History of Business Finance.............................................................................................. 5
Business Borrowing................................................................................................................... 5
How Did Borrowers Give Security? ........................................................................................ 5
16th C England – The Pledge................................................................................................................. 5
19th C – Conditional Sales Agreement (CSA) ....................................................................................... 5
19th C – Chattel Mortgage ..................................................................................................................... 5
Registration Requirement ..................................................................................................................... 5
Chattel Lease......................................................................................................................................... 6
Disguised security agreements .............................................................................................................. 6
Legislation ............................................................................................................................................ 6
Personal Property Security Act [PPSA] ............................................................................ 6
Background................................................................................................................................ 6
What is Captured? .................................................................................................................... 7
Jurisdiction (Conflict with other Laws) ................................................................................................ 7
Determining the Appropriate Jurisdiction ........................................................................................ 8
Juckes (Trustee of) v. Holiday Chevrolet Oldsmobile (1983) Ltd. [1990, SKQB] ...............10
Re Searcy [1991, BCSC] .......................................................................................................11
Northwest Equipment v. Dewoo ............................................................................................12
Advanced Diamond Drilling ..................................................................................................13
Process for Assessing Jurisdiction Issues: .......................................................................................14
Scope of the Act: What Is and Is Not Covered? ..................................................................................14
Test for Determining PPSA Coverage: ...........................................................................................14
Interpretation and Application of the Act – PPSA Part 1 ................................................................14
Key Terms & Definitions ...........................................................................................................14
Application of PPSA ..................................................................................................................16
Re Toyerama [1980, ONSC] .................................................................................................18
Leases .........................................................................................................................................19
DaimlerChrysler Service Canada Inc. v. Cameron [2007, BCCA] ........................................19
Newcourt Financial Ltd. (cob Financialinx) v. Frizzell [2000, BCSC] .................................21
Trusts ..........................................................................................................................................22
Commercial Consignment ..........................................................................................................22
Furmanek v. Community Futures Development Corp of Howe Sound [2000, BCSC] .........22
Future Advances (Tacking) .............................................................................................................23
Canamsucco Road House Food Co. v. Lngas Ltd. [1991, ON. Ct. J.] ...................................24
Acceleration Clauses .......................................................................................................................25
Validity of Security Agreements and Rights of Parties – Part 2 ..........................................................25
Riepe v. Stingray Holdings Ltd. [2002, BCSC] .....................................................................27
674921 BC Ltd. v. New Solutions Financial Corp. [2006, BCCA] .......................................27
Collateral ..............................................................................................................................................28
Re CIBC & Marathon Realty Co. [1987, SKCA] ..................................................................29
Tracing ............................................................................................................................................29
The Lowest Intermediate Balance Rule:.....................................................................................29
Universal CIT Credit Corporation v. Farmers Bank of Portageville [1973, US District Court]
...............................................................................................................................................30
Tracing by Subrogation ..............................................................................................................31
Agricultural Credit Corp. of Saskatchewan v. Pettyjohn [1991, SKCA] ...............................31
Re River Industries Ltd. [1992, BCSC] .................................................................................31
Perfecting a Security Interest ................................................................................................. 32
Attachment ...........................................................................................................................................32
Debtor Must have Rights in the Collateral ......................................................................................33
Kinetics Technology International Corporation v. The Fourth National Bank of Tulsa [1983,
1
US CA] [KTI] ........................................................................................................................33
Problems with KTI: ...............................................................................................................34
Haibeck v. No. 40 Taurus Ventures Ltd. [1991, BCSC] .......................................................34
PMSI: The Superpriority ......................................................................................................................35
Agricultural Credit Corp Sask v Pettyjohn [1991 SKCA] .....................................................37
Unisource Canada Inc v Laurentian Bank [2000 ON] ...........................................................37
Chrysler Credit Canada v RBC [1986 SKCA] ......................................................................38
Registration of a Financing Statement .................................................................................................39
Questions to Ask when Registering Your Interest in Collateral: ....................................................41
Regal Feeds Ltd. v. Walder and Niverville Credit Union Ltd. [1985, MBQB] .....................41
Re Munro [1992, BCSC] .......................................................................................................42
Coates v. GM Acceptance Corporation of Canada [1999, BCSC] ........................................42
Re Alda Wholesale Ltd. [2001, BCSC] .................................................................................42
Perfection by Possession ......................................................................................................................43
Farm Right Equipment v. Royal Bank of Canada .................................................................43
Royal Trust Corp. of Canada v. Number 7 Honda Sales Ltd. [1988, ON Div. Ct] ................44
Temporary Perfection ..........................................................................................................................44
Priority and Attachment......................................................................................................... 44
“Review” of Priority Rules ..................................................................................................................44
Four Key Principles .........................................................................................................................45
Categories........................................................................................................................................45
A. General Provisions (Apply Broadly) .....................................................................................45
B. Cut-Off Rules (Basically used to Protect 3rd Parties) .............................................................46
C. Rules for Negotiable and Quasi-Negotiable Property ............................................................46
D. Misc. Specialized Priority Rules (Rules Dealing With Specific Situations)..........................47
Cut-Off Rules .......................................................................................................................................47
Priority Rules .......................................................................................................................................47
Robert Simpson Co v Shadlock [1981, ON HCJ]..................................................................47
Priority Disputes between two Unperfected SIs ..............................................................................48
Residual Priority Rules: s. 35 ..........................................................................................................48
Example of (6) application: ........................................................................................................49
Application of s. 35(8) ................................................................................................................50
Circular Priority Problems ..............................................................................................................50
KMS Securities v. Richwood Kitchens .................................................................................51
Subordination Agreements ..............................................................................................................52
RBC v Gabriel of Canada [1992 ON] ....................................................................................52
Transamerica Commercial v Imperial [1994 ABQB] ............................................................52
Marshalling .....................................................................................................................................52
Two-Debtor Problem ......................................................................................................................52
SA Where More than one Advance .................................................................................................53
PMSI Priorities ....................................................................................................................................54
McLeod & Co. v. Price Waterhouse Ltd. [1992, SKQB] ......................................................55
Competition with TiB or Liquidator ....................................................................................................55
Re Giffen [1998, SCC] ..........................................................................................................55
Competition with Transferees of Collateral & Buyers/Lessees of Goods ............................................56
Transferees where SI is unperfected ...............................................................................................56
Royal Bank of Canada v. Dawson Motors (Guelph) Ltd. [1981, ON County Court] ............56
The Queen v. Royal Bank of Canada [1997, SCC] [“Sparrow Electric Corp”].....................57
S. 30  Business Buyer Cutoff Rule ..............................................................................................57
Royal Bank of Canada v. Wheaton Pontiac Buick Cadillac GMC Ltd. [1990, SKQB] ........58
Fairline Boats Ltd. v. Leger et al [1980, ONSC] ...................................................................59
RBC v. 216200 Alberta Ltd. [1986, SKCA] ..........................................................................59
Spittlehouse v. Northshore Marine Inc. (Receiver of) [1994, ONCA] ..................................59
Note: in BC we have legislative protection ................................................................................60
Section 51 – Transfer of Debtor’s Interest or Change of Debtors ...................................................60
2
Re Orion Truck Centre Ltd. [2003, BCSC] ..........................................................................61
Accounts and Chattel Paper .................................................................................................................61
Negotiable Collateral ......................................................................................................................61
Indian Head Credit Union v. Andrew; Royal Bank of Canada, Garnishee [1992, SKCA] ....62
Chattel Paper ...................................................................................................................................63
Canadian Western Bank v. Gescan Ltd. [1991, ABQB] ........................................................64
Assignment......................................................................................................................................64
S. 41 – Assignments of Intangibles or Chattel Paper .................................................................64
Returned or Repossessed Goods  SI returns after Cut-off ................................................................65
Security Interests in Some Specific Types of Collateral ......................................................................66
Fixtures............................................................................................................................................66
Manning v. Furnace Man [Manitoba] ....................................................................................68
Crops ...............................................................................................................................................69
Accessions .......................................................................................................................................69
Pratt & Whitney Canada Leasing Inc. v. Ellis Air Inc. [2002, BCSC] ..................................69
Commingled Goods ........................................................................................................................71
Special Rights of Particular Parties ......................................................................................................71
Repairer’s Lien ................................................................................................................................71
Distrain ............................................................................................................................................71
On the Event of Default – Part 5............................................................................................ 71
Roadmap of Part 5 ...............................................................................................................................71
Realization ...........................................................................................................................................72
Waldron v. Royal Bank of Canada [1991, BCCA] ................................................................73
So How Much Time is “Reasonable”? ..................................................................................73
Receivers & Receiver-Managers..........................................................................................................74
RBC v. White Cross Properties [1984, SKQB] .....................................................................75
Summary .........................................................................................................................................75
Collection of Payments for Accounts or Chattel Paper ........................................................................75
Process of Seizure of Collateral ...........................................................................................................76
Disposition of Collateral ......................................................................................................................76
The “Commercially Reasonable” Requirement ..............................................................................76
Copp v. Medi-Dent Service [1991, ON Gen. Div.] ...............................................................76
Donnelly v. International Harvester Credit Corporation of Canada [1983, ON County Ct.] .77
Foreclosure ......................................................................................................................................78
Angelkovski v. Trans-Canada Foods Ltd. [1986, MBQB] ....................................................78
Inland Kenworth Ltd. v. Laboucane [2004, BCSC] ..............................................................79
Special Treatment of Consumer Goods under PPSA ...........................................................................80
s.67 – Rights and Remedies: consumer goods ................................................................................80
Whitewater of Motors v Amatto ............................................................................................81
Supervisory Role of the Court .........................................................................................................81
Andrews and Trochie v. Mack Financial ...............................................................................81
s. 69: ................................................................................................................................................82
Surviving Common Law Remedies ................................................................................................82
Bank Act Securities .......................................................................................................... 83
Background.............................................................................................................................. 83
Basic Priority Scheme ............................................................................................................. 84
Outline of Relevant Bank Act Sections ................................................................................. 85
BMO v. Hall ..........................................................................................................................86
Timing Issues ........................................................................................................................... 87
Elgin ......................................................................................................................................87
A Case ...................................................................................................................................88
RBC v. BMO [1976, SKCA] [Dietz] .....................................................................................88
3
Proceeds Rights ....................................................................................................................... 88
Re DeVries et al and Royal Bank of Canad [1975 OntHC] ..................................................89
Priority Claims under the Bank Act...................................................................................... 89
CIBC v. 281787 Alberta Ltd. (Crockets) [1984, ABCA] ......................................................89
Re Davanti Contemporary Interiors Ltd. [1992, ABQB].......................................................90
Note: You CAN Perfect as a Result of Forced Seizure Under Bank Act .............................................90
Realization ............................................................................................................................... 90
Lasquetie................................................................................................................................91
Bank Act & PPSA Interaction ............................................................................................... 91
Kawai Canada Music Ltd. v. Encore Music Ltd. [1993, ABCA] .........................................91
Royal Bank of Canada v Agricultural Credit Corp of Sask [1994 SKCA] ............................92
Bank of Montreal v Innovation Canada [2010, SCC] ............................................................92
Negotiable Instruments and Bills of Exchange .............................................................. 93
Basics ........................................................................................................................................ 93
Definitions ...........................................................................................................................................93
Why Do We Have These? ....................................................................................................................96
Forgery ..................................................................................................................................... 96
Basics ...................................................................................................................................................96
Non-Existent and Fictitious Payees .....................................................................................................97
Rules re Fictitious vs. Non-Existing Payees: ..................................................................................98
Consumer Notes ...................................................................................................................... 98
Part V ...................................................................................................................................................99
4
History of Business Finance
Business Borrowing
 Why?
o To invest in things that the business doesn’t have the capital to do
o Spreading the risk of failure (creditor takes some of the loss
o Leverage  can use it to get a higher rate of return than would be available on
the business’ own capital
 Foundation of any security interest agreement: if A doesn’t pay, B takes the interest
and sells it to cover the loan. If A pays, keeps property.
 Lenders tailor their interest rates to the risk (among other factors). Security interests
reduce the risk, and therefore allow for lower interest rates.
How Did Borrowers Give Security?
16th C England – The Pledge
 Give an item to the lender as a pledge that you will repay a loan
 Still exists today – pawn shops
 Rules:
o If you pay back the money you borrowed, you get the item back. If you don’t
pay the money borrowed, the lender gets to keep the item.
19th C – Conditional Sales Agreement (CSA)
 Borrower needs to hold the item for some reason, can’t relinquish physical possession
 E.g. Borrower wants to buy item, agrees w/ vendor to pay over time. B gets
possession, and gets to keep as long as payments are being made. If everything is paid,
title will be transferred from V to B.
 Vendor in this scenario is an unpaid vendor. An unpaid vendor is a money lender.
o Take the risk, being paid back gradually – same position as a traditional
money lender.
19th C – Chattel Mortgage
 If vendor doesn’t want to be a money lender (i.e. wants all the money paid up front),
buyer can go to bank/third party lender and get a loan to purchase the item.
 V is paid up front; buyer takes possession
 Buyer transfers title of the item to the bank/lender.
 If pays everything, bank will transfer title to buyer. If not paid, bank will sell item and
recoup losses from the proceeds.
Registration Requirement
 NB: Nemo dat
o If buyer doesn’t have title to the item, can’t sell it to a third party or offer it as
security to a lender.
5
 Vendor who holds actual title would prevail.
 When CSA made, must file document in central public registry. So when buyer wants
to sell loom to new purchaser or get loan from bank on strength of the security, the
new purchaser or bank can check the registry.
 Registry statutes had to be accompanied both by the lure of this safer business practice
for buyers and lenders, and by attaching penalties to unregistered agreements.
o If not registered, there were certain parties against which the party (initial
borrower/buyer) would be prohibited from enforcing their title rights against:
 1. BFPs;
 2. Other creditors;
 3. Other secured creditors (such as the bank)
 4. Judgment creditors
Chattel Lease
 Vendor (now lessor) leases property to purchaser (lessee), giving P possession while P
makes lease payments over time
 If make final payment, title transfers
 Option to purchase at the end (sometimes an obligation to purchase at the end)
 Can accomplish the same thing as a CSA, and covered by registry, though separate
statute.
Disguised security agreements
 Consignments
 Transfers of accounts receivable
  these could make someone look like they owned valuable property, w/ potential to
deceive/defraud others into giving credit/property/money when ≠ actually own item
Legislation
 Several provincial statutes dealt with these issues
 Now all in PPSAs
 Article 9 of US Uniform Commercial Code:
o Adapted into Canada. Basically every Canadian jurisdiction has an adaptedß
version of Article 9.
Personal Property Security Act [PPSA]
Background




Gathers all of these sorts of financing methods and calls them all ‘security interests’
Governs every document that it designates as a security interest.
Regulates creation and effectiveness of security interests
Brings in some transactions ≠ true security interests, but which have the same capacity
to deceive people as to true ownership (deemed security interests).
 If you don’t register, there are consequences.
o Not protected against same 4 groups from above.
6
 Under the old statutes, a problem:
o Set period for which registration was valid; when expired, ≠ registered any
longer. This had unpleasant consequences.
o Under PPR, you pick your registration period – can choose anywhere from a
year to infinity.
 Allows for rationalization of priorities
What is Captured?
Jurisdiction (Conflict with other Laws)
 General Rule: S. 73: Conflicts with legislation in general
o Subject to section 74, if there is a conflict between this Act and any other Act,
this Act prevails unless the other Act contains an express provision that it, or a
provision of it, applies despite the Personal Property Security Act.
 So, in most cases, PPSA will be the presumptive governing legislation. But...
o S. 74: Conflicts with land title or consumer protection legislation
 (1) If there is a conflict between a provision of this Act and
 (a) the Business Practices and Consumer Protection Act or a
provision for the protection of consumers in any other Act, or
 (b) the Land Title Act,
the provision of the Business Practices and Consumer Protection
Act or other Act, or the Land Title Act, prevails.
 (2) Nothing in subsection (1) affects the application of sections 36, 37
and 49 to the Land Title Act.
 So, consumer protection and LTA legislation take precedence over
PPSA.
 Note: not all provinces have made their LTA the dominant act,
but we have in BC (probably due to a guy with political clout
at the time PPSA was made)
 S. 75: References to other Acts
o (1) A reference in an Act, regulation, agreement or document to the Book
Accounts Assignment Act, R.S.B.C. 1979, c. 32, the Chattel Mortgage Act,
R.S.B.C. 1979, c. 48, the Company Act, the Manufactured Home Act or the
Sale of Goods on Condition Act, R.S.B.C. 1979, c. 373, that relates to a
security interest is deemed to be a reference to this Act or to the corresponding
provisions of this Act.
o (2) A reference in an Act, regulation, agreement or document to a chattel
mortgage, conditional sales contract, floating charge, pledge, assignment of
book accounts or other similar agreement is deemed to be a reference to the
corresponding kind of security agreement under this Act.
 PPSA Gives Pre-Eminence over Other Legislative Means for Collecting Money
o Or at least, it gives the chance to take pre-eminence, by perfecting the security
interest.
o There are certain parties (listed in s. 20) who will always win out over an
unperfected SI, but properly perfected SIs will prevail even over these parties
7
(judgment creditors, TiB, BFPs for some SIs). [Marine Buildings Holdings
Ltd. v. Proton Engineering & Construction Ltd.]1
o Perfection: SI has the strongest protection it can get.
 Doesn’t mean it will always prevail over other creditors, but it’s the
best position this creditor can be in.
 PPSA is primarily provincial.
o Property & civil rights transactions (mostly)
 Collateral is often easily moveable, meaning we get into jurisdictional questions
o How do you know which province’s registry to search?
o Where do you file a F/S?
Determining the Appropriate Jurisdiction
 Sections 5-8 (5-7 are most important)
 Section 7 is the controlling section  5 says it’s subject to 6-8; 6 says it’s subject to 7.
 7(2)  S. 7 applies to:
o SIs in intangibles
o Goods  but only particular types.
 Excludes foreign registered ship (covered by maritime law)
 Goods of a type normally used in more than 1 jurisdiction, if goods
are equipment or inventory leased or held for lease by debtor for
others.
 So, the specific goods don’t have to be used in more than one
jurisdiction, it’s just that it’s a type of goods normally used in
more than one jurisdiction
 So, e.g., motor vehicles; aircraft; earth-moving equipment;
cranes.
 But note: goods must be equipment, or inventory leased or held
for lease by debtor to others
 Non-possessory SI in an instrument, negotiable doc of title, money or
chattel paper (things where you don’t take possession)
 Rule to determine perfection: look at debtor location.
o 7(1) defines where a debtor is located.
o (3) if debtor relocates or transfers collateral to someone in another
jurisdiction, then:
 SI remains perfected in BC if it’s perfected in the new jurisdiction in
accordance w/ this timeline:
 Take the date of relocation, then 60 days from that.
Marine Buildings Holdings Ltd. v. Proton Engineering & Construction Ltd.[1993, BCSC]: ∆ company
had borrowed $ from the bank, and executed SA in favour of the bank. Conveyed SI in various items of ∆’s
property, including accounts receivable. Bank registered FS, thereby perfecting the SI in the accounts. ∆
became indebted to π, who got judgment against them and sought to enforce it. Garnishing order made,
accounts received were paid into court. So, now there’s a fight between π and the bank over who gets the
money – whose SI prevails? Held: bank wins. Registered/perfected interest under PPSA prevails – PPSA
takes pre-eminence over other schemes.
1
8


