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S
T
NTRODUCTION
1.1 Introduction: The Sale of Goods Act
 A “sale” and an “agreement to sell” are different. The distinction is the passage of property.

Not reserving title leaves no rights in the good for the seller in an unpaid transaction.
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Ascertained property is a specific property. It is passed when intended.

The intention of when to pass is determined by: terms of the contract, conduct of the parties and circumstances.

S.19: Rules for ascertaining intention : o Good identifiable and deliverable: When the contract was made (unless otherwise stated by terms). o Good identifiable, not deliverable: When the thing needed to make deliverable is done and notice is given. o Good identifiable and deliverable, but action needed to determine the price
(ie weigh, test): When the action is done and the buyer notified.

S.22: nemo dat rule: You cannot sell something you do not own.

Seller can keep possession after the sale: o Buyer sells before completing payments (look to PPSA) o Lien or right to retain possession. o Stoppage in transit, allowed (not practical nowadays).
Why is any of this important?

Generally the seller has no good rights once possession has passed to the buyer
( Sale of Goods Act , ss.25(2)). So there is a strong disincentive to extend credit, but credit is necessary in modern commercial activity.

An exception to 25(2) is where a security agreement is established ( Sale of Goods
Act , ss.25(3)). PPSA addresses this issue. Vendors are smart to become secured creditors.
1.3 Introduction: Credit

Unsecured Creditors , can sue for damages. Recovery is slow and unpredictable. o Sue for missed instalment. o Establish repudiation of contract (entire debt). o Acceleration clause. Any default makes the whole amount due.

Secured Creditors . Recovery is faster and more predictable. o Possessory form (ie keep property until paid) o Non-possessory form (ie on default, get the good back)

No court process needed; no concern for other creditors.

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1.4 Introduction: Pre-PPSA Transactions
Pledge: Common law possessory device for goods or non-goods. Title is passed to the buyer, but the seller has the right to sell the thing pledged. Seller has no right to keep the thing pledged.
Chattel Mortgage: Like a real estate mortgage. The debtor is conveying title, but keeping possession (opposite to a pledge). Remedy is to sell the thing or keep it
(foreclose). Problem is taking possession. Not used often anymore.
Lien (Charge): Created by contract, statute or common law. It is a possessory security
(ie a mechanic’s lien by statute). The term “lien” is often abused by overuse.
Conditional Sale: Title does not pass to the buyer until all payments are made. Security is the retention of title.
Lease: Leasor retains title, leasee only has right to use for a limited time. Conditional sales are often disguised as leases.
1.5 Introduction: Issues

Issues that need resolving in a PPSA regime: o Formal agreements required. o Terms prohibited by law. o Non-compliance consequences o Registration, publication of agreements. o Rights of parties between themselves. o Rights between parties and third-parties. o Default and enforcement
1.6 Introduction: Personal Property Classifications
Personal property : everything other than real property.

Goods : most tangible personal property o Consumer : used in a personal, family or household o Inventory : held for sale, lease, contract, business o Equipment : goods that are not consumer goods or inventory

Non-tangible goods : o chattel paper, documents of title, instruments, money, securities

Intangibles : all personal property remaining o choses in action, accounts account debtor
: A debtor’s receivable from a person is an account. When a creditor takes a security interest in the accounts. The debtor becomes an account debtor. proceeds : Personal property in any form from any dealing with collateral (not just sale) that is identifiable and traceable (unclear at common law and equity). For example, dividends from shares are not proceeds, because they are not generated from dealing.
Proceeds may in turn generate proceeds.
1.7 Introduction: Security in Circulating Assets circulating assets : Property that turns-over (has stock and flow) are circulating assets.
Problems for creditors are: uncertainty as to what the inventory is in the future (security would violate nemo dat ); and legal interest is in security which can be sold at any time.

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
In the US, Benedict, 1925, US SC, held that a secured party is assigned a security interest or not; there is no middle ground. This case caused a crisis in accounts receivable and inventory financing. Strange new devices, such as field warehousing and physical separation were invented to get around the holding. It was a major force in the push for UCC Article 9.

In England circulating assets were dealt with by the floating charge (unlike the fixed charge). The floating charge was not attached to anything specific until an event occurs which caused it to crystallize. The floating charge does not exist in
Ontario any longer.

After UCC Article 9 and the OPPSA, security interests in circulating assets are managed with “all present and after-acquired property” security. All PAAP security is subject to the same rules as other security interests.
1.10 Introduction: Bankruptcy

Governed by the Bankruptcy and Insolvency Act .
 insolvent person : minimum level of debt and unable to pay as due or liabilities exceed assets.

A person may become bankrupt: voluntarily; or by being pushed by creditors.

Two models: liquidation (no way out); or restructuring (rehabilitation attempted).

All property of the bankrupt becomes vested to the trustee in bankruptcy .

The trustee in bankruptcy liquidates all assets into a pot and the creditors are paid from the pot after all secured creditors have exercised their rights.
1.11 Introduction: The Secured Lending Puzzle ???????????
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It is more difficult for a debtor to acquire unsecured credit after he already has secured credit.
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Implementing secured debt costs more money.

Since secured and unsecured debt is a zero-sum system, with added costs it should be less popular.
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Issues: Nowdays, especially in Ontario, taking a security interest is much more streamlined. Should secured creditors still be given higher priority? Has establishing a secured interest been made too easy?

There is always a deemed super-priority secured interest from the Crown (taxes, liens, etc). This keeps money available for some good policy concerns
(employee wages, environmental cleanup), but it makes lending riskier and less certain. Cost of credit increases.
COPE OF THE
2.1 Scope: Security Transactions
2: Subject to s.4(1), the OPPSA applies to:
(a) “transactions”, without regard to form or title, that in substance create a security interest (personal property),

4 including the listed transactions, and including assignments, leases and consignments, only if they secure payment or performance of an obligation; and to
(b) transfers of accounts or chattel paper even, even if they do not secure payment or performance of an obligation. a. Scope: Transactions
Ellingsen (Trustee of) v. Hallmark Ford Sales Ltd, 2000, BC CA
Truck dealer is eager to make sale. He lets the plaintiff take possession of the truck and registers in buyer’s name without payment or financing. Dealer says he will try to secure financing for the buyer later, never does. Buyer becomes bankrupt, trustee in bankruptcy claims the truck. Dealer never registered security interest and argues the PPSA never applied. Was there a concluded sale?
Held: (Maj): Since no security agreement was ever signed, the PPSA does not apply. The buyer therefore kept the truck in a constructive trust for the dealer.
(Min) There was an intentional sale agreement with an extension of credit. Therefore the
PPSA does apply and since the dealer did not register the security interest he is subordinated to the trustee in bankruptcy.
Note: The majority bypasses the whole sales question by applying the constructive trust, but it does not resolve issues of unjust enrichment compared to other creditors who are not getting full payment and the argument bootstraps itself.
Note: Prof agrees with minority. It is hard on the dealer, but he could have easily protected himself by registering the security interest.
Note: Ziegal thinks there was no sale, because there was no sales agreement despite the possession and vehicle registration. Title stays with dealer. Unconvincing.
356557 British Columbia Ltd v. CIBC, 1998, BC CA
Money was lent to the plaintiff to pay off debts and continue business and any money derived from the business would go to the lendor. The bank later tries to remove the lendor from the registry claiming it is not a security interest.
Held: According to Gontel , a security interest can be created by saying very little about the collateral. The important thing is to look at the terms of the agreement, not the purpose of the transaction. Here there was enough to create a security interest.
Re General Publishing Co, 2002, Ont SC
Publisher sells books to General Publisher (GP) which sells them to retailer (Chapters).
Because the retailer has much more bargaining power, the agreement allows Chapters to return unsold books to the GP and pay GP only after books are sold. Chapters gets in financial trouble and stretches out the payment timeline to GP. GP is driven to bankruptcy. Creditor to GP claims accounts receivables from Chapters, but Publisher also claims them for themselves under the distribution agreement.
Held: The sale of books from GP to Chapters is not an unsecured sale. It is a consignment. Title passes on sale by GP,

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Note: The GP did not hold in trust for the Publisher. There was no trust language and proceeds need to be segregated. It was purely a creditor/debtor relationship without security. The publisher has no interest in the receivables.
Note: Publisher could have negotiated a better for themselves, ie pay me in 30 days period, or when GP resells books the proceeds are in trust.
Note: Consignment does not pass title. It is only a license to sell on someone else’s behalf. When sold title passes directly from the supplier to the buyer, bypassing the consignor. b. Scope: Transactions Creating Security Interest in Personal Property

Licenses are important forms of intangible personal property which can create security interests.
Sugarman v. Duca Community Credit Union, 1998, Ont GD
A lendor expressly takes a nursing home license as a security interest. Nursing home licenses are issued by the Ministry of Health. The nursing home is sold. To transfer nursing home licenses, they must be cancelled a new one issued. The new owner claims the license is not personal property. Do they have value and can they become a security interest under the PPSA?
Held: In Bouckhuyt , a tobacco license has held as a privilege not property. It was granted, not owned and inalienable. However, in practice it could be transferred and had value.
So the ruling was questioned in Hallahan , but still upheld. In Foster , taxi cab licenses were held as property because a transfer mechanism existed and their granting did not involve unfettered discretion. Essentially each licensing regime needs to be looked at individually to decide if it creates property. In Bale , even if the license is not property the proceeds from it’s sale could create a security interest. In the present case, the license can create a security interest.
Note: Prof thinks the analysis is too minute. Simply accept licenses as security interests, there is no major downside from doing so. The only question is does it have value for a creditor, not if it is property. The UCC expressly includes licenses as intangible property and the bar association has suggested Ontario do the same. c. Scope: In Substance Security Transactions

When determining if a security transaction exists look at substance over form.

Disregard what the agreement calls the transaction or who has title and look to the substance.

The determination must be made in the context of statutes other than the PPSA, ie
Real Estate, Banking. d. Scope: Leases and Consignments

Not all assignments, leases and consignments create a security interest. They must secure payment or performance of an obligation (OPPSA, s.2(a)(ii)).
 Leases are short term rentals. Distinguish “true leases” from disguised financing deals or sales.

True leases grant no additional rights at the end of the lease term.

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
The determination is very important and the consequences important, but it can be difficult. There is no agreed test (ie 22 part test by Cummings, accounting test).
 “closed-end leases” do not require the leasee to purchase at the end of the term;
“open-end leases” the leasor will sale the equipment at then end of the term and leasee is responsible for any deficiency from the expected value (and entitled to any surplus). Open-ended leases are in effect financing agreements, because there is no risk to the leasor. The focus is the money, not the equipment.
Crop & Soil Services Inc v. Oxford Leaseway Ltd, 2000, Ont CA
Two vehicles are purported to be leased. The putative leasee becomes bankrupt. If the agreement was not a true lease but financing, the leasor needed to register the security interest to be entitled over the trustee in bankruptcy. The lease has open-ended, the leasee was liable for deficiency if sale at the end of the term did not yield the residual value.
Held: The indicia of making the leasee responsible for the value at the end of the term means the transaction was driven by cost of ownership, not cost of its use for limited time. This is actually a financing agreement and not a true lease.
Adelaide Capital Corp v. Integrated Transport Finance Inc, 1994, Ont GD
Equipment leasing agreement.
Held: The test is whether the transaction as a whole creates a security interest that secures payment or performance of an obligation. The language of the agreement is very important. This is in effect an investment for the leasor who is more concerned with yields than the equipment. One test is that all leases from financing companies should be treated as financing.
Note: The lease determination can be sidestepped simply by registering the security interest. Assuming there is a security interest, does not create presumption the act applies
(OPPSA, s.46). If the transaction is unclear, just register.
Note: The lease issue is completely different outside Ontario. In Alberta all leases with terms over one year are caught by the PPSA.

Consignments: The “consignor” gives physical possession to the “consignee”, but title remains with the “consignor”. The “consignee” will try to sell the property
(for a fee). When sold title passes directly from the “consignor” to the
“consumer”.

The typical retailer gets title to the goods he is selling.
 There are “true consignments” and financing agreements. Look to the words and substance rather than relying on what it is called.

In Re General Publishing , it was really two sales not a consignment.

PPSA applies only to consignments that secure payment for a payment or performance of an obligation. True consignments do not apply (they are like service agreements). e. Scope: Assignments

PPSA applies only to assignments which secure payment or performance of an obligation (s.2(a)(ii)) and to account transfers even if they do not (s.2(b)).

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 An “absolute assignment” is just a transfer and no ongoing relationship remains.
For example if selling the right to collect a debt owing.
 A “security assignment” only gives a right to collect the debt. For example a bank gets an assignment of book debts, but does not intend to collect them unless default. This assignment can be given back.

If there is recourse, the assignor can be liable if there is a problem. There may be limited or full recourse, but it is still an absolute assignment.

There is no need to notify the assignee of the transfer of the account, but the factor will usually insist on it.

For accounts and chattel paper apply 2(b) and all other 2(a)(ii). The allowable transactions are broadened to avoid fraud.

