c) the collateral is not a certificated security and is in the possession of the secured party or
a person on behalf of the secured party other than the debtor or the debtor’s agent
pursuant to the debtor’s security agreement;
d) the collateral is a certificated security in registered form and the security certificate has
been delivered to the secured party under section 68 of the Securities Transfer Act, 2006
pursuant to the debtor’s security agreement;
e) the collateral is investment property and the secured party has control of it under
subsection 1 (2) pursuant to the debtor’s security agreement; or
f) the collateral is electronic chattel paper and the secured party has control of it under
subsection 1 (3).
(3) Postponing time of attachment
If the parties have agreed to postpone the time for attachment, the security interest attaches at
the agreed time instead of at the time determined under subsection
(4) Attachment in securities account
The attachment of a security interest in a securities account is also attachment of a security
interest in the security entitlements carried in the securities account. 2006, c. 8, s. 129.
(5) Attachment in futures account
The attachment of a security interest in a futures account is also attachment of a security interest
in the futures contracts carried in the futures account.
Same things with the sell and lease-back transaction, which is a form of financing. The PPSA say
that a lease over a year is treated by the PPSA, therefore, need to follow all the rules.
In certain cases, the property interest will look differently depending on which party you look at.
- EX: can be called assignment for certain purpose and security interest for others.
Written form of the agreement, the debtor as a right to the delivery:
10: Where a SA is in writing, the SP shall deliver a copy of the SA to the debtor within ten days
after the execution thereof, and, if the SP fails to do so after a request by the debtor, the Superior
Court of Justice, on the application of the debtor, may order the delivery of such a copy to the
debtor.
The tricky one is: do you have rights? EX: A has rights in assets, money. It encounters B who is a
fraudster. B lies to A in order to have A transfers the right in the asset to B. Even though it is fraud,
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the transaction has the affect to transfers the rights. It has the affects until A realises that the
fraud existed and once discovered, can get the rights back.
Section 9(1) and effectiveness of security agreement
Effectiveness of security agreement
9 (1) Except as otherwise provided by this or any other Act, a SA is effective according to its terms
between the parties to it and against third parties
 You can agree to wtv you want
 What does effective mean? it means if the security agreement “works”
 If the security agreement is “effective”, it means that it creates a security interest.
Requirements for the creation of attachment
1. The need for a security agreement (11(2)a))
If there's no SA (aka the k that creates the transaction where the security arises), there is no SI,
and you can't say when attachment occurs.
11(2) : you can't have a consensual security agreement without there being the “agreement”.
Sets out the basic requirements of when the security attaches.
o In some sense, it can attach before that. But you can if you wish, postpone the
attachment.
Voir “statute of frauds requirement” page 22. (if collateral not in my possession)
- MacEwen Agricentre inc: Existant SI, but no attachment so unenforceable SI
- Atlas Industries : Stamp = security agreement? No bc not signed
2. Secure party must give value (it doesn’t say that in section11)
There is a definition of “value” in OPPSA s 1(1): value means “any consideration sufficient to
support a simple contract and includes an antecedent debt or liability .”
 Value is a synonym for consideration (which includes past consideration)
 So, for example, if SP makes a loan to D, the loan is value. Likewise, if SP promises to make
a loan to D, the promise is value. The reason for the value requirement is straightforward:
the value is the consideration SP gives in exchange for the security interest. In the absence
of consideration, there can be no security agreement, and without a security agreement,
SP cannot have a security interest.
- This means that the bank can get a security interest (property interest) in the
debtor ‘s asset before they bank actually turn over any money.
- Is the value created when the creditor actually transfer money or when he agrees
to transfer the money? There is value in the agreement. The value kicks in when
you enter a contract with security agreement.
 If you haven’t given value, you can walk away.
Who must receive the value?
 There must be consideration on both sides
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3. The debtor must have rights in the collateral or at least rights to transfer the collateral
Introduction
Debtor has “rights in the collateral” = Debtor needs to have rights in the property
i Trade Finance Inc. v Bank of Montreal
 Rule : Full ownership of the collateral is not required in order to transfer rights ; a lesser
interest is sufficient to fulfill the requirement
 Facts : Creditor A, i Trade, decides to invest money in a corporation called webworx which
is owned by a husband and wife. The other creditor, BMO, has a contract with the couple
for a Mastercard. The couple has 135K in credit card debt. BMO wants security. Creditor A
lends money to webworx. Fraudulently, the couple transferred the money to themselves.
They took the money to the broker and bought shares in various company. That is the asset
in issue. BMO gets some security over the share.
 I Trade realise it is a fraud. They go to court and get a judgment that is an order that give
rights and register it which becomes a security. The court grant the right to follow and
trace the money. They want to trace into the shares.
 Attention : There is only attachment when the judgement is given. Before that, the
creditor has no rights in the debtor’s property.
o Ex I borrow 100$ from you but I have not repaid you. That is a personal obligation I
owe you. Bc it’s a personal obligation w no security, you have no rights in my stuff.
But you can get rights on my property if you sue me and obtain a judgement and
then you enforce the court order.
o It matters in this case bc before there is enforcement of the court order by I Trade,
the banks wants its own rights too
 That’s why it is a fight between creditor A and BMO. I Trade has property based on the
previous judgement. To see if BMO has a security interest, it depends if the couple had
property over the money invested. They look if the contract between creditor A and
Webworx was induced by fraud, which was. But in CL, even if the contract was fraudulent,
the contract exists and then when the fraud is discovered, you can rescind the contract.
Until you decide to rescind it, it has the effect that it purposed to have. So when the money
was transferred to webworx, it did belong to it. So when they transferred to themselves,
they transferred the property right and same thing with the shares. That means the couple
had property rights in the shares that security interest could be created with BMO.
o Fraud doesn’t make the contract void, it just makes it voidable. Until a party asks
the party to put the contract aside, the contract stands.
o Its true that i-Trade’s contractual consent was procured by fraud, but i-Trade
voluntarily turned over the money and the contract stayed enforced until they
found out there was a fraud, which is when the contract was put aside. The
problem is that the transfer from the cie to husband to the bank occurred before
the fraud was found out. So i-Trade’s interest could not attach, bc there wasn’t
any longer there. The interest could only attach after the bank’s rights.
o Why does the bank’s interest attach? It attaches bc the contract is voidable. They
had rights in the money until i-Trade did smtg to try to remove it. Since the bank
had rights, it could grant security.
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

It’s a chain of property, the only way to break it was with the fraudulent contract, but
creditor A went to court after the money was all the way in the shares, so they lost. If they
would have stopped it before it enters the brokers account, they would have won.
However, the court says that at time, when the security was created by the bank, the rights
were there and could attached the security.
Is there a limit to tracing? Because it is equitable right = equity helps you because the
defendant did something bad to you. It will stop when the good faith happened and given
value. So you didn’t know anything and pay for it. You can force that person to pay for the
property rights because acquired in good faith and paid for it.
994814 Ontario INC. v. RSL Canada INC.
 Facts: Someone is acquiring fancy machinery.
 Question: We are trying to figure out if the machinery is subject to a security interest in
the inventory of assets of the acquirer. In other terms, did the acquirer acquire the asset?
You can only get a security interest if that occurred.
 Decision: The answer to the question is no, for a very technical reason. The machines
could only be sold in Canada If they got approval from a government agency. They
delivered them before the government issued the certificate. So, the acquirer has
possession, but the transaction did not occur. They weren’t in the inventory in the sense
that they could not be used or sold until the government issued the license.
 Security interest is created according to the terms of the agreement. In this case, the logic
would be if the security interest is an inventory, then the thing has to be part of the
inventory and it can’t be until the government issues the certificate. It’s a condition for
the contract to work.
After-acquired property
Next issue we deal with : must I give the creditor value immediately to obtain security? No. I could
have given it to you before, now, or I promise to give it to you in the future.
What about the asset we attach the security to? Security cannot attach until the debtor has
property rights in them.
That raises the question : can the agreement say that I’m going to give you a SI, not in the assets
that I currently own, but in those I will own in the future? Yes, but you have to be specific about
it. (section12) (its called an after acquired property clause) (certain exceptions for corps [12(2)(a)]
and consumer goods [12(2)(b)])
Example :
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The floating charge
Floating charge
o It’s a security device that existed in equity in England and it was brought into Canada and it
was supplanted by the PPSA. The difference between a floating and a fixed charge no longer
exists.
o What was a floating charge and why do we bother talking about it here?
- You, A and B
- Floating charge didn’t attach immediately but kind of hovered over the assets of the
debtor. At some point, the floating charge would crystalize (= attachment)
- The question is, if you describe your security interest as a floating charge, does it mean
you accepted to postpone the attachment? The answer that the book gives is that even
though we still call it a floating charge, it’s a security interest with no postponed
attachment. Floating charge operates the same as security interest.
On en parle à 11(2)
Example
Security agreements
A security agreement is a contract that creates a security interest.
 A security interest means an interest in personal property that secures payment or
performance of an obligation, and includes, whether or not the interest secures payment or
performance of an obligation
 Therefore, the agreement must (1) use words that evidence the intention to create or
provide for the interest, (2) identify the personal property to which the property interest
contemplated by the defn of “security interest” attaches, and (3) identify the obligation that
is secured by the interest. An agreement that does all three is a security agreement. (even if
its oral agreement)
 Attention, it is not that particular words must be used, it is just that the intention must be
clear (no need to say that it’s a security agreement explicitly, it can be implied)
The question the book raises has to deal w clauses in the agreement.
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This agreement can be verbal, but that will be only rarely done bc it creates evidence issues and
a security agreement that is not in writing may be unenforceable against third parties (unless its
an exception).
Charging clause
It’s a clause that says “bc I have borrowed you money, you also grant me security”. To avoid the
problem of Caisse populaire Desjardins de l’Est de Drummond v Canada. Its to explicitly say we
are creating the security.
 This clause will touch the three requirement we saw above for there to be an agreement.
 Example :
Future advances and past advances (clauses)
You can, if you want, give a security for money that I’ve already given you (past advance) or money
that I will lend you in the future (future advance). So I can create security now even though the
advance will be in the future or it was in the past.
We allow past advances bc we allow past consideration as value
Eagle Eye Investments Inc. v. CPC Networks
 A business is borrowing money from the bank. There's a dispute amongst the various
owners of the cie. One of the owners of the cie buys the debt of the bank. So effectively,
bank had rights of security. So by buying the debt, the owner buys the security. So the
security that was given to the bank for the debt is given to the owner. The owner says he
has the security which covers not only the money lend by the bank to the cie, but also
covers his debt to the cie. So he turned his unsecured debt into a secured debt. So gets the
security rights of the bank, but he can't get more rights than the bank.
 The Agreement of the security infers that the parties had agreed that the security only
covered the debt that was owed to the bank. There is some confusion with the other
clauses, bc they are a bit broader than that.
 The Court says that we will enforce what the parties have generally agreed to. In that
sense, the parties would have agreed that the security could have been transferred (bc
there was a assignment clause). It is possible that the parties would agree to the original
obligation + the obligations of the parties that it is transferred to. But the Court also says
its unlikely. So the owner loses. (but what he claims would’ve been possible if the language
in the Agreement was more precise. To allow it, the language has to be the clearest
possible.)
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


A corporation had a debt to the bank. There was an underlying debt and the security
covered “all obligations”. Then, “A” also has debts with the company. A enters into a
contract with the bank and pays the debt of the corporation to the bank and in exchange,
it gets the security and the right to repayment. So now, A has the security. The debate has
to do with what “all obligations” are covered by that security? Possible readings: (1) all
obligations of the bank. (2) All obligations of the bank + all future obligations to A. (3) All
obligation of the bank + all past + future obligations to A.
“Considering the factual matrix, it does not appear objectively that the Bank and CPC
Networks intended that the General Security Agreement would cover the unsecured debts
of CPC Networks that may be owed to a third party upon assignment. Financial institutions,
such as the Bank, are certainly concerned about the debts that may be owed to them, but it
is a stretch to assume, without clear words that a financial institution and the debtor intend
that an “all obligations” clause secures, upon assignment, the debtor’s unsecured debts to
the assignee.”
“Since the Loan Agreement clearly referred to a loan of $150,000 plus interest, it would be
contrary to the Loan Agreement to allow Eagle Eye to add its previously unsecured
shareholders' loans to the amount owing under the original Loan Agreement with BDC.”
PERFECTION
Intro
Perfection relates to the publication of a security interest. Possession is one method of
publication.
Twyne’s case, 1601: perfection by possession
 Facts: Seller owns sheep. Buyer wants to buy sheep. Seller agrees ; buyer pays money and
transaction seems complete, but seller maintains possession. Then, a lender who doesn’t
know about this transaction comes in. Lender sees all the sheep and thinks seller owns them
all so lender agrees to lend the seller X pounds. Seller doesn’t repay. Lender wants the sheep.
Buyer tries to stop lender, bc sheep are his.
 Analyse. Court says buyer can't do that, bc he didn’t take possession of the sheep and allowed
buyer to maintain possession, therefore buyer created a false appearance in the world
(making it appear like buyer is wealthier than he is). Its not a question about who the true
owner is (that’s buyer), it’s a question of whether the buyer’s refusal to take the sheep
mislead the lender and therefore the lender’s rights on the sheep come before the buyer’s.
It’s the fault of the buyer bc he misleads the lender. There was no obligation to take
possession of the sheep, but the court said that by not taking it, buyer created a circumstance
in the world that could mislead people. So buyer can't profit from it.
 To fix this situation, you must make it look like sheep are yours (ex by tagging your sheep,
they could’ve stayed in buyer’s land).
 What the courts wants : Want to force ppl to have transparency bc it diminishes the risks for
everybody else’s transaction
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Dearle v Hall, 1823: how to take possession of intangible things?
 Possession only applies to goods that can be possessed. What about things that are noneffectively possessory? The idea of possession is connected to assignment. So I can transfer
to you intangible rights. I can't take possession of them, but an assignment works.
 You can assign rights, but not enforceable on certain parties until you give them notice. This
means that letting the world know what your rights are, can strengthen your rights against
who you use them.
How to perfect
19 A SI is perfected when,
(a) it has attached; and
(b) all steps required for perfection under any provision of this Act have been completed, regardless
of the order of occurrence.
 You don’t have to attach then perfect. You can perfect then attach.
Five ways of perfecting : by possession, by delivery, by registration, by control or by temporary
perfection.
 Each method of perfection has different steps
 By registration is the one available for each security interest
By possession
 Twyne’s case
 Only for tangible collateral (ex goods, money, bills, chattel paper)
By delivery
 Only applies to certain certificated securities : to a specific kind of valeurs mobilières.
 Delivery is synonymous w possession. It means the transfer of possession. Kind of
synonymous to the first category
 OPPSA, s22(2)(3)
By registration
 Filing a document
By control :
 Used for financial instruments (like valeurs mobilières)
 Control = means that the secured party has the ability to transfer the investment
property without further action by debtor
 Control agreement: agreement in which the issuer agrees that it will comply with
instructions from secured party without further consent of debtor
Possession
= possession, repossession and constructive possession
Repossession: I had possession, I gave it up, and I get it back
Constructive possession: I don’t have possession, but the law says I do.
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What is possession
Only apply to physical goods. Perfect it at the moment you gain physical control over it. Possession
requires physical control and intention to exclude others.
 22: (1) Possession or repossession of the collateral by the secured party, or on the secured
party’s behalf by a person other than the debtor or the debtor’s agent, perfects a security
interest in,
(a) tangible chattel paper;
(b) goods;
(c) instruments;
(d) negotiable documents of title; and
(e) money,
but only while it is actually held as collateral.
You need possession + have possession for a specific purpose
 Ex: SP, a truck dealer, has sold a truck to D on conditional sale terms but fails to register.
D returns the truck to SP for a checkup under the warranty. While the truck is in SP’s
possession, D becomes bankrupt. Does SP have a security interest perfected by
possession under the OPPSA? No bc SP’s possession is for purposes of the checkup
Requirements to have possession :
1. Physical control (question of fact)
2. Exclusivity (you want to exclude others)
You can have possession directly or through an agent
What is repossession
The reference to repossession was added to resolve a debate as to whether repossession of the
collateral by the secured party constituted possession for the purposed of perfection. The answer
is yes it does.
What is constructive possession
It’s a legal fiction. No possession by the party (someone else has possession), but law says there
is.
When does the law implies there's possession? There isn’t a definite answer, but the book gives
an example of constructive possession like in section 62(1)(b).
62 (1) Upon default under a SA,
b) if the collateral is equipment and the SI has been perfected by registration, the SP may, in a
reasonable manner, render such equipment unusable without removal thereof from the
debtor’s premises, and the SP shall thereupon be deemed to have taken possession of such
equipment;
 While the debtor remains in actual possession, the SP has constructive possession of the
equipment
 If you’re using equipment, I don’t need to seize it and remove it. I can take possession in
a constructive sense.
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Perfection of a security interest in investment property
(security interest in rights)
Possession is difficult to attain w rights, so we need some other way to perfect. We also want a
certain level of flexibility, so ppl can transfer rights easily.
Three methods in the book :
1. Possession (s22)
 For certificated securities : securities where rights are connected to the paper in
which they are written in, ex money
 Only works for the direct holding system
2. Registration (s23)
 You can register wtv you want
3. Control (s22.1)
 Def: The secured party has the ability to transfer the investment property without
further action by the debtor
 Best method to perfect a security interest in both the direct and indirect holding
systems
 ex iTrade
4. temporary
Pages 126 et ss : direct vs indirect holding
What's the difference between perfection by control and what happened in caisse de depot de
l’est de Drummondville? In the case, the bank didn’t say they had control over the account ; they
just said they had a right of setoff. At that point, they're not seizing the property, they are just
trying to erase the debts. (but the practical effect is the same). That’s why there was no issue of
perfecting in that case.
Direct vs indirect holding
 The investment instrument can be held directly or indirectly.
 Ex: When the bank has investments accounts and rights to dispose = direct
 Ex : When bank does not have investments accounts in their own bank, but rather has an
intermediary holding the investments. = indirect
Continuity of perfection
Change in perfection methods
There are multiple ways of perfection. You can create perfection one way and continue it another
way. (you can switch method of perfection as long as there's no gaps in perfection)
21 (1) If a SI is originally perfected in any way permitted under this Act and is again perfected in
some way under this Act without an intermediate period when it was unperfected, the SI shall be
deemed to be perfected continuously for the purposes of this Act.
(2) An assignee of a SI succeeds in so far as its perfection is concerned to the position of the
assignor at the time of the assignment.
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

Ex assignment of a security interest : Eagle Eye
So you get wtv they had at the time of the security interest (nemo dat)
30 (2) For the purpose of subsection (1), a continuously perfected SI shall be treated at all times as
if perfected by registration, if it was originally so perfected, and it shall be treated at all times as
if perfected otherwise than by registration if it was originally perfected otherwise than by
registration.
Example :
Gaps in perfection
What happen if there is a break in perfection? (you perfect, the perfection is lost, and then its
regained)
30 (6) Where a SI that is perfected by registration becomes unperfected and is again perfected by
registration, the SI shall be deemed to have been continuously perfected from the time of first
perfection except that if a person acquired rights in all or part of the collateral during the period
when the SI was unperfected, the registration shall not be effective as against the person who
acquired the rights during such period.