Did the original creditor, at any time w/in those 60
days, find out about the relocation or transfer?
o Say they found out at Day 10. Take 15 days
from the date of knowledge (Day 25).
 At any time in the 60 day period, did the registration in
the original jurisdiction expire?
o Suppose it expired on Day 40?
 Take the earliest of the three dates  25, 40 and 60 in
this case, so day 25 is the date by which SP needs to
register in the new jurisdiction. Otw unperfected.
Things that could vary:
 Date of knowledge  if they don’t find out until just after 60
days, the date of knowledge +15 days = 76.
 Expiration Date  some reg’ns don’t expire, so there IS no
date.
 60 days is the hard limit  can’t have more than 60 days to
reregister/reperfect.
 Process:
o First, consider which of 5, 6, 7 governs the place you need to check and the
place you need to register.
 Debtor = trucking company; truck traveling b/w Vancouver and
Kelowna  s. 7. It’s of a type that is commonly used in multiple
jurisdictions.
o Now find out the place of business, or head office if they have one  to know
where to register.
 Say Toronto.
o Where do I look to see if there are pre-existing SIs in the truck
 First: PPR in the jurisdiction of their office. So, Ontario in this
example.
o If situation changes (i.e. relocation), you have to reperfect w/in the time
frames discussed above.
 Note: you can reg a FS at any time, so you don’t have to wait for the
relocation to happen, etc.
 What if it’s not s. 7?
o S. 6: if the parties to SA agree that goods will be kept in another jurisdiction
 E.g. people buy a car in a different province than they live.
 (1) If goods are removed to the other jurisdiction w/in 30 days of SI
attaching, then perfection etc. are governed by the other jurisdiction
 (2) If the goods are removed but later brought back to BC: SI is
deemed to be an SI under s. 5(3) (so long as it was perfected in the
other jurisdiction)
o Basket section is s. 5:
 (1) We’re looking at the location of the goods  place where
collateral is located when the SI attaches.
o Example
 Client selling family car; purchaser is just an individual. Both parties
9



(and the collateral) are in Victoria
1. What section?
 ≠ s. 7.  mobile goods, but not equipment.
 ≠ s. 6, b/c not planning to move the goods.
 So, s. 5!
2. How to perfect?
 It’s all in BC, so file FS in BC. Note: generally not worth it to
file in multiple jurisdictions in a situation like this.
3. SI from another jurisdiction will remain perfected if you reperfect
w/in the timeline.
 Say the individual bought the car in AB when living there.
Creditor properly reg’d in AB PPR. Now they bring the car to
BC.
 AB creditor must reperfect FS in BC in the time frame we
discussed above in s. 7 context (same time frame/limits – 15
days after knowledge; date of expiry; 60 days hard line after
date of relocation)
 BUT: this SI is subordinate to someone who acquires SI w/o
knowledge of the SI and before it is perfected in BC
 Basically, BFP gets priority. Protection for innocent
buyers! But this only applies to s. 5 and 6 goods  s. 7
mobile equipment etc. – no protection for BFPs.
Juckes (Trustee of) v. Holiday Chevrolet Oldsmobile (1983) Ltd. [1990, SKQB]
 S 7 equivalent.
 BC and SK both had provisions treating leases for +1yr as SIs; so you have to take
same steps to protect as if true SIs.
 But in Manitoba, Holiday didn’t have to do anything to protect themselves – and they
didn’t.
 Juckes sent truck to SK & moved his business (change in debtor location), then went
bankrupt
 When debtor relocated to SK, creditor didn’t rereg, even though SK treated it as a SI.
 They were way out of time, and then the TiB came along and tried to take the truck,
b/c ≠ reperfect.
 Court noted a rule in SK PPSA  similar to our 8(2)
o So, if you consider Manitoba: Holiday didn’t have to do anything, b/c
common law applied and they were the owner of the truck.
o For all intents and purposes, we could consider the interest of Holiday to be
perfected in MB. SO, when the place of business changed to SK, to protect
itself H should have perfected under SK PPSA, or become unperfected.
o They didn’t do so, therefore TiB wins.
 COMMENTARY: case has been heavily critiqued by ppl who say court should have
applied the equivalent of our s. 7(4)
o If the law governing perfection doesn’t req’ public registration, or notice
relating to it, then SI is subordinate to
 (a) an interest in an account payable in BC, or
10

(b) an interest in goods etc. that was acquired when the collateral was
located in BC
 SK had identical provision.
o Note: MB now has a provision treating long term leases as SIs, but at the time
they didn’t req’ registration for perfection.
o Court said it didn’t apply, b/c MB had a system for reg’n of SIs  said (4)
only applies where there’s no system for reg’n of SIs at all.
 But...there’s no jurisdiction we’re likely to look at that doesn’t have
some kind of reg’n system. Argument that (4) didn’t mean no system
at all, but meant that the particular thing in question didn’t have to be
registered.
o Now, there’s actually an argument that (4) wouldn’t have made a difference
anyway:
 If SK (4) applied, the interest of Holiday would have been subordinate
to an interest in the truck acquired when collateral was in SK (unless
H’s interest was perfected, which it wasn’t.)
 But, argument that TiB didn’t ‘acquire an interest’ – arguable that that
would be a purchaser or another SP. However, there is some indication
in case law that TiB does  takes charge of property for bankrupt, SIs
are crystallized etc.
 In order to make a diff, you would have to say the TiB ≠ get an interest
[or, did??] in the goods if the sn applied. Seems iffy, unlikely this sn
would make a difference anyway.
Re Searcy [1991, BCSC]











Young man and his father co-purchase a vehicle. (co-debtors)
SI on vehicle. Originally purchased and parties originally lived in Calgary.
S. 5 goods.
So, you’d reg in AB
Problem: Junior moves to BC in Feb and then goes bankrupt (March 1st)
TiB usually makes inquiries about who might have interest in bankrupt’s property,
sends letters.
So, sends letter to GMAC, who got the proof of claim and mailed it in, then reg’d SI in
the truck in BC on April 5th .
Problem: they filed w/in 60 days, but not w/in 15 days of getting notice.
Got notice on March 8th that he was in BC and bankrupt (had his address on the
notice), and therefore must have known the vehicle had moved  but they argued
although they knew HE had moved, they didn’t know the vehicle itself had moved.
Payments were still being made, etc.
Held: they didn’t have knowledge. April 5th registration was ok.
Objective test: have notice when reasonable person in all the circs etc. would have had
notice.
o For a corp, info must come to mging director or senior em’ee w/ resp for those
matters
o So, first req’mt: Who got the info?
11
o Second req’mt: info must come under circumstances where reas person would
take cognizance of it.
 So, when would a reas person have known the car was in BC?
 Court in this case didn’t get into this detailed analysis – just said ≠
enough knowledge.
 GMAC won, TiB lost, held to have reg’d in time.
Northwest Equipment v. Dewoo
 S. 5 goods
 Excavator, bought in BC by BC company, moved to Washington State
o Dewoo (creditor) ≠ know about or consent to sale.
 Then moved (again w/o creditor’s knowledge) to AB
 Issue 1: OCB sale? In that case, Dewoo’s interest would be cut off
 Held: Court finds ≠ OCB sale
 Reasons
o 1. Sold not as inventory, but in bulk as part of a sale of ¼ of inventory.
o 2. Sold for shares and vendor normally sold for cash
o 3. Purchaser was a dealer (held equipment/inventory for lease), not usual kind
of customer that debtor normally sold to
o 4. Transaction was completed on the eve of insolvency (always suspicious),
and transaction was never advertised
o So, not cut off.
 Issue 2: Consented? No.
o Originally perfected in BC, then taken to Washington state as goods held by
Northwest (which was located in Washington)
o Dewoo failed to reregister.
o Then goes to AB, and they again ≠ rereg
o Ultimately, lost perfection in the excavator
o Court says that doesn’t matter  SI continues and was properly perfected at
time of sale. The fact that it became unperfected later doesn’t extinguish
creditor’s interest.
o NW got their interest subject to DW’s SI, and even though it later became
unperfected they can’t just ignore it now.
 NW argument: in AB, they leased the excavator to another company. When they
leased it they reg’d FS in AB PPR w/ respect to the lease.
o So, now NW has perfected, DW has unperfected, so NW says they take
priority as holders of validly perfected SI.
o But: court says your lease to 3rd pty co wasn’t a SI  not a true SI, not a lease
for more than one year. So, since no SI, FS has no effect.
 So, became unperfected, but since they were perfected at the time NW came in, they
keep their priority.
 Also: even if the lease created an SI, you wouldn’t apply s. 35(1) (as NW tried to)
o This is more problematic – probably right, but maybe not.
o Two-debtor problem: 35(1) doesn’t say “given by the same debtor”, so it can
resolve
12
o But here: at time of transaction, the operating mind of NW was the manager
of the original debtor (who sold the stuff to NW). So, obv this was a corp deal
whereby he then became a senior em’ee, and he then handled the lease in AB.
o Why did NW make the lease and file the FS? Court suggests they’re trying to
create a new SI which they can use to defeat another SI they were already
aware of  trying to use the Act to perpetrate fraud. That’s the reason the
court doesn’t let 35(1) apply.
o This is just dicta, because there was no SI anyway, but Waldron is concerned
about the 35(1) thing  if it were a SI and NW had properly reg’d FS, 25(1)
should have been applicable, but likely the only reason it wasn’t is because it
was an attempt to perpetrate a fraud on DW by the original debtor.
o Fraudulent? Probably yes. Had actual knowledge, sold out from under DW,
and now seem to be trying to use the provisions of the Act to take clear.
o It’s kind of problematic on this point, but it’s probably ok.
Advanced Diamond Drilling
 Braidwood – experienced commercial judge
o Cut through the effort to recharacterize.
 Facts
o Tractor unit and trailer. At time of purchase, everyone/thing was in Ontario,
but then moved to BC.
o Two Creditors:
 Roynat – held debenture (SI in all prop) over
 National Bank Leasing – two lease agreements over the tractor and the
trailer.
o NBL reg’d first, had properly perfected SI in ON over the tractor and trailer
o Roynat also reg’d, but second. So priority was clear at that time.
o But then, T&T brought into BC.
o Parties do re-reg, but in the opposite order. RN 1st, then NBL.
 Issue: so now the two creditors are fighting in BC – who has priority?
 Held: NBL wins.
 Reasons
o Simple answer: Clearly s. 7 goods. Validity of perfection is governed by
jurisdiction in which debtor was located – Ontario. Debtor hasn’t moved, still
there, everyone’s still properly perfected in Ontario, etc.
o Note: there are more arguments on the other side, b/c the law is slightly
different in ON, so we’ll look at these as well.
o Recap next day:
 To determine perfection, look at jurisdiction where debtor resides.
Ontario. So, determined by date of reg of FS.
o That’s the end, except some arguments counsel raised about the ON provision.
 Their reg system req’d registration where the collateral was located.
 Also, their s. 8(2) said the applicable law was the law of jurisdiction
where collateral was located, including the conflict of law rules of that
jurisdiction. So, counsel said s. 7 sends us to ON, which says you reg
where collateral is located, which sends you back to BC law, and
13


therefore the applicable registration is in BC.
Court says no: you don’t have to look at conflict of law rules in ON 
at the time the SIs attached, they were properly created and attached in
ON. It’s still the debtor’s jurisdiction (place of business), and you
don’t flip back to BC.
Basically, at the time SIs attached, only relevant law was law of ON,
and everything was done properly there and still applies.
 Otw could have just kept flipping back and forth b/w ON and
BC law forever
Process for Assessing Jurisdiction Issues:
 1. Figure out which section applies
o Start w/ s. 7 because it’s the governing section
 Is the item covered by s. 7?
 Intangibles, mobile equipment, or mobile inventory leased or
held by lease by debtor for others
 Consumer goods will never fall w/in
o If ≠ s. 7, fall back to s. 6
o Then residual s. 5
 2. Jurisdiction – where do you search and/or register if your client is going to take an
interest in these types of items?
 3. What do you do if it changes (and how will you know if it does change)?
Scope of the Act: What Is and Is Not Covered?
Test for Determining PPSA Coverage:
 1. Is transaction named in s. 4?
o If yes, no PPSA.
o If no, continue.
 2. Does the transaction secure payment or performance of an obligation?
o Look to Skybridge factors.
o If yes, nothing else matters, all PPSA applies.
o If no, next question:
 3. Is the transaction:
 (1) Transfer of an account or chattel paper?
 (2) Lease for a term of more than one year?
 (3) Commercial consignment?
 If yes, then PPSA Parts 1-4 apply, but not Part 5.
 If no, then no PPSA.
Interpretation and Application of the Act – PPSA Part 1
Key Terms & Definitions
 Collateral: the things that are subject to a security interest
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




o Includes tangibles (physical property) and intangibles (e.g. accounts)
“Debtor” means
o (a) a person who owes payment or performance of an obligation secured,
whether or not that person owns or has rights in the collateral,
 In most cases, an ‘obligation secured’ is a loan, but it doesn’t have to
be. Can be an obligation to perform an act (e.g. mowing my lawn)
o (b) a person who receives goods from another person under a commercial
consignment,
o (c) a lessee under a lease for a term of more than one year,
o (d) a transferor of an account or chattel paper,
o (e) in sections 17, 24, 26, 58, 59 (14), 61 (8) and 69, a transferee of or
successor to the interest of a person referred to in paragraph (a), or
o (f) if the person referred to in paragraph (a) and the owner of the collateral are
not the same person,
 (i) if the term debtor is used in a provision dealing with the collateral,
an owner of the collateral,
 (ii) if the term debtor is used in a provision dealing with the obligation,
the obligor, and
 (iii) if the context permits, both the owner and the obligor;
Creditor = party to whom debt is owed
“Secured Party” means
o (a) a person who has a security interest,
o (b) a person who holds a security interest for the benefit of another person,
and
o (c) the trustee, if a security interest is embodied in a trust indenture;
“Security Agreement” means an agreement that creates or provides for a security
interest and, if the context permits, includes
o (a) an agreement that provides for a prior security interest, and
o (b) writing that evidences a security agreement;
“Security Interest” means
o (a) an interest in goods*, chattel paper*, investment property, a document of
title, an instrument*, money* or an intangible* that secures payment or
performance of an obligation, but does not include the interest of a seller
who has shipped goods to a buyer under a negotiable bill of lading or its
equivalent to the order of the seller or to the order of an agent of the seller,
unless the parties have otherwise evidenced an intention to create or provide
for a security interest in the goods, and
 *goods: physical property
 *chattel paper will be explained later – a new species of property
designated under PPSA
 *instruments: things like cheques; pieces of paper that mean
something
 *money means actual cash.
 *intangible: e.g. accounts receivable (most important category of
intangible)
o (b) the interest of
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


(i) a transferee arising from the transfer of an account or a transfer
of chattel paper,
(ii) a person who delivers goods to another person under a
commercial consignment, and
 consignment: item owned by you given to someone else to sell
it for you – they get a fixed percentage as commission, and if
not sold you can usually retrieve it or do as you see fit.
 Can use consignment as a security interest. These are covered
by the definition of security interest – an interest in something
that secures payment of obligation...
 But, when you send item to someone on consignment, they
look like the owner. Hence why PPSA applies – to protect
people.
 See definition of “commercial consignment”
 b/w two parties who deal in goods of that description in
the ordinary course of their business
 Restricted to real commercial situations, not including
second-hand clothing store situations.
 Because consignor, to protect their interest, will be
required to register or potentially lose their interest to
other parties.
(iii) a lessor under a lease for a term of more than one year, whether
or not the interest secures payment or performance of an obligation;
 Note: ‘lease for a term of more than one year’ is defined in s. 1:
 includes:
o indefinite term leases, and leases initially for 1
year or less that are automatically renewable or
can exceed 1 year
 does not include:
o leases where lessor is not regularly engaged in
the business of leasing goods;
o a lease of household furnishings or appliances
as part of a lease of land if the goods are
incidental to the use and enjoyment of the land
 these are governed by real property law,
& PPSA excludes them
o a lease of a prescribed kind of goods regardless
of the length of the term of the lease
Application of PPSA
 Three categories that are not covered [see s. 4]:
o Things that aren’t consensual
o Things the province doesn’t have jurisdiction over
o Things in industries that are already highly regulated
 s. 2: Scope of Act: security interests
o (1) Subject to section 4, this Act applies
16