Real Estate case: Agent has right to commission, but not until closing date, six months later. Agent sells the commission right to financing for less money now.
Between sale and closing agent becomes bankrupt. Financer claims assignment was not a secured transaction (it was not perfected). Court holds it was under
PPSA 2(b). Financer interest subordinated to the trustee in bankruptcy.
2.2. Scope: Exclusions
OPPSA
4(1)(a-i): Section 2 of the PPSA does not apply to a) non-consensual transactions; b) those regulated by other legal schemes already; c) those which might be caught by s.2, but are not in essence secured transactions.
These exceptions are difficult to apply and mostly deal with liens under other statutes
(any constructive trust, deemed trusts, Pawnbrokers Act, Assignments and Preferences
Act, Bulk Sales Act, Insurance Act ) and transactions under rule of law rather than agreement and real estate (but does apply to realty payment rights and fixtures).
 A “lien” is a right of someone with possession to keep possession until some event occurs (usually payment). Non-possessory liens also exist, for example for inn keepers and repairs. (In the US the term “lien” is much broader and may include practically any secured transaction).

The conditions for the lien are set by the enabling statute or common law rather than the PPSA.
Most Important Exceptions:
1.
Liens granted by statute.
2.
Realty Interests, some interests are at the intersection of realty and personal property: a) fixtures, b) rights to payment.
Commercial Credit Corp Ltd v. Harry Shields Ltd, 1981, Ont CA
Held: Between a landlord’s right to distress and an secured creditors rights to the same property through a chattel mortgage, the landlord’s right is superior. The right to distress was established at common law and is now statutory. It is not a lien until the landlord actually takes possession of the property. Use the common law priority rules: first in line. Who has the title matters. If it was a conditional sale rather than a chattel mortgage, the landlord’s rights would not attach.

8
Note: There were three possible priority systems: common law, Bankruptcy Act and
PPSA. Depending on which priority system is favourable to the creditor, they may benefit from inducing bankruptcy.
Re Urman, 1984, Ont CA
Mortgage broker attains revolving line of credit from the bank with a general assignment of book debts as security. Later two mortgages are assigned to Kreindel to borrow money. Later assigns another mortgage to Eckhardt. Urman becomes bankrupt.
Question of priority. Nothing was registered.
Held (trial): In their agreement, the bank waived it’s rights on second mortgages, so it has no security interest in them. Kreindel is a secured creditor under the PPSA, but it is still subordinated to the trustee in bankruptcy.
(Ont CA) The assignment to Kriendel is a mortgage of a mortgage, but it is an interest in land and should not be treated as intangible personal property. So the PPSA does not apply. The parties for which Kriendel acted where the ones with a PPSA interest.
Note: Most PPSA’s outside Ontario exclude all real estate transactions.
Note: This case led to the insertion of s.4(1)(e) (which is?).
Note: Example, a contractor has a deal to paint 4 rooms at $25/room. After painting 2 rooms, he assigns the contract to someone else for $50. The PPSA would not apply, assigning the whole thing and payment is not covered by the PPSA(?).
2.3. Scope: Terminology
OPPSA, 1(1):
“debtor”:
“secured party”:
“collateral”:
ALIDITY
NFORCEABILITY
TTACHMENT AND
ERFECTION
3.1 Validity a. Validity: Effectiveness of a Security Agreement
9(1): A security agreement is affective according to its terms, except where provided by this or any other Act.
73: Where the PPSA conflicts with any other Act, the PPSA will prevail – except for the
Consumer Protection Act , which will prevail over the PPSA .
Ellingsen (Trustee of) v. Hallmark Ford Sales Ltd, 2000, BC CA
See facts above. Dealer gives consumer truck without payment or signing a security agreement. Consumer goes bankrupt and dealer claims he had a security interest.
Held: (Maj) 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.

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(Min) There was an intentional sale agreement with an extension of credit. Therefore the
PPSA does apply and since the dealer did not register the security interest he is subordinated to the trustee in bankruptcy.
Note: Ziegel thinks there was no sale, because there was no sales agreement despite the possession and vehicle registration. Title stays with dealer. Unconvincing. b. Validity: Writing Requirements
9(2): A security agreement is not unenforceable against a third party by reason only of a defect, irregularity, omission or error in the execution, unless the third party is actually misled.
9(3): Failure to describe some of the collateral in the security agreement does not affect the security agreement effect to the collateral described.
10: Agreement must be delivered to the debtor within ten days.
Atlas Industries v. Federal Business Development Bank, 1983, Sask QB
(security agreements need to be signed by the debtor)
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.
Re Ayerst and Ayerst, 1984, Ont CA
(even a major error in the agreement will be saved by 9(2), if nobody is misled)
A security agreement is prepared for a chattel mortgage. By mutual error, the schedule describing the property is left out of the contract. Does s.9(2) save the agreement?
Held: Even though the error was substantial, no interested party has been misled by the omission. Invalidating the agreement would cause undue hardship for a technical error.
Because, no one was misled, s.9(2) will rescue the agreement.
Re BDO Dunwoody Ltd and Astral Communications Inc, 2000, Ont CA
(an executed security agreement is needed before 9(2) can be applied)
A security agreement is prepared, but not signed by the debtor. There is actually nowhere to sign on the document. The debtor does sign an attached personal guarantee.
Held: The curative power of s.9(2) cannot override the attachment requirements of s.11.
That would not be a sensible interpretation of the statute. Here there is a complete lack of execution that can be helped by 9(2). The signature on the guarantee does not count towards the security agreement.
MacEwen Agricentre Inc v. Beriault, 2002, Ont GD
(an executed security agreement is needed before 9(2) can be applied; it can be simple)
A farmer loans money from the defendant. Later the farmer uses the bean crop as collateral for another loan from the plaintiff. The plaintiff claims they are a secured

10 creditor. The farmer filled out a security agreement with them. The farmer claims the signature was only to verify the accuracy of the documents. The plaintiff registers the security anyway. The defendant argues he never had a security agreement (he would be subordinated to the plaintiff if he did), only that he has a set-off claim for the crops.
Held: The farmer did not have a security agreement. But the facts are very close. 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.
Note: If there is no security agreement at all, s.9(2) cannot be used to create one.
3.2 Attachment a. Attachment: Requirements
11(1): A security agreement is not enforceable against a third party, until it has attached.
11(2): Unless parties agree otherwise, a security interest, of any form, attaches when: a) when the secured party obtains possession or signs a security agreement that describes the collateral sufficiently for it to be identified; b) value is given; and c) debtor has rights in the collateral.

Requirements for attachment under 11(2): i.
Agreement ii.
Value, consideration to support the contract (debt, liability, promise); iii.
Debtor needs rights in the collateral; iv.
Exception, unless parties agree to postpone (rare). b. Attachment: After-Acquired Property

The OPPSA treats after-acquired no different than other personal property. The rules established by common law and equity are usurped by s.12.
12(1): A security agreement can cover after-acquired property.
12(2): Exceptions to 12(1): a) crops more than a year later; b) consumer goods, unless acquired by debtor within 10 days after the secured party gives value.
Holroyd v. Marshall, 1861, Eng
(there can be an equitable title in after-acquired tangible property)
Held: There can be no legal title in after-acquired property. In equity there is no need for a former deed of conveyance to alienate. Therefore, there can be an equitable title in after-acquired property.
Tailby v. Official Receiver, 1888, Eng
(Holroyd can be extended to intangible property)

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Held: Equity can grant specific performance. It can give effect to agreements as far as possible. Incapacity to perform at the time of the agreement is not excuse for not performing later when it is possible.
Joseph v. Lyons, 1884, CA
(Holroyd has limits, a legal title will prevail over an equitable one)
Held: The common law rule is that property in future-acquired goods should not pass, except perhaps where there is a contract for them to pass. Only an interest in equity can pass. If the legal owner has no notice of the equitable title, constructive notice should not be extended. c. Attachment: Floating Charge

Common law had a vague definition of floating charge. It floated over goods and crystallized at the time of some event (usually default).

The PPSA allows floating charges and does not mention crystallization.
Access Advertising Management Inc v. Sevrex Computers Inc, 1994, Ont GD
(last case to use the language of crystallization)
Held: Property subject to a floating charge changes with time. As long as the other requirements for perfecting a security interest are followed, the fact the floating charge has not crystallized is not important. Sending of notice pursuant to the BIA is when the interest crystallizes and the interest is attached.
Note: This is the last case to use this argument. The PPSA does not mention crystallization anywhere.
Credit Suisse Canada v. 1133 Yonge Street Holdings, 1996, Ont GD
(floating charges are no different than other security interests in the PPSA)
Held: With floating-charges, only the PPSA applies, not the previous case law. There is no more question of crystallization. According to the PPSA the only requirement are attachment and perfection, same as any other security interest. d. Attachment: “All PAAP” Security Interest and License to Conduct Business

The security interest is general not specific – “everything I have now and will ever get”. It is the maximum security.
Credit Suisse Canada v. 1133 Yonge Street Holdings, 1998, CA
(parties are free negotiate their secured relationship, look to the agreement to see what rights the debtor has reserved)
Debtors own real estate. The bank takes a security assignment of the rents from the real estate. With a security assignment, collection only occurs on default. There is a management company that manages and collects rents for the property on behalf of the landowners. There is a default and the bank notifies the tenants that future rents must go to the bank. That is not disputed. However, there is rent money collected by the management company not yet paid to the landowners. Are they part of the security interest?

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Held: The trial court was correct. Only the PPSA applies and crystallization is not relevant any longer. The PPSA preserves freedom of contract. To determine which rights the owners reserved, look at the wording of the security agreement. In this case it states that, “until default, owners are entitled to rentals”. The title of any payment made before default went to the landowners.
Royal Bank of Canada v. Sparrow Electric Corp, 1997, SCC
(?)
The bank has all PAAP security for a loan from the defendant. The defendant does not remit employee tax withholdings to the government (they kept them for themselves). The withholdings are deemed to be in a trust in favour of the Crown. A standstill agreement is implemented after Sparrow gets in financial trouble. The bank and the Crown argue over the remaining inventory. In the security agreement with the bank, Sparrow covenanted to pay all taxes. According to the Crown, that statement is implicit anyway.
Held: (Gonthier, dissent) The license to sell inventory puts the inventory outside the net of the security agreement. The Crown is free to use them.
(Iacobucci, majority) The license to use the inventory is only a conditional release from the security interest. The inventory “may” be used to pay taxes, but not until you actually do the security interest continues. The proceeds were never remitted, so the banks security over the inventory is still valid. The Crown may have interest in the bank’s security, but not the security itself.
Note: After the Crown’s loss in this case, the
ITA was amended to strengthen the Crown’s position as trust beneficiary. e. Attachment: Conditional Sales; Rights in Collateral
Kinetics Technology International Corp v. Fourth National Bank of Tulsa, 1993, CCA
(look at rights, less than actual title, to determine what the debtor owns)
KTI sends goods to the debtor, who works on them, then sells them back to KTI. The
Bank has a security interest in the debtor’s entire inventory. The debtor’s becomes bankrupt. The bank and KTI both want the inventory. KTI claims they never sold the goods to the debtor.
Held: Since the debtor had the right to possession, to work on and sell the goods, they are the part of the debtor’s inventory. The threshold is low. Look at rights not actual title or ownership.
Note: The judgement is harsh towards KTI, but they could have protected themselves easily by registering their interest.
R v. CIBC, 2000, Ont CA
(finding rights debtor rights in the collateral has a low threshold)
The bank finances a business involved in telemarketing scams. After the business is charge, the loan goes to default and the bank freezes their account. The Crown claims the money in the account is proceeds from crime. The title never passed to the criminals. The bank claims it did and they have security over it.

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Held: The money was sent voluntarily, despite fraud. The debtor did have rights regarding the money, even though they were defeasible. There were enough rights for the bank’s security interest to attach.
3.3 Rights of the Parties

Parties are free to make any agreement, subject to s.13 to s.18.
13: A creditor may take security on future advances (not AAP).
14: An agreement by a debtor not to assert a claim or defence against the assignee of a security agreement is valid, except where it is against the Consumer Protection Act .
Note: Example, car dealership assigns conditional sales contract to financing company, financing company not liable if agreed in contract. Not all defences included (fraud, unconscionable, Bill of Exchange). It only validates the provision, does not insert.
15: If a seller reserves a purchase-money security interest, sales law will still apply subject to s.14.
Note: Normally PPSA overrides sales law.
16: Where there is an acceleration clause in a security agreement based on the secured party’s subjective belief, it can only be triggered if the secured parties belief is in good faith and based on commercially reasonable grounds.
17(1): A secured party will take reasonable care in the custody and preservation of collateral in their possession, unless otherwise agreed.
17(2): It is presumed, unless otherwise agreed: reasonable charges for maintenance are chargeable to the debtor; non-fungible collateral is not commingled; proceeds should be applied to the obligation.
17(3): The secured party is liable for loss or damage, if the obligation of 17(1) or 17(2) are not met, but the security interest remains.
17(4): The secured party is limited in using the collateral when in possession.
17(5): The secured party is liable for loss or damage, if the obligation of 17(4) is not met.
18: A debtor or judgment creditor with interest in the collateral with written notice can ask the secured party to furnish: amount of indebtness, copy of security agreement, information on the location of a copy for inspection.
3.4 Perfection a. Perfection: Introduction
19: A security interest is perfected when: a) it has attached (see s.11); and b) all steps required for perfection under this Act have been completed.
Twyne’s Case (No 3), 1601, Star Chamber
Held: Transferring property to escape creditors is a fraudulent conveyance. There is something wrong with selling something and keeping it at the same time.
Dearle v. Hall, 1828, Eng
Held: When there are two assignment of the same account. The one who notifies the account debtor first has priority.