Example:
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Perfection following assignment by secured party
Section 21 (2) – an assignee of a SI (person that receive the SI) succeeds insofar as its perfection
is concerned to the position of the assignor at the time of the assignment.
- Whatever they had, you have the same.
- Assignment is a transfer of property right.
 Only applicable for intangible things (therefore in chose of action)
Consequences of non-perfection
If you don’t have attachment, you have nothing. But if you don’t have perfection, its just
unperfected SI.
Non-perfection does not result in avoidance of the SI altogether. Instead, failure to perfect means
that the SI will be “subordinate to” or “ineffective against” the categories of claimant listed in s
20(1), namely:
(1) a person holding a perfected SI in the same collateral;
(2) lienholders and persons having priority under any other Act;
(3) execution creditors and such like;
(4) a trustee in bankruptcy and other creditors’ representative; and
 ex Giffen
(5) a transferee of the collateral.
 These are various third parties talked about in ss9 and 11.
 Lienholders: person holding a non-consensual security interest; in other words, a
security interest given under a statute or rule of law.
 Trustee in bankruptcy: non-perfection does not prejudice the trustee. This makes the
trustee different from the other categories of claimant listed in s 20(1).
 Transferee of Collateral: OPPSA ss 20(1) (c) and (d) provide that an unperfected security
interest is not effective against a transferee.
S.20(1) applies to the timeline between perfection and attachment.
Unperfected security interests, lienholders, and similar persons
Section 20(1)(a) provides that an unperfected SI in collateral is subordinate to (1) a perfected SI
in the same collateral and (2) lienholders and similar persons with rights to the collateral.
Lienholders means a person holding a non-consensual security interest; in other words, a security
interest given under a statute or rule of law.
Trustee in bankruptcy
= a person who represents the creditor of the debtor
Re Giffen, 1998:
 Facts : The employer leases a car to its employee, but then the employee (G) seeks
bankruptcy. Does the car belong to the employer or to the creditor of the employee?
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






Arguments : Employer claims it owns the car since it never sold it to G, while the trustee relies
on the PPSA declaring him to have priority over the lessor of an unperfected lease.
Issue: Who has priority? The trustee
The question of title doesn’t determine the issue. The fact that employer owns it doesn’t
matter. The question is who has priority (not who has ownership)
o The PPSA effectively replaces the common-law “title” system with a system of
“priority” for “security interests.” This represents a radical departure from the
common law of property. The PPSA deems all leases of more than one year to be
security interests. And the PPSA subordinates the interest of the unperfected security
interest holder to that of the trustee once bankruptcy occurs. TLC did not perfect its
security interest. Hence the trustee is accorded “priority” over TLC. The trustee can
pass valid title by selling the car, because section 81 of the BIA applies, extinguishing
all competing titles and encumbrances. The trustee is thus entitled to the full proceeds.
o “The Court of Appeal in the present appeal did not look past the traditional concepts of
title and ownership. But this dispute cannot be resolved through the determination of
who has title to the car because the dispute is one of priority to the car and not
ownership in it. It is in this context that the PPSA must be given its intended effect and
it is to this question that I now wish to turn.”
BC would have leased the car to the employer, but in term of property it would be a bailment,
so the ownership would stay there. But the PPSA, with the security interest and ownership
are separate things (because you have one doesn’t mean you have the other). If you have a
transaction covered by the PPSA, you look at the security interest to decide who has it. For
the third party, it is the PPSA security interest that will matter.
“A security interest is valid and enforceable when it attaches to personal property. Section
12(1)(b) of the PPSA provides that a security interest “attaches” when the debtor acquires
“rights in the collateral”. Section 12(2) states explicitly that “a debtor has rights in goods
leased to the debtor . . . when he obtains possession of them in accordance with the lease”.
Thus, upon delivery of the car to the bankrupt, the lessor had a valid security interest in the
car that could be asserted against the lessee and against a third party claiming a right in the
car. However, the lessor’s security interest remained vulnerable to the claims of third parties
who obtain an interest in the car through the lessee including, trustees in bankruptcy. In order
to protect its security interest from such claims, the lessor must therefore perfect its interest
through registration of its interest (s. 25), or repossession of the collateral (s. 24). The lessor
did not have possession of the car, and it did not register its security interest. Thus, prior to
the bankruptcy, the lessor held an unperfected security interest in the car. This brings us to
the BIA. The trustee assumes the bankrupt’s possessory interest in the car through the
operation of s. 71(2) ; it is upon this basis that the trustee can assert a claim to the car.”
It is a lease for more than one year, so it’s a security interest in that sense (PMSI). Because
BC didn’t register the interest and because Giffen seek bankruptcy, the assets are
transferred to the trustee in bankruptcy, and they get a SI. The interest of the trustee is
higher because BC didn’t publish its SI. It’s the protection of the third party that is being
mislead that lies at the heart of why you need perfection. Trustee win because they acquire
the rights before it was perfected by BC.
The lender doesn’t have possession, didn’t register and didn’t do anything to perfect. So for
the purposes of the PPSA, the ownership is only here an unperfected attachment. So when
employee goes bankrupt, the trustee in bankruptcy takes all of her property for the creditors.
When he takes the car, he takes an unperfected security interest. So the trustee can seize
36
the property. Even tho the trustee is not the owner, he can seize it, sell it, and give property
title of the car to whoever buys is.
Receivers
Transferee of collateral
Dans les notes résumés il y a des notes
When do you have to ask whether smtg is perfected or not?
The relevant date for determining whether a SI is perfected for the purposes of s20(1) varies
depending on which paragraph of the provision is in issue. Section 20(2) sets the date for cases
involving the rights of a statutory lienholder under s20(1)(a)(i) and cases involving the debtor’s
bankruptcy under s20(1)(b)
o Under 20(2)(a) for statutory lienholders, the relevant date is :
(i) in the case of the bankruptcy of the debtor, at the effective date of the bankruptcy, or
(ii) in any other case, when the lienholder has taken possession or otherwise done everything
necessary to make the lien enforceable in accordance with the provisions of the Act creating
the lien;
o Under 20(2)(b) for a trustee in bankruptcy (or other representative of the creditors), the
relevant date is the date from which the person’s representative status takes effect
Section 20 does not address the timing question for cases arising under the other parts of s20(1)
o But in cases involving the rights of a transferee under para (c) and (d), the relevant date in
most cases will be the date of the transfer
o In cases involving the rights of an execution creditor under s20(1)(a)(ii), the relevant date is
the date the execution becomes effective
Ex : possession is taken by owner but only later the car is sold. Do you look at the time that its
sold or when you take possession? You look at the time the parties act inconsistently w each
other’s interests. In Giffen, that’s when trustee seizes the car.
REGISTRATION
Introduction
Actual notice is not enough to perfect if registration is not done
= submit certain documents into a database. (in the US, its called “filing”).
 Min two things to put in the registry :
1. You have to identify the debtor
2. You have to explain what the debtor has given security into
What you register, is not the contract itself (the security agreement), but a short resume of it
(known as a z)
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Before, each type of security interest had a different registration system. With the unification of
the security interest, there is one registry only (grace au PPSA: we created one directory, and it
made registration and the search for info easier). The problem is that it’s not uniformed across
Canada. What varies is:
(1) How electronically complete the system is. That means the only you can input, search and
print out is electronically. Ontario is not totally electronic.
(2) How do you search them. It could be by a general search or it has to be specific. Ontario
is really specific because there is way more people. The search pool is much bigger.
In Ontario, you can search the exact name, the close approximation of the person or can search
by the collateral. But that only comes into play if you can identify the exact collateral. EX: can
create security interest over inventory. “Inventory” would not be precise enough in collateral
search.
 The uniformity across Canada hasn’t happened because it’s really complicated.
Why do you have registration? What are the benefits?
Who registers? The person who wants to have the SI because they have the biggest interest to
make sure it’s well done and on time. The person who is registering has a SI that is perfected.
Douglas Baird: When you register, you create a warning that you have a property interest in the
collateral. That’s why you let the world know. But who in the world cares?
(1) Unsecured creditor. It only says that there is a SI, but it doesn’t show how much and what
many percent it is. So, for those people, they will make the analysis if they will borrow the
money or not to the debtor, based on this information.
(2) Other security creditor. They don’t care if there is other security on other property. They
just want to be number one. Also, they want to check which pieces of property are free
of security interest.
Douglas G Baird – Notice Filing and the problem of ostensible ownership, 1983: Function of
registration
 Facts : The unsecured creditor must rely in large part on what his debtor tells him. A filing
system might prevent a debtor from misinforming a potential creditor about whether a
particular asset is encumbered.
 The Code’s filing system is of some use to general creditors. Misrepresentations about one’s
financial health are harder to make when a filing system exists than when it does not. The
filing system is, in effect, a place where secured creditors stake claims to the debtor’s
property.
 A security interest comes into being (or “attaches,” to use the language of article 9) only after
the parties have agreed to create a security interest and three conditions are satisfied: (1)
the creditor has given value; (2) the debtor has acquired rights in the collateral; and (3) the
debtor has signed a written security agreement or the creditor has taken possession of the
collateral. A rule that fixed the priority by the date on which any of these three events took
place would be unfortunate because it would require potential creditors to rely on the
debtor’s records.
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
Note: Baird’s main argument; namely, that the registration system is not designed for the
benefit of general unsecured creditors and Baird should not be read as implying that only
secured creditors benefit from registration.
Structural Unity of Substantive Property Security Law
All registrations are subject to substantially the same requirements. A single search will disclose
all consensual charges against the name of the debtor or against a specified item of property.
Notice Registration
The financing statement gives the searcher very few details about the secured party’s transaction
with the debtor. It is designed to do no more than alert the searcher to the possibility that the
secured party might have a security interest in one or more specified collateral types.
Notice filing addresses the storage problem and it allows for removal of the registration renewal
requirement. A second advantage of notice filing is that it provides a greater measure of
confidentiality of business information than is permitted by document filing. The SP need not
release the details of a SA with respect to which a financing statement has been registered except
upon demand by the debtor or other person specifically authorized to make the demand (OPPSA
s 18).
45 PPSA. Registration of financing statement
(1) In order to perfect a SI by registration under this Act, a financing statement shall be registered.
 You HAVE to register (“shall”)
 You can register even before having the security interest. You might want to do this for
questions of priority.
(2) Where the collateral is consumer goods, the financing statement referred to in subsection (1)
shall not be registered before the SA is signed by the debtor and, where a financing statement is
registered in contravention of this subsection, the registration of the financing statement does not
constitute registration or perfection under this Act.
 Protection for consumer goods
 In consumer setting, you first need a SA (signed to be effective), before you can register
the financing statement.
(3) Collateral other than consumer goods
Where the collateral is not consumer goods, the financing statement referred to in subsection (1)
may be registered before or after the security agreement is signed by the debtor.
(4) Subsequent security agreements
Except where the collateral is consumer goods, one financing statement may perfect one or more
security interests created or provided for in one or more security agreements between the parties,
whether or not,
(a) the security interests or security agreements are part of the same transaction or related
transactions; or
(b) the security agreements are signed by the debtor before the financing statement is registered.
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Electronic Registration Systems
However, in all provinces, the register is now computerized, giving register users direct access to
the registry database. In the four Atlantic provinces, registrations and searches can only be done
electronically. Elsewhere, apart from Ontario, users have the option of submitting registrations
and search requests in paper form.
In summary, paper-based systems create a time lag problem, and either the registering party or
the searcher must bear the risk. Paper-based systems also involve the risk of transcription errors.
Debtor’s Name-Based Registration and Serial Number Registration
The functions of the two systems:
 There are two basic forms a register of personal property security interests might take:
security interests might be registrable and searchable against the debtor’s name, or they
might be registrable and searchable against the collateral’s serial number. The Canadian
PPSAs combine both systems, although in Ontario the serial number index is limited to motor
vehicles.
 Why does the legislation provide for registration and search against both name and serial
number?
o The reason is that both systems have their strengths and weaknesses and the aim is
to achieve the best of both worlds from the searcher’s perspective. The advantage
of a debtor’s name registration system is that a search should retrieve all extant
personal property security interests, thereby giving the searcher a reasonably
complete picture of the extent to which the debtor has encumbered its assets. On
the other hand, a search in the debtor’s name index will not retrieve a security
interest given by a prior owner.
The Name Index, Individual Debtors:
 In several of these decisions (most involving trustees in bankruptcy), the courts concluded
that the registration was not seriously misleading merely because it was not revealed in a
search using the legal name of the debtor as the search criterion. They concluded that there
is no requirement that the secured party use as the registration criterion the name of the
debtor as it appears on her birth certificate.
The name Index, Business Debtors:
 If the corporation has both English and French forms of name, both must be disclosed.
Exact Match and Close Match Retrieval Systems
The Ontario name index register is based on an exact match retrieval system.
By contrast, the registers in the other provinces are based on a close similar match system. A close
similar match system is forgiving of the kinds of minor errors indicated above. This means that
the searcher will have to sift through the various entries listed on the search certificate to identify
the one she is looking for.
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The registration process
Intro
Registration may be done for a period of 1-25 years. Only persons authorized by the registrar may
submit registrations.
It’s possible to register a financing statement before there is a SA (but not possible for consumer
goods).
There could be multiple operation from the same debtor covered by the same financing
statement. For the creditor, the benefit is priority.
Form and content of financing statement
The core of the statement is:
(1) Debtor’s name
 Natural persons
o First given name + initial of second given name + surname + DOB
o What if someone has two ways they use their names (Ex Robert James Smith and
Bob Smith)? PSSA says nothing about it. Courts in Ontario say that you just use
legal gvt name.
 Artificial entities
o Have to put their correct incorporation name
(2) Collateral
 Need to describe it
 For motor vehicles, you need to put their unique VIN
(3) List who the creditor is.
 If you do a search, you get that core statement, but you don’t have all the security agreement
information. Once you search and contact the creditor, you have a right to ask for the security
agreement.
Registration amendments, renewals
Correcting errors
A financing change statement can only be filed while the registration is still current. If the
registration period has expired, there is no registration left to amend and so the secured party
must register a new financing statement.
If you correct an error, the security interest is valid only from the date you correct your error (not
valid starting from the original registration).
Changes to registration period
Must be registered before the original registration cesses to be effective.
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Inadvertent registration discharges
Heidelberg Canada Graphic Equipment ltd v Arthur Andersen inc, 1992: What if you make a
mistake in your amendment (accidentally discharge)?
 Rule : You can fix mistakes so long as there's no third party effect
 Facts: they deleted information and put it back in. The effect will change depending on why
you erased it.
o If you erased it because there is no more debt, because no longer anything to secure,
then yes, it is destroyed.
o If you erased it by mistake and the underlying transaction still exist, it continues. You
can re-register it, that’s not a problem.
 “The Effect of FCS2: there are specific situations where registration of a financing change
statement is used to perfect the security again when it has become unperfected, specifically
under s. 48. The correction is only effective from the time of registration of the financing
change statement. Before that, the creditor must rely on the curative section. I can see no
reason why any error, including errors made deliberately but only recognized as errors
afterwards, and including the error of registering the document at all, should not be able to
be corrected under this section, when no retroactive priority is accorded by the section.”
Assignment by secured party
47 PPSA (1) The secured party had already perfected its security interest
A financing change statement may be registered where a SI is perfected by registration and the SP
has assigned the SP’s interest in all or part of the collateral.
 “MAY” not “must” ; so not mandatory
(2) The secured party had not already perfected its interest
Where a SI has not been perfected by registration and the SP has assigned the SP’s interest, a
financing statement referred to in section 46 may be registered,
(a) naming the assignor as the secured party and subsection (1) applies; or
(b) naming the assignee as the secured party and subsection (1) does not apply.
Si tu fais une cession de créance, tu dois changer le nom
Transfer by debtor and debtor name change
Unless the registration is amended to record the transferee as the new debtor, a searcher who
conducts a search against the transferee’s name will not discover the registration. The same
consideration arises where, after registration, the debtor changes its name.
Attention, in Heidelberg it is confirmed that an amalgamation of the debtor w another entity does
not constitute a transfer by the debtor as contemplated by s48(1)(2)
48(1) PPSA. If the secured party consented to the transfer
Where a SI is perfected by registration and the debtor, with the prior consent of the SP, transfers
the debtor’s interest in all or part of the collateral, the SI in the collateral transferred becomes
42
unperfected fifteen days after the transfer is made unless the SP registers a financing change
statement within such fifteen days.
48(2) PPSA. If the secured party did not consent to the transfer
Where a SI is perfected by registration and the debtor, without the prior consent of the SP,
transfers the debtor’s interest in all or part of the collateral, the SI in the collateral transferred
becomes unperfected thirty days after the later of,
(a) the transfer, if the SP had prior knowledge of the transfer and if the SP had, at the time of the
transfer, the information required to register a financing change statement; and
(b) the day the SP learns the information required to register a financing change statement, unless
the SP registers a financing change statement or takes possession of the collateral within such
thirty days
48(3) PPSA. If the debtor changes names
Where a SI is perfected by registration and the SP learns that the name of the debtor has changed,
the SI in the collateral becomes unperfected thirty days after the SP learns of the change of name
and the new name of the debtor unless the SP registers a financing change statement or takes
possession of the collateral within such thirty days.
Discharge
A discharge is only a discharge of registration, not the SI itself. The SI itself is discharged only when
the secured obligation has been performed or otherwise when the parties agree. If a registration
is discharged while the SI is still in place, the SI will become unperfected (and you’ll need to
register again to reperfect it)
55PPSA. A registration may be discharged or partially discharged by the registration of a financing
change statement discharging or partially discharging the registration.
 May want discharge if ex : secured obligation has been performed, the registration occurred
in anticipation of a security agreement that was never entered into, the registration was
done in error or the secured party agrees to release some or all of the collateral
Demand for discharge of registration
Demand to discharge
Unless a collateral is consumer goods and subject to any contractual agreement between the
parties, no obligation to discharge upon performance of the secured obligation. But s56(1)(2) lists
a few situation where you may make a demand for a whole or partial discharge where :
 The secured obligation has been performed
 The secured party has agreed to release part of the collateral on partial performance of
the secured obligation
 the secured party has not acquired a security interest (ex : registration made by mistake,
vexatiously, or in anticipation of an interest that never eventuated)
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Demand must be made by written notice to the secured party. The secured party must comply
within 10 days under a s55 statement. If it fails to do so without reasonable notice, it is liable to a
500$ penalty AND any resulting damages.
Demand to amend the collateral description
Section 56(2.1)(2.2) where :
 the collateral classification in the financing statement does not match the collateral
provided for in the security agreement
 the collateral description refers to collateral in which the secured party has not acquired
a security interest
the secured party must respond to the debtor’s written demand within 10 days w a s49 statement.
Mandatory discharge
57PPSA. Applies where the collateral is consumer goods
(1) Within 30days after all the obligations under a security agreement that creates a security
interest in consumer goods have been performed or forgiven, the secured party shall register,
(a) a financing change statement discharging the registration if the security interest has been
perfected by registration; and
(b) a certificate of discharge, if a notice of security interest has been registered under section
54.
(1.1) Extended time
If the 30-day period for registering a financing change statement mentioned in clause (1) (a)
expires between February 26, 1996 and April 3, 1996, the period shall be extended until April 12,
1996.