(a) to every transaction that in substance creates a SI, without regard to
its form and without regard to the person who has title to the collateral,
and
 (b) without limiting paragraph (a), to a chattel mortgage, a conditional
sale, a floating charge, a pledge, a trust indenture, a trust receipt, an
assignment, a consignment, a lease, a trust, and a transfer of chattel
paper if they secure payment or performance of an obligation.
o (2) Despite section 4 (g), this Act applies to a SI in a security or instrument,
but does not apply to
 (a) a security or instrument that is a mortgage or charge on land if the
land mortgaged or charged is described in the security or instrument or
in documents held by the issuer of an uncertificated security, or
 (b) a security or an instrument that is a mortgage or charge registered
under the Land Title Act or with respect to which an application for
registration has been made under the Land Title Act.
 S. 3: Scope of Act: security interests that do not secure payment or performance
Subject to sections 4 and 55, this Act applies to
o (a) a transfer of an account or chattel paper,
o (b) a commercial consignment, and
o (c) a lease for a term of more than one year,
that do not secure payment or performance of an obligation.
 s. 55: application and interpretation of Part 5 – Rights & Remedies on Default
o 55(2)(a): for interests listed in s. 3, the rest of the Act will apply, but not Part 5
 S. 4: Exclusions from scope of Act
Except as otherwise provided in this Act, this Act does not apply to the
following:
o (a) a lien, charge or other interest governed by a rule of law or by an
enactment unless the enactment contains an express provision that this Act
applies;
o (b) a security agreement governed by an Act of the Parliament of Canada that
deals with rights of parties to the agreement or the rights of third parties
affected by a security interest created by the agreement, including but without
limitation
 (i) a mortgage under the Canada Shipping Act, and
 (ii) any agreement governed by Part V, Division B of the Bank Act
(Canada);
o (c) the creation or transfer of an interest or claim in or under a policy of
insurance except the transfer of a right to money or other value payable under
a policy of insurance as indemnity or compensation for loss of or damage to
collateral;
o (c.1) a transfer of an interest or claim in or under a contract of annuity, other
than a contract of annuity held by a securities intermediary for another person
in a securities account;
o (d) the creation or transfer of an interest in present or future wages, salary,
pay, commission or any other compensation for labour or personal services
other than fees for professional services;
17
o (e) the transfer of an interest in an unearned right to payment under a contract
to a transferee who is to perform the transferor's obligations under the
contract;
o (f) the creation or transfer of an interest in land, other than an interest arising
under a licence, including
 (i) a lease,
 (ii) a petroleum and natural gas lease under the Petroleum and Natural
Gas Act,
 (iii) a lease, issued under the Coal Act, that confers the right to
produce coal, or
 (iv) any similar interest that is prescribed for the purposes of this
section;
o (g) the creation or transfer of an interest in a right to payment that arises in
connection with an interest in land, including an interest in rental payments
payable under a lease of land;
o (h) a sale of accounts or chattel paper as part of a sale of a business out of
which they arose unless the vendor remains in apparent control of the business
after the sale;
o (i) a transfer of accounts made solely to facilitate the collection of the
accounts for the assignor;
o (j) the creation or transfer of an interest in a right to damages in tort;
o (k) an assignment for the general benefit of creditors made in accordance with
an Act of the Parliament of Canada relating to insolvency;
o (l) a mineral claim or a placer claim as those terms are defined in the Mineral
Tenure Act.
Re Toyerama [1980, ONSC]
 Facts
o Regal Toys agreement w/ Toyerama  R consigned a bunch of dolls/action
figures to T.
o Items in warehouse, some sold.
o Both companies go into financial difficulty.
 T makes an assignment in bankruptcy. TiB appointed to look after
unsecured creditors.
 Note: SCs generally take first; they scoop their entitlements and then
TiB takes whatever’s left and distributes the realized amount to the
remaining (i.e. unsecured) creditors, who get a portion of their money,
depending on the situation.
 Battles often arise between TiB and a secured creditor over who has
priority to take property.
o In this case, TiB wants to take the property in the warehouse, but Regal is
about to seize the dolls itself.
 R argues TiB can’t take the dolls, because R holds title and T simply
had them on a consignment basis (i.e. bailment).
 Waldron thinks this really was a SI: in reality, retaining title as
security for the amount owed by T.
18
 Issue: if it WAS a SI, then it’s governed by the PPSA, and TiB will win because R
didn’t register a F/S or do anything to give public notice of its interest.
o Recall s. 20: unperfected SI will lose to TiB.
 Held: Not a SI. R takes it.
 Reasons
o R and T’s agreement omits something important: they never specified what
would happen if T didn’t sell the toys.
 This is generally considered the hallmark of a true consignment:
 If a used clothing store doesn’t sell your items, they may let
you take them back or donate them to charity. They have no
obligation to pay you if they don’t sell it. There’s no general
purchase price assigned to the item – just an obligation to remit
money to assignor if the item sells.
 Court considers another case: Re Stephanian’s Persian Carpets Inc.
 If there’s no obligation to purchase any merchandise unless
sold, then there’s no security arrangement  because there’s
no debt obligation overall.
o So, there was no SI.
 Note: in BC, we would need to additionally consider whether the agreement was a
commercial consignment (which is included in Parts 1-4 of the Act):
o The question: did the creditors of Toyerama know that T was generally in the
business of selling or leasing the goods to others?
 This question is used because it’s an important factor in trying to
protect the interests of innocent third parties.
o There isn’t enough evidence in this case for us to determine
 Though it seems like T did this frequently, we would need evidence
that the creditors would have known they did.
o So, even in BC, TiB might have lost.
Leases
 Could actually be a conditional sales agreement
o Instead of selling and taking payment over time then transferring title at the
end, the property is just leased to the person and at the end they have the
option to buy
 If a lease is intended as SA, PPSA applies to it.
 If it is not a SA, but a true lease, then the Act may or may not apply.
o If the lease falls within the definition of “lease for a term of more than one
year”, then Parts 1-4 of PPSA will apply, but Part 5 never will.
o Note: if Part 5 does apply, rights and remedies on default are limited to seize
or sue. If Part 5 does NOT apply, then it’s back to Common Law, and the
creditor’s remedies are limited only by equity. So, when it’s in doubt,
creditors usually want their situation to be found outside PPSA.
DaimlerChrysler Service Canada Inc. v. Cameron [2007, BCCA]
 Issue: was there a true lease? If so, only Parts 1-4 of PPSA would apply. If it was
19
intended as a SA, then all of PPSA would apply.
 Held: true lease; PPSA Part 5 ≠ apply.
 Reasons
o Court considered a list of factors that support finding a lease to be a security
lease [from Prof. Cuming]:
 1. Whether there was an option to purchase for a nominal sum;
 2. Whether there was a provision in the lease granting the lessee an
equity or property interest in the equipment;
 3. Whether the nature of the lessor’s business was to act as a financing
agency;
 4. Whether the lessee paid a sales tax incident to acquisition of the
equipment;
 5. Whether the lessee paid all other taxes incident to ownership of the
equipment;
 6. Whether the lessee was responsible for comprehensive insurance on
the equipment;
 7. Whether the lease was required to pay any and all licence fees for
operation of the equipment at his expense;
 8. Whether the agreement placed the entire risk of loss upon the lessee;
 9. Whether the agreement included a clause permitting the lessor to
accelerate payment of rent upon default of the lessee and granted
remedies similar to those of a mortgagee;
 10. Whether the equipment subject to the agreement was selected by
the lessee and purchased by the lessor for this specific lease;
 11. Whether the lessee was required to pay a substantial security
deposit in order to obtain the equipment;
 12. Whether there was a default provision in the lease inordinately
favourable to the lessor;
 13. Whether there was a provision in the lease for liquidated damages;
 14. Whether there was a provision disclaiming warranties of fitness
and/or merchantability on the part of the lessor; and
 15. Whether the aggregate rentals approximate the value or purchase
price of the equipment.
o Most important: if there is no option other than return, it will be
considered a true lease unless all of the lease payments together add up to
cover a sufficient purchaser price/the whole value of the item, and at the
end the item will have no further value.
o The agreement provided that lessee had to pay all monthly payments or
amounts due and a residual amount less the net amount due. Court said this
did not count as an agreement for sale.
o CA overturned the TJ, who had followed old law now reversed by SCC
 Old rule: if you leased property and the lessor took it back, then that
extinguished the lease and put an end to future damages. This is no
longer the law.
 This can’t be the measure of a true lease – look at the factors.
o But the factors are often ambiguous. So, the court focused on what was
20
supposed to happen at the end of the defined lease term. Ask:
 1. If the lessee had no option to buy the item, does the item have any
value left at the end of the term?
 If no value left, then the lessee has used up all the value, as
though it were a sale – so this would indicate ≠ true lease.
 If there is residual value, then the requirement to return would
indicate a true lease.
 2. What if the lessee did have the option to buy the property at the end
of the lease term?
 Is the price nominal, or is it set to represent the real value of
the property?
 If real value: true lease [Note: burden is on the party
seeking to prove a true lease to establish that the
amount to be paid is equal to or greater than market
value - Newcourt]
 If nominal value: paid for the item with lease payments,
and it’s really a security agreement.
Newcourt Financial Ltd. (cob Financialinx) v. Frizzell [2000, BCSC]
 Facts: Default on lease. Problem debtor, frequent defaults. Lessee goes to court and
wants to reinstate the lease so they can be done with the debtor.
o Right to reinstate  the opposite of an acceleration.
o Under PPSA Part 5, consumers have the right to reinstate payments up to two
times/year  note that this is not dependent on court permission.
 Issue: is it a true lease – does Part 5 apply?
o It’s clearly a lease for a term of more than one year, but it could be a security
lease, which would allow Part 5 to apply. If it doesn’t, then there’s basically
no right to reinstate.
 Held: True lease. ≠ Part 5
 Reasons:
o See list of factors:
 1. The intent of the parties
 2. Was a deposit, down payment or front-end payment required by the
lease? If so, was the payment refundable and under what
circumstances?
 3. Ownership at the end of the agreement and purchase options.
 E.g. if the vehicle automatically passes to lessee at the end of
the term, or if the option to purchase at the end of the term
specifies a price lower than market value, that could indicate
that the lease was really a SA
 4. Indicia of ownership
 If lessee bears burden of repairing and insuring the vehicle, or
is to bear any loss or gain from unusual depreciation or
appreciation in value, that could indicate whether it’s a true
lease or SA.
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Trusts
 A trust may create a SI, but not always. [see Skybridge Holidays Inc. (Trustee of) v.
BC (Registrar of Travel Services)]2
 Historical example: inventory supplier asked to supply on credit, but wants a security.
o One option: I/S can give the retailer inventory on credit, with the retailer as a
trustee.
o This would mean that money generated from inventory is held on trust for I/S
o This gives I/S considerable security: could claim beneficial ownership of the
money in the retailer’s bank account
o Under the typical model, TiB might claim the funds, but can’t take property
that belongs to someone else.
o Also, I/S could use equitable tracing rules:
 Money paid to retailer by customer is transferred to credit in the bank
 Trust beneficiary may be able to follow funds into a mixed-fund
account and claim the portion that belongs to them.
 Now, though, it’s just a SI: used to secure payment of the obligation.
 Under PPSA, it doesn’t matter how you structure things, if the function is to secure
payment or performance of an obligation, (which is the case in the example), it is a
SI.
Commercial Consignment
 S. 1: “Commercial Consignment” means a consignment under which goods are
delivered for sale, lease or other disposition to a consignee who, in the ordinary course
of the consignee’s business, deals in goods of that description, by a consignor who
o (a) in the ordinary course of the consignor’s business, deals in goods of that
description, and
o (b) reserves an interest in the goods after they have been delivered,
but does not include an agreement under which goods are delivered
o (c) to an auctioneer for sale, or
o (d) to a consignee other than an auctioneer for sale, lease or other disposition
if it is generally known to the creditors of the consignee that the consignee is
in the business of selling or leasing goods of others.
Furmanek v. Community Futures Development Corp of Howe Sound [2000, BCSC]
2
Skybridge Holidays Inc. (Trustee of) v. BC (Registrar of Travel Services) [1999, BCCA]: Travel agency
got money from customers to purchase tickets. Before tickets were purchased the money was held in S’s
mixed-find account. S went bankrupt, TiB got involved and a paramountcy issue arose: funds were held in
trust under a provincial statute (PPSA), but Bankruptcy Act is federal, and it doesn’t recognize a provincial
ability to create statutory trusts. Federal Act has paramountcy, so TiB plans to distribute funds to S’s
unsecured creditors pro rata. Customers claim that if there was no statutory trust, there was a real trust. To
prove this, every customer would have to establish that they gave S the money as trustee: 5000 trials
emerge, all draining the bankrupt estate. So, TiB says that even IF there were trusts, they were all SIs under
PPSA but not perfected, so TiB can take regardless (per s. 20). Held: Court did not accept TiB’s argument
to dismiss the entire action(s). This wasn’t a debtor-creditor relationship: S isn’t a debtor. Customers don’t
have any security. Yes, S was supposed to buy tickets for them, but there was no security if S failed to do
that. So, there may be a trust (not decided), but definitely not being used to create a SI, so no PPSA.
22
 Facts:
o Jewellery business
o Spargo Enterprises wants to buy F. F agrees to sell and take payment over
time, but wants part up front.
o CF lends money to SE, which they use to pay the up-front price to F.
o But, neither CF nor F will lend money without security, of course.
 So, CF takes SI over all the property of the business, including
inventory.
 F takes SI for balance of price, also over inventory.
 CF insists on taking first priority, and F has to agree otherwise they
can’t get their up-front payment.
o Both creditors registered FS, but CF made a mistake in theirs.
 Note: this arguably gave F first priority, but the court gave priority to
CF anyway because that’s what the parties had agreed to.
o Jewellery was consigned by another party: Seca.
o Spargo was unable to pay either creditor, and CF and F were in a position to
call in their SIs. They appoint a receiver and
 Issue: was the consignment by Seca a commercial consignment?
o If so, then Seca will lose because it is unregistered.
 Held: Commercial consignment. Seca loses out to CF and F.
 Reasons:
o If creditors of Spargo generally knew that Spargo was in the business of
selling goods on consignment, it will NOT be included in the definition of
commercial consignment.
o F knew, because they had carried on business in that way before.
o But CF didn’t know.
o Court decided that although F knew because of specialized inside knowledge,
creditors generally did not know.
Future Advances (Tacking)
 S. 14: Future advances
o (1) A security agreement may provide for future advances.
o (2) Unless the parties otherwise agree, an obligation owing to a debtor to
make future advances is not binding on a secured party if the collateral has
been seized, attached, charged or made subject to an equitable execution
under the circumstances described in section 20 (a) (i) or (ii) and the secured
party has knowledge of this fact before making the advances.
 s. 35
o (5) Subject to subsection (6), the priority that a security interest has under
subsection (1) applies to all advances, including future advances.
o (6) A perfected security interest has priority over the interest of persons
referred to in section 20 (a) only to the extent of
 (a) advances made before the interests of the persons arise, or before
the sheriff seizes the collateral or obtains a right to it under the
Creditor Assistance Act,
 (b) advances made before the secured party acquires knowledge of
23
 (i) the interests of the persons,
 (ii) seizure of the collateral by the sheriff, or
 (iii) an order giving the sheriff a right to the collateral,
 (c) advances made in accordance with
 (i) a statutory requirement, or
 (ii) a legally binding obligation owing to a person other than
the debtor entered into by the secured party before the secured
party acquired the knowledge referred to in paragraph (b),
 (d) reasonable costs and expenses incurred by the secured party for the
protection, preservation or repair of the collateral, and
 (e) the amount of taxes paid by the secured party under section 27 (1)
of the Manufactured Home Act.
 There are often future advances in lending transactions – either a schedule of future
advances, or more informal advances on lines of credit (which fluctuate).
 The amount of the obligation can fluctuate up and down, and the security interest can
give the creditor protection for future amounts loaned as well as the current amount
owed.
Canamsucco Road House Food Co. v. Lngas Ltd. [1991, ON. Ct. J.]
 Facts:
o π owns restaurant, but is substantially indebted to CIBC, which has GSA for
the debt. Bank has registered the SI
o ∆ wants to buy the restaurant, but first they have to deal with the debt: the
bank will insist on retaining the SI over the goods until the debt is paid.
o π says that if ∆ pays the π, π will pay off the bank. But ∆ can’t afford to pay
everything up front, so they agree to payments over time, and π will take a
new SI in the restaurant equipment/contents to secure that loan.
o So, bank has first charge over the assets, and π has second place charge.
o To protect ∆ against π failing to pay bank, a provision states that ∆ can take
over payments to bank and deduct from the amount owed to π.
 This happens: ∆ starts making payments to the bank and deducting
from what they owe π
o ∆ has an affiliated numbered company (936 Inc.). ∆ has 936 give ∆ the money
to pay off the bank.
o 936 pays off bank in full, and bank gives SI to 936. 936 steps into the shoes of
the bank, making them the first priority creditor.
o Still some $ owing to π.
o Then, ∆ borrows more money from 936 to buy equipment etc., giving 936 a
third SI in the restaurant.
o And then the restaurant goes broke, ∆ can’t pay anyone, creditors converge.
 Issue: who has priority?
o 936’s interest assigned from the bank clearly still has first priority, but who is
second?
o 936 argues their second loan was tacking, and should be considered part of the
first SI obligation.
 Held: Not tacking – π gets second priority.
24
 Reasons:
o It would be super unfair to give it to 936 in this case.
o See s. 68: requirement of commercially reasonable behavior
 (1) The principles of the common law, equity and the law merchant,
except insofar as they are inconsistent with the provisions of this Act,
supplement this Act and continue to apply.
 (2) All rights, duties or obligations arising under a security agreement,
this Act or any other law applicable to security agreements or security
interests must be exercised or discharged in good faith and in a
commercially reasonable manner.
 (3) A person does not act in bad faith merely because the person acts
with knowledge of the interest of some other person.
o 936’s effort to tack defeats the whole purpose of the deal entered into with π
in the first place. Therefore, not commercially reasonable, and not allowed.
Acceleration Clauses
 S. 16:
o If a security agreement provides that a secured party may accelerate payment
or performance by the debtor when the secured party is or believes himself
insecure or decides that the collateral is in jeopardy, the provision must be
construed to mean that the secured party has the right to accelerate payment or
performance only if the secured party, in good faith, believes and has
commercially reasonable grounds to believe that the prospect of payment or
performance is or is about to be impaired or that the collateral is or is about to
be placed in jeopardy.
 So, the creditor can realize on the whole security
 The phrase “believes himself insecure” allows a lot of leeway: no event of default is
actually required.
o But, the belief must be commercially reasonable  debtor usually doesn’t
have funds on hand to pay, and in most cases acceleration in this situation will
basically destroy a business.
Validity of Security Agreements and Rights of Parties – Part 2
 s. 9: Effectiveness of a security agreement
o Subject to this and any other enactment, a security agreement is effective
according to its terms.
o Basically, can agree to whatever you want as long as it doesn’t contradict
PPSA.
 s. 10: Writing requirements for security agreements
o (1) Subject to subsection (2) and section 12.1, a security interest is only
enforceable against a third party if
 (a) the collateral is not a certificated security and is in the possession
of the secured party,
 (certificated security: share of company issued in share
certificate – don’t worry about this right now)
25