14 b. Perfection: By Possession
22: Possession of the collateral by the secured party (or agent other than the debtor) perfects a security interest in: chattel paper, goods, instruments, securities, negotiable documents of title and money, while it is held as collateral.
Note: Possession for the purpose of repairing does not perfect.
Re Raymond Darzinskas, 1982, Ont SC
(perfection by possession needs to be open and notorious, enough to give notice)
Secured party tries to perfect by registration, but fails. They try possession, but they leave the equipment on the debtor’s premise.
Held: The intention of the Act is to provide the person dealing with the property notice of the security interest. This is by constructive notice (registration) or actual (possession).
By leaving the debtor with possession and use of the collateral, there is no notice and therefore the interest is not perfected.
Sperry Inc v. CIBC, 1985, Ont CA
(a receiver who seizes collateral does not perfect the creditors interest)
In the security agreement, the bank can assign a receiver for the debtor, but they are not liable for the receivers actions. The debtor becomes bankrupt. A receiver is assigned, who seizes then disposes of the goods. The bank claims that seizure by the receiver perfected their interest and gave them priority over other creditors.
Held: The receiver was an agent of the debtor, not the bank. The bank is seeking the best of both worlds. The seizure of the receiver cannot be considered possession by the bank.
The Act expressly says possession cannot be by the debtor’s agent. c. Perfection: By Registration
23: Registration perfects a security interest in any type of collateral. d. Perfection: Temporary
24: Security in instruments, securities or negotiable documents of title are perfected for the first 10 days after attachment, if they arise for new value.
Note: Purpose is to avoid a standoff. e. Perfection: Continuity
21(1): A security interest perfected then perfected again, with no intermediate period of nonperfection, will be deemed continuously perfected. f. Perfection: Consequences of Non-Perfection
20(1): Until perfected, a security interest is subordinate to:

15 a) competing secured parties, lien holders, those with priority under any other Act and execution creditors and those entitled under the Creditors Relief Act ; b) trustee in bankruptcy; c) transferee of tangible who gives value and receives without knowledge of the security interest. d) transferee of intangible who gives value and receives without knowledge of the security interest.
Re Giffen, 1998, SCC
(subordination of unperfected interests to the trustee in bankruptcy is valid)
The leasor leased a car to BCT who in turn leased it to an employee. Nobody perfected their interest. The employee becomes bankrupt and the leasor seizes and sells the car. The trustee in bankruptcy claims the proceeds under the PPSA (unperfected claim is subordinate to the interest of the trustee in bankruptcy). The leasor claims the bankrupt never owned the car and under the BIA the trustee cannot have more rights than the bankrupt party.
Held: The PPSA can modify the principle found in the BIA . The BIA does not spell out what the secured parties rights are, the PPSA does. The lessor’s unperfrected interest is ineffective against the trustee in bankruptcy.
4.1 Registration: Introduction

Registration is the most frequent way to perfection.

In Ontario it is a notice filing system. That is it files notice of the security only, not the security itself. Search results do not provide details of the interest.
41: A Registration System with central and branch offices will be maintained.
42: A registrar will be appointed by the Minister of Consumer and Business Services, who will not be held personally liable.
4.2 Registration: The Basics a. Registration: Basics: Financing Statement and Financing Change Statement
OPPSA Regulation
3. Content of Financing Statement: The form or format used to file a registration in paper or electronic version. Information needed include:
Code to Indicate made under the Act
Duration (could be infinite)
-
-
-
-
-
Name (see s.16)
Whether a natural or artificial person
Birth date
Address
-
-
Secured Party and their address
Classification of security interest

16
Vehicle Identification Number (only if a vehicle and consumer good)
Authorized signature (only needed from secured party)
“financing change statement” : The form or format needed to make a change to the financial statement.
16. Content Particulars: The full name must include the first name, middle initial and surname (use name from birth certificate). For artificial persons use the exact registered name.
17. Bilingual Names: If there is a French and English version of the person’s name, a separate registration is required fore each. b. Registration: Basics: The Family Concept and Numbering System

Each family has a 9 digit code.

Each registration has a 20 digit code.

For example, a financing statement belonging to family 888888888 may have registration number 20000510 1015 0043 3811, meaning: It was registered on
May 10 th
2000 at 10:15am at registry 0043 with serial number 3811. c. Registration: Basics: Negligence and Impact

The system is old and full of problems. Fields names are not intuitive. Frequent mistakes include: o Failure to understand that the PPSA applies. o Using an improper from of the name. o Failure to register bilingual names properly. o Failure to check the collateral box. o File is not current.

Searching is not done in real time. Because of stamp requirements and internal processes, there is a delay between submitting the registration form and its appearance in the database. For this reason, registration is allowed in advance. By the time the secured interest materializes, it is already in the database.
4.3 Registration: Searching a. Registration: Searching: Basics

A searcher can only search for individuals on the debtor name and the vehicle identification number.

Results will only match when specific or non-specific for name and surname.

A searcher can only search for businesses with the business name. All corporate identifiers are ignored.

There is a general description field. It must be filled carefully because the description their will override any other definition of the security. It is used to avoid everyone checking accounts, ie which accounts? b. Registration: Searching: Assurance Fund

Searches can be certified or verbal.

Only certified search results are assured (makes no sense, since both are from the same source).

17

One percent of all fees go to the fund.

Any person who suffers a loss or damage by a certified search may be compensated. (s.44)

Only system errors are covered. Human errors (ie government employee entering in data) are not covered.

Only damages causally resulting from reliance of the search are covered. (s.44(4))

Only limited to damages of up to $1 million per security agreement. (s.44(20))
Bank of Nova Scotia v. Clinton’s Flowers and Gifts Ltd, 1994, Ont CA
The bank registers its security interest against the plaintiff. They properly fill out the paper form. The ministry stamps it and sends it for data entry. During entry the apostrophe in “Clinton’s” is erroneously left out. Trustee in bankruptcy later cannot find the entry in the registry, even though the bank claims a perfected security in the inventory.
Held: An error made by the registrar in recording the registered document does not invalidate the registration. Even if it is not searchable, just properly filling the paperwork is enough. The bank also cannot claim against the assurance fund and neither can the trustee.
Note: These facts are less likely now with electronic registration.
4.4 Registration: Registering Security Interests a. Registration: Security Interests: Financing Statement
45(2): When the collateral is consumer goods, a financing statement shall not be registered before the security agreement is signed. Otherwise, the registration is invalid.
45(3): When the collateral is not consumer goods, the financing statement may be registered at any time before or after signing.
45(4): Except for consumer goods, one financing statement may perfect one or more security interests from one or more security agreements at any time.
Adelaide Capital Corp v. Integrated Transportation Finance Inc, 1994, Ont GD
The first creditor trying to secure trailers, checks everything except inventory for the collateral classification when registering. They are in fact inventory. A second creditor also checks equipment, but describes them as “inventory” in the description section.
Can an error in collateral classification, which is corrected under s.46(4), be relied upon as the “root of title” for subsequent registrations?
Held: (Blair) A reasonable searcher of the registry is deemed to read the description field. Therefore even though the wrong collateral classification is checked, they would not be misled and so the registration does perfect the security interest. Under s.45(4), one properly filed registration will cover multiple security interests. If the b. Registration: Security Interests: Registration Period

18

A financing statement may be registered in perpetuity or for up to 25 years as stated. (s.51(1))

The period can be extended. The extension is from the end of the period, but for consumer goods it is from the day of the amendment.
c. Registration: Security Interests: Manner and Effect of Errors
46(3): Except for rights to proceeds, where the collateral is specified by the check boxes and the description field limits the scope of the check box description. The limiting words will have effect.
Note: Fill the descriptive field carefully. If you do not intend to limit, say so.
46(4): A financing statement or financing change statement is not invalidated by an error or omission, unless a reasonable person is likely to misled materially by the error.
46(5): Registration of a financing statement or financing change statement: a) Is not constructive notice to or by third parties of the existence of the financing statement; and b) Does not create a presumption of a security interest or that the Act applies to the transaction related to the registration.

Finance statement may be tendered by a paper copy or electronically.

Collateral is classified as: Goods; Inventory; Equipment; Accounts; or Other.

Only motor vehicles are specifically registerable. If the motor vehicle is a consumer good, the VIN is required ( OPPSA Reg s.3(9))

Only three searches possible:
1.
individual specific debtor name;
2.
individual non-specific debtor name;
3.
vehicle identification number;
Re Lambert, 1994, Ont CA
(the reasonable person in 46(4) is a person familiar with the system, but not the most skilled user, they will conduct a name and VIN search when possible)
A financing statement is registered under the debtor’s common name, which is not his name on his birth certificate. Will s.46(4) save the registration from invalidation?
Held: The reasonable person test in s.46(4) is objective. Previous case law, which equated the reasonable person to the person actually doing incorrectly made the test subjective. It is objective. That is only if it is likely to materially mislead a reasonable person. The reasonable person here is a person familiar with the system, not the most skilled user. The purpose of s.46(4) is to distribute the impact of inevitable errors in registration, through the double search capability. The reasonable person will conduct both searches when possible. Here the reasonable person would not be misled.
Note: If the name is wrong, but the VIN right, the registration is valid.
Gold Key, BC CA: When possible, a reasonable searcher will use both name and VIN.
Note: They adopted Lambert without looking at differences in the BC PPSA.
Kelln, Sask CA : When a VIN is required a right name cannot save a wrong number.
Note: In Sask and Alberta a wrong name will not perfect.

19
GMAC Leasco Ltd v. Moncton Motor Home & Sales Inc, 2003, NB CA
(The Lambert holding is specific to Ontario)
Held: Accepting the dual search requirement would be tantamount to rewriting the
PPSA. It should not be adopted. It is influenced by constructive notice, which applies only to priority and not validity. The windfall it may cause trustees in bankruptcy is sanctioned by the PPSA. The NB registration system is distinct from Ontario’s.

The Ontario system is very unforgiving. But, other more flexible systems give more random results and a greater burden on the searcher.
Coates v. General Motors Acceptance Corp of Canada, 1990, BS SC
(In near-match systems, complete accuracy of results is not required for validity)
Held: The test for whether a search is seriously misleading is subjective. Complete accuracy is not needed. If a similar result is returned, the registration is not misleading.
The secured party is saved.
Charter Financial Co v. Royal Bank, 2002, Ont CA
(a change in company name will not invalidate old registrations, if old name used)
There is a security agreement with a numbered company. The company is in the process of amalgamation. They tell the bank their number will not change after the amalgamation, but it does. The amalgamation occurs before the registration is completed.
Held: The company continued to have a legal existence under the old name. The reasonable searcher would not be misled. The registration under the old name is valid under s.46(4).
Note: This is wrongly decided. It is not reasonable to expect a searcher to search on all past incarnations of the party’s name. Registration should be done using the corporate name from a search at the time of registration (s.16).
4.5 Registration: Changes
47: Assignment by a secured party can be registered by a financing change statement.
Note: Smart, but not mandatory.
48: When a debtor to a perfected security interest: transfers the collateral, changes their name and there is notification (s.68 and s.69 requirement), a financing change statement needs to reflect the change or the interest will become unperfected.
49: Financing change statements are allowed at any time, any reason (pretty much).
50: After subordination, a financing change statement can be registered.
52: A registration can be extended by a financing change statement or reregistered by a financing statement.
53: A financing change statement is effective for the same term as the financing statement it relates to.
Heidelberg Canada Graphic Equipment Ltd v. Arthur Andersen Inc, 1992, Ont GD
(a financing change statement is enough to reperfect an interest that was only partially, not completely, discharged)

20
The bank registers a financing statement and checks all classes of collateral (even equipment). Later another party loans money (only on accounts) and asks the bank to remove the registration on accounts. The bank sends a financing change statement
(FCS1) to remove accounts. They later realize, they do in fact have an interest in accounts and file another financing change statement (FCS2) to reinstate accounts. No interest arose between FCS1 and FCS2. When the debtor becomes bankrupt, the second lendor attacks the validity of the banks security in accounts.
Held: FCS1 only amended their registration. It did not discharge it. There is no need for a new financing statement to reperfect an interest, if it was discharged. The lapse of perfection between FCS1 and FCS2 does not affect the priority of the two lendors.
4.6 Registration: Discharge
55: A registration can be discharged or partially discharged by a financing change statement.
56: A person can demand, in writing, a discharge of a registration against them, if it should not be there.
57: For consumer goods, the secured party must discharge the registration within 30 days of the obligation in the security agreement being performed.
4.7 Registration: Subrogated Rights
Re N’Amerix Logistix Inc, 2001, Ont SC
(a registration can be subrogated to another party, if it is not discharged)
A second lendor pays off the first lendor and takes security in accounts with a factoring agreement, but messes up the registration. Amerix becomes bankrupt and the trustee in bankruptcy claims the accounts, due to nonperfection. The lendor claims the benefit of the original loans registration. They should be subrogated to the old lendor, since they were not assigned; they just stepped into the shoes of the first lendor.
Held: There is no reason in the Act not to find that the first lendor subrogated to the second. They should have the benefit of the registration.
Note: The second lendor lucked out. The first lendor should have discharged the registration. These are rare circumstances.
RIORITY
ULES
5.1 Priority Rules: General

At common law title determined priority. If legal title was undeterminable, rely on equitable title. First in time won.