(2) Failure to register
Where a secured party fails to comply with subsection (1), the secured party shall, on written
notice from the debtor, pay the debtor $500 and any damages resulting from the failure, which
sum and damages are recoverable in any court of competent jurisdiction.
(3) Rights not affected
Subsections (1) and (2) do not affect any rights under section 56 of the debtor or of any other
person having an interest in the collateral.
Vexatious registration
S66.1 (1) In this Part,
“discharge” includes a partial discharge; (“mainlevée”)
“vexatious registration” means the registration of a document that,
(a) the registrar considers to have been tendered,
(i) for the purpose of annoying or harassing the person named as the debtor in the
document, or
(ii) for any other improper purpose, and
(b) has been tendered by or on behalf of a person who,
(i) does not hold the security interest referred to in the document, or
(ii) is claiming an interest that is not registrable under this Act. (“enregistrement vexatoire”)
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Searching the register
It can be an informal search or a formal search (certified search ; s.43 OPPSA : gives access to the
Assurance Fund under s44 OPPSA) (difference between certified and uncertified?)
Three types of search :
 individual debtor’s name
o Specific search : First name, second name initial, last name, DOB
o Non-specific : first and last name (not good if your name is Anne Dufour)
 business debtor’s name
 VIN
Errors and omissions in financing statement
46(4) Reasonable person test
A financing statement or financing change statement is not invalidated nor is its effect 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.
What happens if you don’t properly list an information in the financing statement?
o Is it still valid? Yes. But is it opposable in the sense of being perfected against the third party?
It depends on the error. What we focus on is the debtor’s name and the description of the
collateral.
Names
Complications with legal name vs used name.
Ontario gives the option to search under perfect name or something under less than that.
Fairbanx Corp v Royal Bank of Canada, 2010: Get the debtor name right, or you lose priority
 Rule : An error is materially misleading if it makes the registration unsearchable against the
correct search criterion, even if the competing SP has knowledge of the other SP’s defective
registration
o In that sense, Fairbanx’s registration was invalid, w the result that its SI was
unperfected
 Facts : The person said it registered it first, before the bank. The problem is the error of the
name was everywhere in the documents. So, when the creditor went to register, it did so
with the H. The bank, went to register without the H. The bank knew that that person had
that debt.
 Is the bank bound by the incorrect registration?
o Yes, because under that name nothing shows up.
o The fact that the bank knew that it exists doesn’t matter. Based on 46(4), the fact
that the bank knew about it doesn’t matter. But the fact that the reasonable person
would be misled about it matters.
 “However, where the error in the registered financing statement is in the debtor’s name, no
registration will be disclosed by a search of the correct name. Therefore, the error in the
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

debtor’s name will not come to the attention of the person searching. In those circumstances,
s. 46(4) cannot properly apply because the issue of whether the error would materially
mislead a reasonable person never arises where the person searching does not find the
registration that contains the error.”
There is no ability to track and become aware that there is an error.
“debtor. If the name of the debtor is incorrect on the registered financing statement, then the
registration will not perfect the creditor’s security interest in the assets of the correctly named
debtor. Of course, the creditor still has an unperfected security interest which ranks behind
all properly perfected security interests in the same collateral.”
It’s harsh, but it shows that it’s up to the creditor to get it right. If not, very little that we can
do.
Re Lambert, 1994:
 Distinguishing: Dual search criteria. In this case, there was two ways that you can search with
precision. In Fairbanks, can’t search by collateral because it’s security over “account
receivable” so you would get a ton of cases. In Re Lambert, it’s a car, so can search under the
name and the VIN number.
 Facts: Lambert purchase a vehicle over a sale contract and the financing was done by GM. It
files a financing statement which refers to his Lamber’s name, but it’s not his proper legal
name. The car VIN is proper. When the new creditor did the search, the checked the name
but not the VIN. They didn’t see that GM had it register because it was registered under the
wrong name. GM will claim relief under s. 46(4) saying that a reasonable person would have
discovered this problem. The judge said that it wasn’t perfected because there is a lack of
prescribed form.
o Here, it was registered under the wrong name, but under the right VIN number
(there is only one unique VIN number per car. So a reasonable person would have
made one search w the name and another search w the VIN. So a reasonable person
would not have been mislead
 Reasonable person: When will an error in the contents of a financing statement render the
statement invalid and the security interest it represents unperfected as against third parties?
The answer depends on the reach of s. 46(4). Two features of s. 46(4) are non-controversial.
First, it is potentially applicable to any error in a financing statement. Secondly, an error in a
financing statement does not per se invalidate that statement or impair the security interest
claimed by the statement.
o By using the reasonable person standard, the legislature intended that the test
provided in s. 46(4) should be an objective one. The inquiry dictated by s. 46(4)
cannot focus on a particular party, but must look to the broader class of persons who
may have cause to use the search facilities of the registration system. In looking to
that broader class of persons, one must determine, not the existence of actual
prejudice, but the probability of some member of that class of persons being
materially misled by the error. A party challenging the security on the basis of errors
in the financing statement need not demonstrate actual prejudice to that party or
anyone else. (No need to demonstrate actual prejudice.)
o The “reasonable person” in s. 46(4) is a person using the search facilities of the
registration system for their intended purpose, that is, to find out whether personal
46
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

property to be purchased or taken as collateral is subject to prior registered
encumbrances.
o In summary, the reasonable person in s. 46(4) has the following attributes:
- He or she is a reasonably prudent prospective purchaser or lender who looks
to the registration system of the PPSA to provide notice of any prior registered
claims against the property he or she is proposing to buy or take as collateral
for a loan.
- He or she is conversant with the search facilities provided by the registration
system and is a reasonably competent user of those facilities.
- Where the property to be bought or taken as collateral is a motor vehicle, the
reasonable person will obtain the name and birth date of the seller/borrower
as well as the VIN of the motor vehicle.
- Where the property is a motor vehicle, the reasonable person will conduct
both a specific debtor name search and a VIN search.
o Is that reasonable person “likely to be misled materially” by a financing statement
which contained an error in the debtor’s name, but accurately set out the VIN? A
reasonable person would not likely be misled materially by an error in a financing
statement relating to the debtor’s name if that same financing statement
accurately set out the VIN. The reasonable person would, therefore, be put on notice
of the security interest referred to in the financing statement and could proceed
accordingly. (A reasonable person would be cautious and search with both options.)
I would hold that the trustee has not established that the error in the GMAC financing
statement would probably have misled materially a reasonable person. The financing
statement is therefore not invalidated and GMAC’s security interest in the motor vehicle is
perfected.
To note: When would be a reasonable person be misled?
(1) Not misled by an error in the name if there is a VIN number, because do both searches.
(2) The result is different if the name is incorrect and doesn’t contain the VIN. Didn’t register
properly. The rule encourages you to use the number because it gives you more
protection.
(3) If the name is written right and the VIN is wrong, didn’t register properly. Encourages to
use the number.
Bref, with name you have to be precise.
Collateral
Could give the wrong VIN or the wrong description in general.
Coates v General Motors Acceptance Corp, 1999: The case is from BC (where there's a close
similar match system, unlike here in Canada).
 Facts : the VIN numbers being wrong. It is included in the book because the fact that you do
a search in a different way in BC, does it alter the reasonable person.
 Section 46(4) offers some forgiveness from error if a filing is wrong but is not seriously
misleading. This forgiveness should extend only so far as the capability of the filing and search
program to reveal the registration despite the error. If a filing were found not to be seriously
47
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

misleading on some other basis which forgave a mistake not revealed by the filing and search
program, the effect would be to expose the searcher, who is not responsible for the error, to
a loss of priority in dealing with the chattel.
A seriously misleading description of either the name or the serial number in the registration
will defeat the registration. A seriously misleading registration is one that: (a) would prevent
a reasonable search from disclosing the registration; or (b) would cause a reasonable person
to conclude that the search was not revealing the same chattel (in the case of a serial number
search) or the same debtor (in the case of a name search). The obligation is on the searcher
to review the similar registrations to make this determination.”
Even if the VIN is incorrect, the judge says that the crucial difference in this case is the fact
that the BC system revealed that despite the filing mistake, it would have appeared in the
search. Because you have more ability to look at, you can effectively say that you could have
found out.
That suggests that at least in some provinces, the court are saying that you can’t simply rely
blindly on what’s listed, you might need to do some kind of analysis.
Adelaide Capital Corp v Integrated Transportation Finance Inc, 1994: voir notes studocu
 Facts : there is a problem about the registration of collateral from a business who leased
trailers for big trucks. What matter is how the creditor described the collateral. In the
financing statement, just check a box about what the collateral is. Beside the check, you can
also give some description. The trailers were described and registered as equipment and not
inventory. The business wants to lease them, people would pay for them and that would look
like they are part of inventory. They are trying to make it pass as an inventory because of the
bankruptcy, they want more security. Is it really a misclassification of the collateral?
 Misclassification of collateral: Greyvest registered six financing statements in 1987 which
are pertinent to these proceedings. They all precede any registration by NAT. The trailers
which were the subject matter of the financings that triggered these registrations were
inventory in the hands of ITFI and would properly have been classified and described as such
in the financing statement. They were not. There is simply nothing in the filing to notify a
person doing a search under the PPSA that Greyvest is claiming any security interest in the
inventory of the debtor. In my opinion, this admitted error is one which is likely to mislead a
reasonable person materially and, therefore, is one which invalidates or impairs the effect of
the financing statement.
 The (4) financing statements are not curable by the operation of s. 46(4) of the PPSA, and are
accordingly invalid and ineffective to establish a security interest in the trailers in question,
in priority to the claim of NAT. Establish a security interest in the trailers in question, in
priority to the claim of NAT.
 The same is not the case with respect to the remaining December 1987 financing statements.
Neither refers specifically to “inventory,” but each contains a general description of the
collateral in lines 13 to 15 of the financing statements. A reasonable person doing a search
and reading the general description of the collateral provided is not likely to be misled
materially, in my view, as to the nature of the collateral in which the security interest is being
claimed.”
48

In one case, they completely omitted to click on inventory and gave nothing else. In the other
case, they omitted inventory but gave a description.
BASIC PRIORITY RULES
Steps to successful security
1- Agreement : that might have some formal requirements.
2- Attachment : which is the moment that the creditor rights is connected to the debtor
collateral. It’s the moment of the creation of propriety interest.
3- Perfection : it’s the notice to the world. It “alleges” the security. Alleges because just
because you file a financing statement, it doesn’t mean that you have security. There is a
lot of imprecisions in the directory.
We want priority because there is a priority in repaying people. Creditors are #1. But creditors
come in multiple flavours. The flavours are secured and insecured. Even in secured, it is divided
between secure over all the debtors’ assets or some. In secured creditors there are also the
government deemed security.
For priority rules, we need to understand section 20 and section 30
Priority between what kinds of creditors?
Unsecured vs secured: section 20
20 PPSA: (1) Except as provided in subsection (3), until perfected, a SI,
(a) in collateral is subordinate to the interest of,
(i) a person who has a perfected security interest in the same collateral or who has a lien given
under any other Act or by a rule of law or who has a priority under any other Act,
 No matter how you perfect, perfect always trumps unperfected.
 Priority over what? Secured mean security in something, which is connected to the notion
of attachment. The security is usually about a particular asset. It can be some or all the
debtor assets. It could be described as “as the current or future asset of the debtors”.
Secured vs secured: section 30(1)
It is possible to perfect in more than one way. Then you have multiple perfections. Who takes
priority?
30: (1) If no other provision of this Act is applicable, the following priority rules apply to SI in the
same collateral:
1. Where priority is to be determined between SIs perfected by registration, priority shall be
determined by the order of registration regardless of the order of perfection.
2. Where priority is to be determined between a SI perfected by registration and a SI perfected
otherwise than by registration,
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i. the SI perfected by registration has priority over the other SI if the registration
occurred before the perfection of the other security interest, and
ii. the SI perfected otherwise than by registration has priority over the other SI, if the SI
perfected otherwise than by registration was perfected before the registration of a
financing statement related to the other security interest.
3. Where priority is to be determined between SIs perfected otherwise than by registration,
priority shall be determined by the order of perfection.
3.1 Where priority is to be determined between perfected SIs in a prescribed class of collateral,
priority shall be determined in accordance with the regulations.
4. Where priority is to be determined between unperfected security interests, priority shall be
determined by the order of attachment.
The rules in s 30(1) may be paraphrased as follows:
1. Rule of first to register.
- Perfected vs perfected if both are perfected by registration
- If the competing SIs have all been perfected by registration, then the order of registration
determines the order of priority (s 30(1), rule 1). The time of attachment or perfection of
the interest is not relevant.
2. Rule of first to register or to perfect by other means.
- Two perfections, one by registration one by smtg else
- If one SI is perfected by registration and the other SI is perfected by other means, then if
registration occurs first, that SI will take priority.
3. Rule of first to perfect.
- If both SIs are perfected without registration, then the security interest that is perfected
first takes priority (s 30(1), rule 2(ii)).
4. Rule of first to attach.
- If none of the competing security interests have been perfected, they rank according to
the order of attachment (s 30(1), rule 4).
Section 30.1, which was added to the statute in 2006, enacts special priority rules for security
interests in investment property. The key rules are as follows:
1. Control trumps non-control. A security interest perfected by control has priority over
another security interest perfected otherwise than by control.
2. Two security interests perfected by control. If two or more security interests are perfected
by control, they rank in priority by first in time to obtain control.
3. Securities intermediary priority. Despite the above rules, in the indirect holding ­system a
securities intermediary with a security interest in a security entitlement created by it has
priority over other secured parties, unless the intermediary otherwise agrees.
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Why go for first in time?
The intuitive idea is that by letting people know early on, they can react accordingly. Notice is
enough but then you let people know whether they have a potential claim and then if they want,
they can negotiate with you.
Why would you get security? Wouldn’t borrow you the money without it. It’s a trade-off because
the creditor is more certain to be repaid and the debtor gets lower cost of borrowing.
Most efficient economically + It is rational bc nobody would agree to say secured creditor to
create prior security in the good in which you have access to
Does knowledge matter?
What happens if I register while knowing full well that somebody has security of some sort in the
property (might not be perfected security)? This is not relevant.
- Ex : ik that you have a SI that is attached but you haven’t perfected it. I make a SA and I attach
and perfect. My attachment occurs after yours. That suggests that I have priority. You can
“cheat”. The fact that I knew that you had a non-perfected SI doesn’t mean I can't have
priority if I perfect first. Its first come first serve.
- To avoid that problem, the other party that’s being cheated can claim property rights instead
of a SI to have priority on the item.
The Robert Simpson Company ltd v Shadlock and Duggan, 1931:
- Facts: there is secured creditor 1 but not perfected, then SC2, who knows about SC1 interest,
called knowledge. SC2 perfects its interest by registration. If the knowledge counts, SC1 wins.
If the knowledge doesn’t count SC2 wins.
- The court wonders, do we include those knowledge rules in the modern PPSA? The answer
is no. The fact that you know about a prior unperfected SI doesn’t make a difference.
Priority rule are just governed by “did you do all the steps”. That’s a harsh rule because it
might condone shady behaviour.
- “The Plaintiff’s submission depends on looking to see a fixed time for registration but there is
nothing in The Personal Property Security Act that fixes the time when the Court looks to see
if there has been registration. The general rule of priority is built around the key concepts of
attachment and perfection. No other statute has ever attempted to state even a single
priority rule let alone one of such general application as s. 35. If no special priority rule governs
then the rules of subs. (1) are used to resolve competing claims in the same collateral. … The
three rules of s. 35 disregard the pre-Act law and its reverence for legal title to the collateral
and application of the equitable principle of good faith and notice.”
James Talcott inc. v Franklin National Bank of Minneapolis, 1972:
- Facts: the debtor runs a business and part of it involves having several motor vehicles that
are at issue. There are 2 competing parties. One is the seller which sold the vehicle to the
debtor. D has to pay the seller which assigns the conditional sale to James Talcott. It’s a
conditional sale so D has possession but title stays with the seller until repayment. The other
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party is the bank that borrows money, but is structured as a loan. The D transfers rights in
the vehicle to the bank which leases them back. D tries to buy them back.
Since title stay with seller, James Talcott owns the trucks. The question is priority. At trial the
bank won alleging that the other transaction between D and Talcott was registered and
perfected but there was a change in the terms of repayment. They claimed that because of
that change, you would have to re-register the change, or else they lost their perfection.
Since they didn’t do it, they are unperfected, so the bank win. The trial judge agrees.
At the appeal level, the judge say that the change didn’t change anything that would have
mislead the bank that would have required an update. Therefore, nothing occurred to
undermine the security of James Talcott. He wins.
“Priority: With certain exceptions not applicable in the case at bar, a security interest is
perfected when a financing statement is filed. Therefore, a reading of paragraph (a) leads us
to the conclusion that, if a dispute arises over priority of perfected security interests (both
having been perfected by filing before the dispute arose), then the order of filing of the
financing statement governs.”
Even though the bank registers second, it would have been possible to have better priority
on the basis that it was financing the purpose. The problem why it couldn’t take advantage
of it is because the deadline of how long you had to register it in order to have the super
priority. They didn’t have that time.
If you don’t put the terms of repayment in the financing statement, then even if it changes,
you don’t need to modify it anyway. This case illustrates you the power you get from
registration. Once you have perfection from registration, it covers a lot of changes. You have
a lot of flexibility.
Prior lender’s competitive advantage
There is consequences to giving the ability to register bc you can register long before you lend
money to the person. The person who registers first has first dibs so that party is at advantage.
Does that create unfairness? Why do we allow it? this is what the section talks about.
Examples page 225
Time for determining priorities
In most cases involving a competition between unperfected security interests, at least one of the
secured parties will realize sooner or later that its security interest is unperfected and it will
register a financing statement or otherwise perfect its security interest. If one of the secured
parties perfects but the other does not, the dispute will be governed by PPSA, s 20(1)(a)(i), while
if both secured parties perfect, the priority rules in s 30(1), rules 1 and 2 will apply.
When do you decide priority? What is the time for ranking it?
Timeline for registration: Agreement ----- Attachment (you have a right in property; you can take
the property, start bankruptcy proceeding) ------- Appointment of receiver.
So, if you perfected before the appointment, that’s fine. But what happen if you don’t perfect and
somebody appoints the receiver? If the receiver is appointed, you can no longer perfect. The
report said that we should still be able to perfect. But, one advantage of this is to have a firm date
where everything is confirmed.
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What is the difference between appointment of the receiver vs seizing the property? Taking the
property is possession, so its perfected.
You can register before the agreement, that means it can cover for a longer period?
- EX: register, then agreement and then attachment. The D gives you money over time. The
idea is the priority will be over the property attached at the attachment, at the date of
registration and the amount covered will be the two amounts. You can increase the amount
that are covered even after. That’s what they mean by future advances.
It’s also possible to make mistakes. In Ontario, under section 30(6), you can then correct it. Almost
no deadline except time for competition. But if in the gaps of re-perfection, if somebody steps in
and takes security, they trump you. But if no one doesn’t you keep priority. EX: SC2 has priority
over SC1, but SC1 has priority over SC3.