If the debtor no longer has the property, this gives notice to any
future lenders.
 (b) the collateral is a certificated security in registered form and the
security certificate has been delivered to the secured party under
section 68 of the Securities Transfer Act in accordance with the
debtor's security agreement,
 (c) the collateral is investment property and the secured party has
control under section 1 (1.1) in accordance with the debtor's security
agreement, or
 (d) the debtor has signed a security agreement that contains
 (i) a description of the collateral by item or kind, or by
reference to one or more of the following: goods, investment
property, instruments, documents of title, chattel paper,
intangibles, money, crops or licences,
 item: description of specific item
 kind: description by category/type of item  ‘all the
debtor’s chairs’
 intangibles: debts & accounts
 licences
 (ii) a description of collateral that is a security entitlement,
securities account or futures account if it describes the
collateral by those terms or as investment property or if it
describes the underlying financial asset or futures contract,
 (iii) a statement that a security interest is taken in all of the
debtor's present and after acquired personal property, or
 (iv) a statement that a security interest is taken in all of the
debtor's present and after acquired personal property except
 (A) specified items or kinds of personal property, or
 (B) one or more of the following: goods, investment
property, instruments, documents of title, chattel paper,
intangibles, money, crops or licences.
o (2) For the purposes of subsection (1) (a), a secured party is deemed not to
have taken possession of collateral that is in the apparent possession or control
of the debtor or the debtor's agent.
o (3) Subject to subsection (6), a description is inadequate for the purposes of
subsection (1) (d) if it describes the collateral as consumer goods or
equipment without further reference to the kind of collateral.
 Goods under PPSA = 3 categories (all defined terms)
 1. Inventory: goods you expect to sell
 2. Consumer Goods: [does not overlap with inventory] goods
used/acquired for use primarily for personal, family or
household purposes.
 3. Equipment: residual category  if it isn’t inventory or
consumer goods, it must be equipment, even if that seems
ridiculous. Cows on a farm = equipment.
 Equipment and consumer goods are vague categories, can change.
26
o (4) A description of collateral as inventory is adequate for the purposes of
subsection (1) (d) only while it is held by the debtor as inventory.
o (5) A security interest in proceeds is enforceable against a third party whether
or not the security agreement contains a description of the proceeds.
o (6) If personal property is excluded from a description of collateral, the
excluded property may be described as consumer goods without further
reference to the item or kind of property excluded.
 The one time you can describe the collateral as consumer goods
 In a certain situation, remedy is limited to seizing collateral or suing
on the debt. But sometimes you make a mistake and seize consumer
goods without meaning to, which is why this subsection exists.
 S. 10 is necessary as one of the building blocks of perfection
o To have a perfected security interest, you must have attachment. To
have attachment, you must fulfill s. 10.
 S. 11: debtor to have copy of written security agreement
If a security agreement is in writing, the secured party must deliver a copy of the SA to
the debtor within 10 days after it is executed, and if the SP fails to do so after a request by
the debtor, the debtor may apply to court to order delivery.
Riepe v. Stingray Holdings Ltd. [2002, BCSC]
 Facts
o Truck lease; agreement but no one really behaved accordingly – everyone was
sort of confused.
o Basically, the lease term concluded and R had the option to buy.
 He wanted to buy, but he was in default on default on some payments.
o R and Vendor decided to go ahead with the purchase anyway, so R kept the
vehicle.
o Then R sold the vehicle to his son.
o R never makes payments, and creditor comes looking for the truck.
o R Jr. (son of original purchaser)  not precisely a BFP.
 Seems likely he would have had notice that payments were due. But
this isn’t relevant in this case, since the issue isn’t whether the SI was
perfected.
 Issue: was there a SA in writing to be enforceable against 3rd parties?
 Held: no written SA; R Jr. keeps the truck.
o Note: actually there was no SA at all  never specified that they would take
the truck if he didn’t pay. Most likely the vendor is an unsecured creditor.
 Reasons
o There was nothing in writing. Thus, not enforceable against 3rd parties, per s.
10
o Court says it’s important to comply with the Act, because secured creditors
are in the strongest position. If they don’t put it in writing and are then
allowed to claim security, other creditors could get screwed over. So it’s
important to be firm with the rules.
674921 BC Ltd. v. New Solutions Financial Corp. [2006, BCCA]
27
 Facts: 674 and later NS gave loans to a debtor. After both, 674 got a GSA with the
debtor.
 Priority?
o NS argues no written agreement for 674’s first agreement
 Held: New Solutions takes priority
 Reasons:
o When NS took their SI, there was nothing effected against them under s. 10
o It all depends on the interpretation of a clause saying “will provide”  did the
parties intend an immediate security description? It seems the court found
they did not.
 Note: the basic laws of contract are not suspended by the PPSA.
Collateral
 Categories of personal property under the Act are almost always mutually exclusive.
 There are two major divisions: goods, and other stuff.
o Goods refers to tangible personal property  includes fixtures, crops, unborn
young of animals, among other things.
o It’s the residual division – only specifically listed things fall into the other
division.
 Goods is subdivided into:
o (a) Consumer goods
o (b) Inventory
o (c) Equipment
 This is the residual category within goods.
 Other Items subdivides into:
o (a) Instruments
 Cheques, letters of credit  pieces of paper.
o (b) Accounts
 (Excludes chattel paper or instruments)
 Monetary obligations that you can’t touch.
o (c) Chattel Paper
 See details below.
o (d) Intangibles
 This does overlap with accounts
o (e) Licenses
o (f) Money
 Actual cash
o …and more.
 PPSA recognizes some things as security that the common law wouldn’t even
recognize as property [see e.g. Saulnier v. Royal Bank of Canada]3
 Proceeds: s. 1(1)
3
Saulnier v. Royal Bank of Canada [2008, SCC]: Fishing licence (right to participate in fisheries). Very
valuable, probably the most valuable item the individual owns. So, policy reasons to consider fishing
licences property – so people can use them as collateral to obtain loans.
28
o (a) identifiable or traceable personal property, fixtures and crops
 (i) derived directly or indirectly from any dealing with the collateral or
proceeds of collateral, and
 (ii) in which the debtor acquires an interest.
o (b) a right to an insurance payment or any other payment as indemnity or
compensation for loss of, or damage to, the collateral or proceeds of the
collateral
o (c) a payment made in total or partial discharge or redemption of an
intangible, an instrument, investment property or chattel paper
o (d) rights arising out of, or property collected on, or distributed on account of,
collateral that is investment property.
Re CIBC & Marathon Realty Co. [1987, SKCA]
 Illustrates the power of the interest in proceeds  it covers proceeds of proceeds too
 Third parties do not have a right to insist on strict enforcement of SAs
 Facts
o Marathon = landlord.
o Commercial landlords have authority to distrain the goods of unpaid tenants,
per the Rent Distress Act
 Issue: Did CIBC have a valid SI in the inventory in question?
o The right to distrain is subject to certain SIs, and if CIBC had a SI then CIBC
would take priority.
o Marathon said CIBC’s agreement just contemplated them lending money and
being paid back, but that isn’t what happened, so they said it wasn’t a SI.
 Held: for CIBC
 Reasons
o Content of the SA doesn’t matter. The fact that you have enforced your rights
under the SA in an unexpected way doesn’t affect the landlord’s level of
forewarning.
o Marathon could have looked in PPR to see the SI in inventory.
o Also, it didn’t matter that it was proceeds of proceeds – the SI covered those.
Tracing
 Tracing rules were developed under the law of trusts
 Recall: prior to PPSA, parties sometimes used trust arrangements to mimic SAs,
because part of the rules of trusts relate to tracing of property.
 Note: PPSA can’t touch negotiable instruments, because they’re in federal jurisdiction.
The Lowest Intermediate Balance Rule:
 With tracing, we may have to figure out what amount in an account a secured creditor
can come after.
 1. The total amount of deposits constituting proceeds in the account form the
‘proceeds balance’.
o Any proceeds deposited to the account raise the proceeds balance and also the
account balance
29
o Funds deposited that are not proceeds raise the account balance, but don’t
affect the proceeds balance.
 2. It is presumed that the debtor spends his own money first.
o Presume you are doing the right thing, looking after creditors/beneficiaries
like you’re supposed to.
o When making withdrawals, don’t write down the proceeds balance until you
have to. (i.e. when reality hits – if the account balance is lower than proceeds
balance, proceeds balance must go down to the amount of the account
balance)
 3. If you lower the proceeds balance and then raise the account balance with a nonproceeds deposit, don’t raise the proceeds balance.
o This is to keep a balance between secured and unsecured creditors. Secured
Creditor gets first crack at the money, but whatever extra is created by this
restriction will likely be distributed among less-secure or unsecured creditors.
o (If you lower the proceeds balance and then raise the account balance with a
proceeds deposit, raise the proceeds balance according to the proceeds
deposit.)
Universal CIT Credit Corporation v. Farmers Bank of Portageville [1973, US District Court]
 Facts:
o
o
o
o
o
Ryan owns car dealership, financing arrangement with Universal CIT.
CIT has SI in the cars on R’s lot, and consequently in the proceeds.
R deposits proceeds into an account with F Bank.
R owes F some money on a promissory note.
R gets word that CIT is going to cancel his financing arrangement (for some
reason), which will put him out of business.
o Wrote some cheques to CIT, but not cashed yet.
o R goes to the bank and tells the manager that he’d rather pay them back on the
promissory note first than just let CIT take everything (because CIT are jerks
who cut off his financing)
o So, tells F manager to take the $12k he owes the bank out of his account.
Manager does so, after close of business that day.
o Next day the cheques come in, NSF.
o CIT claims the money.
 Issue: can CIT trace the money and get it back from the bank?
 Held: CIT gets the proceeds balance in R’s account. Bank can only keep the amount
above that, and must return the rest of the money withdrawn.
 Reasons:
o Court goes through the whole assessment process, and there’s a chart at pg.
91.
o Ultimately, there is a final account balance of $15,823.35, of which
$11,429.11 was proceeds.
o So, the only amount the bank was empowered to debit was the amount that
didn’t belong to CIT: $4394.24.
 The rest had to be returned to CIT.
o Note: if the bank hadn’t had knowledge that the funds were proceeds funds
30
and R had just written them a cheque for the debt, it’s likely that CIT would
have been out of luck.
 But the bank wasn’t innocent in this case – they knew the funds were
largely proceeds deposits and therefore belonged to the secured party.
 Also, the bank removed the funds in a strange way, after business
hours.
o Basically, this was a fraudulent preference  debtors are not permitted to
choose which creditors to pay first.
Tracing by Subrogation
 Where there’s a big mess in the middle and it would be extremely expensive in
forensic accounting fees to follow a thread the whole way through, we can look at just
the beginning and the end.
 Consider:
o What did original collateral consist of? What role did it play in the debtor’s
life?
o Trace to new thing: does this perform the same role in the debtor’s life? Is
there a connection, however confused, between the string going in and the
string going out?
Agricultural Credit Corp. of Saskatchewan v. Pettyjohn [1991, SKCA]
 Facts:
o ∆s bought cows using π facility. Court held that π held a PMSI in the cows
that ∆ bought with the funds obtained from π.
o π had SI in about 47% of the cows.
o Under SK law, you can’t seize cows under a GSA (it’s a government rule to
protect farms), but you can seize them under a PMSI.
o ∆ started to replace their cows with a different type of cow,
o ∆ said that π didn’t have PMSI over the new cows and thus couldn’t take
them.
 Issue: does π have interest in the new cows?
 Held: for ∆.
 Reasons
o Tried tracing by subrogation.
o PMSI holder can’t just overwhelm everyone absolutely – must let other
parties have some interest.
o There was no evidence that ∆ made the cow changes with intent to defraud π.
 Dissent: ∆ created this mess, and now they’re getting an advantage.
Re River Industries Ltd. [1992, BCSC]
 Pettyjohn applied in BC
 Facts
o Aucklands had SI in some inventory of the debtor.
Debtor sold inventory in bulk, along with some other assets.
 Issue: Was the sold inventory still subject to A’s SI?
31
 Held: Yes, A can follow the inventory after sale.
 Reasons:
o S. 28(1) doesn’t apply to cut off  consent was given to sell inventory to
usual customers, but not to sell all assets in bulk like they did.
o S. 30(2) doesn’t cut it off either  Sale of all assets is not something you do
in the ordinary course of business.
o Note re proportionality: π gets same fixed percentage in new inventory as in
original inventory.
Perfecting a Security Interest
 S. 19: SI is perfected when:
o (a) it has attached
o (b) all steps required for perfection under the Act have been completed
 Option 1 (per s. 24): Attached & Possession
 But you can’t protect by seizure or forced repossession.
 Policy concern against creditors just seizing things
anytime they get nervous.
 Option 2 (per s. 25): Attached & Financing Statement Registered
 This is by far the most common method to achieve perfection
 Option 3: Attached & Temporary Perfection
 In some situations, the creditor has a few days to either take
possession or register a F/S, and during this interim they are
considered to have perfected.
 One provision that allows temporary perfection: s. 28(3)
 Where proceeds aren’t adequately described for the
purposes of s. 2, then creditor’s SI is protected for 15
days, but then they lose protection if they don’t take
further steps.
Attachment
 The first requirement for perfection.
 S. 12: attachment exists when
o (1) Value is given;
o (2) Debtor has rights in the collateral; and
o (3) s. 10 requirements are fulfilled
 S. 13: automatic attachment when SA gives rights in after-acquired property.
o Two exceptions to this automatic attachment:
 1. Crops that start to grow after a year
 2. [more important]: automatic attachment generally doesn’t apply to
consumer goods
 Unless the newly acquired item is a replacement for the old
one.
 S. 19: it doesn’t matter what order the three elements of s. 12 are completed in.
32
 “Value” doesn’t have to be “new” value  antecedent debt is ok [TD Bank v. Nova
Entertainment Inc.]4
Debtor Must have Rights in the Collateral
 In most cases, full ownership. But not always.
o A thief has no rights in stolen property
o Someone who has been given a gratuitous bailment does not have sufficient
rights in the property to allow a SI to attach.
Kinetics Technology International Corporation v. The Fourth National Bank of Tulsa [1983,
US CA] [KTI]
 Facts
o OHT gave bank SI in inventory and other property.
o KTI and OHT had a deal, wherein KTI had to send some goods to OHT and
OHT had to build things (furnace economizers) with those goods.
o Bank had SI in OHT’s accounts, and asked KTI to make progress payments
straight to the bank. (so, bank was completely aware of the K with KTI)
o OHT is getting deeper in debt, and bank eventually tires of it. OHT can’t carry
on, hands over the keys to the bank and tells them to realize on the SI.
o When the bank comes in, some of KTI’s goods are sitting on the warehouse
floor, and bank takes them (along with some partially-finished units) as
inventory.
 Issue: Does the bank have a perfected SI in KTI’s items/the partially-finished units?
o We know the bank registered a F/S, so the question is: did the bank SI attach
to the items sent by KTI?
o KTI said that OHT didn’t have sufficient rights for the SI to attach to KTI’s
goods  OHT was just holding them for the purpose of putting them into the
economizers as they were built.
 Held: KTI could take.
 Reasons:
o KTI argued mere physical possession wasn’t enough, but court said OHT was
more than just a bailee with a bare possessory right  also had the right to use
the goods in a manufacturing process.
 Court says this is enough for the SI to attach, and thus the bank SI
prima facie attached and gave the bank priority.
o However, KTI was making part payments to the bank, which made this a sale
of the box units and the KTI goods that were there – a sale of the completed
economizers.
 So, in fact, it was an OCB sale, which means that the bank’s SI was
4
Toronto-Dominion Bank v. Nova Entertainment Inc. [1992, ABQB]: Creditor was the parent
corporation of the debtor. Shareholder advanced $ to corporation by way of a loan. Loans were made, then
later GSA was signed and registered. Then another creditor argued there was no attachment because no
value was given (b/c GSA was signed after the loan made). Held: antecedent debt is fine. No problem with
SH taking SI, so long as not defrauding creditors  remember doctrine of separate corporate personality;
though, if corp is or will be insolvent as a result of the loan, this causes problems.
33
cut off when the payments were made.
Problems with KTI:
 Although the right result was reached, Waldron doesn’t think this was the appropriate
reasoning.
 It’s awkward to conceptualize this as an OCB sale for the goods that hadn’t yet been
put into box units, for example.
 It works, because the bank was aware of the K and had received money under it, so the
result was clearly fair, but Waldron doesn’t like how they got there.
 Arguably better reasoning:
o OHT has sufficient rights in collateral for SI to exist. But the fact that SI exists
doesn’t tell you much about what the creditor can ultimately get.
o Other factors affect this:
 1. Rules provided in the Act  this is the first place to look.
 E.g. a perfected SI takes over unperfected, which only gets
what’s left over after perfected takes.
 2. If there is no applicable priority rule in the Act, consider common
law:
 S. 68: if no other rule covers the situation, then CL and the Lex
Mercatoria apply.
o So, applying this to KTI:
 What is the nature of KTI’s interest in the goods? Do they have SI?
 W thinks no. they sent the goods to OHT, but not to secure
payment or performance of an obligation [recall Skybridge]
 They delivered the goods to use in building
economizers. No security which could be seized on
non-completion of the economizers.
 Three other ways to fit this under PPSA:
 1. Was it a transfer of account or chattel paper?
 Clearly not.
 2. Lease for a term of more than one year?
 Nope.
 3. Commercial consignment?
 No. Goods weren’t delivered to OHT for sale to others.
 So, KTI is not a secured party.
 There is no rule under PPSA that will sort it out, so go to CL:
 At CL, KTI has title to the goods.
 Nothing in the PPSA says the bank can take ownership of
KTI’s property, so CL stands.
 Though, note that this won’t always save the party in KTI’s
position, because sometimes the statute does overrule the CL
rights of ownership.
Haibeck v. No. 40 Taurus Ventures Ltd. [1991, BCSC]
 Facts
o Debenture issued to RoyNat (R). No. 40 gave R a floating charge over all their
34
assets.
o R perfected SI by registering a F/S.
o Then, conditional sales K with builder, SI in appliances.
o Builder registers F/S and perfects.
o R comes in to realize on their SI.
 Issue: could R’s SI attach to the goods listed in builder’s SI?
 Held: for R.
 Reasons
o Possession, but that’s not enough.
o There is a right to pay for the goods over time and ultimately acquire
ownership – so considerably more than bare possession. Court correctly finds
that this is enough for SI to attach.
o Registration date governs:
 R had perfected well before B, so B loses.
 Per s. 35(1), R has priority and can realize to the extent of the
obligation owed to them. Anything left over can be claimed by B, if
there is anything left.
 B could have gotten priority over R, because they were entitled to a
PMSI.
 But, to get the PMSI, would have had to file F/S w/in 15 days
of No. 40 getting possession of the appliances. So, B filed too
late and therefore didn’t qualify.
 So, it falls to the residual rule in 35(1) and they lose.
o Note: since statutory rules apply, we don’t go to CL rights/title.
PMSI: The Superpriority
 “Purchase Money Security Interest” means:
o (a) a SI taken in collateral, other than investment property, to the extent that it
secures payment of all or part of its purchase price;
o (b) a SI taken in collateral, other than investment property, by a person who
gives value for the purpose of enabling the debtor to acquire rights in the
collateral to the extent that the value is applied to acquire the rights;
o (c) the interest of a lessor of goods under a lease for a term of more than one
year; and
o (d) the interest of a person who delivers goods to another person under a
commercial consignment.
But does not include a transaction of sale by and lease back to the seller, and, for
the purposes of this definition, “purchase price” and “value” include credit
charges or interest payable for the purchase or loan credit.
 It’s a question of fact: you must have secured a loan to purchase rights.
 Problem can arise if money loaned as PMSI is not spent on the anticipated purchase.
o Example:
 X wants to buy a new computer system for business, and you get a
loan from the bank for $80k.
 Money loaned for purpose of acquiring rights in collateral.
35