Exceptions to first in time where:

Prior equitable title beats a buyer without notice for value.

Floating charge wins.

Dearle v. Hall rule: with accounts, first to notify.

Considerations for determining priority:

Notice (difficult to implement)

21

Public Registry (like for real estate, but practically impossible for personal property, except for some things like automobiles)

Clear and broad rules to cover all personal property.
30(1): The following priority rules apply to security interests in the same collateral.
1.
Between two interests perfected by registration: Order or registration, regardless of order of perfection. Note: Registration is possible before attachment.
2.
Between one perfected by registration and another perfected otherwise: a.
The registered has priority, if it was registered before the perfection of the other interest. b.
The nonregistered has priority, if it was perfected before the registration of the financing statement of the other.
3.
Between two interests perfected otherwise than registration: Order of perfection.
4.
Between two unperfected interests: Order of attachment.
30(5): For proceeds, the date of registration and perfection of the collateral applies to the proceeds.
Note: There is no need to claim accounts in the registration for 30(5) to apply. If the collateral changes into proceeds, 30(5) still applies.

It is bilateral system. It does not provide absolute rules.
5.2 Priority Rules: Relevancy of Notice
The Robert Simpson Co Ltd v. Shadlock and Duggan, 1981, Ont SC
(first to register wins, regardless of any knowledge)
Simpson’s store sells furniture to motel on a conditional sales contract. They do not perfect the interest. The defendants are fully aware of the interest Simpson’s has, yet they take a chattel mortgage on all the motels property, including the same furniture. They register their interest. Simpson’s wakes up and registers, but after the defendant.
Held: First to register has priority. The creditors knowledge is irrelevant. Grafting an equitable exception on a modern statute would be dangerous. Simpson’s should have registered earlier.
In the Matter of Bruce A Smith, 1971, Minn DC
(first to register wins may seem unfair, but keeps the integrity of the registry)
Debtor buys a car on a conditional sales contract. The bank becomes the assignee, but does not register the interest. A second creditor knows about the bank’s interest, but still takes a security interest in the car and registers it.
Held: There is obvious bad faith by the second creditor. The decision may be fair, but the statute is clear and implies that good faith is not required. There is policy consideration in keeping the integrity of the registry system and having certainty in dealings. This rule promotes prompt registration.
Bank of Nova Scotia v. Gaudreau, 1984, Ont HC
(collateral tort attacks will not disrupt the priority rules)

22
Defendant lives in Ottawa and buys a car in Hull. The plaintiff finances the conditional sale and everything regarding the security interest is done properly in Quebec. The car is in Ontario. National Bank takes a security interest in the car, with knowledge of the previous interest. It perfects by registration in Ontario. Plaintiff claims tort of inducing breach of contract.
Held: The first to register rule is applied strictly and knowledge and good faith are irrelevant. National Bank wins on the PPSA grounds. The tort is a collateral attack and will not succeed. It would undermine the integrity of the register system.
Note: The tort of inducing breach of contract may succeed, but not to upset security interest priority.
Note: Notice may still matter generally, but not under these rules.
5.3 Priority Rules: Further Advances
13: A security agreement may secure future advances.
30(3): Subject to 30(4), future advances on a perfected security interest will have the same priority.
30(4): Future advances on a perfected security interest will be subordinated to the rights of those in 20(1)(a)(ii) and (iii) (execution creditors and Creditors Relief Act ), if it was made after the secured party received written notice of those interests, unless the secured party makes the advance for a) maintenance of possession of the collateral (insurance, taxes, other charges); or b) they are bound to make the advance.
Note: This rule is very rare. Why would someone agree to be bound to make advances?
West v. Williams, 1899, CA
Held: At common law, a future advance on real estate will be subordinated.
Note: This does not agree with the PPSA . It does not even apply to real estate anymore.
James Talcott Inc v. Franklin National Bank of Minneapolis, 1972, Minn SC
(first to file will win, even when future advance is made by another party)
Plaintiff takes collateral in construction equipment. Bank provides financing lease to the debtor for other equipment. Security agreement gives collateral in all property. Now the security overlaps on the original equipment. Bank registers and begins taking back.
Held: The plaintiff’s registration included “construction equipment”. This was broad enough to cover the banks collateral later. Since they were first to file they have priority over the bank. The bank should have looked more carefully at the register and been asked the plaintiff to specify which “construction equipment”.
Note: This result keeps consistency with 45(4). One registration can perfect multiple transactions.
Coin-o-matic Service Co v. Rhode Island Hospital Trust Co, 1966, RI SC
Debtor buys a car and the security agreement is assigned to the defendant, who registers it. The plaintiff later lends money to the debtor and takes security over the car and other stuff. They also register. The defendant then loans more money and takes out new security and registers. The debtor pays off the original car loan, but the second loan to the

23 defendant is still outstanding. The financing statement from the car is never discharged.
The debtor becomes bankrupt.
Held: It is not fair to allow the defendant to use the registration from the car to have priority over the plaintiff with their second loan.
Note: This case is wrongly decided. The rule is strict and no matter how unfair, even if the first loan is for much less than the second or the lendor never contemplated further advances. The reasons are to keep certainty and integrity.
Note: If there is something already on the register, before lending: have the other party:
1.
discharge;
2.
narrow the description, so it does not overlap with your collateral;
3.
voluntarily subordinate by agreement.
4.
somehow satisfy yourself that the filing will not affect you now or in the future.
5.4 Priority Rules: Reperfected Security Interests
30(6): When a perfected security interest becomes unperfected for a period of time, then reperfected, it will be deemed continuously perfected from the time of first perfection, except when another person attains rights (not just security interests) in the collateral during the gap of unperfection, the registration will not be effective against that person.
Note: This is unique to Ontario. This only applies for perfection by registration.
Note: To reperfect a financing statement is required (s.52(2))
Note: See Heidelberg for what is and is not considered being unperfected.

Important exception to the priority rules.
6.1 PMSI: Introduction
33(1): PMSI in inventory.
33(2): PMSI in non-inventory.
33(3): Competing PMSIs.
“purchase-money security interest”
means a security interest: a) in collateral to secure payment of all or part of its price; or b) by a person who gives value for the purpose of enabling the debtor to acquire collateral, to the extent the value is applied. (note: does not apply to general loans which are used to buy equipment).

The policy reasons underlying the grant of super-priority to PMSIs: i.
New Money Theory: the debtor can expand their pool of assets, without prejudicing earlier creditors (unless the new equipment results in disposing of older equipment). ii.
Situational Monopoly: Allowing security in after-acquired property is economically beneficial, but it does create an effective monopoly for the first creditor to register. If not for the PMSI

24 super-priority, every subsequent creditor would need to negotiate with the first creditor and this opens the door to opportunistic behaviour and tougher access to credit for the debtor.

A PMSI does not have automatic super-priority.
6.2 PMSI: What is PMSI?
North Platte State Bank v. Production Credit Assn, 1972, Neb SC
A debtor enters a sales contract for cattle. Based on their relationship the dealer gave the debtor possession of the cattle right away without payment. The debtor writes a cheque on the bank’s credit account which he asked for in order to buy the cattle, the bank did not yet decide to forward the money, so the cheque bounces. Later the bank grants the loan and a good cheque is sent. The bank later claims a PMSI on the cattle.
Held: The important question is what rights did the debtor acquire and when. Use the
Sale of Goods Act to answer: title passes when goods are delivered. The debtor acquired title to cattle before the credit was forwarded from the bank. The bank’s credit was used to pay the price of the goods, but the debtor did acquire any new rights in the goods.
Therefore, it is not PMSI. The bank is just an unsecured creditor.
Agricultural Credit Corp of Saskatchewan v. Pettyjohn, 1991, Sask CA
The debtor borrows from ACCS to buy cattle. The credit cannot be forwarded soon enough, so the debtor goes to the bank and borrows money on the strength of the forthcoming ACCS loan. When the ACCS loan arrives, he uses the money to pay back the bank. ACCS claims they have a PMSI.
Held: The ACCS loan was necessary for the bank loan and the bank loan was necessary to buy the cattle. The money enabled the purchase of the cattle and it was used for that purpose. It therefore falls in the definition of a PMSI. It is not helpful to minutely divide the transaction into different purposes. Here the money was clearly used to purchase the cattle.
Note: It is difficult to find were the reasoning in this case would stop. How close does the credit have to be to the transaction (time wise, if there is no interim loan)?
Unisource Canada Inc v. Laurentian Bank of Canada, 2000, Ont CA rev’g Ont TD
The plaintiff had a registered security interest in all assets. The debtor owned an expensive piece of press equipment. Through a “sale-back lease” with RBC, the asset is converted into cash, which it pays back. RBC correctly registers the security interest in the equipment. The RBC loan was paid by the defendant. Who did not take assignment of the RBC security interest, but registered their own. They claim they have a PMSI in the equipment.
Held: (Ont TD) The loan from Laurentian did not allow the debtor to acquire any new assets. They already had possession and use, and even title briefly, to the press. Under the statutory definition, Laurentian did not have a PMSI.
(Ont CA) The loan from Laurentian did allow the debtor to obtain rights in the equipment it did not have previously. It allowed title rather than a lease interest. The refinancing gave it additional rights. It was more than just a change in the financial arrangement.

25
Note: The Ont CA reasoning is flawed. The PPSA applies without regard to title. It is unclear if a refinancer can step into the shoes of a PMSI holder. When refinancing or amending a lease, the parties should make the application clear.
6.3 PMSI: Inventory PMSI
33(1): A purchase-money security interest in inventory or its proceeds has priority over other security interests in the same collateral by the same debtor, if: a)
(vendor’s PMSI) the PMSI was perfected when the earlier of: 1. the debtor obtained possession of the inventor; or 2. a third party on behalf of the debtor obtained possession. (need to be perfected already) b)
(lendor’s PMSI) before the debtor possesses the inventory, the lendor notifies everyone with a registered financing statement classified as inventory in the collateral before registering; and c) the notice in (b) states the debtor has or expects a PMSI and describes the inventory by item or type.
Note: There are provincial differences:
In Ontario: Inventory has priority over proceeds from accounts receivable.
West: Inventory has priority over all, except if sold and account receivable.
Atlantic: Must notify everyone with prior interests, including accounts.
Clark Equipment of Canada Ltd v. Bank of Montreal, 1984, Man CA
The defendant registers a floating charge security interest first. The plaintiff later finances the sale of three pieces of equipment, but takes a security interest over more than just the
PMSI. The perfect the PMSI and give the proper notice to the defendant. After bankruptcy, the plaintiff claims priority because of the PMSI.
Held: The purchase-money security interest can be separated from the non-purchasemoney security interest found in the agreement without it failing. When inventory flows, the PMSI still applies. The PPSA envisioned future advances.
Note: It is important to look at the source and type of the collateral. Priority worries are greater where there is less flow of inventory (car lot) than higher flow (convenience store).
Chrysler Credit Canada Ltd and Royal Bank of Canada, 1986, Sask CA
The bank loans car dealer money and takes a general security interest. 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.
Held: 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 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.
6.4 PMSI: Non-inventory PMSI

26
33(2): A purchase-money security interest not in inventory or its proceeds has priority over other security interests in the same collateral by the same debtor, if: a) it is tangible and perfected before or within ten days after the debtor (or party acting for debtor) acquired possession of the collateral; or b) it is intangible and perfected before or within ten days after the PMSI attached to the collateral.
Note: There is no notice required, because there is no flow. The collateral is usually equipment.
Note: If the 10 day deadline is missed, a normal security interest applies – no superpriority.
Note: No possession requirement for intangibles; only attachment required.
North Platte State Bank v. Production Credit Assn, 1972, Neb SC
See facts above. A debtor enters a sales contract for cattle. Bank loans money for cattle, after the debtor already purchases and possesses the cattle.
Held: The 10 day grace period for the PMSI financer begins when the debtor has possession, not when he acquires rights. Here, the money was advanced too late and so it was not a PMSI anyway. Brodie does not apply here. There a PMSI did exist and that case has been heavily criticized.
Note: Not really a leading case.
Brodie Hotel Supply Inc v. US, 1970, US CCA 9
Brodie sells equipment to Lyons. For the purchase, Lyons gets a loan from the bank, which is assigned to the US but months later. Brodie then registers the security interest.
It is a PMSI, but for super-priority it must be done within ten days. When did Lyons become a debtor?
Held: The date the 10 days starts running, is not related to delivery. It begins when the debtor becomes a debtor. Here, even though Brodie had possession for a long time, he did not become a debtor until later.
Air Products Ltd v. Farini Co, 2000, Ont SC
The creditor installs equipment, but the debtor does not sign the purchase agreement until a year later, and then goes bankrupt soon after.
Held: A debtor is not a debtor until the purchase agreement is signed.
Note: Although it was criticized in North Platte , this reasoning is adopted in the OPPSA .
The 10 days begin running after the debtor takes possession as a debtor.
Note: If the debtor became bankrupt before signing the purchase agreement, the OPPSA may not apply at all (see Ellingsen ).
6.5 PMSI: Competing PMSI in Same Collateral
33(3) : A vendor’s PMSI beats a lendor’s PMSI.

