Part 1
Security Interests in
Personal Property: The
PPSA
Section I
Introduction
Outline
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History of PPSA
Basic Concepts
Enforcement
Priorities
Potted History of Mortgage Law
Land
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Transfer of the fee simple with a covenant for
reconveyance on condition (or defeasible on
condition subsequent
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The lender held legal title
Strict interpretation
Condition is not satisfied if a payment is missed
 Debt remains owing, with no obligation to reconvey
land
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Potted History of Mortgage Law
Land
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Consumer protection rules developed
Eg the “right of redemption”
 As a result, the mortgage was more than a transfer
of the fee simple
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Potted History of Mortgage Law
Personal Property
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Myriad forms of security interest
Chattel mortgage
 Conditional sales agreement
 Financing lease
 Consignment
 Assignment of book debts
 Corporate securities
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Potted History of Mortgage Law
Personal Property
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Substantive law depended on form
Registration requirements depended on form
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Multiple filing venues
US Personal Property Law
Reform
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The Uniform Commercial Code is model
legislation proposed by the US National
Conference of Commissioners on Uniform
State Laws
Article 9 of the UCC deals with secured lending
in personal property
Drafted in the 1950s by Professors Grant Gilmore &
Allison Dunham
 The most successful Article of the UCC
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Canadian Law Reform on the US
model
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Ontario PPSA based on UCC Article 9
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All other Canadian common law jurisdictions
have since followed
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Enacted in 1967
Atlantic provinces most recently – 1993 - 1998
Overall structure of Article 9 and the PPSAs is
the same
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But there are significant substantive differences
Canadian Law Reform on the US
model
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Two models for the PPSA in Canada
Ontario
 The “Model Act” or “Western model” used by all
other provinces
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Features of the PPSA
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Substance over form
Law no longer depends on the form of the
transaction
 All transactions are “security interests”
 “I hereby grant a security interest in X collateral to
secure”
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Facilitation of secured financing
Notice financing
Outline of the PPSA
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Part I – Interpretation and Application (&
Conflicts
Part II – Validity of Security Agreement and
Rights of Parties
Part III – Perfection and Priorities
Part IV – Registration
Part V – Default Rights and Remedies
PPSA is Incomplete
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The PPSA is not a complete code
It is comprehensive in a general sense, but it is
incomplete in many details
Existing legal principles are preserved to fill in
the gaps
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65(1)The principles of the common law, equity and
the law merchant, except insofar as they are
inconsistent with the provisions of this Act,
supplement this Act and continue to apply
PPSA & Unsecured Creditors
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In a separate reform, registration in the Personal
Property Registry (PPR) is also used to publicize
an interest in assets taken by an unsecured creditor
who has obtained a judgment (”judgment
creditor”)
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Registration by a judgment creditor is a pre-requisite
to further enforcement
Basic Concepts
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Scope of the PPSA
Attachment & Perfection
Scope: Substance over Form
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3(1) Subject to section 4, this Act applies
(a) to every transaction that in substance creates a
security interest, without regard to its form and
without regard to the person who has title to the
collateral, and
 (b) without limiting the generality of paragraph (a),
to [all old forms of security interest]
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Scope – Substance over Form
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Corresponds to para (a) of definition of
“security interest”
"security interest" means
 (a) an interest in personal property that secures
payment or performance of an obligation
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Deemed Security Interests
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3(2) Subject to sections 4 and 55, this Act
applies
(a) to a commercial consignment,
 (b) to a lease for a term of more than one year,
 (c) to a transfer of an account or chattel paper, and
 (d) to a sale of goods without a change of
possession,
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that do not secure payment or performance of an
obligation
Deemed Security Interests
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Are NOT true security interest
Addresses ostensible ownership problem
When person in possession and control does not
have title to goods
 Publicity needed to protect third parties
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Registration and priority scheme of PPSA
applies
Enforcement provisions do not apply – s55(1)(a)
Deemed Security Interests
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Avoids some borderline cases problem
Eg true lease or financing lease
 (b) to a lease for a term of more than one year,
 Creates others
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Because enforcement provisions do not apply
Sale of Goods
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3(2)(d) sale of goods without change of
possession [outside ordinary course of business]
See def ’n of “sale of goods without a change of
possession”
 Unique to Atlantic provinces in PPSA
 Addresses ostensible ownership problem
 Ordinary course requirement
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)If sale without change of possession is in ordinary
course, third parties have implicit knowledge
Exclusions – S4
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4 Except as otherwise provided in this Act, this
Act does not apply to the following:
 (a) a lien, charge or other interest given by
rule of law or statute unless the statute
provides that this Act applies;
Eg Landlord’s right to distrain; Lien on Goods
and Chattels; Tax liens
Exclusions – S4
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Problems with this exclusion
Priority problems with liens and security interests in
the same property (often solved with express
provisions)
 Notice/searching problems with liens; particularly
with non-possessory liens
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Some progress towards integration of liens into
PPR
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Eg Filing of notice of judgment in PPR
Exclusions – S4
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4 Except as otherwise provided in this Act, this
Act does not apply to the following:
 (e) the creation or transfer of an interest in
land including a lease;
 (f) the creation or transfer of an interest in
a right to payment that arises in connection
with an interest in or a lease of land other
than an interest in a right to payment
evidenced by a security or an instrument;
Exclusions – S4
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Different registries for land and personal
property
Why? Indexing method
 Problems – Boundary issues
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Security interest in a real property mortgage 4(f)
 Fixtures
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Exclusions – S4
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4 Except as otherwise provided in this Act, this Act
does not apply to the following:
 (k) a mortgage registered under the Canada
Shipping Act (Canada);
 (l) a security agreement governed by an Act of
the Parliament of Canada that deals with the
rights of parties to the agreement or the rights of
third parties affected by a security interest created
by the agreement, including any security
agreement governed by Part VIII of the Bank Act
(Canada)
Exclusions – S4
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Federal security interests – Why?