Bank gets SI in computer system and all present & afteracquired property.
 But then, X finds the computer system at a lower price (say, $60k), so
they buy that one and use the extra cash to go on a vacation.
 So, if X defaults, the bank has a PMSI, but it’s limited to $60,000, the
amount actually spent on the computer system. The other $20k is just
under a GSA.
S. 34(1): subject to s. 28, a PMSI in
o (a) collateral or its proceeds, other than intangibles or inventory, that is
perfected not later than 15 days after the day the debtor, or another person at
the request of the debtor, obtains possession of collateral, whichever is earlier,
or
o (b) an intangible or its proceeds that is perfected not later than 15 days after
the day the SI in the intangible attaches,
Such a PMSI has priority over any other SI in the same collateral given by the
same debtor.
Recall Haibeck: PPSa was new and lawyers weren’t all up on the rules. Builders could
have had PMSI if they’d registered a F/S w/in 15 days, but they didn’t so they didn’t
get priority.
Policy rationale underlying the PMSI superpriority:
o Priority will be given to parties who assist debtors in expanding the asset-base
of their business.
Note: one important class of property is not addressed in s. 34(1): inventory.
o 34(2): subject to (5) and s. 28, a PMSI in inventory or its proceeds has priority
over any other SI in the same collateral given by the same debtor if
 (a) the PMSI in the inventory is perfected at the time the debtor, or
another person at the request of the debtor, obtains possession of the
collateral, whichever is earlier,
 (b) the SP gives notice to any other SP who has, before the time of
registration of the PMSI, registered a F/S containing a description that
includes the same item or kind of collateral,
 (c) SP gives notice to any other party who has, before the time of
registration of the PMSI, registered a SA providing for a prior SI on
the same item or kind of collateral,
 (d) the notice referred to in (b) states that the person giving notice
expects to acquire a PMSI in the inventory of the debtor and describes
the inventory by item or kind, and
 (e) the notice is given before the debtor, or another person at the
debtor’s request, obtains possession of the collateral, whichever is
earlier.
o Basically, perfection must take place when the debtor gets possession. So, the
F/S must be registered by the time debtor takes possession. SP will have given
value, debtor will have rights, attachment will occur, etc.
Steps to applying the Superpriority:
o 1. Does it fall under the PMSI definition?
o 2. Did they register…
36
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 For inventory: before possession, and did they notify other creditors?
 For non-inventory: within 15 days of possession/attachment of SI?
Under PPSA, it’s really up to creditors to protect themselves.
PMSI allows you to supersede other creditors. So, perfection of a non-PMSI won’t
save you from a creditor who has a perfected PMSI.
S. 22 gives PMSIs a grace period, during which they are temporarily perfected and
protected against TiB and judgment creditors.
o Note: you don’t get this grace period as against a BFP.
o Policy: 15 days is a pretty common grace period used in PPSA.
Another potential problem:
o If you lend money at two different times to purchase two different pieces of
equipment, say a boiler and a backhoe, and one loan is paid off, then you no
longer have PMSI in the first equipment.
o If you want to maintain PMSI in both items until both loans are paid off, then
you can agree to make payments pro rata across the two collateral.
Agricultural Credit Corp Sask v Pettyjohn [1991 SKCA]
 Facts: Fairly typical business arrangement. ACC is a type of govt agency that loans
creditor for farmers to buy equipment. ACC approves loan when farmer meets criteria
for the program. Farmer goes to lender and shows letter from ACC that says he will
get loan (the ACC does not give the money until the farmer buys the equipment).
Pettyjohn takes bank to buy cows. Then they send the paperwork to ACC, and ACC
sends the money directly to lender.
 Issue 1: PMSI requires that value be given to debtor to purchase. Did Pettyjohn get
value?
 Held: Yes, it seems pretty obvious that there was a binding obligation.
 Issue 2: was that value used to buy the cow? They actually took the value to payoff the
lender (inter financing) – so Pettyjohn argues that they didn’t use the ACC value to
directly buy cows.
 Held: Value was given as part of the same transaction to buy the cows. No need to
break down into little sense. Value was used to buy cows.
 Waldron noted that this seems to make commercially reasonable sense.
 Note: this is an example of “takeout financing” – the money is being used to remove
an interim lender.
o However, this can become a little more complicated, like in Unisource when it
becomes a more separate transaction.
Unisource Canada Inc v Laurentian Bank [2000 ON]
 Facts
o T1 – Bank loaned money for printing press and registered financial statement.
 However, Debtor went out and found printing press they liked. Went
out and got loan arrangement from bank. Debtor then went and
purchased press, sold back to bank, and then lease from bank (this is
called a sale and lease back – it has tax advantages)
 Sale and leaseback is EXCLUDED from PPSA
37
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o T2 – Debtor already owes money to Unisource (U). D gives GSA to U to
secure payment of their paper. U registers F/S.
o Consider priority rules: s.35 – first to register gets priority over perfected
interests. Both are registered – so bank gets first priority.
o Then debtor decides to reorganize their finances
o T3 – Laurentian (financing company) loans money to D. This money is used
to pay off the bank. L then registers their F/S.
 Waldron noted that L should have taken an assignment of the bank’s
security interest – so then they would have gotten first priority. But L
did not do that.
o Then, debtor defaults on payments.
o U says that they get printing press.
o L must now try to argue that they have a PMSI to get priority (which, they
should have gotten by assignment if they had been smart about it).
Court: Bank owned title to printing press. When L’s money was used to pay off loan,
it was used to acquire title of the printing press. So this is a PMSI and then they
registered this F/S, so they get priority.
Note issue – should take-out financers get PMSI super-priority?
Note: if this had not been done as a Sale and Lease back, then the question of title
when L’s money pays off loan would not have arisen. So this case may turn on a lucky
type situation.
Note: in most cases, lender should take an assignment rather than try to rely on this
type of argument.
Chrysler Credit Canada v RBC [1986 SKCA]
 Facts
o Inventory financing.
o The reasons CC is in the situation they are, is because they started their
financial structuring under the old scheme before PPSA.
o Note historical floating charge (pre-PPSA):
 Eg of China shop with tons of inventory. Not going to register a CSA
for each little piece. Instead, a floating charge would be registered.
 Prof – this is possible when you have easily identifiable big ticket
items – like cars.
o T1 – D acquire car and give CM or CSA to CC
o T2 – CC sell car – and would repay their loans, buy new cars.
 Each car would be kept track of as separate transaction.
o When PPSA came into force, CC kept treating each separate transaction
separately.
o CC gets into financial trouble. Bank puts a receiver into CC. CC says, hey we
have PMSI in some new cars. CC takes away the new cars that they have
PMSI in. There are also trade-ins. CC says those trade-ins are proceeds of cars
we had security interest in. Receiver and CC are arguing over who gets the
used cars. Receiver says they aren’t all proceeds of CC’s cars.
o Divide the cars into three groups:
 1. 4 cars - Trade in cars when CC had security interest in the old car 38
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trade in cars (proceeds of original car) – loan not yet paid off.
 3. 4 cars – they can’t show how they purchased those cars – they lose
those
 Difficult category - #2. – trade in cars (proceeds of original car) –
however the loan on these cars was paid off in full.
 Court discussing category #2: SI was worded in a way that the
security interest was intended to continue even after the loan
was paid off, therefore, there is still a PMSI in the cars.
Waldron noted a problem: the court based decision on the existence of a private K (SI,
GSA) between parties. However, the point is not whether they have a security interest,
it is whether they have priority. PMSI is based on fact, not what the parties say. Prof
says that paying off the loan essentially pays off the PMSI, so yes, they still have their
GSA, but they shouldn’t be able to claim priority over the cars.
Today, this is not really a problem – using structuring under PPSA:
o CC would structure SI in inventory (s.34(2)) as PMSI
Note: creditor can’t decide to take PMSI, this is a factual determination
So in our case, once CC paid off the loan, the proceeds of the car were gone.
Registration of a Financing Statement
 See 674921 BC Ltd. v. New Solutions Financial Corp. [2006, BCCA] for a statement
of the legislation in this area.
 S. 28(2) a SI in proceeds is continually perfected if the interest in the original
collateral is perfected by registration of a financing statement that
o (a) contains a description of the proceeds that would be sufficient to perfect a
SI in original collateral of the same kind
o (b) covers the original collateral, if the proceeds are of a kind that are within
the description of the original collateral, or
o (c) covers the original collateral, if the proceeds consist of money, cheques, or
deposit accounts in deposit-taking institutions.
 Note: it’s very easy to cut these off: see s. 31.
 S. 43: F/S is effective from the time received at the office
o It’s electronic nowadays
o Every F/S gets assigned a number
o This shows priority.
 43(4) – may be registered before SI is made or attaches.
o Confirms that creditor can register any time
 43(5) – a F/S may relate to more than one SA
 S. 18: a creditor, debtor, sheriff, person with interest in personal property of any party
 gets the right to demand the info listed in (2).
o Note: potential creditors are NOT on this list.
o All a potential creditor can see is the name and whether there’s a SI registered
on the property – not the terms of the loan etc.
o Then the potential creditor can seek more info from the debtor, who can
authorize them to see the info.
o Otherwise, literally anyone could just go in and demand to see your loan
39
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agreements and details  privacy issue.
Error in Financing Statement
o S. 43(6)  an error must be seriously misleading to affect validity of F/S
o (7) if it’s serial numbered consumer goods, or if debtors are required to be
disclosed in the F/S, and there is a seriously misleading defect in the name of
debtor (but not a debtor who has no rights in the collateral) or the serial
number of the collateral  then the registration is invalid.
o (8) doesn’t have to actually mislead someone; it’s an objective test – would a
reasonable person be misled?
o (9) failure to give a description of collateral doesn’t affect the validity with
respect to other properly described collateral in the F/S
Regulations re F/Ss
o S. 4: must say what type of registration you want – in this class, we’re always
talking about SIs, but the registry holds all kinds of things.
 If SI, how many years? 1-25, or infinity.
o (3) must include:
 Name and mailing address of each SP
 Name of each debtor
 Description of the collateral
Naming
o NOTE: under previous version of Regulation, a registration of a second name
was option – however, this regulation clarifies that you must register a second
given name if they have one.
o Purpose – you need to be able to search the database accurately.
o So if you enter the debtor’s name correctly, the computer should split out
exact matches and near matches.
o This is the only way you can search – exact and near matches
Description of the Collateral
o S. 9 sets out mandatory requirements for describing collateral
 Biggest issue: serial numbered goods.
 Under PPSA, SN goods includes only:
 motor vehicles,
 manufactured homes
 boats
 outboard motors
 trailers
 aircraft
 Consumer goods:
 Serial numbered consumer goods must be described using a
serial number.
 Equipment:
 Choice: serial numbered equipment must be described either
using SN or in accordance with s.11
 But, if you don’t register with the SN, you’re going to be
vulnerable, so just do it.
40

Inventory
 Register in accordance with s. 11
o S. 11:
 Description by either
 Item or kind
 APAAP
 APAAP except certain specified items/kinds
 Description as inventory
 Note that this is quite similar to the s. 10 description for SA
 (2) Inventory is valid so long as it is used as inventory (same as s. 10)
 Note: under s. 10, you could use “consumer goods” as a category for
exclusion (i.e. without further description), but you can’t here.
Questions to Ask when Registering Your Interest in Collateral:
 Am I dealing with goods?
o If no – then describe using s.11
 What kind of goods are they?
o Are they consumer goods?
 Are they serial number goods?
 If yes – use SN, per s. 10
 If no – use s.11
o Are the goods equipment?
 If yes – are they serial numbered?
 Use SN or use s.11
o Are goods inventory?
 Could describe by item or kind
 Could describe as inventory
 Cannot describe by SN
 Not goods?
o Proceeds?
 Depends on s. 2: three options for a continuously perfected SI in the
property, per s. 28(2).
 Or, per s. 28(3), a final option if none of (2) options apply: 15 day
grace period.
 Amend F/S to include proceeds.
Regal Feeds Ltd. v. Walder and Niverville Credit Union Ltd. [1985, MBQB]
 Facts
o RT claimed priority on SI in “all hogs, boars...”
o GSA: covered all the hogs etc.
 Issue: Is the description in FS good enough? Doesn’t say after-acquired.
 Held:
o FS is enough.
 Reasons
o All you’re looking for in FS is some sort of red flag – notice that you should
inquire further about what is/isn’t covered
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o You see pigs listed in FS, now creditor is on notice that they should go figure
out what pigs are covered  get a copy of the SA and read it. At that point the
creditor would see that it covered not just the original pigs but any new ones
as well.
Re Munro [1992, BCSC]
 Debtor’s middle name was listed incorrectly
 Regs were unclear (at this time) as to whether you had to include debtor’s middle
name when you register. (Now, clearly state that you must include debtor’s middle
name)
 Note the importance of computer systems in determining what’s seriously misleading.
o E.g. Serial numbers are often very long, and on vehicles they may be obscured
by grease etc. and hard to read.
 It’s very easy to make a mistake in serial numbers.
Coates v. GM Acceptance Corporation of Canada [1999, BCSC]
 Argues misleading   only searched for exact matches in PPR, didn’t pull up FS of
GMA, which had a slight error on serial #.
 Court says if you searched exact and inexact matches, this vehicle would have showed
up.
 Court says total accuracy isn’t necessary – near-matches are given in PPR.
 Seriously misleading:
o (a) would likely prevent a reasonable search from disclosing the existence of
the registration
 so, if PPR wouldn’t give as a near-match
o (b) if mistake would cause a person who did somehow become aware of the
registration to think that it was likely not the same chattel (where error in
serial #), or the same debtor (where error in debtor name)
o Court declined to bring the reasonableness of the filing system into play.
Re Alda Wholesale Ltd. [2001, BCSC]
 Burnyeat J
 Major question: can a serious error in a non-searchable field defeat a registration?
o Short answer: yes.
 Here, there was a grammatical error and the issue was what the word “leased” meant
in the description of the collateral.
 The court held that the description was too ambiguous and invalidated the FS
 Note: contrary to Regal Feeds, indication that must expressly state interest in afteracquired property  but Waldron thinks this is incorrect.
o Nonetheless, lawyers today often put “whether present or after-acquired” into
the FS so that it won’t be defeated by that fact.
 Also mistakenly indicates a subjective test, but we know it is objective.
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Perfection by Possession

S. 24: Perfection by possession of collateral
o (1) subject to s. 19, possession of the collateral by the secured party, or on the
secured party’s behalf by another person, perfects a SI in
 (a) chattel paper
 (b) goods
 (c) an instrument
 (d) [repealed]
 (e) a negotiable document of title
 (f) money
unless possession is a result of seizure or repossession.
 Generally, creditors won’t perfect by possession.
o But some types of property will generally be perfected by possession:
 Things that can be easily lost – cheques, and (most important) chattel
paper
 CP: piece of paper including a promise to pay debt, plus SI in
some item.
 Creditors normally perfect SI by taking possession of chattel paper:
 1. Because they’re easy to lose, and
 2. Because there is a special priority provision for creditors
who take possession of chattel paper
Farm Right Equipment v. Royal Bank of Canada
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RBC takes interest in APAAP, reg’s FS in June 1991
Years later, FR buys 2 trucks from D&C, secured by CSAs (which are SIs)
So, we actually have chattel paper!
CSAs are assigned by D&C to Bank of Nova Scotia. Common transaction – discount
CP to bank.
FR defaults on loan to RBC, which appoints a receiver-manager
Bank of Nova Scotia realizes they forgot to register their interests (too late for PMSI,
but can still reg) – run down to PPR and reg SI in trucks by serial number.
Trucks are being sold. Banks agreed to let them be sold and then fight over the
proceeds.
So, who gets trucks?
Problem for RBC: although had reg in APAAP, didn’t have reg in serial #.
o See s. 35(4): a SI in goods that are equipment of a kind defined as serial
numbered goods, ≠ reg’d or perfected by registration for purposes of s. 35(1),
(7) and (8), unless FS relating to SI and containing description of goods by
serial # is reg’d.
 So, since RBC didn’t reg w/ serial #, not perfected for purpose of
35(1).
So, Bank of Nova Scotia, who perfected with serial #s, wins.
But, note arguments made by RBC:
o (1) At time receiver-mgr was appointed, BNS was completely unperfected –
had not reg’d anything. RBC argued appointment of receiver is just like a
43
judgment creditor in process of execution, or TiB, either of which would take
priority under s. 20.
 Court says it’s not actually the same. You appoint a receiver pursuant
to a private agreement, but there’s no judgment, and it’s not
bankruptcy. S. 20 doesn’t apply here.
o (2) RBC argued they had nonetheless perfected their SI, because when they
appointed a receiver they took possession of the trucks.
 SK different statute, but basically the problem is that they aren’t
holding it as collateral, it was seized.
 Ours says clearly that you can’t perfect through possession by
seizure/repossession  so a BC court definitely would not have
accepted this argument.
Royal Trust Corp. of Canada v. Number 7 Honda Sales Ltd. [1988, ON Div. Ct]
 Facts:
o Creditor advanced money to debtor to buy vehicle, and C registers SI
o Debtor leaves vehicle with vendor while trying to get more funding, and never
pays.
 Issue: who gets it, between creditor and vendor?
 Held: Creditor.
 Reasons
o Court says vendor wasn’t perfected, because they weren’t holding it as
collateral, they were just holding it because the debtor left it in their
possession.
Temporary Perfection
 For example, proceeds that aren’t described in F/S  15 day grace period, during
which you are perfected. Until you aren’t.
 See s. 26(1) for general temporary perfection rule
o Basically, some things are perfected for a grace period of 15 days.
Priority and Attachment
 Various competing interests arise in property. These priority rules will help tell us who
gets first cut from realization of the property.
 At Common Law, there was only one priority rule: everything turned on title, and the
nemo dat principle appled  if someone else has title, you can’t have it and you can’t
give it away.
 But this didn’t really facilitate commerce well, so PPSA sets out priority rules.
 If the interests at play are included within the statute, the idea is for PPSA to be a
complete set of rules to govern, based on the business/economic realities of the
situation.
“Review” of Priority Rules
 Designed to facilitate credit.
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 Remember, parties can agree among themselves to change their priorities.
Four Key Principles
 1. Where creditor could protect itself but fails to do so, it’s generally required to bear
the risk
o sometimes there’s a window in which they’re required to act, and they’ll be at
least partly protected if they act w/in that window
 2. Act prefers policies that expand credit and favours creditors who expand or protect
the debtor’s asset base.
 3. Secured creditors have a very powerful position in the realization process, but
failure to notify others of their status can result in loss of priority
o This is so that 3rd parties can make informed decisions  protecting innocent
3rd parties.
o If SCs fail to give adequate notice (which is usually done by filing FS in PPR,
though can be done by taking collateral), this usually results in them losing
priority, sometimes even against parties who have not relied on the lack of
notice (e.g. TiB, judgment creditors)
 4. Those who have relied on a piece of collateral to advance credit will take priority
over those who simply gain interest in collateral incidental to the transaction
o We see this in fixtures; accession; transfer in priority s. 35(8).
Categories
A. General Provisions (Apply Broadly)
 Note: if there is a specific rule, that operates before the residual priority rules.
 1) S. 20(a) and (b)  an unperfected SI loses to judgment creditor or TiB. Can lose a
greater interest than the debtor had in the item (can lose entire interest, esp if long term
lease situation)
o S. 22 15 days PMSI
 2) s. 28  SI in proceeds
o Depends on a proper description of the collateral
 3) Residual priority rules in s. 35
o Before this can apply, you have to be sure that there’s no specific rule
covering the situation.
o 35(1) Perfected SIs generally take priority in order of the date of reg of FS (or
if perfected otherwise then other)
 Perfected have priority over unperfected, and perfected take priority in
order of their attachment)
 This rule also covers SI given by two different debtors in the same
collateral.
 But this subsection is the residual section of the residual clause  look
at other subrules before you look at (1).
o (4)  serial numbered goods
 it’s not that you’re unperfected  35(4) makes you unperfected for the
residual priority rule in 35(1), the lapsed registration rule in 35(7), and
45
the transfer in provision of 35(8). Nothing else.
 But, in many cases 35(1) will be the applicable rule, and you’ll be
hooped anyway.
o (5) and (6)  future advances: creditor can tack future advances onto original
priority position
o (7) lapsed registration rule: 30 days if registration inadvertently lapses or is
discharged in error  if you restore w/in 30 days you slip back into your
original spot. So long as nothing has changed. If someone else has reg’d a new
SI, then you’ll lose. But if nothing has happened you can get in and restore
your priority to before the lapse.
o (8) transfer-in: reverses a presumption; protects creditor where SI item is
transferred to another debtor. But doesn’t protect against cut-off rules.
 4) PMSI  s. 34
o 34(2) Inventory
o 34(1) not inventory
o Enables creditors to get superpriority, provided the reg FS w/in appropriate
time limit, and in (2) give notice to appropriate creditors
o s. 34(4)  PMSI vendor over PMSI lender
o 34(5)  non proceeds PMSI in accounts for new value takes priority over
PMSI in accounts as inventory, if regs FS appropriately.
o 34(6)  PMSI in item as original collateral takes priority over PMSI in
proceeds
o 34 (8) helping ppl who grow their product
B. Cut-Off Rules (Basically used to Protect 3rd Parties)
 1) s. 20(c)
 2) s. 28(1)
 3) s. 30
o 30 (2)  OCB sale.
o (3)  the garage sale provision
 Low value consumer goods, not fixtures; innocent buyer who gives
value for the item; cut off.
o (5) BFP takes free of temporarily perfected SIs
 [i.e. under 26(1); 28(3); 29(4)  CP etc; 51  transf of collateral]
o (6) and (7)  protect buyers for new value of serial #’d equipment where
serial # not reg’d.
 serial no reg’n not required for equipment, but if you don’t it exposes
you to losing priority under these sections, and see above.
 4) s. 51
o Once you have knowledge, must take action w/in 15 days or will lose. Also
vulnerable to innocent buyers, b/c 35(5) provides cut-off rule for innocent
buyer who takes w/in grace period of s. 51
C. Rules for Negotiable and Quasi-Negotiable Property
 s. 31(1)  money
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 31(2)  cheque
 31(3)  purchaser for value w/o notice
 31(6)  Chattel paper purchaser priority
D. Misc. Specialized Priority Rules (Rules Dealing With Specific Situations)
 These will always operate before other rules, if they apply.
 S. 29: returned and repossessed goods
o Reattaches SIs that were cut off on the sale, and reinstates their priority when
the goods are returned
o Creates new SIs: 15 day grace period. If CP purchaser involved, will seize
item if going to default, and this counts as perfection (exception to rule that
you can’t perfect by repossession)
o Determines priorities among reattached SIs
 Account-holder gets last priority
 CPP beats out all others if they would have priority to CP
 S. 36  fixtures
 S. 37  crops
 S. 38  accessions
 S. 32
 Rent Distress Act s. 3
Cut-Off Rules
 S. 28
o (1) Subject to this Act, if collateral is dealt with or otherwise gives rise to
proceeds, the SI
 (a) continues in the collateral unless the SP expressly or impliedly
authorizes the dealing, and
 (b) extends to the proceeds
o So, if the SP authorizes the dealing, the SI will be cut off.
 S. 30(2)  A sale by debtor in the ordinary course of business cuts of SP’s interest in
the original collateral
o S. 28(1) is subject to this provision.
 S. 31: BFP
o If the holder acquired the money without knowledge that it was subject to a SI
or is a holder for value  cut off.
Priority Rules
 Note: creditors can agree amongst themselves as to priority when taking SIs [see
Furmanek v. Community Futures Development Corp. of Howe Sound]
 S. 20: if SI is unperfected, goes to three groups first:
o Judgment creditors
o TiB
o Liquidators
Robert Simpson Co v Shadlock [1981, ON HCJ]
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 C1 - CSC – they sold some items on credit.
 C2 - Second creditor was aware of the security interest.
 C1 – was unperfected (didn’t get a PMSI or regular security interest)
 C2 – got mortgage over property and at the same time, all the chattel of the motel. C2
knew that some chattel had been covered under CSC. C2 goes down to grab the stuff.
 Issue: Does knowledge change the application of the priority rule?
 Held: Nope. The rules are mechanically applied without regard to knowledge, unless
the act says otherwise.
 Note: this would be different if there is fraud. But just knowing about a prior security
interest does not reduce your priority unless the act otherwise states that knowledge is
considered.
Priority Disputes between two Unperfected SIs
 S. 35: Requires:
o 1. Rights in collateral.
o 2. Value
o 3. Written SA that will satisfy s. 10
 May have an attachment trigger (e.g. D buys collateral or otw takes possession)  so
two creditors can attach at same time.
o One solution applied in case law: share pro-rata
o Another solution: can’t apply 35(1)(c) b/c ≠ different dates. So fall back to
CL: first SI created should get priority. (Ontario Dairy Cow)
Residual Priority Rules: s. 35
 Every special rule must be considered first, but then this governs.
 35(1) covers the majority of priority cases
o (a) priority between protected SIs in the same collateral is determined by order
of occurrence of the following:
 (i) Registration of a F/S (without regard to the date of attachment)
 This one is the most important.
 First to register gets priority
 (ii) Possession of collateral in accordance with s. 24 (without regard to
the date of attachment)
 (iii) Perfection under s. 5, 7, 26, 29, or 78.
o (b) a perfected SI has priority over unperfected
o (c) Priority among unperfected SIs is determined by the order of attachment
 S. 35(5)
o Subject to (6)  exception
o Priority of SI under (1) applies to all advances, including future advances
o Totally unrestricted right to tack future advances
 (6) Exception
o Perfected SI has limited priority over the parties listed in s. 20(a)
 Judgment creditors in the process of executing their judgment
o Tacking rights are limited as against a judgment creditor, even with a
perfected SI  can tack for anything that falls w/in the following categories:
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