For example, a purchaser buys goods on credit that requires a down payment
(vendor’s PMSI), but also needs to finance the rest from someone else (lendor’s

27
PMSI). Both parties can perfect and gain super-priority. But in a conflict the vendor will win.

These are more exceptions to the first-to-file rule. They all involve collateral which somehow changes form. o Fixtures become attached to land. o Accessions become attached to other goods. o Commingled goods lose their identity.

Only fixtures disputes are litigated regularly; the others rarely.
7.1 Fixtures

There is no definition for what is a fixture only what it excludes and includes.

PPSA rules will apply to fixtures (superseding statute)

Real estate financers will argue the property is part of the real estate; personal property financers will argue it is a fixture.

There are three types of goods in question:
1.
Goods attached to realty, but not enough to be fixtures.
2.
Goods affixed to realty enough to be fixtures.
3.
Goods which are no longer goods, but are now integral to the realty.
Stack v. T Eaton, 1902, Ont CA
Held: There are five rules to help determine what is a fixture:
1.
Articles not attached, except by their own weight, are presumptively not part of the land.
2.
Articles even slightly attached to the land are presumptively part of the land.
3.
Circumstances, which alter these presumptions, must show the degree and object of the annexation.
4.
The intention of the parties related to the affixation is not relevant.
5.
Tenant’s fixtures become part of the realty when they are attached subject to the personal right of removal by the tenant against only the landlord; not subsequent tenants.
Cormier v. Federal Business Development Bank, 1983, Ont Ct
An autobody shop installs very large and heavy equipment. The defendant finances all the equipment by either chattel mortgage or conditional sale. The equipment is attached with bolts to the floor and some have ventilation vents. The body shop goes bankrupt.
Held: The equipments are all fixtures. They are attached to the property in various ways, but are not part of the property.
859587 Ontario Ltd v. Starmark Property Management Ltd, 1988, Ont CA
Landlord remedies include: cancelling the lease; or keeping the lease active and claiming distress. The landlord claiming distress may only take chattel or that claimed as chattel by the tenant. The landlord’s right ripens into a lien when he takes possession and is then

28 excluded from the PPSA. The debtor bought a spray booth, which was attached to the building with easily removable screws. The landlord seizes it as part of distress. Landlord claims it was fixture and part of the property it owned or it was fixture and chattel. The tenant claims it is a fixture and the PPSA applies giving the creditor priority over the landlord.
Held: The property was a fixture under the circumstances. In any case, if the chattel became part of the real property, it could not be distrained. If it did not, and was a fixture, it could not be distrained because upon payment of the rent arrears it could not be returned to the tenant in the same condition.
34(1): A security interest in an attached good: a) before it was a fixture, has priority to the fixture over anyone with a real property interest; b) after it was a fixture, has priority to the fixture over anyone with a subsequent real property interest, but not a person with a registered interest in the real property at the time the fixture was attached and who has not disclaimed that interest in writing.
34(2): A security interest in 34(1) is subordinated to: a) a subsequent purchaser for value; or b) a creditor with prior registered encumbrance on the land, if the security interest is not included in a land title registry.
Note: This puts all relevant information in the land registry; avoids having to search the
PPSA registry for all fixtures.
34(3): A secured party with interest in a fixture may remove the fixture on default or otherwise according to the agreement, with notice and may need to reimburse for any damage to the property (but not diminution in value).
GMS Securities and Appraisals Ltd v. Rich-Wood Kitchens Ltd, 1995, Ont CA
There is circular priority. Three creditors: first mortgagor, third mortgagor and cabinet company (RW) with conditional sales contract. RW registers on land title late. On bankruptcy:
1. first mortgagor beats third mortgagor;
2. third mortgagor beats RW (cabinets affixed before loan but not registered on title).
3. RW beats first mortgagor (on all advances, except one made after cabinets affixed but before registration).
Held: The first mortgagor has priority, but subject to RW being paid.
7.2 Accessions

Priority rules are the same as for fixtures. Instead of putting on land registry need to perfect under PPSA.
Industrial Acceptance Corp v. Firestone Tire & Rubber, 1968, SCC rev’g Alb AD
Plaintiff finances a truck. Firestone later sells tires for the truck and does everything required to perfect their interest. After bankruptcy, what happens to the tires?
Held: (Laskin) If the plaintiff got the tires, it would be a windfall. The tires are easily removable. The plaintiff should get the truck, but the defendant gets the tires. As long as the secured party can identify and reasonable remove their accession, they should get it.

29
Note: Unanswered questions. What if a debtor replaces every part of the truck? What about the original tires?
GMAC Leasco Ltd v. Tomax Credit Corp, 2001, Ont SC
(a repair lien under the RLSA will have priority over an accession under the PPSA)
Plaintiff sold a car under a conditional sales contract. The defendant 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 and the stereo and security system as an accession.
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 . The stereo is not an improvement, alteration or restoration to the car. It is separable from the vehicle and therefore not a repair. 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 only.
7.3 Commingled Goods
37: If a good, with a perfected security interest, becomes manufactured, processed, assembled or commingled with other goods so that it loses its identity. If there is more than one interest in the product the interest will rank equally and according to the ratio of the cost of the good the separate good to the mixed good.
????????? In the Matter of San Juan Packers Inc, 1983, US
Farmers offer security in crops and their proceeds to the bank. The crops are sold to a food processor, which becomes bankrupt.
Held: Determine the portion of food from each farmer, then apportion the available proceeds.
????????? Gilmore: The formulation of sharing ratably is obscure. Costs can mean cost to the debtor or obligation.
7.4 Subordination intercreditor agreements waivers no interest letters subordination agreements mutual subordination
The privity issue: “in the security agreement or otherwise”
Chipps Inc v. Skyview Hotels Ltd
Engel Canada Inc v. TCE Capital Corp

30
Is the subordination a security agreement and registerable?
Chipps Inc v. Skyview Hotels Ltd
How to reflect subordination in registration?
50:
Reg 12:
8.1 Liens: Introduction

Two types of Liens: For private creditors and for government

Liens over private creditors: Repairer’s, Warehouse, Inn-Keeper, Solicitor,
Landlord.

For government for tax obligations.
OPPSA
4(1)(a): The OPPSA does not apply to a lien given by statute or rule of law, except as provided by s.20(1)(a)(i).
20(1)(a)(i): An unperfected security interest is subordinate to someone with a perfected security interest or a lien given by another Act or rule of law or by an interest created with priority under another Act.
8.2 Liens: PPSA Priority Rules a. PPSA Priority Rules: Introduction

Priority rules are found in the PPSA, Bankruptcy and Insolvency Act, statutes related to the lien and the common law. b. PPSA Priority Rules: Competing Unperfeced Security Interests
Leavre v. Port Colborne (City), 1995, Ont CA
Municipality distrains chattel of a taxpayer for taxes owing under Municipal Act s.400(2).
The same chattel was part of a perfected security interest. Issue is whether the PPSA applies, and if so what is the priority.
Held: First question is if the distress is lien on chattel under a statute. It is. The municipality’s lien arose when it took possession of the chattel by distress. Second, is the lien part of the exception in the 4(1)(a) of the PPSA. The exception deals with competition between a lien and an unperfected security interest only. Therefore, provisions of the PPSA do not apply here. If they did, the lien would have priority over perfected security interests. The legislature could not have intended otherwise.
Note: This is broad reading of s.400(2) and not a wholly satisfactory answer to the competition problem. There is ongoing debate about how to handle this (no priority for the Crown, special priority rules, etc).

31 c. PPSA Priority Rules: Material and Services Liens and Competing Security
Interests
OPPSA
31: If under the ordinary course of business, materials or services are provided with respect to goods subject to a security interest, any lien on the materials or services has priority over a perfected security interest, unless the lien given by Act or law provides the lien without that priority.
Note: Similar rationale to PMSI’s. Avoid a windfall for the secured party.
Repair and Storage Liens Act
Note: Can override priority rules of PPSA, but is the same.
General Electric Capital Equip Financing Inc v. Transland Tire Ltd, 1991, Ont GD
Vendor has security interest in trailers. Repairer repairs trailers and returns possession, but is never paid. Business goes bankrupt. Does the repairer have priority under the
RSLA over the secured party who has perfected the interest?
Held: The security interest here was not perfected, so repairer has priority with nonpossessory lien. But, assuming it was perfected, lender has priority over the nonpossessory lien if the rights were acquired before the lien was registered. Must determine: 1) When was the non-possessory lien registered? 2) When did the nonpossessory lien arise? 3) When did the lender acquire a right against the article?
A non-possessory lien arises when the repairer gives up possession. Non-possessory liens allow the repairer to give up possession and retain a lien assert it against thirdparties. The RSLA states that a non-possessory lien has priority over everyone (except those with a possessory lien). Therefore, the RLSA with the PPSA provide the nonpossessory lien priority over a perfected security interest.
8.3 Liens: Common Law Solutions to Competing Security Interests
Leavre v. Port Colborne (City), 1995, Ont CA
Held: If the PPSA does not apply, the common law priority rule applies (chronological).
All interests of every kind rank according to their date ( Spence on Equitable
Jurisdiction
). This is the “first-in-time” rule.
Royal Bank of Canada v. Sparrow Electric Corp, 1997, SCC
Held: (Iacobucci) Priority rules should be clear and predictable to promote financing.
The parties agreement does not replace the common law rule.
(Gonthier, dissent) The party’s agreement does replace the common law rule.
Daimler Chrysler Financial Services Canada Inc v. Mega Pets Ltd, 2002, BC CA
Mega Pets and plaintiff enter a conditional sales agreement for a minivan. Security interest is perfected. Mega Pets becomes insolvent and owes taxes. CCRA seizes the

32 minivan to cover money owing. Plaintiff claims conversion by Crown was unlawful, they had priority.
Held: The Income Tax Act does not define security interest in the same way as the
PPSA. Each definition stands on its own. Use “but for” test. It can be said, “but for” the security interest, the van would be owned by plaintiff, not Mega Pets. So Mega Pets is liable for all amounts owing.
Note: Court was overly concerned with expropriation of the minivan, otherwise statutory language is relatively clear.
9.1 Transfers: Sales or Lease in Ordinary Course of Business a. Sale in the Ordinary Course of Business
28(1): A buyer of goods from a seller who sells in the ordinary course of business takes free from any security interest given by the seller (even if perfected and buyers knows it), unless the buyer also knew the sale constituted a breach of the security agreement.

This is an exception to the general priority rules. It protects a buyer from a security interest created by the seller. Without this protection everyday transactions related to the sale of inventory would grind to a halt.

A-B-C-D problem: A sells to B, but retains a security interest. B sells to C out of the ordinary course of business (ie trade-in). C sells to D in the ordinary course of business (ie dealer). D does not have to worry about security given by C, but those before. D buys only free of security interest to C, not B. D does have rights outside the PPSA.

To get the benefit of s.28(1) : o Must be a buyer . o Must be sold in the ordinary course of business .

Objective test ( Camco )

Opposite of UCC. o Only free of any security interest given by the seller (not anyone).
Camco Inc v. Olson Realty Ltd, 1986, Sask CA
(give a liberal interpretation to “sales in the ordinary course of business”)
A real estate developer buys household appliances from Camco to put into condo units they are developing. The developer never pays Camco for the appliances and goes bankrupt. The end users (owners of the condos) claim they took the appliances free of any security interest. Camco argues they did not sell to the end users and that the sales were not made in the ordinary course of the real estate developers business.
Held: Sales in the ordinary course of business are not limited to just inventory. Do not look to the general field of business, but the seller’s particular business. It should be

33 interpreted liberally to affect the intention of the PPSA . It is fact dependant. Here the fact that sale of appliances was only incidental to the sale of condos does not preclude it.
They knew they were selling appliances with the units.
Note: This area of law is confused. There are problems with prepaying buyers. The Bar
Association has made recommendations.
Royal Bank of Canada v. 216200 Alberta Ltd, 1987, Sask CA
(look to the SGA s.19 to determine if a sale occurred for s.28(1); title must pass)
A furniture dealer grants security to the bank over its inventory, and then becomes bankrupt. The receiver tries to keep the inventory, but some of the furniture has already been sold to consumers and is awaiting pick up. There are four classes of customers:
1. paid full price, no possession or reserved goods.
2. paid part price, no possession, but goods set aside for that transaction
2. paid part price, no possession, and no goods set aside for that transaction
3. waiting for refund, goods returned
Held: According to s.28(1) the person must be buyer. Apply the SGA s.19. To be a buyer, title must have passed (otherwise just an agreement to sell). According to the SGA if there is no title until goods are ascertained and appropriated for the transaction. Only class 2 has any title at all. They may pay the remaining amount and take the furniture or get their deposit refunded.
Note: This is harsh on the buyer. Trust may be found if intended, not so here.
Spittlehouse v. Northshore Marine Inc, 1994, Ont CA
(do not look to the SGA or title passing to determine if a sale occurred)
Purchaser buys a yacht on a conditional sales contract. As the yacht approaches port more of it is paid off. According to the agreement, title passes when fully paid. After the buyer has already paid 90%, the seller becomes bankrupt. Therefore, title did not pass.
Held: (Grange) Do not follow the reasoning 216200 Alberta . The definition of buyer and seller in the SGA cannot apply to the PPSA . Both parties intended a sale and the agreement constituted a sale.
Note: The point here is if it looks like a sale; it should be. This is weak legal analysis.
According to the SGA , title passed when the yacht was identified and ascertained for the transaction. The contract overrode this statutory definition.
Note: This case was not appealed and is still good law until legislative amendment.
Ignore title passing to determine if a sale occurred.
Note: Bar Association recommends adopting a SGA styled section into the PPSA .
Tanbro Fabrics Corp v. Deering Milliken Inc, 1976, NY CA
(possession by the secured party will not override the policy of s.28)
Defendant sells fabric to a middleman. The middleman does need possession right away, so the defendant keeps it. The plaintiff purchases that fabric from the middleman.
Unfortunately, the defendant does not deliver it because the middleman goes bankrupt and the fabric was used as security for an open account they had with the defendant
(perfected by possession). The plaintiff bought in good faith in the ordinary course of business.