Security for future advances
Can I give you a security for a loan that I will receive from you later? Yes. Section30(3)
The law
In Ontario, the governing provisions are OPPSA s 13 read in conjunction with s 30(3). Section 13
provides that a security agreement may secure future advances, while s 30(3) provides that,
where future advances are made while a security interest is perfected, the security interest has
the same priority with respect to each future advance as it has with respect to the first advance.
Priority of reperfected security interest
30(6)PPSA. Where a SI that is perfected by registration becomes unperfected and is again
perfected by registration, the SI shall be deemed to have been continuously perfected from the
time of first perfection except that if a person acquired rights in all or part of the collateral during
the period when the SI was unperfected, the registration shall not be effective as against the
person who acquired the rights during such period.
- The purpose of the provision is to prevent a later secured party gaining a windfall because
an earlier secured party has failed to reperfect a SI after the original registration lapsed for
some reason.
Subordination agreements
Subordination
A subordination agreement occurs when a senior secured party agrees to subordinate its security
interest to the security interest of a junior secured party. In doing this, the senior secured party is
not acting out of a spirit of altruism; rather, it is in the senior creditor’s interest not to foreclose
the debtor’s access to other sources of credit. A subordination agreement may also be reached
when the secured parties are not sure about their priority positions vis-à-vis each other (for
example, an accounts receivable financer and an inventory financer) or are concerned about an
overlap in the collateral covered by their respective agreements.
Subordination clause vs subordination agreement
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Agreement : an agreement between the affected secured parties themselves
Clause : a provision in the security agreement between the secured party and the debtor by
which the secured party subordinates its security interest to one or more secured parties.
Subrogation vs subordination
I believe subrogation is what we saw in droit civil : a third party buys the security rights on another
and takes their place in the priority list. Ex : insurance. The insurer would take the insuree’s place
in the list. The insure doesn’t exist in the priority list anymore.
Subordination : every party still exists in the priority list. Its just that they agree to change the
sequence / order of the list.
Estoppel letters
A filing under the OPPSA may tell the searcher very little about the nature of the SI being claimed
by the SP. For example, if the SP selects “equipment” in the financing statement, the searcher will
not know whether the SP has a SI in simply one item of equipment, or all equipment. In theory,
the searcher could request further info under s18, but that is to stop the SP from later relying on
its filing to claim a broader pool of collateral? That’s why you have to use an estoppel letter.
- (or SP2 could also ask SP1 to amend its registration by adding a collateral description to
narrow the scope of its collateral or, alternatively, to enter into a subordination agreement
with SP2.)
An estoppel letter is communication from one SP to another whereby SP1 commits itself to certain
statements about its SI. Often in these letters, SP1 will identify the exact nature and extent of its
collateral, commit not to rely on its registration for anything other than the collateral as identified,
and acknowledge SP2’s favor that would prevent SP1 from claiming as against SP2 that its security
interest extends beyond the limits specified in the letter.
Circular priorities problems
Can you change the priority contractually? Yes
- Section 38PPSA. A SP may, in the SA or otherwise, subordinate the SP’S SI to any other SI and
such subordination is effective according to its terms.
But there will be a problem if not all SP are part of the agreement, otherwise they wont be bound
by the contractual priority change.
Ex: there's a debtor with asset (collateral worth 300$). There's creditors A (200$) B (50$) C (150$)
and all of them have a security interest in the collateral.
- Priority rules under section 30 would say ABC is the priority order. So A would get 200$, B
would get 50$ and C would get 50$. This is the default rules of the law
- Let's say there's a subordination agreement between AC that C has priority. So now under
the agreement, 1C 2A and 3B. This doesn’t bind B. So do we do ABC or CAB?
- The solution that courts have come up w (Royal Bank), is to try to unify the two options :
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A has priority under the default rules, but not for an unlimited amount of money.
A has priority for the size of his debt (200$). So when AC reach the agreement, A
can give priority to C only up to the limit that it was owed. So this means C would
get 150, A 50$ (HE CANNOT GET MORE BC 150$ + 50$ = 200$, which is the max he
could get) and B 50$
Royal Bank of Canada v General Motors Acceptance Corporation of Canada ltd, 2006:
- Facts: two banks and a motor financing corporation. CIBC had a security interest then GM
had one too. RBC subordinate on CIBC rights, they claim priority. Are you allowed to create
this type of agreement? Yes. Section 38 PPSA, it’s said in the terms on which you can do it.
- “It is not in issue that CIBC subordinated its security interests in the eight units to RBC’s
security interest in them. Rather, what is in issue is whether by virtue of that subordination:
(a) RBC moves up to stand in the place of CIBC and thereby gains priority over GMAC; or (b)
while CIBC ranks in priority behind RBC, nonetheless GMAC retains its priority over RBC.”
- The solution is that RBC will get priority but only to a certain extent. EX: SC1 has 200K, SC2
100K and SC3 150K. If you have subordination, does it mean that 200K is the limit or is it 200+
150K and then leaves nothing to SC2. In that case, we have 225K from the sold collateral. If
you put them together, SC2 gets nothing. The court said that what you subrogate is the
amount that you are owed. Therefore SC3, with respect to SC1 debt, is put in its shoes, only
in respect to the amount owed to SC1 or SC3 (the highest), not the full amount. So SC3 gets
150K, SC1 50K (cause that’s what’s left in the limit of 200K) and SC2 gets 25K.
- Even if subrogation, SC3 can only get to their own maximum, so 150K. Then check if there is
money left in the limit of SC1 to see if it will receive. EX: the total money recovered is 225K.
SC3 has 250 in debt. It gets 200K (the limit of SC1 in the subrogation), SC1 nothing and SC2
gets 25K.
CIF Furniture limited (Re), 2011:
- Facts: competition between the company that finances the re-purchase of shares. The court
gives the two ways you can interpret subrogation and numbers. The partial and complete.
The Court here confirm that it’s the limit like the RBC case and not all the money together.
How then is this priority dispute to be resolved? Both sides accept that it should be resolved
by applying either a theory of complete subordination or a theory of partial subordination.
- Complete subordination: “Under complete subordination, VenGrowth gives up its priority to
Comerica: in other words, VenGrowth agrees not to assert a claim against the fund generated
by the sale of C.I.F.’s assets until Comerica’s claim is satisfied. But because Kari’s security
interest was registered under the PPSA before Comerica’s security interest was registered,
Comerica’s claim cannot be satisfied until Kari’s claim is paid. Kari therefore benefits
indirectly from the agreement between VenGrowth and Comerica: Kari goes to first priority
and VenGrowth falls to last priority. If the theory of complete subordination is applied, the
priorities are: First, Kari; Second, Comerica; Third, VenGrowth.
- Partial subordination: “Under partial subordination, VenGrowth gives the benefit of its first
priority to Comerica. The amount of VenGrowth’s claim—$4.35 million—is set aside out of
the fund. That amount is used to satisfy Comerica’s claim. If Comerica’s claim is less than
$4.35 million, it will get all of its claim paid and VenGrowth will get the balance. If Comerica’s
claim is greater than $4.35 million it will get the entire $4.35 million, but will receive the
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remainder of its claim only after Kari is paid. Partial subordination has no effect on Kari. It
remains in second priority after VenGrowth’s first priority to the extent of $4.35 million.
While under complete subordination, VenGrowth completely steps aside, under partial
subordination VenGrowth steps aside only to the extent of Comerica’s claim. Accordingly, if
the theory of partial subordination is applied, the priorities are: First, Comerica, to a
maximum of $4.35 million, and then VenGrowth, to a maximum of $4.35 million less
Comerica’s claim; Second, Kari; Third, Comerica for any claim in excess of $4.35 million;
Fourth, VenGrowth for all of its remaining claims.”
“I do not agree that the various contractual provisions on which Kari relies argue for complete
subordination. Moreover, there are several compelling reasons to apply partial
subordination. First, it would be unreasonable to find that VenGrowth intended complete
subordination. By 2008, Kari’s financing had already been spent. Comerica was providing new
financing to keep the corporation afloat. As VenGrowth had a big investment in the
corporation, it made sense for VenGrowth to subordinate its interest to Comerica’s interest.
By contrast, it would have made no sense for VenGrowth to subordinate its interest to Kari’s
interest. Second, as the motion judge pointed out, complete subordination would confer a
windfall on Kari. It would go from second to first priority. Partial subordination leaves Kari in
second position. It gets exactly what it bargained for in 2004. Third, there is no document
where VenGrowth agreed to subordinate its interest to Kari’s interest. Thus, to give effect to
Kari’s position, one would have to infer that VenGrowth intended to go to the bottom of the
queue. To draw that inference, one would expect some clear and unequivocal language in
one of the documents, or at the very least, an exchange of correspondence between
VenGrowth and Kari. Nothing of that sort exists.” Look at the language of the document.
The motion judge was correct in applying the theory of partial subordination to resolve the
priority dispute between Kari and VenGrowth.
The double debtor controversy ??
Anthony Duggan – Security interests in transferred collateral: a note on Lisec: If the court had
applied the nemo dat rule in the Barber Suffolk case Lisec would have had priority over Roynat on
the basis that BSL’s title to the glass cutter was subject to Lisec’s security interest, BGI acquired
the glass cutter subject to the same limitation, and Roynat’s security interest, given by BGI, was
correspondingly bounded. As it happens, the court decided in Lisec’s favour, but its decision was
on the ground that Lisec had complied with section 48(2) by registering a financing change
statement within the required time.
Purchase-money security interests - PMSI
Intro
Exceptions to the basic priority rules: PMSI + Fixtures, accessions and comingled goods
- The exceptions exist because we have an additional value in the security interest. Before, it
was pushed back by the court because it was too good for one party.
Ex: I the D have given you interest over all of my current and after-acquired property. But now, I
went to acquire a new piece of prop useful for my business. What if I need to finance it? I will
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have trouble do finance it by someone else than the first creditor, bc everyone else will be second
rank to him. The earlier registered SI will always trump and it will make it harder to acquire new
security. The legislators said its not the best result. So they created this exception. : a later
perfected SI will have priority over an earlier perfected one IF that SI is used to finance a new
asset.
 To be a PMSI, you have to follow the def of section1 + act accordingly to section33.
Why do we allow this? It puts a limit on the spread of after-acquired security clauses.
There are three things: agreement, attachment and perfection. But registration, which is a kind
of perfection, you can do it really early on. The priority is on the date of the registration of the
financing statement. The statement can be very broad. The problem is, what happens to things
that then are added on? EX: adding on the inventory, things that are acquired after the perfection.
Does the person who register have priority over all that or just what was secured? Can the security
grow? Yes, it can also decrease.
Section 1(1) PPSA, definition: “purchase-money security interest” means,
(a) a SI taken or reserved in collateral (assets), other than investment property, to secure
payment of all or part of its price,
◦ Situation 1: Seller is financing the debtor’s assets. (je te vend ma chaise, mais tu peux me
payer plus tard)
◦ So one thing that is excluded is investment property
(b) a SI taken in collateral, other than investment property, by a person who gives value for the
purpose of enabling the debtor to acquire rights in or to the collateral, to the extent that the
value is applied to acquire the rights, or
◦ Situation 2: What if the person selling is different from the person financing? Ex je te vend
une maison, mais ton loan est de la banque
◦ Situation where a new asset is acquired. The creditor pays the seller, and then have a
right. The purpose of the loan has to be to acquire additional asset and the money has to
be used to acquire that asset.
◦ I think this is Unisource and PettyJohn
(c) the interest of a lessor of goods under a lease for a term of more than one year, but does not
include a transaction of sale by and lease back to the seller;
◦ (“sûreté en garantie du prix d’acquisition”)
◦ The teacher mentionned that one transaction that is deemed to be a SI, even when its
not, is a lease for more than one yr. the PMSI rule is to protect the lessor from the negative
effect of that. Yes its true that such a lease is a SI, but even tho you didn’t register first,
we will still protect you by making your lease a PMSI.
◦ Situation 3 : Lease more than a year
◦ BUT NOT EVERY LEASE!
1. PMSI: L owns and leases to D and therefore there's transfer of possession. If its 1+
years, it’s a security interest and its covered by PMSI.
2. Sale and lease-back : Its another situation. It’s a type of structured finance. So what
happens here is that there's L and D. D owns an asset. D sells asset to L. Then, L
leases the asset. This is not a PMSI.
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Issues/ questions about PMSI
- Can you have a PMSI if you’re refinancing the transaction? Yes, so long as you meet the
statutory definition of it.
- It’s possible to expand, not simply by adding additional asset, but by adding new rights, that
can be PMSI, because even though it’s the same asset, there are now more rights in it.
- Can you have a SI that cover both PMSI and non-PMSI? The financing statement is a summary
of the things over which the security is on. The statement can cover more than one
agreement.
- Can you have a statement that covers PMSI and non-PMSI? Yes, as long as you respect the
requirement.
- What about the question of money? If you have priority in the asset and they are sold, then
you get priority in the proceeds. The problem that arises is what happened if you pool the
money (get it all together)?
- If you have a subrogation agreement, nothing said that you can’t also have an agreement
that deals with the PMSI.
Theory of PMSI priority
It is sometimes assumed that the principal function of an after-acquired property clause is to
decrease the riskiness of a particular claim by expanding the pool of collateral that secures it.
Although the after-acquired property clause saves costs, it also creates what economists call a
“situational monopoly,” in that a creditor with a security interest in after-acquired property enjoys
a special competitive advantage over other lenders in all his subsequent dealings with the debtor.
Scope of the priority
Giving value to acquire rights in collateral
Agricultural Credit Corp of Saskatchewan v Pettyjohn, 1991:
◦ Facts: Farmers thought that they could change the type of animals that they were going to
have in their farm to have more money. The bank had agreed to loan money, but between
the time they agree to it, the farmer bought the cows. They say the bank doesn’t have PMSI
because the cows weren’t actually bought with the money from the bank. The bank gave
value for the purchase of those cows, and values can be the commitment to loan money and
because it was there, the bank had PMSI.
◦ The test under s. 2(gg)(ii) for a PMSI can be conveniently broken down into three
­requirements.
1. The first requirement is that the lender has taken a SI in the property.
2. The second is that the lender has given value for the purpose of enabling the debtor
to acquire rights in the property.
3. The third requirement is that the value has in fact been used to acquire those rights.
◦ It is clear that the purpose of the value given was to enable the Pettyjohns to acquire rights
in the property in question. It is equally clear that the Pettyjohns did, in fact, use this value in
order to obtain those rights.
◦ The third requirement, that the value have been used to acquire such rights, presents greater
difficulties. How can it be said that the moneys advanced were used to acquire rights when
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the purchase had already taken place and the rights already acquired? It is, however,
commercially unreasonable to divide the transactions so minutely. The Pettyjohns used the
value given to them to pay off interim financing, but the interim financing had not been
obtained as a separate transaction, but always with the view that it would be repaid through
the moneys advanced by ACCS.
The court says to look at the transaction in a holistic way. The purpose of the loan was to
enable the ppl to acquire rights in the cattle. That’s the only thing that matters. The fact that
the value was given after the purchase does not lead inevitably to the conclusion that its
purpose was not to enable the purchase. Looking at the entire series of transaction, it was
clear that the value was given to purchase the rights.
So if the purchase is made before the loan is given, it can be PMSI, but you have to show the
connection between the purchase and the loan. If there's a tight connection, the timeline of the
purchase does not matter.
North Platte State Bank v Production Credit Ass’n, 1972: Restrictive American approach
- This case deals with the priority of secured creditors, each having a perfected security
interest in the same collateral. This case deals with what happens if the person financing it,
whether in fact the value that they are giving is used to acquire rights in the collateral?
- Facts: In December 1969, unable to locate all of Tucker’s cattle in which it had a security
interest, PCA checked the filing records and found the Bank’s financing statement of February
5, 1969. Late in December 1969, after Tucker defaulted on the PCA note of March 24, 1969,
PCA took possession of all the cattle on Tucker’s ranch, including the 79 head of Angus cattle.
After the Bank claimed priority to the Angus heifers, PCA and the Bank agreed to sell the
cattle and to hold the proceeds in escrow pending a determination as to the priority of their
respective security interests.
- Issue: Did the bank have a PMSI? How closely related the sale must be to satisfy the
requirement of value for section 2)
 Answer: More restrictive American approach: Does not work to give farmer any
additional rights, so cannot be pmsi, must be very close in order to take advantage
of pmsi
 Tout ce qui suit est juste en extra
- It is apparent, therefore, that the actual goods contracted for were delivered to the buyer
under the previous contract for sale; that Tucker physically received them; and that they
were therefore in his legal possession. The only further question to be determined here is
whether the actual physical delivery of the cows and their acceptance by Tucker, the buyer,
was affected by the fact that the payment of the price and the delivery of the bill of sale were
postponed. It seems quite obvious that when the cows were delivered to Tucker under the
contract for sale and were actually physically received by him, they were in his legal
possession and we so hold.
- We turn now to the question of whether Tucker on November 30, 1968, acquired more rights
in the cows than their possession. Unless otherwise explicitly agreed, title passes to the buyer
at the time and place at which the seller completes his performance with reference to the
physical delivery of the goods, despite any reservation of a security interest. There is no
evidence that the sales agreement, either expressly or impliedly, contained an explicit
provision or term reserving the title until payment had actually been accomplished. We
therefore come to the conclusion that after November 30, 1968, once the cattle reached
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Tucker’s ranch and came into his physical possession, under the completely oral transaction
the Seller had no enforceable security interest in them and no other interest of any kind. Title
and possession were merged in Tucker, it was an unsecured credit transaction, and no cause
of action existed against Tucker except one for the agreed price of the cattle under the terms
of the agreement.
What, then, was the nature of the Bank’s security interest? Obviously, by advancing the
$20,000 and taking the mortgage it did not acquire a security interest in the cows. The money
advanced by the Bank enabled Tucker to pay the price to Seller for the cows. But it was not
used by Tucker to acquire any rights in the cows because he already had all the possible rights
in the cows he could have with both possession and title.
 here there is a big gap in time (a few months). The timing must be very close to take
advantage of PMSI. You have to show that the transactions are connected. Here they weren’t
Refinancing PMSIs
Unisource Canada inc v Laurentian Bank of Canada, 2000: The issue in this appeal is whether the
motions judge erred in holding that the general security agreement held by Unisource had
priority. Laurentian appeals on the basis that it had a PMSI
◦ Facts : competition between two lenders. One lender has a general security agreement.
Another lender finances the acquisition of a new machine. That looks like PMSI. But the
lender who financed that machine wanted to get out. So the debtor found a 3 rd lender who
paid off lender 2 and stepped into the shoes of lender2. When the time came for the
breakdown of the relationship, bc the lender couldn’t pay, the lender1 said that lender3 is
not PMSI bc his money was not used to acquire the asset ; all lender3 was refinance the asset.
◦ The court says that ultimately we have to look at the substance over form. The names of
lender2 and lender3 changed, but the value given by lender3 was the value used to acquire
the asset. Therefore it should be seen as a PMSI. We’re taking the argument of ‘substance
over form’ really far. On the upside, the general security agreement is not going to be really
hurt by the fact that I hold that lender3 as a PMSI lender. Bc what would have had happen
if lender3 would have not stepped in? Lender2 would have taken the machine anyways.
◦ Laurentian’s financing did not merely alter the manner in which the debtor financed the
press. It enabled Printer’s Group to acquire further rights in the press that it previously did
not have. In so doing, Laurentian met the statutory definition for a PMSI. By enabling Printer’s
Group to acquire title, the transaction with Laurentian did enable Printer’s Group “to acquire
rights in or to collateral.”