(a) advances made before the party’s interests arise, or before sheriff
seizes collateral or obtains a right to it under the Creditor Assistance
Act.
(b) advances made before SP acquires knowledge of
 (i) interests of the party
 (ii) seizure of collateral by sheriff
 (iii) order giving sheriff a right to collateral
(c) advances made in accordance with
 (i) statutory req’mt
 (ii) legally binding obligation (to a person other than the
debtor), entered into by SP before SP acquired knowledge
referred to in (b)
(d) reasonable costs and expenses incurred by the SP for protection,
preservation or repair of the collateral, and
(e) the amount of taxes paid by SP under s. 27(1) of the Manufactured
Homes Act.
Example of (6) application:
 Facts
 T1: D borrows from CU, $200,000, SI apaap, FS
 Note: SAs contemplating future advances typically include discretion to
lender to stop future advances. In this example, though, assume SA makes K
obligation to advance once D meets obligations.
 T2: 2nd $200,000
 T3: D is sued; Judgment Creditor $50,000, enforcement proceedings.
 T4: next advance is due and made. 3rd $200,000.
 T5: J/C has property seized; CU gets knowledge of seizure
 T6: CU 4th advance, $200,000
 T7: D in bad situation, CU lends additional $5000 to preserve collateral.
 Issues:
 So, what amounts can CU take priority for? Look down the list in 35(6), and
add up the things that fall within CU’s categories (pots of money).
o Anything that falls within the categories can go to CU
 35(6)(a): before JC’s interests arise  so, CU can get priority for the first and
second installments of $200,000
 (b) before SP had knowledge of JC interests  so CU can take priority over
3rd installment at T4
 (c) obligation to someone other than debtor  so ≠ apply here.
o So, seems that T6 advance (4th installment) does not get saved...despite
having a binding K. Seems unfair?
o But, s. 14(2): unless parties otherwise agree, an obligation owing to a
debtor to make future advances is not binding on SP if collateral has
been seized, attached, charged, or made subject to an equitable
execution under circumstances described in s. 20(a)(i) or (ii) and the
SP has knowledge of this fact before making the advances
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

o So, s. 14(2) gives CU the right to stop the advances after T5, which
they would likely do (pending the debtor dealing with the judgment
debt).
(d) will save the $5000, spent to preserve the collateral
(e) does not apply.
Application of s. 35(8)
 Sometimes called the “transfer in” rule
 Example
o T1 – D1 gives Bk SI apaap; Bk reg f/s properly perfecting SI
o T2 – D2 gives CU SI in apaap; CU reg f/s properly perfecting SI
o T3 – D2 sells boiler to D1
o Transferring of property to D1 would give the Bk a windfall and deprive the
CU from something they were entitled to
 s.35(8) says that CU wins – we protect the interest of the creditor who gave value on
the strength of a particular chattel
 This result is oppose what we would expect to happen if s.35(1) did not apply
 So the argument is that s.35(8) was brought in to reverse the s.35(1) application
 Different twist on our situation:
o At T4 – CU discloses sale (not consensual, but knowledge)
o At T5 – sends people down to D1’s property, notices brand new boiler –
advances more money. Relies on boiler to advance additional money on loan.
o At T4 – CU could have followed the item and run down to PPR and reg f/s
change statement naming D1 as a new debtor
o Then, Bk could have gone to PPR and looked up new boiler to check.
o Statute – CU has 15 days to amend F/S after knowledge
o If they amend, they will have priority
Circular Priority Problems
 Where A has priority over B who has priority over C who has priority over A
 S. 35(7): if registration lapses, or discharges (perhaps by fraud), you have an
opportunity to revive your security without losing priority. 30 day period.
 This is cool, but it can create a circular priority problem:
o A and B register, A is first, B is second. A’s registration lapses for some
reason (maybe they mistakenly think it’s been paid off or it wasn’t set for a
long enough time).
o A can reregister within 30 days.
o But, if someone new registers during the void, they will have priority over A –
because they couldn’t have known.
o So then, A gets back their priority over B, who has priority over C because
they were there first, but C will have priority over A because they registered
before A reperfected.
 Goal: try to protect the expectations of the parties.
o In this case, it might be A’s fault, so this could hurt them.
 Solution: we could subrogate C into A’s position, meaning they take their portion first,
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and then A takes the rest of their amount, and then CU takes afterward.
o Someone’s always going to lose out.
KMS Securities v. Richwood Kitchens
 Facts
o T1: Mtge #1
o T2: supply of cabinets to party; supplier (Richwood) SI in cabinets  No s.
49 notice (LT notice) at this time
o T3: Mtge #2 on property
 Problem! Two priority regimes at work:
o First, LTA provisions, says M1 is prior to M2
 Ordinarily, priority goes by date of reg’n of mortgage.
o By virtue of s. 36, RW was prior to M1. But, b/c ≠ filed LTA notice and new
mtgee came along (triggering s. 36(4)), RW = subordinate to M2.
o So...circular priorities!
 Div Ct:
o Have to cut the circle somewhere – give RW highest priority. They take over
M1, and now M2 is losing out. Now in a much worse pos’n than they should
have been.
o So they appeal.
 Appeal:
o What did they really get?
 M2 got right to remove cabinets as opposed to M1. To get that, would
have had to pay RW the value of the cabinets (per s. 36(9)).
o So, take M1’s mtge amt off the top. But they have to pay off the cabinetsuppliers out of their amount of the original mortgage  b/c would have had
to pay that amt anyway.
o Now, we let M2 come in – would always have been subject to M1’a mtge 
so, M2 gets their cut
o And then M1 could have come back to take the $ owed to RW, but there was
nothing left, so M1 had to pay RW out of own money.
o Sort of unfair, since RW was the one who got them all into this mess by
failing to register.
 Commentary
o Cumming and Woods say this isn’t the way it should have worked.
o True, at T2 RW had right to remove cabinets and M1 would have had to do
sthg about it. Of course, at that time there was more equity in the property.
o But, at T3, once M2 comes along and reg’s w/o seeing s. 49 notice, RW
doesn’t have the right to remove the cabinets as against M2.
 So, can you both remove the cabinets and not remove the cabinets? In
real life you either take them or you don’t.
o So, should have been:
 M1 takes their mtge cut off the top
 Then M2 gets their cut
 Then RW gets zero.
o Since M1 went into deal expecting to be fully protected; advent of M2
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shouldn’t have affected them or decreased their rights to collect; the only
thing that impacted them was the advent of RW and M2 together (making
more debts than value). RW caused the problems by not filing s. 49 notice in
the first place.
o But, really, there’s no good solution to circular priorities – either by some sort
of subrogation, or (as here) by who has the right to remove and whether they
have lost that right.
o Note: the court did basically give M2 priority over M1, and thus violated the
LTA priorities  Waldron thinks these are sacred and should be preserved at
all costs, so she prefers C&W’s take.
Subordination Agreements
 S. 40(1): one party may subordinate their SI to any other interest  effective between
parties, and may be enforced by a third party if the third party is an intended
beneficiary of the subordination.
 Don’t need to register them.
RBC v Gabriel of Canada [1992 ON]
 This case is a good easy example of how third party enforcement of subordination
agreements works.
 Facts: Sale of muffler business. One company (Comp) bought from previous owner
(F). Entered into agreement – purchase price of business is $135,000; $30,000 was
going to be carried on credit by vendor by promissory note and secured by a s/a of
business assets.
o Where was purchaser going to get the balance? Contemplated that the rest
would be from RBC Small Business Loans program. They know RBC will not
take second behind business vendor.
 Issue: F wanted priority.
 Held: RBC has power to enforce as third party beneficiary.
Transamerica Commercial v Imperial [1994 ABQB]
 Facts: TA was financing inventory but failed to register before possession and give
notice to Bk (PMSI)
 Issue: TA now trying to rely on subordination agreement as third party beneficiary
 Held: you are not a bank! Subordination agreement says bank.
 Note: Subordination agreements are treated narrowly, with strict reading by the courts.
Marshalling
 An equitable rule – not part of the Act, but recall s. 68 allows application of CL so
long as they don’t contradict the Act.
 It applies to all debtor-creditor relationships.
 See below under realization.
Two-Debtor Problem
 Example:
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o T1: D1 borrows from Bank; SI in tow truck (equipment)
o T2: D1 sells tow truck to D2
o T3: Credit Union lends D2 $ & SI in tow truck. Reg. F/S.
 Could be cut off if:
o Bank approves sale (s. 28(2))
o D1 is in business of selling tow trucks (OCB sale per s. 30(2))
 Unperfected:
o If bank did not register FS, CU would win
 Registration
o Serial numbered goods?
 Creditor can register by debtor name with description of item and kind,
or by debtor name with serial #.
o If registered by description:
 See s. 35(4): a consequence of reg’ing serial #’d equipment by
description: if ≠ reg by serial # and it has one, it’s not counted as reg’d
for purpose of s 35(1), (7) and (8).
 See s. 30(2): cut-off if sale to BFP in OCB.
SA Where More than one Advance
 It’s very common for a debtor to borrow an amount and anticipate more advances in
the future.
 Recall: per s. 14, SA may provide for future advances.
 Situations in which a SA commonly contemplates more than one advance:
o Line of credit
 Will fluctuate, and perhaps amounts borrowed will increase
 It’s actually just a series of advances.
o Borrowing for something that will be completed in stages
 E.g. construction financing
 If a building project will cost $1 million, a lender is unlikely to
give a lump sum of the full amount.
 Generally, a lender will expect the value of security to go up, so they
will require debtor to submit evidence/proof of what they have
bought/done
 Then, once the evidence is provided, the next installment of
money will be given.
 Issue: what happens to the lender’s priority for future funds loaned/owed?
o Recall: tacking allows a first lender to add further amounts to the original SI.
 Policy concerns
o If tacking is allowed, later lenders are not going to want to loan any money to
the debtor.
o If tacking is not allowed, the first lender may not lend any more since they
don’t know what will happen to their priority.
 So, a compromise:
o If a creditor knows about additional creditors and the possibility of future
advances, tacking will be allowed.
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o The case law goes so far as to say that tacking is allowed if you register a F/S,
since future creditors are put on notice.
 Probably subordination agreements will come into play here as well.
o The broad ability to tack is highly favourable to the first creditor, making the
second creditor unlikely to lend unless they can get a subordination
agreement.
 Note, though: PMSI will supersede a prior registered F/S, so if the second creditor has
a PMSI then they’re fine.
PMSI Priorities
 Two divisions:
o PMSI in inventory
o PMSI in anything other than inventory.
 S. 34(1): PMSI takes priority over all other SIs in same collateral if they perfect
within…
o Intangible: 15 days after attachment
o Tangible (other than inventory): 15 days after debtor gets possession.
 (2) PMSI in inventory has priority over any other SI in the same collateral if
o (a) Perfected at time debtor gets possession
o (b) SP gives notice to other parties who have registered F/Ss
o (c) SP gives notice to any prior SPs
o (d) notice in (b) tells the parties that they expect to acquire PMSI, and
describes inventory by item or kind, and
o (e) notice is given before debtor gets possession.
 (4) PMSI vendor takes priority over PMSI lender.
o Influenced by old law: if you take a CSA vendor keeps title
o Policy of encouraging vendor financing  usually more economically
efficient for vendor to finance than to have a 3rd party do it. Can give borrower
lower rates (know precise value so less risk), so we lower their risk further by
giving them a super-duper-priority.
 34(5)  Financing taken on a business’ accounts receivable
o A common method of financing for law firms, e.g.
o Example:
 T1: bus borrows from FinCo. SI in accts rec’ble
 T2: bus needs to expand inventory, so goes to Inventory
Financer(/Vendor) and buys I on credit. I/F gets SI in invent.
 IF can get priority over inventory, but also proceeds, which
will likely incl. accts rec’ble.
 So, even though FinCo reg’s FS showing interest in accts
rec’ble, s. 34(2) puts them at risk of losing priority over a lot of
them if IF loans on basis of inventory.
 Requirements of s. 34(5):
 (1) FinCo must have non-proceeds SI interest in
accounts (met this, b/c it’s in the original collateral
here)
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

(2) Must be providing new value to bus.
If these criteria are fulfilled, FinCo (original lender) has
priority over an inventory financer w/ interest in
accounts as proceeds from inventory  so long as
FinCo FS is reg’d before IF reg’s FS.
 Note: our IF is protected:
 Knows about the business since they are in it
 Will search PPR to check for existing creditors (b/c will
have to give notice to those to get priority for the
inventory). So they’ll see the accts rec’ble obligation,
and will decide whether or not they care. Usually they
care mostly about the inventory on the floor, not the
accts.
 As $ comes into the business, will use to pay down IF
to get more inventory. Money will come from
injections of cash from FinCo (b/c otw all they have are
outstanding debts). So, this facilitates the market, and
protects the IF.
 34(6)  non-proceeds PMSI takes priority over proceeds PMSI in the same collateral
where: (a) inventory: perfected at date of possession, and (b) ≠ inventory: perfected
w/in 15 days of possession.
o (Remember: generally, priority in proceeds is the same as in original
collateral.)
o Rationale:
 Proceeds lender has more rights: can pursue items traded/sold for
(through tracing?); plus, can hold non-priority seller liable for
conversion
 Non-proceeds lender only has interest in the collateral itself.
 34(8): if perfected SI in crops/proceeds thereof, given to let debtor produce/harvest
crops, either while crops are growing or w/in 6 months prior to crops growing, then SI
holder gets PMSI priority over any other SIs in same collateral given by same debtor.
 34(9) gives PMSI to those who lend to a debtor to enable the D to get food or drugs
for fowl, cattle, horses, sheep, swine or fish or the proceeds thereof.
McLeod & Co. v. Price Waterhouse Ltd. [1992, SKQB]
 Facts: Credit approval process before offer can be accepted. Takes a while, then reg
f/s. Argued ≠ reg w/in 15 days of taking possession because held truck for a while
before the credit K was approved.
 Successful Argument: during time D had phys possession of the truck, and until Ford
Credit approved the credit arrangement, truck was not in possession of the party as a
debtor  so, in fact, the debtor didn’t get possession of the truck until the credit K
was approved.
Competition with TiB or Liquidator
Re Giffen [1998, SCC]
55
 Facts
o Employer leased car, released to employee. Long term lease w/ option to
purchase at end. In this case ≠ matter whether true lease, b/c for term of more
than one year so definitely SI under the Act covered by at least parts 1-4.
o No one thought to register anything in the PPR. In 1992, when this happened,
PPSA had only been in force for two years, and apparently it just didn’t occur
to anyone.
o Employee went bankrupt. Under B&I Act, TiB gets appointed to sort through
debtor’s property and pay out to creditors.
 Generally, TiB tries to maximize amt left for unsecured creditors.
 Issue: car is SI under the Act, not perfected. S. 20 gives TiB priority over unperfected
interests. But TiB can’t distribute things that aren’t actually debtor’s property.
 Held: TiB prevails.
 Reasons
o Bankruptcy & Insolvency = federal, fed gov’t gets to define what happens on
bankruptcy
o But province gets to decide people’s property rights. But, CL on debtor’s
property rights ≠ determinative, legislation can change it.
 In this case, Prov. Gov’t of BC has changed the CL through
legislation.
 If you don’t perfect your SI, then your interest does not win over TiB.
 Lessor’s interest in the vehicle is ineffective against the TiB  TiB
gets the car.
o In this kind of case, title-holder is irrelevant.
Competition with Transferees of Collateral & Buyers/Lessees of Goods
 Recall, some protections for buyers:
o S. 28  if SP consented to transfer, buyer will take item free of SI
 The focus is on what creditor knows or should know.
o S. 30(2)  OCB buyer takes free of SI
Transferees where SI is unperfected
 S. 20(c): an SI in chattel paper, document of title, instrument, money, intangible or
goods  all subordinate to the interest of a transferee who:
o (i) acquires an interest under a transaction that isn’t a SA
o (ii) gives value, AND
o (iii) acquires the interest without knowledge of the SI and before the SI is
perfected.
So, basically, a BFP
 Recall S. 22: perfected PMSI get priority over TiB and judgment creditors, but not
BFPs.
Royal Bank of Canada v. Dawson Motors (Guelph) Ltd. [1981, ON County Court]
 Facts
o Advance from π bank on July 27
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o August 16, bank registers F/S, with incorrect serial number
o But on August 15, rogue debtor drove car to ∆ and left it overnight. They
checked PPR on the morning of August 16th.
o August 16th check wouldn’t have turned up anything posted after close of
business on the 15th
 It was a slower time back then.
 Issue: ∆ and π both believe they own the car. Who takes?
 Held: ∆ takes over the bank.
 Reasons:
o If we apply the ON equivalent of 20(c):
 (i) this is a sale.
 (ii) SI wasn’t perfected on the 15th.
 Did they give value? Court says no, but Waldron thinks they
did.
 A promise in return for a promise is valid consideration.
 A promise to buy the car tomorrow for x amount in
exchange for a promise to sell the car for that amount
 value.
o The bank had a number of days in which to register the FS, and because they
waited it didn’t show up when ∆ looked. So, on a fairness issue they bear the
loss.
o ∆ did everything they could – searched the system, glitch meant they didn’t
see the SI.
o Note: court said the misstated serial number wouldn’t have been a problem,
because they just added an F at the end which anyone would know didn’t
belong there, so it would still be clear.
o Note: if no value is given (i.e. if a gift or other voluntary transaction), then this
section won’t apply.
The Queen v. Royal Bank of Canada [1997, SCC] [“Sparrow Electric Corp”]
 Principle: if you combine a s. 28 implied licence to deal with s. 31 SIs in things like
cheques and money, a debtor can legitimately sell their inventory and take the
proceeds to pay a debt owing, and the SI of the inventory supplier will be cut off.
 Issue: debtor/potential purchaser argued that since they could have sold, the SI didn’t
prevail.
 Held: SP keeps it. SI prevails.
 Reasons: license to deal doesn’t mean SI has any less SI in the inventory until the
debtor actually does something with it.
S. 30  Business Buyer Cutoff Rule
 (1) definitions  put in to remedy a problem relating to fixtures in Ks to supply goods
& services. Addresses situations where it might be an argument whether there was a
sale of the fixture at all, or whether contractor was simply being paid to build
something on the property.
 (2) “Ordinary Course of Business”
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