34
Held: The buyer wins. They bought in the ordinary course of business and in good faith.
Note: This was a borderline case. There are good policy reasons either way. Many believe a party a secured party with possession should win.

Knowledge of the security interest by the buyer irrelevant.

Only knowledge of a breach of the security agreement by the buyer matters.

Secured party needs to prove the buyer knew or had notice.

Notice is defined narrowly in PPSA s.69; not easy to prove by the secured party. b. Leases in Ordinary Course of Business
28(2): Everything under s.28(1) that applies to sellers and buyers, also applies to leasors and leasees, if leasing in the ordinary course of business. c. Authorized dealing with Collateral
25(1): Where collateral gives rise to proceeds, the security interest in the collateral continues, unless the secured party authorizes dealing with the collateral free of any security interest.
Note: s.25(1) and s.28(1) overlap. Both can be used for the same result.
Agricultural Commodity Corp v. Schaus Feedlots Inc, 2001, Ont SC
Farmer gives security over corn crop to AGC. According to the agreement the farmer can still sell to other farms. They notify all the usual buyers of the corn that the payments will be made to AGC. The farmer finds a feedlot to sell his corn. He tells AGC he is selling to another farmer and not the feedlot. Farmer becomes bankrupt. AGC sues the feedlot claiming a valid security interest on the corn.
Held: (trial) Either s.28(1) or s.25(1) can be applied. Even though there was fraud, it was still a sale in the ordinary course of business. The feedlot acquired the corn free from the plaintiff’s security interest.
(CA) Agrees with the result, but not the reasoning. Just apply s.25(1), not s.28(1). The farmer did not breach the agreement by selling to the feedlot. AGC was not prejudiced.
Since the agreement was not breached, the transaction would fall under s.25(1) and the feedlot would acquire the corn free from the security interest.
Note: It is easier to use s.25(1), but s.28(1) applies more often.
9.3 Transfers: Private Sales of Motor Vehicles

There are special protections for end users in private sales of automobiles.
25(5): When proceeds of collateral are a motor vehicle and it is purchased as a consumer good, any security interest is not perfected unless it was registered with the VIN.
20(1)(c): Until perfected, a security interest is not effective against a transferee who gives value and takes without knowledge of the security interest.
28(5): A motor vehicle sold outside the ordinary course of business as equipment (not inventory) the buyer takes it free of any security interest of the seller, unless the VIN is included in the registration of the security or the buyer knew the sale constituted a breach of a security agreement.

35
43.1: The PPSA registrar shall issue a used vehicle information package to anyone who pays the fee.

It is odd that the knowledge bar is the same for sales in the ordinary course of business and sales not in the ordinary course of business. Presumably, the knowledge bar for ordinary sales should be lower.
9.4 Transfers: Instruments and Documents of Title
28(4): A purchaser of an instrument of negotiable document of title has priority over anyone with a registered security interest in the collateral, if: a) value is given (consideration to support the contract, new value not needed); b) purchaser had no knowledge of the security interest (not just no knowledge of breach, higher threshold than for goods); and c) possession of the collateral.
Note: Only applies against those perfected by registration; obviously not those perfected by possession.
29: For negotiable instruments the Bills of Exchange Act is paramount to the PPSA . The
PPSA does not apply to transfers of money.
9.5 Transfers: Securities
28(6): A good faith purchaser of security, who has taken possession, has priority over anyone with a registered security interest in the security.
28(7): A purchaser of security, who purchases in the ordinary course of business and has taken possession, has priority over anyone with a registered security interest in the security, even if they have knowledge, if the purchaser did not know it would constitute a breach of the security agreement.
28(8): For the purposes of (6) and (7), look to the OBCA s.53 and s.85 for definitions of:
"good faith purchaser", "purchaser", "security", "security certificate" and "uncertificated security".
9.6 Transfers: Chattel Paper
28(3): A purchaser of chattel paper who takes possession in the ordinary course of business and gives new value has priority over: a) any registered security interest, if the purchaser did not know about it; or b) any security interest that has attached to proceeds of inventory (s.25), regardless of any knowledge.

This is an express policy choice. There is large market for chattel paper so possession is important regardless of knowledge.

It makes inventory financers vulnerable: they give consent to dispose of inventory; when collateral is disposed into chattel paper, the interest may be lost if the chattel paper sold; collateral sold for cash in a mixed account is lost.

36

Inventory financers need to protect themselves through: frequent audits; ask for possession of any chattel paper proceeds; insist cash proceeds go to lock box or trust account.
9.7 Proceeds: Right to Follow
25(1): Where collateral gives rise to proceeds: the collateral continues, unless otherwise agreed; and the collateral extends to the proceeds.
Flintoft v. Royal Bank of Canada, 1964, SCC
(at common law, inventory financers rights extend to proceeds of the inventory)
Bank takes security in goods and the book debts if sold. For technical reasons the book debts are not enforceable, even though they exist. Claims that they still have a right, since the book debts are proceeds of the goods.
Held: It is a natural expectation that proceeds from the sale of financed goods will be used to pay the financing. Why else would they be financed?
Note: This is a common law case, which the PPSA overrides with essentially the same rule. Now it is a statutory right, so need for contractual terms or trust law.
25(2): When a security interest in perfected by registration, that perfection extends to the proceeds. Proceeds may be perfected other than by registration according to the Act.
25(3): A security interest in proceeds is continually perfected, if the collateral is perfected by registration.
25(4): A security interest in proceeds becomes unperfected after 10 days, if it is not perfected under this Act.
25(5): When proceeds of collateral are a motor vehicle and it is purchased as a consumer good, any security interest is not perfected unless it was registered with the VIN.
30(5): The date of registration or perfection as to collateral also applies to the proceeds.
Five propositions respecting security interests in proceeds in the OPPSA:
1.
Security interest in proceeds is automatically perfected if the original collateral was perfected by registration at the time the proceeds claim arose (s.25(2))
2.
If the original collateral was perfected otherwise than registration, the secured party must perfect the interest in proceeds within 10 days after they arise (s.25(4))
3.
The interest in the proceeds is continually perfected if: a) the collateral was perfected by registration at the time the proceeds arose; and b) in any other case, if the interest in the proceeds was perfected within 10 days after the interest arose
(s.25(2)-(4)).
4.
If there is no perfected interest in the collateral when the interest in proceeds arises, the secured party must follow the normal perfection rules for the proceeds
(s. 25(2)).
5.
Where the proceeds are a vehicle, the interest is subordinated to the right of a buyer or leasee who buys or leases the vehicle as a consumer good unless the secured party files a financing statement with the vehicles VIN (s.25(5)).
Massey-Ferguson Industries v. Bank of Montreal, 1983, Ont HC

37
(secured party must prove proceeds are from the original secured collateral)
Held: To keep perfection of proceeds, the secured party must prove the proceeds originated from the secured collateral.
Central Refrigeration & Restaurant Services v. CIBC, 1986, Sask CA
(example of temporary perfection under 25(4))
In Sask a secured party must register their interest in proceeds in the registration. The bank does not do this. However when proceeds arise, they are still automatically perfected for 15 days until they are registered. They do have a security interest in the accounts receivable. The debtor goes bankrupt and the cheques from those accounts end up with the trustee in bankruptcy. The bank claims they have priority for the cheques in the last 15 days.
Held: The cheques are proceeds and the bank does have perfected security in them; albeit only temporary security.
Note: The bank is lucky. If the bankruptcy occurred earlier, they would be out of luck.
Note: Under current law cheques are continually perfected.
9.8 Proceeds: Tracing

How to trace proceeds differs in law and equity.

In law, only property that remains identifiable is traceable.

In equity, property does not need to remain identifiable, but other rules exist.

What is identifiable or traceable is not defined in the PPSA so use the law and equity rules. o Clayton’s Case
: first in first out. o Hallett’s Case
: if debtor is a fiduciary they will be deemed the last out. o Lowest Intermediate Balance Rule (LIBR): Only to a maximum what the lowest balance was in the account over a time period.
Agricultural Credit Corp of Saskatchewan v. Pettyjohn, 1991, Sask CA
(casts doubt on the LIB rule)
The debtor borrows from ACC to buy a herd cattle. He borrows more money from the bank and sells part of the first herd to buy another herd. Does the interest of ACC extend to the second herd?
Held: Tracing should not be done by subrogation. There is no need to trace every dollar.
Just trace by function. How much of the borrowed money went into buying each herd.
Note: This is a flexible approach, but uncertain.
Law Society of Upper Canada v. Toronto Dominion Bank, 1998, Ont CA
(the LIB rule is not practical, and will not be strictly applied)
A lawyer misappropriates large amounts from a trust account. It should be $660k, but is only $66k. The bank uses the trust account for a mortgage deal and withdraws $173k.
Under the LIB rule, there is nothing left after the bank withdrawal for the claimants against the lawyer. The trial court orders the bank to redeposit the $173k.
Held: Claimants may fight over $66k plus the $173k. The LIB rule is not practical.
General Motors Acceptance Corp v. Bank of Nova Scotia, 1986, Ont CA

38
(rules on tracing proceeds are unclear in Ontario)
The plaintiff buys financing from a car dealer using the proceeds of an account at BNS as security. The bank dips into the account to cover loan payments. Are the funds from the account traceable?
Held: First, there is no fiduciary relationship, so no equitable right to trace. Second, the funds were used in the ordinary course of business, again they are not traceable.
Note: The fiduciary relationship requirement to allow tracing is not established in
Canadian jurisprudence.
Note: The reasoning of dispersed in the ordinary course is not convincing. There is no question were the money went.
Note: Tracing rules in Ontario are unclear. Use contract to provide certainty when dealing with the bank.
Flexi-Coil Ltd v. Kindersley District Credit Union Ltd, 1993, Sask CA
(choses in actions or second-generation proceeds cannot be relied on not cover security interests in collateral)
C has a line of credit account, but it also uses to make deposits. The balance is always below zero. They use the same account to pay Flexi for inventory. When C becomes bankrupt, they owe money to Flexi. Flexi has a perfected PMSI, but there is no inventory left. They try to go after the proceeds in the account. They claim there are cheques which can be traced as proceeds from the inventory. There are three assets to follow from the inventory: the cheques, the chose in action and the money from the cheques. A security interest in collateral will extend to proceeds. The cheques are proceeds which can be traced to the collateral (first generation proceeds). The bank claims they are purchasers for value so they have free title to the cheques. But, the money from the cheques is also proceeds (second generation proceeds).
Held: The only real proceeds are the cheques themselves. The bank does not really have a chose in action. It is a credit/debtor relationship. There is no cash to trace from the cheques. Any other holdings would make the bank a guarantor for the plaintiff.
Note: Flexi should have opened a separate account for proceeds, which it audited and could release on its own power.
10.1 Rights and Remedies: Introduction a. Introduction: Overview of OPPSA Part V

Part V of the OPPSA deals with enforcement of a security interest.

Governs four stages:
1.
debtor’s default;
2.
taking possession of a tangible collateral by the secured party;
3.
retention and disposition of the collateral by the secured party or its redemption by the debtor;
4.
post-disposition relationship ( viz , rights on surplus or deficiency); b. Introduction: Prior Law

39

The common law related debt collection and security enforcement is still applicable where it does not contravene the OPPSA (s.72).
c. Introduction: Other Relevant Laws

The OPPSA prevails when it conflicts with any other Act, except the Consumer
Protection Act (s.73).