Ex: Debtor and C1 and assets w general security interests. C2 then allows loan for purchase of
machine = PMSI bc that payment made sure the machine stayed in place. Then, C3 pays off C2,
gets the rights of repayment and takes the security interest. Now, how you do this, if you read the
Unisource case, matters. Bc the courts says that if they had assigned their rights, it would not have
made any difference (transfer of the security interest from C2 to C3). But here, its substance over
form so we don’t care that there was no assignment.
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MacPhee Chevrolet Buick GMC Cadillac ltd v SWS Fuels ltd, 2011: The issue is whether MacPhee
has super-priority, as holder of a PMSI, under s 35(1)(a), that ranks before SWS’ earlier registered
interest under s 36(1)(a)(i)
- Facts : small business (Dickson Fuels DF) that has C1 that controls all the DF’s assets. DF’s
major asset is their truck. The truck is leased from GMAC financing. The person who leased
the truck, transferred the truck to somebody else.
- The problem is that you have to take possession within 15 days (section 33(2)). The problem
is, 15 days from what? When the truck was transfer from C1 to C2, the D (DF) had the truck
for much longer than 15 days. that’s the obstacle here. The court said that the 15 days
requirement is not satisfied so there's no PMSI. It had been more than 15 days since DF had
possession of the truck and hence, you technically don’t satisfy the requirement so you
can't make a claim. That’s the only requirement missing.
- It had to be 15 days from the time that DF takes possession.
- The PPSA does not condition the PMSI’s super-priority on whether the debtor “had”
possession within the fifteen days. Rather the standard chosen by the Legislature is whether
the debtor—Dixon Fuels—“obtained” possession within the fifteen days. That distinction is
important. Clearly Dixon Fuels had possession of the GMC Truck between November 20 and
December 5, 2007. But had Dixon Fuels “obtained” it before November 20?
- Dixon Fuels obtained possession of the GMC Truck in 2004 and kept possession continuously
from 2004 until 2009.
- I disagree with the judge’s conclusion that Dixon Fuels obtained possession within fifteen
days before December 5, 2007. Had I agreed that Dixon Fuels obtained possession within s.
35(1)(a)’s fifteen day window, then MacPhee would have statutory super-priority, fairness
notwithstanding.
- The PMSI super-priority (1) is “very much bound up with the approach to security interests
in after-acquired property adopted by the PPSA,” and (2) is meant to counter the situational
monopoly “of an after-acquired property clause when combined with a first-in-time priority
rule,” and (3) it is not unfair to the earlier registered creditor “since the new asset would not
have been obtained by the debtor but for the new credit provided by the purchase money
security financer.
- Applying that legislative objective, the GMAC Truck was not an after-acquired asset. To the
contrary, it was an earlier-acquired asset. Dixon Fuels had leased the GMC Truck from GMAC
in 2004, before the SWS Credit Agreement and GSA in 2005.
- MacPhee’s security interest, though a PMSI by statutory definition, in the circumstances of
this case lies outside the legislative purpose of the super-priority. SWS has priority over
MacPhee under s. 36(1)(a)(i). Dixon Fuels “obtained possession” of the GMC Truck as
collateral before the fifteen day period in ss. 35(1)(a). So MacPhee’s PMSI does not have
super-priority under that provision.
Priority rules
The PMSI super-priority rules are set out in OPPSA s 33. Section 33(1) applies where the collateral
is inventory; s 33(2) applies where the collateral is other than inventory; and s 33(3) governs
competing PMSI claims. Under s 33(1), the inventory financer must both perfect its SIand notify
any prior secured party of record of his proposed PMSI in order to secure priority.
33(1) and (2) distinguishes the rule whether you are dealing with inventory or not (“not” = all
other assets).
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33: (1) Inventory. Three things you need to do : 33a) 33b) and 33c)
A PMSI in inventory or its proceeds has priority over any other SI in the same collateral given by
the same debtor, if,
(a) the PMSI was perfected at the time,
(i) the debtor obtained possession of the inventory, or
(ii) a third party, at the request of the debtor, obtained or held possession of the inventory,
whichever is earlier;
(b) before the debtor receives possession of the inventory, the purchase-money secured party
gives notice in writing to every other secured party who has, before the date of registration by
the purchase-money secured party, registered a financing statement that describes the
collateral as, or as including,
(i) items or types of inventory, all or some of which are the same as the items or types of
inventory that will be subject to the purchase money security interest,
(ii) inventory, or
(iii) accounts; and
(c) the notice referred to in clause (b) states that the person giving it has or expects to acquire
a purchase-money security interest in inventory of the debtor, describing such inventory by item
or type.
If the inventory leaves, does it mean that the security interest is gone, or it attaches to the money?
That’s why they say proceeds.
It has to be the same collateral (priority only about that thing) and same debtor. You have to
register it, before the debtor gets possession in order to get the super-priority.
(a) how do you perfect inventory? Two ways: possession (but not practical) or registration. So
creditor needs to perfect before the D gets any of the assets that are being financed as inventory.
(b) So not only must you perfect it, but have done the search, you must give notice to anybody
that seems to have security over the inventory.
33: (2) Non inventory ; see MacPhee Chevrolet Buick GMC Cadillac ltd
Except where the collateral or its proceeds is inventory or its proceeds, a PMSI in collateral or its
proceeds has priority over any other SI in the same collateral given by the same debtor if the PMSI,
(a) in the case of collateral, other than an intangible, was perfected before or within 15 days after,
(grace period)
(i) the debtor obtained possession of the collateral as a debtor, or
(ii) a third party, at the request of the debtor, obtained or held possession of the collateral,
whichever is earlier; or
(b) in the case of an intangible (things you can't possess), was perfected before or within 15 days
after the attachment of the PMSI in the intangible.
Deals with asset. The key difference is that if it’s inventory, you must perfect before transfer of
transaction. If it’s not inventory, you get 15 days to perfect after obtaining possession
Assuming you did what you needed to do under 33(1) or (2), the payoff is at 33(3).
33: (3) Priority
Where more than one PMSI is given priority by subsections (1) and (2), the PMSI, if any, of the
seller has priority over any other PMSI given by the same debtor.
 PMSI have priority over the other priority.
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

Between two PMSI, the first one to register is the one to have priority, go back to the
default rule.
Seller PMSI is better than financing PMSI
In order to be a creditor in PMSI, you have to give value which has to be connected to the
collateral.
Mixed PMSIs and Non-PMSIs
If I borrow you money to finance smtg and to do other things, then my PMSI is only the amount
of money used to financing the new assets. The rest of the money is regular debt
Clark Equipment of Canada ltd v Bank of Montreal, 1984: Clark appealed from an order of Deniset
J declaring that the appellants’ interest in three pieces of equipment was subordinate to the
interest of the Bank of Montreal.
- Facts: Montreal registered first and would have priority under s. 35 unless the appellants are
entitled to a special priority granted by s. 34(2). In order to qualify for the special priority
granted by s. 34(2), the creditor must establish first of all that it has a purchase-money
security interest in inventory. A ­purchase-money security interest in inventory will be
entitled to special priority if three conditions are met:
(a) Perfection of the purchase-money security interest at the time the debtor (Maneco)
received possession of the collateral;
(b) Notification to a prior security interest holder (Montreal) about the ­purchasemoney security interest before the debtor received possession of the collateral; and
(c) The notification must inform the prior holder that the seller (the appellants) had or
expected to acquire a purchase-money security interest in inventory describing the
inventory by item or type.
- I do not find anything in the Act which inevitably precludes the existence of more than one
kind of security agreement. In the case at Bar, it is my view that the purchase-money security
interest aspect of the agreement can exist with other kinds of security interests and can be
effective. I would apply what was said in Rosen, supra, and would hold that the preliminary
requirement of s. 34(2) (i.e., existence of a purchase-money security interest in inventory)
has been established.
- The appellants have met the requirements of the Act with respect to perfection, i.e., the
security interest attached and all steps required for perfection under the provisions of the
Act have been completed (s. 21). The interest had been perfected prior to Maneco receiving
possession of the collateral. The provisions of s. 12, with regard to attachment, have been
complied with. Under the security agreement the parties intended a security interest to
attach upon acquisition of equipment by Maneco from the appellants. Value was given by
the sale on credit. Maneco obtained rights to the collateral when it acquired the equipment.
- I have concluded that the appellants have complied with all the statutory requirements
entitling them to special priority prescribed by s. 34(2) of the Act.
Allocation of payments
What happens if you are owed both PMSI and non PMSI debt? How do you allocate payments?
There are certain assumptions you must make about the payments. One of the assumptions
discussed is Clayton’s case.
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Re Chrysler Credit Canada ltd and Royal Bank of Canada, 1986:
- Facts: The bank loans car dealer money and takes a general SI. Chrysler finances the sale of
cars to the dealer and has a PMSI, but is otherwise subordinate to the bank. The car dealer
goes bankrupt. All new cars go to Chrysler without dispute. The dispute is over used cars
that were: 1. trade-ins for new cars for which Chrysler is still unpaid; 2. trade-ins for new cars
for which Chrysler is paid; and 3. untraceable used cars.
- The PPSA recognizes the commercial reality of revolving inventory and frequent future
acquisitions. An inventory financer’s PMSI crosses over to all inventory, which was acquired
through the financing. Therefore, Chrysler has priority on all the used cars, which were traded
in for inventory. There is no evidence the untraceable cars are proceeds of PMSI, so they go
to the bank.
Subordination arguments
Under section 38.
 Even if you are entitled to a PMSI, nothing in law says that you can't agree to subordinate
your PMSI interest.
LIENS
Lien : situations where a party is allowed to maintain possession of somebody else’s possession
in order to guarantee their payment.
Possessory SI. Means that if you take possession, you’re allowed to retain possession until the
debt that somebody has is satisfied. It’s attached to common types of activities.
- EX historic: in-keeper was in CL, somebody carrying on a common calling. That means is you
carry on a business activity that is widely used. The CL would say that in exchange for you
providing sometimes close to public service and having not the right to refuse services, you
have to sleep and eat on your journey. At the end they would have to pay. If they didn’t have
money to pay, they have a lean so they can keep possession. The liens allowed to keep
possession of their luggage.
- EX modern: if you bring a car for repair, the mechanic can keep possession of the car until
you pay them. That’s the logic of the lien. The traditional lien is possessory. That was
destroyed when you stopped having possession.
Liens by statutes
Most of the liens are regulated by statutes in Canada.
4 PPSA: Non-Application of the Act
(1) Except as otherwise provided under this Act, this Act does not apply,
(a) to a lien given by statute or rule of law, except as provided in subclause 20 (1) (a) (i) or
section 31;
- Ex: repairs lien (car in garage), doctrine of distraint (landlord ceases your stuff bc of
unpaid rent)
Section 4 allows the SI to be created without the consent of the parties. (unlike in PPSA, where
the parties have to agree that there's a security interest)
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20: Lien created by statute > Unperfected SI
(1) Except as provided in subsection (3), until perfected, a SI,
(a) in collateral is subordinate to the interest of,
(i) a person who has a perfected security interest in the same collateral or who has a lien
given under any other Act or by a rule of law or who has a priority under any other Act, or
31: Liens for materials and services (in the ordinary course of business) > PPSA
Where a person in the ordinary course of business furnishes materials or services with respect to
goods that are subject to a security interest, any lien that the person has in respect of the materials
or services has priority over a perfected security interest unless the lien is given by an Act that
provides that the lien does not have such priority.
- If you provide services in the ordinary course, and you’re entitled to a lien, then you have
priority over a perfected security interest.
- EX: the car is getting repaired, that creates a liens on the car, the problem that arises is
creditor 2 which is the car financing corporation that has a perfected security interest.
◦ If they perfected after the liens arises, no problem, first in time priority rule.
◦ The problem is when the financing corp has perfected first and the mechanic
perfected by possession, is second. In certain cases, even if it’s perfected later,
lien will take priority. When? It depends what the other statutes says.
That is a super priority. Why do we justify this? It’s because you are providing additional value in
order to get the lien. The lien will only cover the additional value. What is it? In the PMSI it’s
obvious because more assets are entering the pool. A lot on liens don’t give that increase because
they are, ex, repair. The cost of the repair might not be equal to the increase in the value of the
car.
Liens in favour of private creditors
The general CL rule is that a lienor can acquire no greater rights in the chattel than the lienee itself
has.
It has to be possessory liens, but it can start as a possessory and become non-possessory. When?
Depends on the language of the statutes.
A non-possessory lien is enforceable against third parties only if it is registered. However, in
contrast w the PPSA, priorities w liens under the RSLA do not turn on time of the registration.
Subject to the registration requirement, the rules are as follows :
1. A non-possessory lien has the priority over other person except the holder of a possessory
lien
2. Where more than one non-possessory lien is claimed in the same article, priority runs on
the reversed order in which competing claims gave up possession. So the party who gave
up possession last has priority.
◦ Ex: you have a car. Normally, if you talk about PPSA, the parties financing it at the
beginning, register(R1). Then, you need more money for the purchase so you get a
bankloan (R2). So if both are perfected, the priority rule under PPSA would be R1R2. Later, you need to repair the car, there's repair1 and repair2. Once the car is in
repair, the repairmen have a possessory lien so you don’t have to give up the car.
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If you do give up the car, your possessory lien is destroyed bc you no longer have
possession. So the last person to give up the car has priority. So here priority would
be repair2-repair1.
How liens work
Liens don’t spread. EX: I own 2 cars and don’t pay for the work. They are inside the dealer. Car A
is repaired and not paid. Car B is not repaired yet, I can take it out. Cannot have a lien that covers
everything. Statute can usually change the lien but usually the liens is only when you do the work
(provide value) and not paid for. That’s why you get a property interest in maintaining possession.
Each additional liens arises every time you finish the work, so you can have many multiple liens.
You can’t have only one financing statement, need to register each one because they don’t
operate in the same way.
If you give up one lien, you cannot say the value will transfer to another lien. The value and
security interest will disappear.
Pension fund
Wtf did he say? Ask girlies
Governmental liens
Tax liens / deemed trusts
You are a cie, you run a business. When you make over a certain amount as a cie, you have to
charge GST and PST. You make one payment for the two taxes. What the risk the gvt runs? The
cies sometimes don’t give the gvt the tax money they took from us. If the gvt doesn’t get paid,
the cies will be marked as an insolvent cie. To avoid that, the gvt tried to place a security interest
in the assets of the cies to the extent that the cie has not handed over the tax due.
Courts have generally been reticent to grant these deemed trusts. What worries courts is
unfairness to the cies.
Statute that allows the government to seize somebody personal property if they don’t pay their
municipal taxes.
The lien is only created when possession is taken. So, you might have a right to acquire, but until
you actually go forward, the security interest does not arise.
DaimlerChrysler Financial Services (debis) Canada inc v Mega Pets ltd, 2002: PMSI can't be
touched by deemed trust
- Facts : father wanted to make sure that the child had a proper business (pet grooming
service). For the business, had to buy a truck from DaimlerChrysler. Child doesn’t have the
money to do that. So father finances the purchase. Father needs to give security interest.
Then father transfers possession and the use of the truck to the son. The business doesn’t go
well, partly bc taxes are unpaid. So we are left to pick up the pieces.
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It is clear that Daimler is the PMSI financier. So if you recognized the deemed trust, the effect
of it would be to strip the PMSI financier of their security interest. That’s unfair bc that would
mean the gvt could abolish any security interest in order to make sure the gvt got paid first.
The court wont accept that.
Held : PMSI can't be touched by deemed trust
When you do the bill, you are collecting taxes on behalf of the government. That money
belongs to the government. You should give it up. What happens if you don’t give it up?
That’s a common problem with failing businesses. The government write the law that it’s a
super secured creditor with the income tax act. It goes first in the line. That super security
interest is also known to be a trust. The government can therefore say it’s my money, give it
to us. The court has problem with how to deal with the fact that the government write itself
a super interest against a party who has a security interest perfected and gave value to it.
Daimler turned over a vehicle and asked to be paid over time. Can the government
undermine this? The Court didn’t give the government the super priority. When the court
does that, the government goes rewrite the section in the Income Taxe Act.
Those types of governmental super priorities exist in many statutes. Courts are hostile to it.
Leavere v Port Colborne, 1995: case of two ppl claiming security in the same asset, who has
priorioty?
- It is whether a municipality distraining a taxpayer’s chattels for arrears of business taxes is
entitled to those chattels as against a creditor of the taxpayer who has a registered
perfected security interest in those same chattels.
- Held : the municipality’s interest comes from a Statute. If the Statute says municipality has
priority, it has priority, as simple as that.
- The Applicability of the PPSA to the Municipalities’ Claims for Arrears of Business Taxes: As
s. 4(1) states, the PPSA does not apply to a lien given by statute or by a rule of law except
as provided in the two provisions named therein.
- Is the lien upon the taxpayer’s chattels, resulting from the exercise of the right of distress,
excepted by the provisions of s. 4(1)(a)? Examine whether the exception applies to these
cases.
- It is my view that the exception was enacted to deal specifically with the problem of a
competition between such a lien and an unperfected security interest. I cannot read the
provision as going any further than that. I conclude, therefore, that the exception provided
for in s. 20(1)(a)(i) is simply inapplicable in the circumstances of these two cases.
- The Priorities Between the Appellants and the Municipalities in the Absence of the PPSA:
Because I have concluded that the provisions of the PPSA do not apply to the municipalities’
liens in these cases it is necessary to determine the priorities in the absence of that Act.
- The definition of security agreements in the PPSA is wide enough to include mortgages and
these security agreements are so similar to mortgages in purpose and effect that I think
they must be included in the word “otherwise” found in the provision. It follows that the
statute authorized the levy by distress against the chattels covered by the appellants’
security agreements. I am unable to read s. 400(2)(c)(ii) in any fashion other than clearly
expressing a legislative intent that municipalities are entitled to levy by distress upon
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chattels in the possession of a person taxed even though the chattels are subject to security
agreements.
It is my opinion, therefore, that s. 400(2)(c)(ii) should be read as giving the municipalities’
liens priority over the appellants’ security agreements. Thus the common law rule cannot
apply to give the appellants’ security agreements priority over the municipalities’ liens.
TRANSFER OF COLLATERAL
Under what circumstances is the debtor authorized or able under the PPSA to pass good title to
the collateral to a third party free of the security interest? For example: SP has a security interest
in D’s truck. D sells the truck to T. Does T take the truck free of SP’s security interest? The general
rules are in OPPSA ss 20(1)(c), 20(1)(d), and 25(1)(a). Read together, these provisions enact three
general rules:
1. If the SI is unperfected, the transferee gets clear title provided the transferee gave value,
took delivery, and had no knowledge of the SI (if the collateral is accounts, there is no
delivery requirement).
2. If the SI is perfected and SP expressly or impliedly authorized the transfer, the transferee
gets clear title. The typical case is where the collateral is inventory. D must have the right
to sell inventory in the ordinary course of business because otherwise her business will not
be viable. An inventory security agreement may include a provision stating expressly that
D has the right to sell inventory in the ordinary course of business. But even if the
agreement is silent, the court is likely to imply a provision along these lines.