o A buyer or lessee of goods sold or leased in the OCB of the seller/lessor takes
free of any perfected or unperfected SI in the goods given by the seller/lessor
or arising under s. 28 or 29 (returned goods), whether or not the buyer/lessee
knows of it, unless they also know that the sale/lease is a breach of the SA.
(3) buyer/lessee of goods acquired as consumer goods takes free of
perfected/unperfected SI as long as buyer/lessee (a) gave value, and (b) bought/leased
w/o knowledge of the SI.
o Some value has to be transferred, and you have to take w/o knowledge
(4) Two situations in which (3) protection doesn’t apply:
o (a) SI in a fixture.
 If you’re buying a fixture you don’t get protection under (3)
o (b) if purchase price of goods is > $1000 (or if market value of lease is >
$1000).
 Low-value consumer goods. Sometimes referred to as the garage-sale
rule.
(5) [Recall: certain sections allow temporary perfection]
o A buyer/lessee takes free from a temporarily protected SI under s. 26(1)
(won’t deal with); s. 28(3); s. 29(4) (returned goods); s. 51 (will get to next
class), IF buyer/lessee (a) gave value and (b) bought w/o knowledge of SI
(6) [per s. 7, this only applies to serial numbered equipment]: buyer/lessee of SN
equipment takes free from SI perfected under s. 25 if
o (a) bought/leased w/o knowledge of SI, and
o (b) goods weren’t described by serial # in SI registration
(7) (6) only applies to serial numbered equipment.
(8) a sale/lease referred to in (2), (3), (5), or (6) may be for cash, by exchange for other
property, or on credit, and includes delivering goods (or doc of title to goods) under
pre-existing K for sale. But doesn’t include transfer as security for or in satisfaction of
antecedent debt or liability.
Royal Bank of Canada v. Wheaton Pontiac Buick Cadillac GMC Ltd. [1990, SKQB]
 Facts
o Key West Motor Products sold cars.
o RBC had SI in KW’s inventory. FS properly reg’d; bank ≠ req’d to reg by
serial # (in BC, could not have b/c inventory)
o KW in liquidation. Deal w/ Stieben to sell him 4 vehicles w/ SI.
o Stieben deal w/ Deschner, after it ended D bought Fiero – searched SK
registry for serial #s but didn’t turn up RBC’s SI.
o D bought Fiero from Mr. Stieben, then gave it to Wheaton Pontiac in trade, w/
warranty that it was free of encumbrances.
o Then WP sold Fiero to Ms. Morin, warranting clear title.
 Issue: Who gets the car?
 Held: RBC takes back.
 Reasons
o Test: is it in accordance w/ general commercial practice? If no, not OCB
sale.
58
o Since the first transaction wasn’t OCB, s. 30(2) doesn’t cut off the original SI.
o So, RBC can follow the Fiero to Ms. Morin.
o Note: Morin would have action against WP for breach of warranty of title,
who would then have action against Deschner for same, who would have
action against Stieben, and so forth.
Fairline Boats Ltd. v. Leger et al [1980, ONSC]
 Look at all the circumstances of the sale:
o 1. Where agreement was made
 Ordinary place of business?
o 2. Nature of the parties
 Ordinary customer, not financial institution etc.
o 3. Quantity
 What is the normal amount of these goods sold?
o 4. Price: usually market value
 In this case it was extremely low
o 5. Other factors
 Were they in financial trouble?
o 6. Auction or bankruptcy?
 Not OCB, per Wheaton Pontiac
 Policy: allow clear title if bought in OCB
o Allows purchasers to buy expeditiously without searching title
o Inventory is almost always subject to some financing
o Vendor is in a better position to know if debt is paid
o Need to protect purchasers
RBC v. 216200 Alberta Ltd. [1986, SKCA]




One line of authority on the business buyer cutoff rule
Facts: furniture store; customers paid partial price.
Title doesn’t pass until goods are transferred – deposit insufficient.
But Sale of Goods Act overturns this – buyer’s lien. Seller’s duty is discharged if they
provide the item or refund your money.
Spittlehouse v. Northshore Marine Inc. (Receiver of) [1994, ONCA]
 Second line of authority
 Facts:
o Customer bought an expensive boat.
o A classic conditional sales K: ∆ vendor retains title, buyer will pay.
o Transamerica comes in and wants to take the boat back from π due to ∆ nonpayment on their loan.
 Held:
 Reasons
o So, technically, the parties agreed that title wouldn’t transfer until the full
price was paid, but the court says we’ll just treat the word “sale” as what it
means in common parlance.
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o There was no doubt that when π brought the boat home they told people they
had bought it – assumed it was a sale, so court goes with that.
 Note: court could have stuck to the line in RBC v. #’d Alberta and still achieved this
result.
o But the agreement in this case wasn’t a CSA  PPSA doesn’t recognize those
as a thing. Under PPSA, everything is just an SI, which simply gives vendor
an interest in the boat.
o So, PPSA would say πs were owners of the boat, because CSAs don’t exist
anymore. It was a sale, with reservation of a SI.
Note: in BC we have legislative protection
 Sale of Goods Act  Part 9, s. 75 allows for a buyer’s lien.
o Applies if (a) buyer pays all or part of price; (b) goods are
unascertained/future goods; and (c) buyer acquires in good faith for use
primarily for personal, family or household purposes.
o Liens discharged when K of sale fulfilled or refund given, per s. 77
Section 51 – Transfer of Debtor’s Interest or Change of Debtors
 This section protects purchasers where the debtor has transferred to a third party in a
situation where the SP’s interest is not cut off. This happens in one of two ways:
o A. SP consents to the transfer subject to the SI.
 E.g. debt is $100k, value is $200k, A sells to B for $100k and B
assumes the loan.
 The interest is subsisting in the collateral, which is transferred with
SP’s immediate knowledge.
o B. Transfer happens without SP’s knowledge or consent.
 Suddenly realize collateral has been sold.
 S. 51 deals with situation A, and the need to protect people who deal with the new
debtor (i.e. the person the original debtor has transferred to).
 15 day grace period – begins to flow from the time the SP knows about the occurrence
that puts third parties at risk
 Process for applying s. 51:
o 1. Look at the date of SP getting knowledge
 Could be date of transfer
 Could be a later date when they have actual knowledge
o 2. Then take a date 15 days later
o 3. When do they register a financing change statement (FCS)?
 (i.e. to change the name of the debtor)
 If it’s after the 15 days, then anyone who registers between the 15 days
cut-off and the actual date of registering the change  will get
priority.
 What could happen during the 15 day delay?
o If a new FS is registered during the 15-day period, that SP is in a wait-and-see
position. If FCS is registered by the end of the 15 days, original creditor will
get priority. BUT, if they don’t, then the new SI gets priority
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o So, SP can protect themselves by registering statements then waiting 15 days
before advancing the funds.
o If there is a sale within 15 days, s. 30(5) deals with protection of a BFP who
buys during grace period
o Some obligation on SP to do something or risk losing their collateral or SI
 The controversial part is that the 15 days only starts to run from the date SP knows, so
this can be a point of debate.
o PPSA s. 1(2) definition of knowledge:
 (a) A natural person knows or has knowledge when information is
acquired by the person under circumstances in which a reasonable
person would take cognizance of it,
Re Orion Truck Centre Ltd. [2003, BCSC]
 Facts: SA; debtor changed name. Two SPs find out about the name change and do
nothing. Debtor goes bankrupt, enter TiB, SPs finally change F/S.
 Issue: does s. 51 give TiB rights in this circumstance?
 Held: TiB has interest in the collateral on behalf of unsecured creditors.
 Reasons
o Turns on the specific drafting of s. 51: it expressly refers to SIs and “other
interests which are not SIs”
 How broad is the term ‘interest’?
 Court finds TiB is included as holder of interest on behalf of
unsecured creditors.
o Basically the SPs had knowledge, didn’t change w/in 15 days, and the trustee
came in before they did.
o So, it was like a sale situation which they did nothing about, so unsecured
creditors win.
Accounts and Chattel Paper
Negotiable Collateral
 Where something is transferred by physically handing it over
o E.g. a cheque is transferred by handing it over (or by signing the back and
handing it over)
 S. 31: looking at things that are easily transferable.
o (1) Money: defined as a medium of exchange authorized by a government as
currency
o (2) Instruments: bill of exchange, any other writing that evidences transfer.
 Does not include chattel paper, document of title, investment property
or bond debenture.
 Major categories: cheques and promissory notes
o (3) Negotiable Documents of Title: writing issued by or addressed to bailee
and covering goods.
 Example: bill of lading.
 Primarily things covered by federal jurisdiction
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



o (4) Chattel Paper: different from instrument. One or more written documents
which evidences monetary obligation of specific goods. The physical contract,
the actual piece of paper, is the thing of value.
S. 31 “holder”  just means whoever has physical possession.
S. 31(2) protects creditors who take an instrument for a debt.
o They take priority on the instrument even if they know about a prior SI.
31(3) A purchaser of an instrument has priority over a SI if they give value, take
possession, and don’t have knowledge.
o Purchaser includes someone who takes by sale, lease, discount assignment,
negotiation, mortgage, pledge/lien, issues, reissue or gift.
 If I give you a cheque, you are considered a purchaser of that cheque
under the Act, and you aren’t protected unless you’ve given value.
Need to watch for possession, and what the actual item is.
Indian Head Credit Union v. Andrew; Royal Bank of Canada, Garnishee [1992, SKCA]
 Facts:
o Farmer (Andrew) had livestock, gave SI to CU in that livestock, including
proceeds (which included insurance)
o Livestock got sick and they all had to be destroyed, so there was a program to
compensate the farmers.
o So, CU had an interest in the money that would be paid for the cows.
o Normally, a cheque would be issued jointly to CU and P. But there was a mixup and the cheque was issued to Andrews.
o Andrews deposited the cheque with RBC and wanted to buy a term deposit.
RBC asked about CU’s interest but A said there would be another cheque for
them and this was his.
o So bank issues term deposit, then A borrows money from the bank using the
term deposit as security.
o CU comes after the term deposit.
 Issue: bank argues they are protected by 31(1) as a purchaser of the cheque deposited
in the bank.
o Gave value, acquired w/o knowledge, and have possession, so they argue they
get protection under 31(3)
 Held: No, bank is not protected under s. 31
 Reasons:
o There was never any money involved, so 31(1) doesn’t apply. The cheque
turned into a term deposit – there was no money owned by the bank, so it
doesn’t apply.
o Also, they knew too much so they wouldn’t get protection even if it did apply.
Bank knew he owed money to CU and that CU had interest in the proceeds,
and had some indication that the cheque was proceeds of the destroyed cattle.
o A wasn’t a long term customer where it might have been reasonable to rely on
his word – he was relatively new to the bank. They shouldn’t have just trusted
him.
 Note: a term deposit is not an instrument, and it’s certainly not a cheque under the
Bills of Exchange Act. It could only be a piece of writing which evidences money.
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Rights to a term deposit are not transferred by delivery. It was an intangible, not the
sort of thing transferred by handing over a piece of paper.
Chattel Paper
 A transfer (sale) of chattel paper  one party gives up interest in the CP in exchange
for money. The transfer creates a new SI in the CP.
 With chattel paper, can perfect by possession  you have an SI in the car (e.g.), but
also in the CP itself, to which the same rules of SIs apply.
 Two-tiered perfection:
o 1. Ensure SI in CP is properly perfected, or SP is at the mercy of the party
who gave the interest
o 2. Ensure SI in CP is properly perfected, to protect against transferor’s
bankruptcy
 Where there is an outright sale of CP, the purchaser will usually take possession 
this is the safest way to protect your interest in the CP.
o 31(6) gives special priority to purchasers of CP who take possession in OCB
and for new value.
 Note: accounts and CP are mutually exclusive
o If it’s an instrument or an account, it’s not chattel paper.
 Two defining components of CP:
o 1. SI
o 2. Promise to pay
 To know what rule applies, we need to know what a thing is.
 Can have a true SI in chattel paper:
o An interest of creditor securing payment from the debtor.
o Generally, bank won’t intervene unless there’s a default. If the debtor defaults,
then the bank has the right to go in and demand payments/realize on the SI.
 Recall: if it doesn’t secure payment of an obligation, Part 5 won’t apply. But
everything else will still apply to CP.
 Perfection
o Most likely will perfect by possession. Unlikely to register a F/S – better to
just take and hold the CP itself. Better protection under the Act.
o 31(6) If you perfect by possession of CP, you have priority over:
 (a) Anyone with SI in the CP who perfected by registering F/S
 (b) Anyone with registered SI in inventory and proceeds, whatever the
extent of that interest, and even if CP holder knows about the interest
of the other creditor.
 Note: the Act doesn’t state this super clearly, but it’s how it’s
been interpreted.
 One of the provisions must be dominant, and Cuming and
Woods say that (b) is the dominant provision here.
 Application of 34(5): PMSI of an accounts financer
o Note: unlike a CP purchaser, an accounts financer must have registered before
the inventory supplier came on the scene.
o It’s a non-proceeds SI in the account. (It’s really a sale, but it comes under the
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Act as a SI)
o Similar to CP, except instead of taking possession, they’ve had to register F/S
to perfect.
o Accounts financer (non-proceeds SI) has priority in accounts over a holder of
PMSI in accounts as proceeds of inventory (i.e. an inventory supplier) IF A/F
registers their SI in accounts before PMSI is perfected or the F/S relating to it
is registered.
o So, an inventory financer can check the registry and see that there’s a prior
agreement w/ A/F, and they can make an informed decision.
Canadian Western Bank v. Gescan Ltd. [1991, ABQB]
 Facts
o T1: lender gave $ to A, SI in accounts
o T2: A assigns an account to another creditor.
o A defaults. Lender goes to the books to notify people who owe accounts to
pay them instead of A. But then they discover that A had assigned that
account to another creditor.
 Issue: lender says creditor must give up the money collected on that account, because
L has rights over it.
o C says they have specific interest in that account, which overrides L’s general
interest.
 Note: before PPSA, this was the rule (per Durl v. Hall): in a
competition over an account, the first party to give notice to the
account debtor would win. So, since C had already started collecting,
C argued that they took.
 But, under PPSA, things are different.
o C holds a deemed SI  not securing payment, but it is a SI
o L has registered F/S and perfected their SI.
 Held: C has an unperfected SI, so L takes priority.
Assignment
 Recall: if there is a specific rule, that rule governs. If there isn’t a specific rule, fall
back on s. 35
o So, with CP purchaser, ask if they qualify under s. 31(6). If yes, apply that. If
not, go to s. 35.
S. 41 – Assignments of Intangibles or Chattel Paper
 (1) Account debtor means a person who is obligated under an intangible or chattel
paper
 (2) The rights of an assignee of collateral which is either an intangible or chattel paper
are subject to
o (a) the terms of the contract between the account debtor and the assignor and
any defence or claim arising out of the contract or a closely connected
contract, and
 So, say A promises B $100 for widgets, and B assigns the debt to C for
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$85. But then some of the widgets are defective and get returned, so A
only owes B $50 for the widgets kept.
 C is now stuck because this provision gives A superior rights
 Note: ‘rights of setoff
 CL right to set off mutual debts  so, A owes B $100, B owes
A $150. Can set off the two debts and B just has to pay $50.
 At CL, these rights applied only to K itself  so e.g. instead of
A having to return widgets, A had paid $50 extra on a previous
delivery from B, and now claims that set-off from the $100, so
they only owe $50. Same effect.
 Because the Ks are closely related, arising out of similar
transaction, A can set off the amount, and C is stuck with that
too.
 So, C takes subject to any rights on the K and closely related Ks
including rights of setoff
 If B was fraudulent and A owes nothing, C is subject to that
too.
o (b) any other defence or claim of the account debtor against the assignor that
accrues before the account debtor has knowledge of the assignment,
 Summary: s. 41 is a codification w/ some modifications from CL
o Notice given to account debtor that stops running of accounts has to identify
the K under which the amount payable is to become payable;
o One modification: you can modify the K in ways that are commercially
reasonable
o Other modification – see (9):
 A term in a contract between an account debtor and an assignor that
prohibits or restricts assignment of the whole of the account or chattel
paper for money due or to become due is binding on the assignor, but
only to the extent of making the assignor liable in damages for breach
of contract, and is unenforceable against third parties.
 Basically preserves right to sue B for damages, but ≠ effective against
3rd parties.
Returned or Repossessed Goods  SI returns after Cut-off
 Most of the time, these rules are really easy to apply. The basic concept and how it
plays out are very straightforward.
 SI can become detached from collateral by a cut-off, but then return.
o E.g. debtor sells in OCB, which cuts off SI, but then the item is returned to the
debtor.
o Issue: does the SI reattach?
 S. 29: rules for reattachment of SIs in returned or repossessed goods
o (1) if a debtor sells or leases goods that are subject to a SI under
circumstances in which the buyer/lessee takes free of the SI (per s. 28 or s.
30), then the SI will reattach if:
 (a) the goods are returned to, or are seized or repossessed by the debtor
or a transferee of CP created by the sale/lease, AND
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 (b) the obligation secured remains unpaid or unperformed.
So, SIs from immediately before a reversed sale will reattach, provided
that all parties still exist and registrations of F/Ss haven’t expired.
o (4) A party wishing to perfect a new SI in returned goods must register F/S or
take possession of collateral
 Despite s. 24(1)  This is the one exception to the rule that says
you can’t perfect by seizure or repossession.
o (5) In terms of returned goods, the SI of a transferee of account is subordinate
to (1) SIs and CP SIs.
o (6) IF CP holder would have priority under s. 31(6) [i.e. if they have
perfected], then SI held by transferee of CP has priority over:
 SPs who get SI back under (1)
 Anyone with SI in after-acquired property
 So, the order is generally:
o 1. Perfected CP holder
o 2. Perfected PMSI holder
o 3. Regular SI holder (typically a bank)
o 4. Accounts Financer
 Process for assessing priorities over returned goods:
o 1. Check for the three categories of SIs listed under s. 29:
 A. Reattached (generally)
 B. Created for accounts financer
 C. Created for CP purchaser
o 2. Check to see whether they are perfected
 Accounts financer: must register w/in 15 days
 Bank: must register F/S
 CP: must register F/S, per s. 31(6)
o 3. Analyze priorities:
 Accounts financer falls to the bottom
 A perfected CP purchaser will beat everyone.
Security Interests in Some Specific Types of Collateral
Fixtures
 S. 36
 Once an item is affixed to land in such a way that it becomes a legal “fixture,”
ownership goes to the owner of the land.
 It can be tricky to determine what is and isn’t a fixture
 Test: assess based on two factors
o 1. Degree of affixation
o 2. Intention of the parties
 Did they intend it to be affixed such that it became a fixture/part of the
land?
 Not necessarily confined to an interior mental state, but looks at what
people would normally think
 Custom comes into play a lot here  there are cultural assumptions
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