Functional: Shipping – mobility of collateral
 Historical/political - Bank Act
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Not all PPSAs exclude Bank Act security
Summary
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Consensual transaction
creating real interest in
personal property
for the purpose of securing payment or performance
of an obligation
Debtor
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“Debtor”
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Definition of “debtor” parallels that of security
interest
True debtors
 Deemed debtors
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Plus guarantors
Personal Property
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PPSA creates various categories of personal
property
"personal property" means goods, a document
of title, chattel paper, a security, an instrument,
money or an intangible;
Categories are functional
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Eg Some types of property are incapable of being
physically possessed => Registration is the sole
means of perfection
Functional Categories
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“Goods”
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Tangible personal property
Document of title, chattel paper, security,
instrument, money
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Debts capable of being transferred by possession
Functional Categories
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“Accounts”
Subcategory of intangibles
 Needed to deal with accounts receivable financing
 Interaction between security interest in inventory
and accounts as proceeds of sale of inventory
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Intangibles
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“Intangible” is the residual category
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Open- ended definition
“intangible" means personal property that is not
goods, a document of title, chattel paper, a
security, an instrument or money;
Intangibles
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The usual view among commentators is that
“intengible” encompasses anything of value that
is not specifically excluded by s 4
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Usually because it is covered under some other
regime: eg land
Is there room for other exclusions?
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Eg are transferable agricultural quotas “property” or
a mere “licence”?
Basic Concepts
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Freedom of contract
Attachment
Perfection
Freedom of Contract
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S9 – Freedom of Contract
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Except as otherwise provided in this or any other
Act, a security agreement is effective according to its
terms
Does NOT mean complete freedom of contract
PPSA creates debtor rights
 DOES mean abolition of common law constraints
on lending
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Freedom of Contract
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Freedom of contract v consumer protection
Is it good for debtors if lending law is “pro-debtor”?
 Eg long notice period, court supervision, before SP
can seize assets
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Attachment
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Attachment means creation of a security interest
Creditor becomes a secured creditor
 Obtains rights against the collateral itself
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Attachment alone is inadequate to secure rights
good against the world
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Attachment without perfection results in rights
which are good against the debtor, but which are
ineffective or subordinate in priority to most
competing third party interests
Attachment
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12(1) A security interest attaches when
 (a) value is given,
. . .
‘value’ means any consideration sufficient to
support a simple contract and includes an
antecedent debt or liability”
Attachment
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12(1) A security interest attaches when
 (b) the debtor has rights in the collateral, and
 Can’t use collateral that isn’t yours
 But, need not have a full ownership interest
 Any real rights, ie any right to the property
itself, including an equitable right
Attachment
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12(1) A security interest attaches when
 (c) except for the purpose of enforcing rights
as between the parties to the security
agreement, the security interest becomes
enforceable within the meaning of section 10
Attachment
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10(1)A security interest is enforceable against a third
party only where
(a) the collateral is in the possession of the secured
party or another person on the secured party’s behalf,
or
(b) the debtor has signed a security agreement that
contains
 (i) a description of the collateral . . .
Attachment – S10
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Evidentiary requirement
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Cf. Statute of Frauds – “writing” requirement
Protects third parties by defining the scope of
the actual security interest
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It is not uncommon that the registered description
of the collateral is broader than the actual collateral
Attachment – S10
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Two methods
Possession s10(1)(a)
 Writing requirement s10(1)(b)
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When the requirements of s10 are met the
security interest is effective against a third party
 This does NOT guarantee priority against a
third party
Perfection
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Attachment secures SP rights against D
Perfection secures SP rights against the world
(third parties)
Perfection
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Perfection is a publicity requirement
How can a third party know whether you own the
thing that you possess?
 A publicity requirement is needed to avoid the
problem of secret prior interests
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Two methods of publicity / perfection
Possession – s24
 Registration - s25
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Possession - S24
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Limited to those types of property which are
capable of possession: s24(1)
Actual possession required: s24(2)
Not favoured, as D cannot use the collateral
Registration - s25
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Security interests in all types of property can be
perfected by registration
 25 Subject to section 19 [attachment
requirement], registration of a financing
statement perfects a security interest in
collateral
The registration system – the “PPR” – is the key
to an efficient financing system
Perfection
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S19 A security interest is perfected when
 (a) it has attached, and
 (b) all steps required for perfection under this
Act have been completed,
“All steps” = Possession / Registration
Regardless of the order of occurrence
Pre-registration is effective
Perfection
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Failure to perfect results in loss of priority
 S 35(1)(b) a perfected security interest has
priority over an unperfected security interest;
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Perfected beats unperfected
Perfection
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“in order to make a security interest effective
against third parties, the Act requires that the
secured party "perfect" it by performing some
act of public notice” Commentary to s19
Practically correct, but not technically correct
 If s10 is satisfied, the security interest is effective
against third parties, but if unperfected will almost
always be subordinate in priority to third party
interests
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After-Acquired Property - S13
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13(1) Subject to section 12 and subsection (2), a
security agreement that provides for a security
interest in after-acquired personal property
attaches to that property in accordance with the
terms of the agreement without any need for
specific appropriation by the debtor
After-Acquired Property - S13
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D may grant a security interest in property
which she does not own
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It does not attach until D acquires rights (s12), but
then attaches automatically
General Security Agreement (GSA) – “All
present and after-acquired property”
Summary
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The PPSA - a single unified Act dealing with
Consensual
 security interests (not ownership interests)
 in personal property
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Attachment
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)Except property under federal jurisdiction
Security interest enforceable against the debtor
Perfection