3. If the SI is perfected and SP did not expressly or impliedly authorize the transfer, the
transferee takes subject to SP’s security interest.
Protection of transferees in ordinary course
Introduction
Imagine you have a debtor who’s assets are collateral (asset in which a creditor has a SI). How do
we know they have a SI? Bc there's a consensual agreement under the PPSA. The only time we
might worry about the debtor losing the asset would be when there's a default of the consensual
agreement and then the creditor can seize the asset. In a commercial issue, the collateral might
not be static. Some assets might go out and smtg else can replace it.
- Ex some collateral is inventory ; the whole purpose of it is that the business will work to
get rid of it. if you have security on inventory, you have inventory on smtg that is
disappearing and it will be replaced by smtg else. That smtg else is proceeds.
Couple questions :
 if there's a SI in inventory, if that inventory moves to the third party, what happens to its
SI? The default CL rule is that you can only acquire the rights that the parties have.
 If SI stays in the inventory, and third party gives a SI in that same inventory, what
happens?
Whether the SI will continue or not after the sale will depend on whether this transaction calls it
authorized. Authorized by the party who has been given a SI in it.
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25. Perfecting as to proceeds (Proceed : smtg the business gets after selling inventory)
(1) Where collateral gives rise to proceeds, the SI therein,
(a) continues as to the collateral, unless the secured party expressly or impliedly authorized the
dealing with the collateral free of the SI; and
(b) extends to the proceeds.
 A) If its an authorized transfer by the SP, the third party acquired it WITHOUT the SI. If its
unauthorized, the third party acquires with the SI
 B) if its an authorized sale, the SI shifts from the collateral to the proceeds. If its an
unauthorized sale, the creditor gets two SI : one in the collateral and another in the
proceeds.
One thing that the section asks is “do you have a SI in the proceeds?”. Ask yourself, who actually
gets the proceeds. Bc the section doesn’t say that the proceeds are given in exchange to the
collateral. So once situation might be that the proceeds are in fact given to the debtor. But you
could create a situation where the proceeds are not paid to the debtor, but to a third party. This
will create perfection by possession by the third party.
Ex you have a propensity to buy equipment, use it for a few years, and then you sell it to buy
new one. Its hard to say its inventory, its more like equipment. In a business, its more easy to
say inventory if its in their policy.
25(2). No need to re-register
Where the SI was perfected by registration when the proceeds arose, the SI in the proceeds
remains continuously perfected so long as the registration remains effective or, where the SI is
perfected with respect to the proceeds by any other method permitted under this Act, for so long
as the conditions of such perfection are satisfied.
 Theres nothing about who’s holding the proceeds.
 So if there's a transfer of collateral for proceeds, whether its authorized or unauthorized,
you get a SI in the proceeds. The proceeds might be different than what is described in
the collateral. Does that mean you have to register it again ? section 25(2) says no.
We talked about a sale. But section 25 is broader than that. It only talks about all dealings. So like
it talks about leases also. It would appear that it applies to any transfer, even smtg less than sale.
Sale of goods in ordinary course
Can collateral be moved? Most likely yes. What effect does that have on the security? There's 2
perspectives.
◦ From the pov of the security lender and from the pov of the person acquiring the prop. For
the security lender, if you either explicitly or implicitly give the permission to the debtor to
sell the prop, then the disposal of the proposal will remove the SI from that property and it
will attach to the proceeds. If they dispose of the prop without permission, then the security
interest continues in the collateral and attaches to the proceeds. The pov of the party
acquiring it : if you acquire stuff where there was a permission to sell, there's no problem ;
you get the stuff without any security interest attached to it.
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◦
What if you buy assets where the debtor did not have authorization to dispose of them? The
buyer is in trouble bc they buy smtg w a SI that might be taken away from the seller’s
creditor’s.
Buyer
25 is for transfers of chose in possession and in action.
28 is for sales (not all transfers) + to protect the buyer.
28(1). Buyers of goods
A buyer of goods from a seller who sells the goods in the ordinary course of business takes them
free from any SI therein given by the seller even though it is perfected and the buyer knows of it,
unless the buyer also knew that the sale constituted a breach of the security agreement.
 It has a be a (1) sale of (2) goods (so not chose in action)
◦ Sale : not a contract, but a conveyance/a transfer
 What is the protection section 28 offers?
◦ So section25 says that if its an authorized sale, then the third party doesn’t
acquire the good w a SI. Therefore, you do not need section28.
◦ You rather need section28 when the sale is unauthorized. It protects the buyer of
goods in a case where the sale is under the debtor’s ordinary course of business
but for wtv reason, the transaction is not authorized by the creditors.
 Exception: if you know the sale violates the security agreement.
 Condition: SI is given by the seller.
◦ So, if the security interest was not given by the seller, then it doesn’t apply.
◦ EX: the debtor A gave a security interest to SP, then the asset was given to debtor
B who sells it. The only way that it doesn’t apply is when the buyer knows that
there is a security agreement but also knows that sale constituted a breach of the
security. In order to show that the buyer is not entitle to the protection, needs to
show those two things
 Condition: Ordinary course of business : CAMCO
Application of section28 :
◦ Condition 1 : in the ordinary course of business
◦ Condition 2: SI given by the seller
◦ Exception : Buyer knew that this sale was done in breach of the security agreement
28 (1.1) Subsection (1) applies whether or not,
(a) the buyer took possession of the goods; (overrides Twyne’s case bc you don’t need
possession anymore, but only for the application of 28(1))
(b) the seller was in possession of the goods at any time;
(c) title to the goods passed to the buyer; or
(d) the seller took a security interest in the goods.
28.2. Protection for leases (leases that are for more than one year I think)
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Security interest given by seller
This matters bc if situation where debtor (aka the person who gave the SI to the creditor) sells
to 3rd party, that party has security interest and 3rd party sells to fourth party does not apply to
this last thing
Ordinary course of business
= “a sale to the public at large of the type normally made by the vendor in a particular business,
where the basic business dealings between buyer and seller are carried out under normal terms
and consistent with general commercial practice”.
◦ On this basis, a sale between private parties is not a sale in the ordinary course of business,
nor is a sale by a dealer in unusual circumstances (off-premise, outside normal business
hours, substantially below market value, or unusually large quantity of debtor’s stock)
Camco Inc. v Olson: Section 30(1) SKPPSA is not concerned with the ordinary course of merchants
in a given area generally, but with the ordinary course of business of the seller. It is a question of
fact.
 Facts: Camco Inc. manufactures and sells major appliances throughout Canada, including
washers, dryers, refrigerators and stoves. Muxlow Development Corporation is engaged in
the business of property development and management in SK. Muxlow was involved in
developing a condominium project in Regina and constructed and sold condominium units
equipped with four appliances (washer, dryer, refrigerator, stove) to individual purchasers.
As part of the project, Muxlow purchased from Camco 171 appliances, to be supplied to
the condominium units, pursuant to a written Agreement and a Credit Project Report.
Camco was unaware that Muxlow had transferred or was intending to transfer any interest
in the appliances to third parties. The individual unit owners were unaware at the time of
purchase that such appliances were subject to security interests, and most unit owners did
not retain their own solicitors for the purchase as legal services were provided and included
as part of the purchase price. Muxlow defaulted in its obligations with Camco, and the unit
owners received notice of the default indicating that Camco wished to enforce its security
by way of seizure and sale of the appliances.
 Issue: whether or not Camco had priority over the individual condominium unit owners
with respect to the major appliances located in the individual units, or whether the
individual unit holders have good title, free from any security interest retained by Camco?
Was this a sale in theordinary course of business?
 Held: Camco submits that the sales were not sales in the ordinary course of business of
Muxlow. While the sales of condominium units may have been, the sales of appliances were
not. Jurisprudence determined sales in the ordinary course of business to be the sale of
goods from the seller’s inventory to the public at large, in accordance with the seller’s
usual business practice. This is a question of fact. Some developers do not ordinarily sell
units equipped with appliances, but Muxlow did. Muxlow had constructed and sold at least
two other projects of comparable size, and each unit sold included appliances. Section 30(1)
is not concerned with the ordinary course of business of developers generally but with the
ordinary course of business of Muxlow, the seller. Muxlow sold condominium units
equipped with household appliances in the ordinary course of its business. The sale of
household appliances to buyers who bought units was an integral part of Muxlow’s
business operation. The individual buyers of units were good faith buyers pursuant to
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
s.30(1) and have priority over Camco with respect to the appliances. The seller was involved
in an economic enterprise (he was selling condominium units on a systematic basis), a fact
known to the appellant. The mere fact that the seller was engaged in the selling of
appliances as an incident to his primary business of selling condominium units does not
preclude the operation of s. 30(1).
“The court should give a generally liberal interpretation to the phrase “buyer of goods sold
in the ordinary course of business of the seller”, in order to carry out the purpose of s. 30(1)
- to protect the buying public in cases where the secured party furnishes goods which are
sold to the public by the debtor in the regular course of the debtor’s business. This comports
with the underlying philosophy of the provision to protect the security interest so long as it
does not interfere with the normal flow of commerce.”
Quist close trust
If I transfer you money for a particular purpose and the purpose fails, then you hold the money
on trust for me and you have to return it.
◦ What can you do if after a while, the seller refuses to give you the goods? You can claim a
that you have a property right in the good because you paid money. Or you can say that you
have property rights in the money, what is basically the whole idea of trust (debtor keeps the
money in a trust account – Quist close trust).
◦ We use the word buyer in section28 ; buyer is a party that engages in the sale. In CL, a sale is
a transfer of property. But a sale is different than a gift. In a sale, you have to pay for it. so
what problems can arise? You can get property as a buyer, but if there's a security interest
on the goods, I might get property interest that has a security interest in it. so I don’t get
everything I was promised. Section 28 tries to help w that. But buyer also has to pay. In
situations where you have to pay first and then you get you goods, you run the risk that
your goods will be taken away from seller’s creditors. If the creditors take the goods before
the buyer, the buyer’s only hope of getting smtg back is claiming he had property in the
money even tho he transferred it (as a quist close trust).
Transfer of chattel paper or securities
28(3) Chattel paper
Subject to subsection (3.1), a purchaser of chattel paper has priority over any SI in it if,
(a) the purchaser, in the ordinary course of the purchaser’s business and for new value,
(i) takes possession of the chattel paper if it is tangible chattel paper, or
(ii) obtains control of the chattel paper under subsection 1 (3) if it is electronic chattel paper;
and
(b) the chattel paper does not indicate that it has been assigned to an identified assignee other
than the purchaser.
◦ 28.1 parle de buyer. 28.3 parle de purchaser. What is the difference? buyer is someone that
only acquires their good through a sale. Purchaser is wider ; covers a wide range of
transactions (things acquired by lean, etc).
◦ purchaser of chattel paper has priority over any security if purchaser in ordinary course of
purchaser’s business for new value takes possession OR obtains control AND chattel paper
does not indicate it has been assigned to id assignee
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Securities can be transferred when you have control over it. Control is if you can take decision in
it. In goods, you know when things occur because there is transfer of possession. Chose in action
are transfer when they are assigned. When do you satisfy the requirement for assignment, is
generally when you transfer the rights and get payment. In CL there is 4 different types of
assignments.
PPSA s. 28 (4): Document of title
purchaser of collateral that is an instrument or negotiable doc of title has priority over security
perfected by registration or temp if purchaser gave value, purchased collateral without
knowledge, and has taken possession of collateral
◦ Documents of title are a weird middle. It used to be in commercial transaction, you would
effectively say that some document act both as a representation of the rights but also the
fact of transferring the document, it transfers the right.
Motor vehicle
Section 28.5. yes there's a protection. Vin registration
Where a motor vehicle, as defined in the regulations, is sold other than in the ordinary course of
business of the seller and the motor vehicle is classified as equipment of the seller, the buyer
takes it free from any SI therein given by the seller even though it is perfected by registration unless
the vehicle identification number of the motor vehicle is set out in the designated place on a
registered financing statement or financing change statement or unless the buyer knew that the
sale constituted a breach of the security agreement.
PROCEEDS
= Property or assets that you get for selling inventory. Once you deal w proceeds, you get new
proceeds and its infinite. You can't get rid of proceeds as a security. So if you have a security in
anything, if that thing is then transferred by the debtor, you automatically have rights in the
proceeds. You don’t even have to ask for security in proceeds, you’ll just get it if there's a security
interest in it.
Section 25
(1) Where collateral gives rise to proceeds, the SI therein,
(a) continues as to the collateral, unless the secured party expressly or impliedly authorized
the dealing with the collateral free of the SI; and
(b) extends to the proceeds.
(2) Where the SI was perfected by registration when the proceeds arose, the SI in the proceeds
remains continuously perfected so long as the registration remains effective or, where the SI is
perfected with respect to the proceeds by any other method permitted under this Act, for so long
as the conditions of such perfection are satisfied.
◦ To know the priority of the proceeds, you look at the priority in the original good
(3) A SI in proceeds is a continuously perfected SI if the interest in the collateral was perfected
when the proceeds arose.
(4) If a SI in collateral was perfected otherwise than by registration, the SI in the proceeds becomes
unperfected ten days after the debtor acquires an interest in the proceeds unless the SI in the
proceeds is perfected under this Act.
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(1) when the collateral gives rights to proceed a), the interest keeps going in the collateral. That’s
why need the exception in section 28. B) if section 28 doesn’t apply, you can have SI in the
collateral, then in the proceeds. (2) (3) (4) about priorities in proceeds.
1. “proceeds” means identifiable or traceable personal property in any form derived directly or
indirectly from any dealing with collateral or the proceeds therefrom, and includes,
(a) any payment representing indemnity or compensation for loss of or damage to the collateral
or proceeds therefrom,
(b) any payment made in total or partial discharge or redemption of an intangible, chattel paper,
an instrument or investment property, and
(c) rights arising out of, or property collected on, or distributed on account of, collateral that is
investment property; (“produit”)
◦ Identifiable means I give you the water bottle and you give it to someone else and we can
always know and identify who has the water bottle.
◦ Traceable doesn’t mean you know where the water bottle is. It means you trace the value of
the bottle. If I had a dollar then you stole the dollar and then you bought a chalk from X. The
problem is “can I follow the dollar and get the dollar back?” one answer is no bc the nature
of money is that its negotiable (X gave value -the chalk- for the money so you can't take the
money back.)
◦ To prevent that problem, tracing comes in. you don’t follow identity, you follow the value in
the thing. At the beginning, you had a dollar. The dollar was changed into a chalk. You lost
the ability to get the dollar (bc of negotiability), but now you can get the chalk (aka the value
of the dollar).
◦ But what if the chalk was worth 2$?
- Ex: I steal 1k from you. I then use it to buy a life insurance policy and then the life
insurance pays out a lot more than 1k. tracing says that you can trace into the proceeds
of the policy. But for how much? You can claim a proportionate amount of the payout
that is proportionate of how much the cost of the insurance of your money was put in.
so yes you could get more than 1k. à
Issue 1
Do you automatically get a security in proceed?
◦ Flintoft v Royal Bank of Canada, 1964: you get rights in the proceeds. It’s better if you spell
out in the contract that you have those rights, but it’s not necessary. If you don’t write it
down, there might be a risk that the court will rule against you.
Issue 2
Assuming that you have some rights in the proceeds, how do you deal with that?
◦ Where things get complicated is with the concept of tracing. There is a difference between
tracing and following. EX: if it is your pen, you can follow it. Follow the specific piece of
property. Tracing is that you don’t follow the property but its value.
Issue 3
What happens when you follow value into a bank account? And then money goes in and out of
the bank account? How much value can you follow into the account? Can you claim value in the
account or the money that comes out of the account?
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TRACING
Inventory means by definition that you can sell it, that means the other party has to pay for it.
The first question is does the buyer get the inventory free from SI? It depends of the ordinary
course of business transaction. The default position is that the SI should follow. That would make
the buyer in a weak position, because mean every time you buy something, need to check if there
is a SI.
Also, the person who owns security, while the inventory is reduced, the security is reduced. That
means if the debtor sells the inventory, the security is destroyed and the debtor is full of cash.
The law said fair enough, the SI will therefore move from the asset to the proceed, that can be
done in everything it moves into. We are preserving the value of the security.
The difficulties arise when the proceeds are in money because money can be moved around. EX:
the proceed is 10$. The debtor can deposit the bill in its bank account. The nature of a bank
account is a loan to the bank so when deposing it, it belongs to the bank. Then, you have a right
to demand the repayment anytime you wish. So, you have a security right in what is owed to you.
But could you get a security in the money that is in the account? That’s when the tracing comes
in.
EX: if I move the phone from one person to another, just passing possession to someone else.
Tracing is not following who has the actual property. You are tracing the value of the value. So,
for the 10$, you don’t look at who owns the actual 10$, but you can trace the value of it. To what
extent can you follow it?
Issues
(1) How do you deal with bank account? In some cases, the bank has a security interest in the
bank account. Who has a better security interest in it? You or the bank?
(2) The value goes in a pool up and down (see drawing). The bank account has gone below 10$ so
before the time it was deposited and claiming, there was a period with less then 10$. The
maximum you can have is the lowest intermediary rule. You look at persistence of value and not
money. So, when money is no longer there, you cannot trace it anymore. EX: bottle and what’s
left. 5 ounces, get rid of one once, you can only get 4 ounces.
(3) Take the 10$, don’t deposit it, but buy a lotto ticket that wins a million dollar. Can you trace
only 10$ or to the whole value of the ticket?
Chose in action is an abstract right, when is the right located? Located at the branch where you
actually have your account.
Mostly, tracing will deal w bank accounts. So the teacher will take about bank accounts
- a bank account is supposed to have “my money” but it’s rather a loan to the bank and it
belongs to the bank and they have an obligation to pay me back.
- The bank has X amount of money and at a given time, the bank can't reimburse everyone all
their money. So the problem arises if two people trace their money and they're owed money
from the same pool of money and the bank can't repay them both.
- Next problem is how much can you trace into? The limit on how much you can trace is related
to the fluctuation of money in your bank account. So if you’re owed a 100$ from the bank,
you’ll only be able to get 100$ from the bank account if between the time that you’re tracing
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into the account (so the moment the value was put in) and the moment at which you want
it to be taken out, the amount of the account has to be at least 100$.
When you open a bank account, you deposit $ and you start by having a right. But you can also
add and withdraw money from your account. You have a right to the money in your account. So
if you have 15$, you have a right to 15$. If you withdraw 20$, the bank has a right of 5$ from you
(overdrawn account).
To deal w proceeds, you use your bank account.
- Ex I (the debtor) have a car that I sell to a third party. The creditor has a SI in the car. Third
party gives me money : that is proceeds1. The creditor gets a SI in proceeds1. The debtor has
a bank account and deposits the proceeds1 in the bank account. That is a loan to the bank.
So the debtor sold the proceeds1 to the bank and in exchange it got the right of repayment.
This right is proceeds2 of proceeds1.
Problem : Overdrawn bank account
- Ex when the car is sold, the SI shifts from the car to the proceeds1. The proceeds1 is sold to
the bank so the rights in the bank account become proceeds2. The problem is what happens
if the account become overdrawn. Overdrawn means that the bank doesn’t owe me money,
but I own the bank money. Therefore there is no more rights and no more proceeds2.