Other relevant acts are the Criminal Code (related to breaking and entering),
Bankruptcy and Insolvency Act, Corporate Credit Act(?)
10.2 Rights and Remedies: General Provisions a. General Provisions: Cumulative Remedies
OPPSA
58: Rights and remedies in Part V are cumulative. A party can exercise some or all of allowed relief. May proceed, sue or both.
Note: Most other jurisdictions are just “seize or sue”. b. General Provisions: Waiver or Variation of Rights and Duties
OPPSA
59(1): On default remedies under Part V, the security agreement and s.17 can be pursued.
59(4): The security agreement can set the standard, as long as they are not manifestly unreasonable. Only really onerous provisions are struck.
59(5): Rights to the debtor under s.17 and s.63 to s.66 cannot be waived in the security agreement. Cannot contract to allow creditor to anything they want with the collateral. c. General Provisions: Default

On default can make obligation to pay or perform or anything found in the security agreement that makes the obligation payable. Courts have enforced this. d. General Provisions: Procedural and Substantive Limits on Enforcement Rights i) Default: Notice before Enforcement
Waldron v. Royal Bank, 1991, BC CA
The plaintiff had a loan to operate a ceramics business. The debtor displayed risky behaviour as a debtor and the bank became worried. On default the bank ordered a bailiff to seize all assets and change the locks on the premises. According to the security agreement there was no need for notice. The plaintiff was not given any notice, until the bailiff showed up demanding the money, assets and changing the locks.
Held: Despite security agreement allowing “payment on demand”, reasonable notice must be given. In earlier English cases, on demand, allowed just enough time to mechanically get the money. The CA expanded the definition in Mister Broadloom to include time needed to find another creditor or find alternative financing. The SCC approved of Mister Broadloom in Dunlop v. Lister . Since the Kavcar and Whonnock have made reasonable notice the law, regardless of the drafting of the security agreement.
Public policy and unconscionability are the grounds.

40
Note: This is not PPSA case, but the principle is the same.
Note: What is “reasonable” notice depends on the facts: previous defaults, type of collateral, etc.
Bankruptcy and Insolvency Act
244: A secured creditor enforcing a security on all or substantially all of: inventory, accounts receivable, or other property must give the debtor 10 day notice of the intention to enforce.
Note: The reason for the mandatory notice is to allow the debtor time to make a proposal for bankruptcy. Otherwise, the debtor would effectively be out of business. It must be substantial amount of the security (one computer from a big office will not need notice).
Note: The 10 day notice is probably the intended time for reasonable notice.
Bank of Montreal v. Maple City Ford Sales, 2002, Ont SC
The plaintiff takes over a loan that was granted by the CIBC to the defendant. They find the defendant riskier than expected and insist on refinancing. Only months after the loan the defendant begins defaulting. The bank then insists on a forbearance agreement
(restricts what the debtor can do) and personal guarantees. Finally the bank goes for the collateral under the forbearance agreement. The demand is made at 2am and the receiver is at the debtor’s premises by 5am. Was notice required? If so was it reasonable?
Held: Regardless of the forbearance agreement, reasonable notice is required. It is the law and there is no way to contract out of it according to Kavcar . What is reasonable notice depends on the facts and circumstances. Here because the debtor was very risky and the collateral was likely to be lost to the creditor, short notice is reasonable. The three hours was reasonable.
Note: The bank did not know at the time of giving notice just how risky the debtor was.
Yet they were allowed to rely on that fact to justify the short notice period(odd principle).
Note: The bank actually was expressly allowed to appoint a receiver according to the forbearance agreement. The judge completely missed that part. ii) Default: Stay of Secured Remedies under Bankruptcy Laws

Under the federal Company Creditors Agreement Act , courts have very broad discretion to grant a stay against creditors enforcing their security rights.

It prevents creditors from enforcing their rights and forcing a company close to bankruptcy into bankruptcy.
 Bankruptcy itself of the debtor does not alter a creditor’s rights. It is a business decision for the creditor to choose to allow time for the debtor to work things out, or just grab the collateral. iii) Default: Consumer Protection Laws

The Business Practices Act and Unconscionable Transactions Relief Act are also relevant in theory. But they are very specific and so almost impossible to apply.

The Consumer Protection Act applies where goods are sold an instalment sale basis. If the purchaser has paid more than 2/3 of the price, they will be afforded some protection under the Act. Outside Ontario the limit is lower. This could be

41 huge issue in the future, since the strict line between consumer and business transactions is being blurred by the courts in the US. iv) Default: Power of Court to Grant Relief
OPPSA
67(1): Upon application a court may, only when it is just for all parties,:
(d) relieve any party from compliance with Part V, s.17, s.34 or s.35.
(e) make any order necessary to ensure protection of any party.
(f) make any order requiring any party to make payment.
Note: The discretion and scope are broad, but it never applied in real life. The case needs to be exceptionally onerous or harsh on one party. Courts do not want to invalidate security agreements or the PPSA and write their own rules.
10.3 Rights and Remedies: Repossession upon Default
OPPSA
62: Upon any default under a security agreement: a) the secured party has the right to take possession of the collateral by any method permitted by law; b) if the collateral is equipment, the secured party has the right to render it unusable, which will be deemed possession; c) the secured party may dispose of the collateral on the debtor’s premises.
17: A secured party will take reasonable care of the collateral when they have custody, unless otherwise agreed.
R v. Doucette, 1960, Ont CA
The accused is a bailiff. Along with two other bailiffs, he goes the house of the debtor to take possession of a TV. They enter the house uninvited despite the protests of the debtor.
On the way out assault the debtor.
Held: The accused, as agent of the secured party, has the right to possession for the collateral. However, you cannot do illegal things to get the possession.
Note: Usually the security agreement will have a provision that grants a licence to enter the debtor’s premises for the purpose of taking possession of collateral on default.
Note: In Quebec, taking possession of collateral is not self-help.
Loewen v. Superior Acceptance Corp, 1998, BC SC
The defendant lends money to the plaintiff. The plaintiff is having trouble repaying, so they contact the plaintiff to renegotiate. The defendant lowers the interest rate and allows them to sell a truck, which is collateral, for the purpose of making a payment. Another branch of the defendant company hears about the plaintiff selling the truck and thinks they are trying to dispose of the collateral contrary to the agreement. They go to take possession, without any notice.
Held: The seizure of the truck was wrongful and a breach of contract. There was no actual default on the loan, only a suspicion of disposing collateral. To act on the suspicion there needs to be commercially reasonable grounds that the collateral is in jeopardy. There was none here. Besides, reasonable notice needs to be given the debtor

42
( Lister, Waldron ). Given the high handed and wilful disregard by the defendant, punitive damages are awarded.
Rapid Transit Mix Ltd v. Commcorp Financial Services Inc, 1998, Alb CA
The plaintiff is a debtor who borrows from the defendant. They are generally bad debtors. They default on the loan and the defendant takes possession two trucks, which are collateral. Reasonable notice of 20 days is given to the debtor. The debtor applies for relief APPSA s.64, which allows the court to make an order to protect any party when just.
Held: For the application of s.64 to succeed, it must be “just for all parties”. Because, a successful application will override a party’s rights, this should be interpreted strictly.
Otherwise it would be a consumer protection scheme giving judges unfettered discretion.
It cannot be used just to give a debtor another chance. It can only be used when commercially reasonable and to protect both parties. Here it is not commercially reasonable; because it is unlikely the debtor will acquire money to repay soon.
Note: Alberta case, but Alberta’s s.64 is the same as Ontario’s s.62.
10.4 Rights and Remedies: Disposal of Collateral a. Disposal of Collateral: Notice Requirement
63(1): Upon any default a secured party may dispose of the collateral:
63(2): in whole or in part at any time or place and on any terms that as long as every aspect is commercially reasonable and subject to 63(4)
63(4): there must be notice of the intention to sell of at least 15 days in writing given to the debtor and every other person known to be effected (must do a PPSA registry search).
63(5): Specifies the contents of the notice required by 63(4)
63(7): the notice in 63(4) does not need to be given where: a) collateral is perishable; b) collateral will decline in value speedily; c) collateral is sold on recognized market (ie stocks); d) cost of storage is disproportionately large; e) application is made to court not to; b. Disposal of Collateral: Method of Disposition

The method of disposal can be private sale, public sale, lease or otherwise as long as it is commercially reasonable. The onus of proof is on the secured party.
Copp v. Medi-Dent Services Ltd, 1991, Ont GD
The plaintiff and his partner ran a dentists office. They had a stormy partnership. They were joint debtors to the defendant on dentistry equipment. They default on the loan. As a result the secured party sells the equipment, but to the partner. It is sold for the cost of the outstanding balance, but that is less than half collateral’s value. The plaintiff is not given reasonable notice of the sale.
Held: The disposal of collateral must be made in a commercially reasonable manner. The test is beyond just good faith. Reasonable care must be taken to ensure the proper value is obtained. It is a question of fact. Here there was a private sale with an adverse interest to

43 the joint debtor and there was no independent appraisal. It was not commercially reasonable. c. Disposal of Collateral: Distribution of Sale Proceeds

Proceeds are disposed in the following order:
1.
secured parties costs
2.
satisfaction of obligation to the secured party
3.
according to s.64 (distribution of surplus): a) secured parties with subordinate interests b) any other person with an interest in the interest in the proceeds c) the debtor

Creditors above are not prejudiced by disposal of collateral. They have the same claim to the collateral. But it is odd for a subordinate creditor to dispose first. d. Disposal of Collateral: Effect of Disposition
63(9): Disposition of collateral, done in accordance with s.63, discharges the security interest of the party making the disposition. If the disposition is made to a buyer who buys in good faith for value, it discharges any subordinate security interest and terminates the debtor’s interest in the collateral.
63(10): Disposition of collateral, not done in accordance with s.63, the disposition has the same effect as in 63(9) if: a) it is a public sale and there is no knowledge of the title defect and no collusion; or b) other than public sale the buyer acts in good faith.
Note: There is a lower standard for public sale, because it is presumed a fairer method.
Overall, 63(10) sets a higher standard than 63(9).
10.5 Rights and Remedies: Collecting Accounts, Chattel Paper, Instruments

With these intangible goods, it is easier to go to the holder of the payor and have them pay the secured creditor instead of the debtor.
61: Where agreed and on default of a security agreement, the secured party can tell people obligated to pay on an account or chattel paper or other obligation to make payment to the secured party, whether or not the collector was making collections; and b) to take control of the proceeds which the secured party may be entitled to.
Note: Not necessarily triggered by default, can be when credit rating hits a low point.
10.6 Rights and Remedies: Surplus or Deficiency a. Surplus or Deficiency: Basic Principles
64(1): The secured party must account for a surplus when disposing collateral. There is a hierarchy of who gets paid: persons with subordinate security interest, any other person with an interest who notifies by writing, the debtor. All subject to s.64(4) to pay the court for imposed judgment on creditor.
64(3): Unless otherwise agreed, a debtor is liable for any deficiency.

44
67(2): A person who fails to discharge duties under Part V, s.17, s.34(3) or s.35(4) may be liable in damages, which are reasonably foreseeable, to the person to whom the obligation was owed. Where the collateral is consumer goods, the debtor has a right to recover at least $500 or the actual loss or damage in any event.
Note: When not consumer goods, this applies to any person, not just the debtor. b. Surplus or Deficiency: Guarantors

Guarantors should be very interested in the disposal process. Their obligation can be much higher if improperly disposed.
Bank of Montreal v. Charest, 2001, Ont SC
The defendant is the person behind the one-man corporation Dynamic. He gives personal guarantees for loans to Dynamic (a chattel mortgage and a general security agreement).
Dynamic becomes bankrupt. Bank tries to comply with Part V. They should give notice to the debtor and the guarantor, but they only give notice to “Dynamic c/o Mr. Charest”.
Defendant claims lack of notice.
Held: According to Segreto , one must comply with statute to assert statutory rights. The statutory right is gone for the bank; they must rely on the contract. The previous case law from Featherstone , which said they could not rely on contract either, was wrong. The contract needs to expressly give the right to sue for deficiency. Here, for the chattel mortgage it says for all obligations, which would include deficiencies. For the general security agreement there is no deficiency clause, but it can be justly construed. According to Ziegel, it is important not to lose sight of the primary obligation, which is the debt.
Cases where a specific provision was needed were not general security agreements. Here there is nothing specific tied to the loan.
Note: On policy grounds the two rights should not be distinct.
Note: It is probably a good idea to separate 67(2). Rights should not be lost for technical reasons.
Note: Both the statutory and contractual damages will probably be the same anyway. c. Surplus or Deficiency: Lessors

Normally failure to make a payment should not accelerate payment in a lease.
However, that would be unfair to a creditor in a financing lease (the debtor can miss the last payment and just give back the used collateral).

In Ontario and outside, financing leases will be subject to Part V.

In Ontario, true leases are not subject to the PPSA or Part V; Outside Ontario, true leases for more than a year are subject to the PPSA, but not Part V.
Keneric Tractor Sales Ltd v. Langille, 1988, SCC
Held: Liquidated damages are recognized on default of a lease of real property in
Highway Properties . Liquidated damages should also be applicable in the case of leasing personal property. There is liability as in any other contractual obligation, subject to all the rules of contract, such as mitigation.
Note: In Canada the lease is enforced like any other contract. In England, the liquidated damage is applied on anticipatory breach, regardless of language.