- Ex the car is worth 100$ but I am overdrawn for 200$. So when I deposit 100$, the overdraft
is just reduced. Who gets the money? The bank is repaid w the 100$. So the bank can create
a super-security when the account is overdrawn.
Backward tracing
- When money is used to pay a debt, it is traceable into what was acquired in exchange for the
incurring of the debt.
- Agricultural Credit Corp of Saskatchewan v Pettyjohn, 1991
 Facts: The party who is objecting is the party that had an SI in the initial cows ; those
cows were sold. In exchange, they got nothing.
- Ex : I sell the assets and get proceeds of 1k and put it in the bank account. I now go buy a
speedboat. You remove the 1k from the account and buy the boat. That’s called tracing. Now
you can trace out of the bank account and into the speedboat.
◦ But what if you decide to buy the boat now and pay later? So you get the thing and
then you withdraw the money and pay for it. this is controversial bc it seems to violate
the idea that tracing requires a causal link to show the connection between the assets.
(is that still tracing? Yes I think its backwards tracing.)
◦ Here, its possibly not the case. In the Pettyjohns case, that’s what happens. Money
was put in the bank account and the cows were paid out later. The only reason why
the argument fails is bc the account was overdrawn. But atleast, the CA is prepared to
be open to the idea of backward tracing. So in conclusion the court is open to the idea
of backward tracing, but here the argument didn’t work bc the account was
overdrawn.
- Backward tracing might be permissible in the ppsa context, but difficulty in applying principle
Tracing into a mixed funds
- = money coming from multiple sources.
- Money in bank account kind of a mixed funds
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-
The problem : bc there's multiple sources, there's also the possibility of multiple tracers.
Let's assume multiple sources but only one party is tracing.
◦ Ex you have 100$ in account but I’m tracing 50$. So I’m entitled to at most 50$.
◦ Where issues can get complicated is : all the money is mixed. Which one of the 100$ is
my 50$? Idk, they lose their identity bc they're the same. So you can't say that exactly
these 50$ are your proceeds. So if there's multiple parties tracing, there can be a problem
so the law developed presumptions on that (about which money goes in first and goes in
last).
◦ Clayton’s case: first in first out. The payments are in order. You’ll be better or worse off
according to timing.
 The amount of money fluctuates. There's 100$, you put in 50$, then it goes
down to -50, then back to 100$.
 If you’re tracing,
◦ Prorata rule : Rather than having Clayton’s case, we’re better off w prorata. If you gave
50$, then you have ½ of the 100$.
◦ Lowest common intermediary rule : the limit on how much you can trace is : between
the time that your money was put in the account and the time you are claiming, the limit
to what you can get is the lowest that was in the account
- Account over time
 Step 1: proceeds paid it 100$, account should be 100
 Step 2: withdraw of 75$, 25$ left
 Step 3: deposit of 100$, 125$
 Step 4: want to claim security interest, can they trace 100$? Or are they
limited to 25$
 Even if though there is 125$, you would be limited to 25$, but the
75$ could be located elsewhere
◦ These are all rules applied by the court.
Segregated bank account and blocked bank accounts (bank’s pov)
- If you are a bank, you also have a SI in the debtor (bank account). The problem is, other ppl
can trace into the bank account. So the bank can segregate its money to the other creditors
money from your bank account so that their proceeds can't be traced back into the
segregated account.
- The segregated account is a SI
Fixtures, accessions and comingled goods
= different ways that you can take a piece of property that someone has a SI in and connect it to
a piece of property in which either somebody else has a SI or that no one has a SI in.
Fixtures
We have property, which comes in various kinds. Usually, personal property is covered by a PPSA
security and real property is covered by mortgage. Each one has their own priority rule, PPSA or
mortgages. The problem that arises is: what happen when have security in one of these things,
and then it changes categories, which security interest follow? The most logic to see it is by
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fixtures. What required for something to become a fixture. Assuming you can do that, you wonder
which one of these priority rules govern
Attached a personal property to a real property. The personal property needs to retain its identity.
The personal property goes from being a good to becoming realty.
 Section 1. “goods” means tangible personal property other than chattel paper, documents
of title, instruments, money and investment property, and includes fixtures, growing crops,
the unborn young of animals, timber to be cut, and minerals and hydrocarbons to be
extracted;
- For the purpose of this statute, the CL rule is overwritten bc the fixture is still a good
Fixture to describe:
 goods that have become attached to land but have retained separate identity
 goods that have become an integral part of the land or building on the land
Distinguish between the following categories of goods:
 goods that are on the land to be used for the better enjoyment of the land but have
never become physically attached to it
 goods that have become attached to the land but are not integral part of it (true fixture)
 goods that have become integral part of land
Character can be changed in two ways: completely loose the identity, that’s comingling. Fixtures
is that you become a different kind of property. EX: certain type of machine to a property, it is a
machine but can become a fixture if it’s attached to the floor.
Cormier v Federal Business Development Bank, 1983:
- Facts: At issue in this application is who is entitled to possession of five items of machinery
and equipment which are situate on the premises owned by the applicants. It was argued on
behalf of the applicants that all of the machinery and equipment had been affixed to the realestate in such a manner that it should be considered part of the land.
- Five rules were laid down to assist the Court in determining what constituted a fixture,
that’s the test. (comes from Stacks vs Timothy Eaton and cie)
1. Articles not otherwise attached to the land than by their own weight are not to be
considered as part of the land, unless the circumstances are such as to show that they
were intended to be part of the land.
- Attached desk at school = fixture
- Library desk = not fixture
2. Articles affixed to the land, even slightly, are to be considered part of the land unless
circumstances are such as to show that they were intended to continue to be chattels.
- Articles attached to the land, are considered to be a fixture, unless circumstances
show otherwise.
- Even slightly : means the attachment does not need to be permanent
3. The circumstances necessary to be shown to alter the prima facie character of the articles
are circumstances which show the degree of annexation and the object of such
annexation, which are patent for all to see.
- Does it look like its designed to be moved or not
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4. The intention of the parties affixing the article to the soil is material only so far as it can
be presumed from the degree and object of the annexation. Objectively, you don’t ask
what they intend, but look what they did.
- You don’t ask what you intended, you look at what you did. Objective
5. Even in the case of tenant’s fixtures put in for the purpose of trade, they form part of the
freehold, with the right, however, to the tenant, as between him and his landlord, to bring
them back to the state of chattels again by severing them from the soil, and they pass by
a conveyance of the land as part of it subject to this right of the tenant.
- EX: If I lease a piece of land or a factory and then put a machine there, and fix it
to the land, it becomes part of the factory, but because I did intent to give it to
the owner, a have the right to detach it. But until I detached it, it’s a fixture.
- This is what is in Cormier.
34(1) Priority
A SI in goods that attached,
(a) before the goods became a fixture, has priority as to the fixture over the claim of any person
who has an interest in the real property; or
- If your PPSA SI attaches to pp, before pp attaches to land and becomes a fixture, you have
priority (SI) over the person who has a real property claim
- If my PPSA attach before the fixture is made, I have a SI that has priority
- All you need at that point is attachment, not perfection
(b) after the goods became a fixture, has priority as to the fixture over the claim of any person
who subsequently acquired an interest in the real property, but not over any person who had a
registered interest in the real property at the time the SI in the goods attached and who has not
consented in writing to the SI or disclaimed an interest in the fixture.
- after the goods becomes a fixture, claim over subsequent person, but not over the real
property person.
- If I attach after the goods become a fixture, I only lose my priority if my SI attaches both
after the good becomes a fixture AND somebody else gets a SI before that time in the
property
- I will still have priority if my SI attaches to the fixture, but the person who claims the SI in
the land has priority
34(2). Exceptions
A SI mentioned in subsection (1) is subordinate to the interest of,
(a) a subsequent purchaser for value of an interest in the real property; or
(b) a creditor with a prior encumbrance of record on the real property to the extent that the
creditor makes subsequent advances,
if the subsequent purchase or subsequent advance under a prior encumbrance of record is made
or contracted for without knowledge of the SI and before notice of it is registered in accordance
with section 54.
(a) that’s problematic.
- if the goods become a fixture before the competing party acquires its interest in the land and
the SI has already attached at that point, the competing party has priority unless the SP filed
a notice of its interest in the Land Registry Office before the competing party’s acquisition.
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-
Ex Hugo has a jacuzzi that is attached to his land. The creditor has an attached SI in the jacuzzi.
If hugo sells the house, the purchaser will not be bound by that SI. Unless you do the next
step (section54). If you’re buying a house, you check the SI in the land registry (not the goods
registry). So if you register your SI in the jaccuzi in the land registry, the purchaser is going to
be bound
(b) the idea is, yes you can have priority but that priority will not extend to subsequent people
that will not subsequently give money, so increase the pool of asset, unless you give notice of
your SI, under section 54.
- Here you’re not selling the house. Rather, I now have given you a loan and the loan is secured
by the house so what happens if I give you additional loans afterwards. Those additional
payments will have priority over the SI in the jacuzzi unless the SI in the jacuzzi is registered
in the land registry.
Example
 if the SI attached before the goods became a fixture and the competing party had already
acquired its interest in the land before the goods became a fixture the SI has priority.
54(1) A notice of SI, in the required form, may be registered in the proper land registry office,
where,
(a) the collateral is or includes fixtures or goods that may become fixtures or crops, or minerals or
hydrocarbons to be extracted, or timber to be cut; or
(b) the SI is a security interest in a right to payment under a lease, mortgage or charge of real
property to which this Act applies.
Fixtures and the landlord right to distress
(don’t spend a lot of time on it)
Distress is if somebody doesn’t pay your rent, you and go on the premises, cease their stuff, and
use the money from its sell to pay the rent. The problem is how do you stop the landlord right to
cease with somebody security interest in the fixtures.
859587 Ontario ltd v Starmark Property Management ltd, 1998: Having determined that
Dambrot J correctly held that the tenant had no right of distraint against the spray booth and
hence no lien, I move to s. 34 of the PPSA. That section settles priorities between those who have
a security interest in a fixture and those who have an interest in the property to which the fixture
is attached. The scheme created by s. 34 constitutes a legislative determination that the
annexation of secured goods to realty should not result in the loss of a security interest which had
attached but had not been perfected prior to the goods becoming part of the land.
It was argued that s. 34 applies only to immovable fixtures and not to trade fixtures. The case law
reviewed above denies the validity of that distinction. Nor does s. 34 qualify the use of the word
“fixture.” Indeed, s. 34(3), which gives the secured interest holder a qualified right to remove the
secured goods from the property, strongly supports the conclusion that s. 34 applies to trade
fixtures. I would align myself with those authorities which have so held. Section 34 of the PPSA
applies to this case.
Section 34(1)(a) is the applicable subsection. Even though Atlantic did not perfect its security
interest until after distraint proceedings, it had, under the terms of s. 11 of the PPSA, an attached
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security interest at the time the spray booth was installed on Starmark’s property. Starmark had
no interest in the spray booth before it became a fixture. Under the terms of s. 34(1)(a), Atlantic’s
attached secured interest had priority over Starmark’s claim which arose out of its interest in the
real property. Atlantic was entitled to reacquire the property under s. 34.
Accession
In the case of accessions, a component (the “accessory”) has been added to a larger item (the
“principal goods”) so as to become part of the whole. In that event, a dispute may arise between
a person who has or acquires a security interest in the accessory and a person who has or acquires
an interest in the principal goods.
 It’s like fixture, except what you do is attach one personal property to another personal
property. (without losing identity) (2 goods)
At common law, when property becomes an accession it is considered part of the other goods.
PPSA specifically allows SI in original property to continue
 If its an accession, the SP of the original good has SI over the combo of the two goods.
 Its not an accession, then both parties can keep SI over their separate goods.
35 (1) Priority
Subject to subsections (2) and (3) of this section and section 37, a SI in goods that attached,
(a) before the goods became an accession, has priority as to the accession over the claim of any
person in respect of the whole; and
(b) after the goods became an accession, has priority as to the accession over the claim of any
person who subsequently acquired an interest in the whole, but not over the claim of any person
who had an interest in the whole at the date the SI attached to the accession and who has not
consented in writing to the SI in the accession or disclaimed an interest in the accession as part of
the whole.
35(2) Exception
A security interest referred to in subsection (1),
(a) is subordinate to the interest of,
(i) a subsequent buyer of an interest in the whole, and
(ii) a creditor with a prior perfected security interest in the whole to the extent that the creditor
makes subsequent advances, if the subsequent sale or subsequent advance under the prior
perfected security interest is made or contracted for before the security interest is perfected;
and
(b) is subordinate to the interest of a creditor of the debtor who assumes control of the whole
through execution, attachment, garnishment, charging order, equitable execution or other legal
process, if control is assumed before the security interest is perfected.
Industrial Acceptance Corp v Firestone Tire & Rubber co, 1971:
- Facts: Tires attached to a truck. The problem is, who owns the tires? You could say, once the
tires are attached, it becomes the property to the person who owns the car. Does the
doctrine of accession apply so as to cause the tires to have become part of the truck and thus
available as part of the security of the appellant?
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-
-
-
-
Test for ship and car: The right of accession gives the property in the whole to the owner
of the principal chattel, which is probably that which is the greater in value, and the degree
of annexation sufficient to constitute an accession may be decided in the light of various
tests:
(1) that of “injurious removal”—can there be a separation of the original chattels
without destroying or seriously injuring the whole?; si non, accession
(2) that of “separate existence”—has the incorporated chattel ceased to exist as a
separate chattel?; si oui, accession
(3) would the removal of the incorporated chattel destroy the utility of the principal
chattel? Si oui, accesssion
The “utility of the principal chattel” would be destroyed by the removal of the tires and that
this is a sound reason for coming to the conclusion in the circumstances of this case that the
tires have become subject to the security of the appellant.
In my opinion, whatever be the rationale of the doctrine of accession in taking effect in the
foregoing situations, it ought not to be applied to the present case where removable and
identifiable accessory chattels are claimed by the holder of an original title thereto, retained
as security for their value, against the prior security title holder of the principal chattel. There
is no justification for a conclusion in this case that would give the respondent a windfall
against a third party who has reserved title.
What’s important is if the security interest was created before or after the security interest?
Notes: The PPSA definition of “accession” is much broader than the common law test: the only
question is whether the goods have been installed or affixed to other goods. It makes no
difference whether the disputed goods can be removed without damaging the principal goods, or
whether removing them would destroy the utility of the principal goods. Alors la juris d’en haut
pas applicable?
GMAC Leaseco ltd v Tomax Credit Corp, 2001:
- Facts: P sold a car under a conditional sales contract. D later installed stereo and security
system in the car and acquired a lien under the Repair and Storage Lien Act. The plaintiff
claimed priority over the car + on the stereo and security system as an accession.
- Yes there is accession SI, but does the repair lien SI trump over it? yes
- Held: The work done on the car must be categorized as an accession or a repair. If it is a
repair, it will benefit from the priority of the lien under the RLSA. If it is an accession, it will
need to be perfected as per the PPSA (and both parties will separately have their goods).
 The stereo is not an improvement, alteration or restoration to the car. It is
separable from the vehicle and therefore not a repair under the RSLA. So no repair
lien.
 The security system is integral to vehicle and it is a repair. The defendant’s lien has
priority over the plaintiffs for the security system
Commingled goods
Goods that are a product of other goods but the final product if different from the input products.
Cookie vs sugar and butter.
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37: A perfected SI in goods that subsequently become part of a product or mass continues in the
product or mass if the goods are so manufactured, processed, assembled or commingled that their
identity is lost in the product or mass, and, if more than one SI attaches to the product or mass,
the SI rank equally according to the ratio that the cost of the goods to which each interest originally
attached bears to the cost of the total product or mass.
- Here you need perfection (more than just attachment)
- You can have a SI that continues in the product if you had a SI in the ingredients. Your SI
is valued at the prorata of your ingredients.
Not personal property, because it only makes sense to talk about good, things that have a physical
dimension. The security interest jumps from the input to the output. If there is more than one
security interest, it is equal to the ratio of the value of the good in the final product.
ENFORCEMENT OF THE SI
As a general rule, the creditor doesn’t want to realise on its security because it is unlikely that you
will get everything back.
- Ex bankruptcy: if you’re not being paid, likely that other creditors are not being paid either.
So, there's going to be a dispute as to which creditor gets to execute their SI. Often, you won’t
get paid.
Default
We don’t talk about breach when it comes to security agreements. We say there's an “event of
default” = failure to perform smtg that you are obliged to do (aka breach).
If there's an event of default, you will have consequences according to the Agreement.
• Ex : “in the event of failure to pay, you can walk away from the contract”.
• You can only protect yourself if you have a default clause in your Agreement.
• No default= no right to enforce. If you don’t have a default, you are protected
There are different types of default:
(1) Minor, give you time to fix it.
(2) Major event, such as missing a payment.
• The conception of default will be structured in a way you can get security directly.
(3) Cross-default, that you didn’t miss payment to me, but missed it to somebody else.
• Even though you didn’t default in my contract, if you default in another one, you
defaulted mine. That’s because you don’t want to wait to be defaulted to be acting
on it. Maybe everyone else would have enforced already. You have to put a crossdefault payment clause.
It’s not because there is a default that you have to start enforcement, but you have the possibility.
57.1 Unless otherwise provided in this Part, this Part applies to a security interest only if it secures
payment or performance of an obligation
58 The rights and remedies mentioned in this Part are cumulative.
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PPSA s. 59: Rights and remedies of secured party
(1) Where the debtor is in default under a security agreement, the secured party has the rights and
remedies provided in the security agreement and the rights and remedies provided in this Part
and, when in possession or control of the collateral, the rights, remedies and duties provided in
section
(2): SP may enforce SI by any method permitted by law, if collateral = doc of title, party may
proceed either as to doc of title or as to the goods with necessary mods
(3): where debtor is in default of sa, debtor has rights and remedies in sa & this part
(4): subject (5), sa sets standard by which rights of debtor & duty of secured party are measured
as long as not manifestly unreasonable in regards to nature of rights & duty
(5): despite (1), s. 17, 17.1, 63-66 to extent of rights and duties cannot be waved or varied unless
as provided by act
(6): were sa covers real and personal property, secured party may proceed under this part for
personal property or proceed with both accorder to secured party’s rights for real property with
necessary mods and in that case this part does not apply
(7): sa does not merge bc claim has been reduced to judgment by secured party or bc he has levied
execution thereunder on the collateral
Enforcement
If you don’t have a security, you have a personal action, the only way to enforce it is through a
court action. If there is a security, you can skip going to court and take the possession of the asset.
There is an assumption that in some case you will be prohibited from seizing property.
• Those are cases of bankruptcy, company creditors arrangement act, consumer protection
legislation, legislation in the prairies that protects farmers.
Generally, if you have security, you might be staying an enforcement, but at the end of the day,
you will get your security. The people who really suffer are unsecured creditors.
Procedural and substantive limits on enforcement rights (Notice)
Waldron v Royal Bank, 1991:
• Facts: as soon as demanded, right away seized
• Issue : was it necessary for bank to give plaintiffs a reasonable time for payment prior to the
enforcement of collateral security given to secure payments of a demand loan?
• A person from whom a seizure is being made under a security intstrument is entitled to
receive such notice of the proposed seizure as is reasonable in the circumstances
• At its most extreme in the security, they have the right to seized the collateral on given
notice. The only thing is that got to exercise that discretion on a reasonable way.