45
10.7 Rights and Remedies: Voluntary Foreclosure

Foreclosure allows the secured party to take and keep the collateral, rather than dispose.
65(1): If the collateral is a consumer good and the debtor has paid at least 60%, after default, the secured party must dispose of the collateral within 90 days of possession.
65(2): In cases other than 65(1), the secured party may propose to keep the collateral in satisfaction of the debtor’s obligation, with notice to people interested.
65(3): If a person notified in 65(2) objects to the secured party keeping the collateral, they may force disposal by giving notice of the objection within 30 days of receiving notice.
Note: Usually the debtor or subordinate creditor will object.
Angelkovski v. Trans-Canada Foods Ltd, 1986, Man QB
Debtor accuses the secured creditor of using collateral after having taken possession of it, without any notice given or deemed disclosure.
Held: According to the facts, it was not clear that the secured creditor opted for foreclosure. It may be clear in other circumstances. It all depends on the facts.
Note: Finding foreclosure over possession is very ambiguous. How long did the secured party have the collateral? Where is it? What is it? What are they doing with it?
10.8 Rights and Remedies: Redemption and Reinstatement
66(1): The collateral may be redeemed by providing notice and paying the obligation owing to the secured party. The order of redemption right follows the priority order.
66(2): When the collateral is a consumer good, the debtor may reinstate the security agreement by paying the arrears the security party is owed, plus the cost of reasonable expenses the secured party incurred.
66(3): The debtor can only exercise the right of reinstatement in 66(2) once during the life of the security agreement.
10.9 Rights and Remedies: Receivers

Receivers are appointed to take possession. They may be: o Private: by right in the security agreement. o Court: a party, not necessarily part of the security agreement, asks a court.
60(1): Nothing in the PPSA affects appoint of a receiver, either private or court appointed.
Standard Trust Co v. Turner Crossing Inc, 1993, Sask QB
Held: The security agreement must allow appointment of a private receiver, before a party is allowed to appoint one. The right to appoint is not implied or deemed if not in the agreement. Otherwise, the appointing party will be liable for damages.

46
Ostrander v. Niagara Helicopters Ltd,
Held: There is a distinction between private and court appointed receivers. The private receiver stands in the shoes of the appointer. They are not a fiduciary, but must comply with all laws and contractual agreements, but nothing more. The court appointed receiver is an officer of the court. They are responsible to all creditors; regardless of how asked the court for their appointment. Often in an agreement the receiver is an agent for the debtor. This is done to keep the debtor liable for the actions of the receiver and keep insurance valid. In that case, the creditor will still be liable for violations of s.17 (care of collateral in possession).
1.
Parties are different jurisdictions.
2.
Parties and collateral are in different jurisdictions.
3.
Collateral or parties may change locations during the life of the transaction.
 All PPSA’s have the same general rules on jurisdiction based on the old UCC
Article 9 rules (the new Article 9 has revamped this area).

Apparent bifurcation problem, if two jurisdictions have conflict of laws rules that do not come to the conclusion (rare).
11.1 Conflict of Laws: Goods
5(1): For purposes of validity and perfection and effect of perfection in a security interest in: a) goods; or b) a possessory interest in documentary intangibles, the jurisdiction at the time of attachment governs.
“lex situs” rule
: Apply the law of the jurisdiction where the thing is.
Re Claude A Bedard, 1983, Ont SC
The bank finances a conditional sales contract for a car in Quebec. The next day the debtor moves the car to Ontario without the bank’s knowledge. The debtor becomes bankrupt in Ontario. In Quebec no action is needed to perfect. Does that perfection always apply?
Held: It deemed to be perfected when brought into Ontario, because it was perfected in
Ontario. However, the perfection will only continue up to 15 days, since there was notice given. The dealer knew the debtor lived in Ontario and that would be considered notice.
Since it was not registered in Ontario within the 15 days, it is no longer perfected.
11.2 Conflict of Laws: Relocation of Goods to Ontario
5(2): Goods perfected in another jurisdiction at time of attachment, continue to be perfected in Ontario if they are registered before being brought over, or perfected in
Ontario the earliest of: a) 60 days after being brought over; or b) 15 days after the secured party receives notice they were brought over; or c) before the date of perfection ceases in the other jurisdiction,
5(3): A party can still perfect after the time limits in 5(2).
Note: They may perfect, they will not have the continued perfection.

47
5(4): A security interest can be perfected in Ontario for the first time.
Re Adair; Re GMAC, 1985, Ont CA
Debtor purchases car in Florida, moves it to Ontario a year later, and goes bankrupt a month after that. GMAC learns of the bankruptcy from an Ontario court notice. They perfect after that.
Held: GMAC filed the registration after the allowed time, so they are unsecured. They were not perfected during the time in Ontario either.
Note: This is an old case, before 5(2). It is no clear that a party is secured during the
60/15 day time limit.
11.3 Conflict of Laws: Revendication
5(5): A right to take back unique to Quebec.
Note: There is no case law on this section.
11.4 Conflict of Laws: Destination of Goods Rule
6:
11.5 Conflict of Laws: Intangibles and Mobile Goods

For non-possessory and mobile goods, location is not as important.
7(1): The validity, perfection and effect of perfection in: a) a security interest in i) an intangible or ii) goods that are of the type that are normally used in more than one jurisdiction , if they are equipment or inventory leased or held for lease by the debtor (mobile goods); and b) non-possessory security interests in security, instrument, negotiable document of title, money and chattel paper, are governed by the law where the debtor is located at the time of attachment.
Note: Under 7(a)(ii) it is equipment; or inventory leased or held for lease. Equipment cannot be leased; otherwise it would be inventory. Inventory held for sale, loses its security interest after the sale (apply s.5 there).
7(4): Debtor is deemed to be located at their place of business, or chief executive office, or otherwise principal residence.
Note: The chief executive office is not necessarily the place of incorporation.
Gimli Auto Ltd v. BDO Dunwoody Ltd
GMAC Commercial Credit Co v. TCT Logistics Inc, 2004, Ont CA
A lease agreement for trailers is made in Ontario. The debtor is in Alberta. The agreement was a true lease, so the PPSA in Ontario does not apply. However, it was a lease for more than one year, so the PPSA in Alberta does apply.
Held: In the interest of uniformity, certainty and clarity all the PPSA’s in Canada have similar conflict of laws provisions. Both in Alberta and Ontario, for these types of goods,

48 the jurisdiction where the debtor is located at the time of attachment is the jurisdiction that governs. Despite the agreement not forming a financing lease in Ontario PPSA, the
Ontario PPSA conflict of law rules should apply. Since Alberta is the debtor’s place of business, they point to Alberta as the jurisdiction that should govern.
11.6 Conflict of Laws: Enforcement
8
Cardel Leasing Ltd v. Maxmenko
12.1 Federal Interests: Bank Act a. Bank Act: Overview
Bank Act, 427 :
(1) A bank may lend money and make advances

A separate regime from the PPSA established before the PPSA existed. No longer really necessary, but there is no motivation to get rid of it.

The bank files a notice of intention registered with the Bank of Canada. The bank registers first, and takes security later (3 year window, renewable).

Bank of Canada has agency offices across Canada. Registry must be with the agent in the appropriate provinces (where notice of intention, business located).
Provinces do not share data.

Only specific debtors and specific collateral. Based on past policies of who should be lent money. Most common subsections: a) Inventory like security dealing with agricultural, aquaculture, forestry and related packaging (specific to avoid banks dominating the industry). b) Manufacturers and manufactured goods.

Bank has the same power as if they had a bill of lading or warehouse receipt
(essentially they have title). The security is generally title based.

Similarities to the PPSA: notice filing; centralized registry (at least partially); fixed security in AAP; covers future advances; some fixture provisions; commingled goods; express priority rules.

Differences from the PPSA: limited scope; anti-fraud provisions; obscure, unclear if it includes established title law; incomplete priority system; incomplete enforcement.
Royal Bank of Canada v. Sparrow Electric Co, 1997, SCC
Held: The rights and powers of the bank are established by the Bank Act . They are the same as if the bank had a bill of lading or warehouse receipt. The effect is to vest legal title in the good with the bank. The vesting attaches when the borrower acquires the property and is kept until the bank releases it.

49 b. Bank Act: Relationship with PPSA

The Bank Act and PPSA do not work well together. This is the conceptual framework the PPSA meant to abolish.

Banks may choose to follow the Bank Act and the PPSA . o One security agreement: Bank tries to take security under the Bank Act and the PPSA within one document. One security agreement, double registration. o Two security agreements. Like above, but there is a separate security agreement for the Bank Act and the PPSA .

One option: Presumably the PPSA cannot override the Bank Act under the constitutional division of powers (federal paramountcy). Therefore the PPSA could not be intended to cover the Bank Act regime.

Second option: There are no conflicts, but the bank must decide which it wants to enforce. If security is taken under the BA , then they have title and there is nothing left to secure under the PPSA . Facts like, which document was signed first become artificially determinative.

Solutions: o Carve out BA security from the PPSA (as in Alberta). o Modernize the BA to incorporate PPSA concepts. o Keep BA , but express PPSA paramountcy. Banks want to keep it around, just in case the PPSA gets repealed.
Bank of Nova Scotia v. International Harvester Credit Co, 1990, Ont CA
The defendant takes security, but registers incorrectly and is unperfected. The bank takes security later under the BA and the PPSA. They eventually register correctly and are perfected. On default, the defendant seizes and sells the collateral as per the conditional sales contract. Does the BA agreement create a security interest under the PPSA? What is the nature of that interest? If the PPSA applies, is the BA afforded more rights?
Held: The BA security agreement creates an interest in personal property for fulfilment of an obligation. It is a security interest as defined in the PPSA (s.2). The nature of the security interest is title or ownership, if the debtor can grant it. The BA security can only attach to the rights the debtor has. Since the BA agreement came after the conditional sales contract, the debtor never had title (never completed payments). The BA security interest never attached. Assuming unlike here the BA applied, the BA security would be title based. The PPSA cannot be used to put the bank in a better position it would have been. If it was just PPSA, the bank would win.
(Houlden) Agrees with the majority, but the courts are making up theories. The legislature should straighten out the interplay of the BA and PPSA.
Note: If the bank double documented, they would have won.
Note: The PPSA tries to avoid discussing the nature of the interest.
Royal Bank of Canada v. Moosomin Credit Union, 2003, Sask CA
The debtor signs multiple BA security agreements. The latest one is for all machinery and equipment. The debtor at the same time is leasing a truck (although no title according to

50
IHC ). However, he wants to buy the truck and acquires financing from the defendant
(lendor’s PMSI). Debtor becomes bankrupt.
Held: The PPSA alone is not enough. The BA security is title based. Although, originally the debtor did not have title to give the bank, as soon as he paid off the truck loan he acquired title, which instantly transferred over to the bank according to their BA security agreement. Therefore, the bank wins.
Note: If the debtor never acquired title, Moosomin would win. For example, if Moosomin was assigned the lease or bought the truck outright then established a conditional sales contract with the debtor. The nature of the transaction is crucial, which is what the PPSA mean to avoid. Creditor’s are now wise to investigate title based security, again undermining the PPSA.
12.2 Intellectual Property Security Interest

IP Acts do govern assignment of IP rights, but not really the security related aspects (unlike the Bank Act or Shipping Act ).

There may be absolute assignments or partial assignments (get right bank).

According to Dearle v. Hall , the first assignee to notify the account debtor has priority.

According to the Patent Act (s.51), the first to register assignment of a patent has priority.

The prudent party will register under both the IP Act and the PPSA.

The two acts can produce different outcomes. The relative weight of the Acts will determine the priority.

Approach 1: Just look to the IP registry. Ignore the PPSA registry.

Approach 2: PPSA registry deals with security, so no need for the IP registry. IP registry can only register actual assignments, but with security assignments, there the transfer only occurs on default.

Best approach: o Make sure the security agreement describes the interest as an assignment
(to allow IP registry). o Register under both the PPSA and the IP registry.

Assignment of all and future copyrights are not possible. Each copyright must be registered individually in the CA registry. Registering and monitoring each under the IP and PPSA registries is a huge hassle.

It seems likely the PPSA and IP Acts act concurrently. PPSA applies to matters not completely otherwise covered. o Absolute assignment is completely covered and the PPSA would violate the constitutional separation of powers. o Security assignments are not covered.

Duggan: A new patent assignment regime is needed. The current one is the worst possible for costs and consistency.
12.3 Interest in Ships

Canada Shipping Act applies to boats subject to certain type and minimum size.

Some ships are possible to register, but it is not mandatory.

Only registered ships can apply for mortgages.

51

Registration is centralized and common across Canada.

Priority is according to time of filing.

According to case law a ships mortgage does not create security under the PPSA
(unlike the Bank Act ).

It is possible that a ships mortgage can be completely under the PPSA, but it has not been tested constitutionally (feds seems to have occupied the field).

Unregistered ships can be dealt with under the PPSA.

Assets on the ship can be very valuable (ie electronics). To secure them: o Mortgage the entire ship (even though you’re only interested in the assets). o Contract between the ship owner and the mortgagor (and possible subsequent mortgagors).
12.4 International Developments
 Many other jurisdictions are thinking of introducing PPSA’s.

There is an English Law Commission report supporting the idea. International treaties on security already exist, such as for aircraft financing (Canada not a member).

The civil law is generally adverse to the idea. They do not like: o Non-possessory security.
o Government run registries.

Assets are worth less when there is no established and certain PPSA system that creditors know how to use to enforce their rights. Especially non-traditional assets like accounts receivables.

According to DeSoto, capitalism is only effective if credit is accessible and the
PPSA systems help achieve this.