• “The principle in Lister v. Dunlop is that a person from whom a seizure is being made under
a security instrument is entitled to receive such notice of the proposed seizure as is reasonable
in the circumstances. It is possible for the principle to be limited, modified or eliminated by
constitutionally enacted legislation.”
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Seizure of collateral
(one of the consequences of defaulting) (known as repossession)
Section62
(1) Upon default under a SA,
(a) the SP has, unless otherwise agreed, the right to take possession of the collateral by any
method permitted by law;
• Assuming you have the right to seize collateral (physically taking it), how can you go
about doing it? As a general rule, creditor can use all sorts of means to seize. Using
subterfuge to do it is possible. To what extent can you enter someone premises and
take stuff away? Generally, need permission to enter. If you don’t have one,
committing the tort of trespass. Cannot use threat of physical violence. Ex Doucette
• What if the goods are on the debtor’s land? You need permission otherwise youre
trespassing. You can obtain permission in any way, excluding threats. Meaning you
can lie and mislead (ex “im taking away your car not bc you haven’t paid but bc we
need to take it for maintenance).
(b) if the collateral is equipment and the SI has been perfected by registration, the secured
party may, in a reasonable manner, render such equipment unusable without removal thereof
from the debtor’s premises, and the SP shall thereupon be deemed to have taken possession
of such equipment; and
• Disabling equipment
(c) the SP may dispose of collateral on the debtor’s premises in accordance with section 63
(2) If any of the collateral in which the SP has a SI under the SA, other than a PMSI or a possessory
SI, is property that would be exempt under the Execution Act from seizure under a writ issued out
of a court, that property is exempt from the rights of the SP under subsection (1).
• So can collateral in which there is a PMSI be seized?
R v Doucette, 1960:
Facts: this case is before the PPSA. The creditor sold a tv to John Chappell on a conditional sale
contract. Didn’t pay. Sent bailiffs to seize the tv. When they are doing this, bailiffs are not
acting in their court, they are doing it on behalf of somebody else. They don’t have special
power. To get bailiff to act as officer of the court, need a judgment. Here they are exercising
rights purely privately on the fact of the security agreement. Once they arrive at the door,
Chappell said wait for the policeman he wasn’t comfortable. The bailiffs forced their entries.
Things get out of hand and one of the bailiffs’ punches Chappell in the face. He sues him for
assault. The bailiff committed assault.
• There are limits on the seizing, cannot disturb peace and tranquility. No threats are allowed.
The criminal law is the limit of doing it. There could be civil law limit as well. You cannot do it
in a way that is violent.
• What is a lawful mean? threatening and punching someone is not lawful.
•
It is a lot easier if you’re enforcing an intangible thing because you can just assert control over the
situation.
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Obligation to sell
• In what capacity are you seizing the collateral? As a creditor. So the only thing you can do w
the collateral is extract its value. So you have to sell it.
• What if I sell it and you still owe me money? Sue the party for the difference (personal claim)
(only makes sense if there's no bankruptcy)
It’s a self-help remedy. You can seek goods without court’s permission.
Appointment of receiver-manager
You can take over the management of the business of your debtor. You take over the CA (board
of directors). The thing that you can do before you sell a business is to take control over it. The
way to do it is appointing a receiver-manager to make sure it runs properly and the assets don’t
disappear.
Two ways there can be appointment : section60
1. It’s a private right when its in the SA. The parties agreed to it. no need to go to court to
make it happen.
• The receiver will act for my private interest. Doesn’t take into account the interest
of other creditors
2. Asking the court to appoint the receiver.
• The power of the receiver comes from the court order and not the SA. Its power
coming from public authority of the court.
• The perception is that the receiver will take into account the benefits of all the
creditors and not only the one that asked for its appointment.
• Requirements :
I.
Show that you are entitled to an appointment for receiver
II.
Go to court and convince the court that it should issue an order appointing
one.
60. Appointment of receiver
(1) Nothing in this Act prevents,
(a) the parties to a SA from agreeing that the SP may appoint a receiver or receiver and
manager and, except as provided by this Act, determining the rights and duties of the receiver
or receiver and manager by agreement; or
(b) a court of competent jurisdiction from appointing a receiver or receiver and manager and
determining rights and duties of the receiver or receiver and manager by order.
(2) Upon application of the SP, the debtor or any other person with an interest in the collateral,
and after notice to any other person that the court directs, the Superior Court of Justice, with
respect to a receiver or receiver and manager however appointed, may, (a) remove, replace or
discharge the receiver or receiver and manager;
(b) give directions on any matter relating to the duties of the receiver or receiver and manager;
(c) approve the accounts and fix the remuneration of the receiver or receiver and manager;
(d) make any order with respect to the receiver or receiver and manager that it thinks fit in the
exercise of its general jurisdiction over a receiver or receiver and manager.
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Voluntary foreclosure
Where you don’t sell it, but keep the property rights. Highly controversial. Since there's no
disposition, it is hard to know if the value of the collateral is worth what you are owed. You can't
be given more than what you are owed. That’s why foreclosure is controversial. Done in real
estate transactions
Angelkovski v Trans-Canada Foods ltd, 1986:
• Facts: the defendant sold its restaurant to the plaintiff. Because they didn’t have the money
to pay for it, there was security created. They exercised their security, so they took back their
restaurant. What is the normal thing that you do when you take security? You’re supposed
to sell it. The guy didn’t sell the restaurant, he spent money on it and re-opened it. The
answer of the debtor is that you have a situation where you could have sold it, but you
decided to keep it, so in exchange for the debt, you will keep it. What is the effect of that?
• The claim was that the defendant by its action, elected to receive the restaurant by the debt.
The debtor said that you have a choice, and you have now decided that you will keep the
thing rather then selling it to profit. You can do that.
• Does that mean that afterwards you can come to me for more money? The debtor doesn’t
want them to go after him for the remainder. By virtue of you keeping the restaurant, that
means no remain.
• Did the fact that you keep it means you can’t sue? Test for that is: “If the facts show the
defendant intended to reopen the restaurant to sell the chattels as part of an ongoing
business in order to improve their sale value, with the primary purpose of recovering the
balance of the debt owing, then I do not think an appropriation of the chattels can be found.
On the other hand, if it can be concluded the defendant reopened the restaurant with the
essential purpose of operating it himself, or of reselling it, so as to make more money than
the amount owing on the debt, with no intention of accounting to the plaintiff and his partner
for any surplus, then the court could reasonably conclude the chattels were appropriated in
full satisfaction of the debt. From the facts, I have decided in favour of the second alternative.”
• Why did you re-open it? If the goal was because a business worth more when it is running
then just selling its piece. Breaking up a business is the last thing you can do. Operating it just
to sell it at the highest price or because you’re doing something else? Imagine you reopen a
restaurant and sell it for that. Let’s say they owe you 100K and sell the restaurant 120K, you
got to give the 20K back to the debtor because its’ just for the security. If you re-open with
intent of running the business because you think you can run it better, then you can keep the
extra money. You can put in the contract that you’re allowed to sell the difference. You’re
entitled to what the contract permits you.
Section 65
(1) Where a SA secures an indebtedness and the collateral is consumer goods and the debtor has
paid at least 60 per cent of the indebtedness secured and has not signed, after default, a statement
renouncing or modifying the debtor’s rights under this subsection, the SP who has taken possession
of the collateral shall, within ninety days after taking possession, dispose of or contract to dispose
of the collateral under section 63, and, if the secured party fails to do so, the debtor may proceed
under section 67 or in an action for damages or loss sustained.
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(2) In any case other than that mentioned in subsection (1), a SP may, after default, propose to
accept the collateral in satisfaction of the obligation secured and shall serve a notice of the
proposal on the persons mentioned in clauses 63 (4) (a) to (d).
• You can't automatically foreclosure. You have to give notice to the debtor and
automatically other creditors. Then, these ppl will have a right to pay off the obligation
that is owed to you and you have to accept that obligation and you wont be able to
foreclose.
(3) If any person entitled to notification under subsection (2), whose interest in the collateral would
be adversely affected by the SP’s proposal, delivers to the SP a written objection within 15 days
after service of the notice, the SP shall dispose of the collateral in accordance with section 63.
• Objection
• If anybody objects, you have to sell it
(6) If no effective objection is made, the SP shall be deemed to have irrevocably elected to accept
the collateral in full satisfaction of the obligation secured at the earlier of, (a) the expiration of the
15-day period mentioned in subsection (3) or, if the period was extended under subsection (3.1),
the expiration of the extended period; and (b) the time when the secured party received from each
person entitled to notification under subsection (2) written consent to having the secured party
retain the collateral in satisfaction of the obligation.
• Effects of foreclosure
• If you accept it, you lose your right to get repaid and you get the property rights. You
cannot claim for any deficiency after.
(6.1) After the deemed election under subsection (6), the SP is entitled to the collateral free from
all rights and interests in it of any person entitled to notification under subsection (2) whose
interest is subordinate to that of the secured party and who was served with the notice.
• Effects of foreclosure
Selling of the collateral
If you sell them, how do you have to carry on the sale? Did the sale generated an adequate price?
That’s the core question we look at. Usually it depends of the circumstances, EX: selling it to your
family looks weird.
63 Disposal of collateral
(1) Upon default under a SA, the SP may dispose of any of the collateral in its condition either
before or after any commercially reasonable repair, processing or preparation for disposition, and
the proceeds of the disposition shall be applied consecutively to (= in this order),
(a) the reasonable expenses of the SP, including the cost of insurance and payment of taxes
and other charges incurred in retaking, holding, repairing, processing and preparing for
disposition and disposing of the collateral and, to the extent provided for in the security
agreement, any other reasonable expenses incurred by the SP; and
• You sell the collateral and you get proceeds for it. how is that money to be applied in
terms of the obligations that are owed? The sequence is that the first amount that is
to be covered is the amount required to actually execute the seizure and sale.
• Ex: lawyer’s costs to get a court order or to review the docs. Its paid first
(b) the satisfaction of the obligation secured by the SI of the party making the disposition, and
the surplus, if any, shall be dealt with in accordance with section 64
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(2) Collateral may be disposed of in whole or in part, and any such disposition may be by public
sale, private sale, lease or otherwise and, subject to subsection (4), may be made at any time and
place and on any terms so long as every aspect of the disposition is commercially reasonable
• You are free to try to sell the thing however you wish, but you got to do it in a
commercially manner. The worry is that if you don’t do it this way, youre going to get
more than the money owed to you ; but you still want to get the highest price possible to
be able to pay off the debt.
• Ex you can't sell the collateral to your friend bc here you’re not getting the best price for
it. unless you make sure to sell at market value price.
(4) Subject to subsection (6), the secured party shall give not less than fifteen days notice in
writing of the matters described in subsection (5) to,
(a) the debtor who owes payment or performance of the obligation secured;
(b) every person who is known by the secured party, before the date that the notice is
served on the debtor, to be an owner of the collateral or an obligor who may owe payment
or performance of the obligation secured, including any person who is contingently liable as
a guarantor or otherwise of the obligation secured;
(c) every person who has a SI in the collateral and whose interest,
(i) was perfected by possession, the continuance of which was prevented by the secured
party who has taken possession of the collateral, or
(ii) is perfected by registration before the date the notice is served on the debtor;
(d) every person with an interest in the collateral who has delivered a written notice to the
secured party of the interest in the collateral before the date that the notice is served on the
debtor
Copp v Medi-dent services ltd, 1991:
• Facts: two dentists running a business together. They don’t get along. The business has
debt. They stopped paying for the equipment. They seized the machine. One of the dentists
goes behind the back and buys the machine from the creditor.
• The process of selling has to be done in a particular way to be transparent and the court
must be assured that an appropriate value was paid. Look at if it is a commercial reasonable
transaction. How to know if it is a reasonable price? Usually, you establish that by doing a
market mechanism.
• Here, that wasn’t followed. The first test is; was it done in good faith? Don’t have to do it.
The second test is; is it commercially reasonable? Here, not even the most generous test of
reasonableness could be met. No attempt to publicized or obtaining opinion on the value.
• The dentist cared because if the machine would have been solved at the right price, he
would have gotten some money for it. The debtor wasn’t entitled to more than 32K so if
they sell it for more, it goes back to the debtor. If they sell it for nothing more than the
security, the dentist loose money and the other one gets the equipment.
Deficiency claims
Can you sue for deficiency? Deficiency : difference between the debt owing, including disposition
costs, and the net amount recovered on sale of the collaterals.
•
64(3) Unless otherwise agreed in the security agreement, or unless otherwise provided
under this or any other Act, the debtor is liable for any deficiency.
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If you decided to take property instead (foreclosure), you can’t sue for deficiency.
Bank of Montreal v Charest, 2001: skip it for now.
Secured party’s collection rights: accounts, chattel paper, and instruments
If the collateral is an account, chattel paper, or an instrument, the SP may enforce its SI by selling
the collateral or foreclosure, as discussed above. But OPPSA s 61 gives it an alternative remedy.
61 (1) Where so agreed and in any event upon default under a SA, a SP is entitled,
(a) to notify any person obligated on an account or on chattel paper or any obligor on an
instrument to make payment to the SP whether or not the assignor was theretofore making
collections on the collateral; and
(b) to take control of any proceeds to which the SP is entitled under section 25.
Section 61(1) presupposes a non-notification assignment and, in effect, it gives SP the right to take
over the collections from D. It also allows SP to recover from D any collections that D has already
made. The statute gives the account debtor some protection in these circumstances.
Right of redemption
66 (1) At any time before the secured party, under section 63, has disposed of the collateral or
contracted for such disposition or before the secured party under subsection 65 (6) shall be
deemed to have irrevocably elected to accept the collateral, any person entitled to receive notice
under subsection 63 (4) may, unless the person has otherwise agreed in writing after default,
redeem the collateral by tendering fulfilment of all obligations secured by the collateral together
with a sum equal to the reasonable expenses referred to in clause 63 (1) (a) incurred by the secured
party, but if more than one person elects to redeem, the priority of their rights to redeem shall be
the same as the priority of their respective interests
• All that you are required to pay is wtv that is required to bring the debt back to normal
state (not the full amount). You just have to pay wtv amount youre defaulting in.
• Ex: You borrow 1k from me. You will pay me back 1k altogether or by
instalments+interests. Two years have passed, you missed 2 payments. How much do you
need to pay me to put the laon back in its proper place? You need to pay me everything
that was owed OR the two missing payments + the costs of interest.
Autres
Metropolitain Toronto Police and Orphan Funds vs Telus communications
- Facts: Telus has assets. One of the assets is the money from monthly accounts. Telus wants
to borrow money. So creditor enters into a loan with Telus and Telus gives it security in
their account. What's the problem in this? The assets are atleast partially mingled.
• Here’s another way to do the transaction : Telus will set up an SPV (special purpose
vehicle). Telus’ accounts are sold and held by the SPV. Only thing is, you need the price.
So now, you enter a new contract w lenders/investors so you promise to pay them
money and then they pay upfront the money and …
• This transaction is the same as the one above. But this one has no problems.
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•
You don’t even need to use the PPSA to enforce your rights over this.
Facts: BC got a loan w interest of 11.35%. this is contractual. When you draft a loan agreement,
you have to mention when must you pay back. For the purpose of enforcement, that matters, bc
we talked about default. The most important default is not paying it back. So the debtor must pay
back loan, but he can do it earlier so avoid interest.
CONFLICT OF LAWS
BANK ACT
Most private law (property, contracts, etc.) is provincial law in Canada. But there is also a
fed power over banking and negotiable instruments. Banks can only be created by the fed
Bank Act. There is questions about how far this overlap in banking in fed overlaps w the
provincial law.
Ex what if banks issue credit cards? It’s a loan. So the question becomes to what extend
is the CC loan governed by private law of the province vs fed banking laws. Banks would
prefer that it governed by fed rules that way its uniform over Canada.
Banks did a lot of loaning. They needed an easy way to register their SI. So they got the
fed gov to adopt a SI for them only = Bank Act Security = Section 427 of the Bank Act. Its
an act that has jurisdiction over the whole of Canada. The registration of the loan works
all over Canada (unlike SI registration under PPSA). That bank SI has superpriority over
PPSA-SI bc their SI works independently of the PPSA-SI. The rest of the population wants
the bank-SI to be included in the PPSA to stop this super-priority, the bank doesn’t.
The only limit is that it doesn’t apply to every type of security. It generally applies to
commercial loans. The lending is limited to financing a business (any business :
agricultural, manufacturing, fishing, aquaculture, etc.). But not real estate nor consumer.
Is it a sale/lease or an SI
I guess the teacher is trying to say a sale/lease cannot be a SI? IDK
Chronicor oil and gaz page 419
- Facts: MK Canada leasing corp leased 23 vehicles to C pursuant to a lease
agreement for a min term of 367 days. Later, C goes into restructuring which is
basically the same as bankruptcy. That means C doesn’t need to pay for the cars
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-
-
and doesn’t even need to give the cars back while they restructure. But here, the
loan was to finance the cars so its basically the equivalent as a security.
Leases for more than one year are treated as SI. In substance, it is a financing
lease, but we treat it like a SI. But you haven’t perfected
If its financing transaction, C doesn’t need to pay back. If it’s a true lease, C
needs to immediately return the cars (or you can keep the cars and keep paying
me money).
MK wants it to be a lease. The debtor C wants it to be a financing transaction.
Question : is it a true lease or it’s a financing transaction? There isn’t an obvious
answer. You look at 16 factors.
If im lending you the thing, you are expected to give it back. Who bears the risk
of the thing being destroyed? The rental cie. Then it’s a lease for sure.
What are the nature of the payments?
Do you have to buy the thing ultimately? If not, lease.
Its it a financing lease, youre paying to earn equity. If it’s a lease, youre paying to
use the property of the owner.
Here, it’s a true lease.
Set off
Collection rights.
Commercial factors of Seattle limited partnership vs canadian imperial bank of commerce
- Facts: CIBC enters into a k with IT-cie that provides them temporary employees.
Employement contract between employees and IT-cie. IT hires people and assigns
them to CIBC ; CIBC doesn’t hire nor fire.
- IT has to provides services and CIBC has to provide for them ; that’s their contract.
CIBC has to give salary + % operation costs and profits. This is a right of payment
of IT. IT takes this right and transfers it to Commercial factors of Seattle limited
partnership. Its an assignment : transferring of an abstract right from one party to
another. CIBC needs to pay Commercial.
- It looks like smtg weird is going out w IT and their employees. So CIBC pays the
employees instead and doesn’t want to pay IT anymore. CIBC has separated IT’s
right of repayment from all the other contractual rights. Now, when Commercial
seeks repayment from CIBC, CIBC says they already paid the employees. The
problem is that they have a defense against IT not Commercial.
- Question : the right of repayment that has been separated can be affected by set
off? Even though they're in different contract? Depends on the nature of setoff
- Section 40 1 1 : “an account debtor (CIBC) who has not made an …”
- Nothing in the article says you can't do it, but are you allowed to assert the right
of setoff?
- Is setoff applicable here or not?
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If you assign and you give notice, you can no longer use legal set off on stuff after
the notice is given. So if the payment of the employees by CIBC was done after the
notice was given, then no set off. Therefore here no legal set off.
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There may be equity set off tho. You need to satisfy the test.
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