about what goes with a house, etc.
Once something becomes part of the land, the Land Title Act rules apply:
o The first thing registered takes priority
o In BC, you can register a whole bunch of things. It’s not a pure torrens
system.
 So, you can register a judgment. (It comes up in PPR as well)
o So, now there are two registration systems to look at.
 This can take us into circular priority problems [see KMS Securities v.
Richwood Kitchens]
PPSA has a slightly limited definition of fixture:
o “Fixtures” does not include “Building Materials”
o Fixtures financer provision: there is a limited right to SI in fixtures  don’t
include things that will wreck the house if removed.
o The protected category of “building materials” does not include the following
(which thus CAN be fixtures):
 Heating, AC, elevators, etc.  so these things can be subject to a
claim.
o “Building materials” means materials that are incorporated into a building
and includes goods attached to a building so that their removal
 (a) would necessarily involve the dislocation or destruction of some
other part of the building, and cause substantial damage to the building
apart from the loss of value resulting from the removal, or
 (b) would result in the weakening of the structure of the building or the
exposure of the building to weather damage or deterioration,
But does not include:
 (c) heating, air conditioning or conveyancing devices [elevators], or
 (d) machinery installed in a building or on land for us in carrying on an
activity inside the building or on the land
S. 36(3): except as provided in this section and s. 30, a SI in goods that attaches before
they become fixtures has priority over a claim made by a person with an interest in the
land.
S. 36(4): but that party’s priority is subordinate to the SI of someone who acquired
interest in the land after the goods became fixtures IF the person gave value, got SI
before notice was filed in accordance w/ s. 49, and there was no fraud.
o So, SI in goods that become fixtures? File a notice in accordance w/ s. 49.
Note: don’t need to be perfected to take priority under s. 36(3), but if you want to
protect against someone buying the property or making an advance on a prior
mortgage, etc., you need to register.
o We’re only talking about competition between PPSA secured creditors and
parties with an interest in the land  no reference to perfecting SI in fixtures,
because s. 36 applies even if SI isn’t perfected.
There are two types of SIs in fixtures:
o SIs taken at or before the time the item became a fixture
 Per 36(3), these have priority over interest in land
o SIs taken after the item became a fixture
 Per s. 36(5), these lose priority to pre-existing interest in land, unless
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that party consents to give priority.
 Exceptions:
o Registration under s. 49 will protect against losing priority to a BFP who
registers later.
o Registration of judgment in LTO, per s. 36(6) and (7)
 Takes priority over PMSI, but PMSI gets 15 days grace to register and
perfect.
 PPSA tells us what creditors can do to realize their SIs in fixtures:
o S. 36 (8): can’t just go in and rip it out willy-nilly  must take out as
carefully and neatly as they can.
o (9) E Co would be liable for any damage they caused if they didn’t take it out
nicely.
o (10) person entitled to reimbursement under (9) can refuse permission to
remove until security is given
o (11) right to go to court to sort out these issues – who gets security, how
much, how paid, etc.
o (12) mortgagee interest is subordinate but may retain the goods on payment to
SP of either (whichever is less)
 (a) amount secured by SI that has priority
 (b) market value of goods if removed from land
Manning v. Furnace Man [Manitoba]
 Note: not applicable in BC, but useful illustrative facts/policy issues
 Facts:
o Mr & Mrs M bldg house; had general K’er who was buying things for process
of bldg from various dealers
o One thing he bought was a furnace, from Furnace Man  FM supplied
furnace to K’er who installed in Ms’ house.
o Nothing happened for a while; they paid the K’er. But FM hadn’t been paid.
o So, FM should have filed a builder’s lien (provisions under statutes that the
Ms would have held back part of the price from the K’er until the lien period
was over, to ensure the price would be satisfied.
o But, FM never filed a lien, so that remedy was closed to them.
o Sometime after Ms have occupied the house, it occurs to FM that they haven’t
been paid.
 Issue: FM claims they have an SI in the furnace, with priority over the Ms, and wants
to remove the furnace. In the middle of winter. In Manitoba.
o The Manitoba Act provision didn’t contemplate SI attaching at the time the
item became a fixture  so this wouldn’t be a problem in BC.
 Held:
 Reasons
o Ms argued that they bought the furnace from the contractor in an OCB sale,
which cut it off. But court said the contractor wasn’t in the business of selling
furnaces.
 Though…you could see how a construction business must ordinarily
require you to sell installations for the house, etc.
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
Note that s. 30(1) of the BC Act is supposed to cover this exact
problem: definition of OCB “includes the supply of goods in the
ordinary course of business as part of a K for services and materials.”
 So, we wouldn’t have this issue either.
o Lower court: so, when did FM’s SI attach?
 Didn’t attach before, so it must have been after. So, subordinate to the
Ms.
o CA: there was no SI
 The K didn’t give one, just a promise to pay.
 Note: clearly the courts didn’t have much sympathy for FM.
o In particular, they could have used the Builder’s Lien Act to protect
themselves.
o In that case, the Ms could have withheld the appropriate amount until the lien
period expired, so really everyone could have been protected.
Crops
 s. 37
 Pretty similar to the fixtures system.
 Farmers may have to borrow $ to preserve crops.
 Note: recall s. 12: you can’t have attachment of SI in crops until the crops become
“growing crops”
o SI doesn’t attach until crops start to grow, but after that, SI in crops takes
priority over pre-existing interests in the land.
Accessions
 S. 38
 Definition: “goods that are installed in or affixed to other goods”
o e.g. snowplow attached to the front of a truck; tires on a car; etc.
 Registration
o Where there is competition between one party with SI in land and one party
with SI in fixtures, two registration systems exist.
o Where there is registration of title (certificates of title, covered by s. 36), you
can figure out who owns a property and what interests exist in that property.
o BUT, there is no registration system for cars.
 In Canada, at least  in the US many states actually do have
certificate of title systems for cars.
o So, if there’s no LTA requirement we register under the PPR.
 Use the same structure and requirements as for fixtures, but use PPR
for both, don’t need to register in LTO
 Deals with competition between parties with SI in item and parties with SI in
something affixed to the item.
 First, look at the item and determine whether it’s an accession or commingled goods.
o If the identity is lost, it’s commingled, not an accession.
Pratt & Whitney Canada Leasing Inc. v. Ellis Air Inc. [2002, BCSC]
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 Facts
o Creditor sells helicopter to the debtor, taking SI in the helicopter
o P&W leased H engine to debtors. Definitely an accession – could be removed,
etc.
o P&W didn’t perfect its SI – didn’t register FS (though turns out this didn’t
matter)
o Debtor went into creditor protection, ultimately went bankrupt
o The party who had sold the helicopter basically got permission by court order
to come and take the helicopter and terminate their interest in it.
o P&W discover their engine is missing, and in the hands of the creditor who
has repossessed the helicopter.
 Issue: P&W claim priority w/ respect to the engine, saying that it was an accession and
under s. 38 they had priority
 Analysis
o Looked at limits of provision
o If you acquired it w/o knowledge of the SI
 So creditor said court order gave them right to take the helicopter.
P&W hadn’t filed FS, and once they got their court order w/o
knowledge of SI then they fall under s. 38(3)(b)(ii).
 But, court said the order doesn’t talk about the rights over the engine –
doesn’t specify whether you get the helicopters absolutely or not. Be
careful about the wording of your orders! Can repossess lots of
things that you may later be forced to cough up amounts of to other
creditors. So, creditor’s order just says they can go get the helicopters,
nothing about other potential creditors. No right under than order to
acquire the whole.
o So, we fall back to general provision: 38(2)
 If someone has SI in accession affixed to an item over which someone
has SI in the whole, the SI in the accession takes priority over the
person who has SI in the whole.
 So, P&W took the engine, their SI having priority
o Note: registration is irrelevant in this section – so we’re not worried that P&W
created the problem
 Similar to LTA registries for fixtures, you don’t have to register as
long as nothing else happens.
o Clearly, the original court that wrote the order could have cleared this all up
by allowing for vesting in the creditor when they took possession.
o Problem: there was some usability left in the engine.
 The creditor gave credit to debtor for the unused life of the engine,
which clearly they wouldn’t have done if they’d known P&W were
going to take it.
 Could they have argued that as an advance under the agreement, made
after SI of accession attached  didn’t argue this, but it might have
been possible to reduce the loan by the useful life of the engine, and
P&W might have had to pay up the value of the useful life of the
engine.
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
Also: not sure why TiB wasn’t taking the engine if it was usable (?) –
but creditor was perfected, so they would be able to fend off TiB.
Commingled Goods
 Don’t confuse accession with commingled goods.
 S. 39(8): this section doesn’t apply to accessions covered under s. 38
 Example: SI in sugar that gets cooked into candy with cocoa.
o The cocoa and sugar have commingled.
 S. 39 tells us that the SIs continue in the commingled goods, as long as they were
perfected before the commingling.
o If there was SI in both the sugar and the cocoa, then the SPs will take the
value of the candy proportionately, according to the ratio of their debt.
 If you have a PMSI in the components, you basically get PMSI in the whole  take
priority over other non-PMSI holders.
Special Rights of Particular Parties
Repairer’s Lien
 At CL, a repairer always had the right (a CL lien, basically) to hold onto the thing until
payment.
 Now: can give item back to party and register in PPR
 See s. 32: a lien on goods that arises as result of OCB provision of materials or
services in respect of the goods = priority over perfected or unperfected SIs, (unless
lien arises under an enactment that gives priority to the SI)
Distrain
 Recall the Rent Distress Act
 Commercial landlords have always had (and still do) the right to distrain for rent. Go
in and seize property of tenant and sell it to collect rent.
 Landlord’s right of distress takes priority over SP, unless SP has PMSI (in which
case PMSI takes priority – which is what wound up happening in Marathon, though
that’s not what we focused on. But, had landlord successfully convinced court that
creditor didn’t have PMSI, they could have seized the inventory and kept it per right to
distrain.)
On the Event of Default – Part 5
 Note: these rights & remedies apply only to true SIs, not the deemed SIs
Roadmap of Part 5





s. 60 provides order of distribution
s. 61: alternate remedy  voluntary foreclosure
s. 62: debtors’ rights to redeem the collateral, or sometimes to reinstate the loan.
S. 63: court’s supervisory jurisdiction
Ss. 64, 65, 66: receivers and receiver-managers
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 S. 67: limits on remedies for consumer goods (the “seize or sue” provisions
Realization
 Two scenarios:
o 1. Scheduled payments
o 2. Loan repayable on demand
 Some possible acts of default (will be set out in loan agreement)
o Failure to pay on the loan (of course)
o Failure to maintain insurance
o Failure to do maintenance on item
 Process of realization example:
o $20k truck, A defaults
o Bank notifies A
o Bank Picks up truck
o Then arranges to sell the truck to recoup their losses
o Sells the truck – $5000 on the sale.
o A bit more than $20k overall owing at this point (due to fees etc.).
o Say $7k debt remaining, bank will sue A for the amount owing, take judgment
and proceed using creditors’ remedies
 May get bailiff to seize other pieces of property, take collection
proceedings on that
o Note: if this were a consumer transaction, bank wouldn’t have ability to both
seize truck and sue A for deficiency. In the commercial world (which is where
most lending transactions take place), the process would be to seize the
collateral, sell it for what you could get, and then take other proceedings to get
the rest of the debt.
 Part 5 balances rights of debtors with obligations of the creditor
o Creditors have responsibilities in the realization process
 Must take care of the goods they seize; will be liable for any damage
while in their possession.
 When they proceed with the sale, required to behave in a commercially
reasonable manner.
 Make a genuine effort to get FMV for the item
o Debtor has rights under the Act, many of which cannot be waived.
o Overarching it all, there is a general supervisory jurisdiction of the court, to
intervene when things go off the rails.
 Marshalling
o Requires senior creditor to act in a way that will best preserve the junior
creditor’s rights.
 Not required to act in a way that prejudices their own rights – no selfsacrifice required.
 But if they have options as to how to protect and pursue their rights,
they’re supposed to choose the option that also protects junior
creditors.
 Some background to Waldron:
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o Note: when a debtor defaults, under a typical agreement the creditor has the
option to accelerate the loan.
 So it becomes due and payable in its entirety.
o Process before 1982:
 Lender would write a letter demanding immediate payment of the
loan.
 Letter would be given to an agent for the lender (usually another part
of the bank, actually).
 Cashier (agent) would look in the debtor’s account and say the amount
couldn’t be paid.
 Then they’d go down the hall to the receiver, who would go lock the
doors and the borrower would be out in the street.
o This happened in a famous case, Lister v. Dunlop, which is referred to in
Waldron.
 In Lister, D said they should have given him some time to find some
other financing, but none was given, and thus it was a wrongful
seizure.
 Because the seizure of assets is such a catastrophic event, if it’s done
improperly the damages can be huge.
 This went up to the SCC, who said the debtor was right  must have a
reasonable time to pay; can’t just present letter to cashier then receiver
and have them walking in the door thirty seconds later.
o The scope of the cases on this kept expanding. That’s what Waldron is about.
Waldron v. Royal Bank of Canada [1991, BCCA]
 Lambert J  a senior, experienced commercial judge. Previously acted in big
realization procedures, so he knows what’s happening here.
 Issue: does the principle of reasonable notice established in Lister v. Dunlop apply to
all areas of SI?
o In Lister, it was the legislation that came before PPSA, and in Waldron it’s the
Bank Act
 Held: it’s a general principle of fairness, not tied to particular legislation. The debtor
must be given a reasonable time to pay.
So How Much Time is “Reasonable”?
 Consider the following factors:
o 1. Is this a situation where the value of assets is falling, or where the asset is
perishable and the creditor thus has to move quickly?
 Basically, ask: what is the risk to the creditor?
o 2. Does the debtor have any prospect of refinancing? How realistic is it that
they could find other sources of funding?
o 3. Has the debtor been dishonest in any way? Does creditor have reasonable
belief that if they don’t act fast, the debtor will be selling the inventory out
from under them or something?
 There is still some uncertainty. But at least a few days or a couple of weeks.
 1990s developments:
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o Passed federal Bankruptcy and Insolvency Act, which says (ss 243 & 244): if
the debtor is insolvent, a creditor must give a debtor a min of 10 days notice
before creditor seizes collateral.
 There are two generally accepted definitions of insolvency
 1) Where debtor’s liabilities exceed assets
 2) Where debtor is unable to meet its obligations as they fall
due
 At the point of a major creditor calling in a loan after a default, it’s
really quite likely that the debtor is insolvent.
o Might have to give more notice than this, since Lister v. Dunlop, but definitely
can’t give less – under this Act, at least.
o PPSA does not talk at all about pre-seizure notice.
 There has been some argument that PPSA should displace the CL
 Can’t displace the B&I Act, but could overrule the CL. But s. 68 says
that CL etc. continues unless expressly changed.
 So, if you have a creditor about to realize, and debtor is not insolvent,
then you pay attention to the possibility of a notice period.
Receivers & Receiver-Managers
 Job: to effect an orderly realization of the security.
 Source
o Arose out of equity
o Inherent jurisdiction of the court to appoint receiver (still exists under Law
and Equity Act – “when it is just and equitable”)
o Also, parties put this into their agreements.
 So, now we have court-appointed receivers and receivers operating under K at behest
of SP.
 Difference: court receivers act as officers of the court; don’t visit liability on the party
for whose benefit they might be acting. If it was appointed under K, might be agent
and anything they did could be your problem.
 Historically, courts were unwilling to give directions where receiver appointed under
K
 Receivers powers to borrow:
o To preserve collateral, receiver may need to borrow money.
o Courts (or was it SPs?) weren’t really thrilled about this idea, so sometimes
the rules would be quite stringent, So, receivers might go to court and become
court-appointed to get the full scope of powers necessary
o Receivers issue “receiver-certificates” which allow them to get more credit,
etc.
 PPSA tries to codify the basic obligations of receivers
o Doesn’t distinguish b/w court-appointed and K-appointed receivers.
 When you see the term “receiver” in the Act, you can apply it to both of these
categories.
 Difference b/w R and R-M:
o R is supposed to go into the business and start selling it off.
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o A Receiver-Manager is allowed to take over the business and keep operating it
to recoup.
o S. 65(1)(b): unless you’re a receiver-mgr, you can’t carry on the business of
the debtor for more than 14 days.
 S. 64:
o (1) you can have a SA providing for appointment of a receiver  but the
receiver has to be a licensed trustee under the Bankruptcy Act
o (2) List of ppl ≠ qualified
 under 18
 incapacity
 undischarged bankrupt
 etc.
o Receivers are typically chartered accountants. License trustees – can act as
trustees in bankruptcy
 S. 65: obligations of receiver
o Give notice; take control; open bank account; keep records; always indicate
that they are acting as the receiver of the business
 66: general court supervision of receivers
o (1) (a) court can appoint anyone who’s not disqualified (though usually it will
be licensed trustees in bankruptcy too
o (b) even if appt’d under SA, court can remove/discharge
o (c), (d) can approve accounts, give directions,
RBC v. White Cross Properties [1984, SKQB]
 Facts: Bank wanted court to appoint a receiver, but they had the power under their
own agreement.
 Held: Court said no.
 Reasons: there’s no reason to get the court to do it if you have the power already.
o There was no deficiency or serious priority squabble to put them at risk
 But note that the court can step in and act on behalf of the receiver/party, regardless of
how they were appointed. [per a section of PPSA]
Summary
 Efforts by PPSA to collapse the two categories of receivers and receiver-managers
 There isn’t a ton of case law on this area yet, so there are some distinctions that may
exist but haven’t been dealt with yet.
 It does appear that a receiver, even if appointed by a private document, has the right to
apply to court to get directions, etc., to do the things they couldn’t do historically.
 Receivers have time limit, but R-M can run forever.
Collection of Payments for Accounts or Chattel Paper
 Example: a bank has SI in accounts receivable of XYZ firm. XYZ defaults, bank
moves to realize.
o XYZ is continuously taking payments on accounts and creating new ones –
SA will allow that.
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o The bank just comes in and tells customers to pay them directly, not XYZ.
 An account debtor can keep paying their original creditor and their obligation is
reduced until they get notice of the assignment
 Bank is permitted to give notice under PPSA.
Process of Seizure of Collateral
 S. 58
 What if collateral is too big or otherwise impractical to move?
o You can take possession without removing  change the locks, post notice on
machine, etc.
 S. 58 rules are pretty simple
o Note the difference for consumer goods: (3) the 2/3 Rule
 Limits right to seize consumer goods  if you’ve paid at least 2/3 of
value, creditor can’t seize consumer goods.
 Right to reinstate: s. 62
o (2) Gives consumer an automatic right to reinstate; basically not more than
two times in a year.
o (3) commercial  can apply to court to get right to reinstate
 Courts are pretty reticent to grant reinstatement in the commercial
context.
Disposition of Collateral
 Generally speaking, it’s the senior creditor who sells the collateral
o Must give notice per s. 59 to debtors and junior creditors.
 When they do sell, proceeds are distributed in accordance with s. 60
 60(5): if there isn’t enough to cover the debts, debtor is liable for deficiency
The “Commercially Reasonable” Requirement
 Historically: prohibited from acting in bad faith, but otw no problems.
 Now, you can’t just turn a blind eye to circumstances you should be looking at to get
the best value etc.
 If you have to incur expenses to do that, you’re entitled to collect those out of the
collateral.
 E.g. do you have to repair a chattel in order to sell it? If it will increase the value, etc
Copp v. Medi-Dent Service [1991, ON Gen. Div.]
 Facts: feuding dentists
o Partners paying into loan. Default, creditor served notice.
o One of the dentists went to the creditor and said they would buy it outright.
Creditor agreed to sell it to one partner for the outstanding debt.
o So, now one partner has ownership of the whole thing, even though the other
partner had paid in a bunch already toward paying down the debt.
o Creditor delivered title clear of all subordinate interests (including that of the
other partner). So, the other partner just got screwed out of all his
contributions.
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o Second partner failed to intervene before the sale was made, and the
conniving partner gets the property outright.
 Held: no, you can’t do that.
 Reasons: not a commercially reasonable sale
o No attempt to advertise
o Private sale to a party clearly adverse in interest to the (second) debtor
o No attempt to obtain valuation of the security
o The value was actually more than twice the amount of the sale price  that’s
not a commercially reasonable price.
Donnelly v. International Harvester Credit Corporation of Canada [1983, ON County Ct.]
 Facts:
o Heavy equipment, seized and sold w/o any efforts to recondition or repair the
vehicle; sale was made b/w related companies, and just as in Copps, the price
seems to have been set just as a matter of convenience.
o There was a sale to a 3rd pty eventually, but the records were ‘lost’ (though
that seems pretty convenient, since they likely showed the sale b/w the
companies at a substantial undervalue)
 Held: not commercially reasonable
 Consider:
o Was there a sufficient effort to obtain the best price?
o Did the creditor assess the best means of selling?
 Did they consider what was most likely to produce the best result?
o Would advertising help, and would it be cost-effective?
o Would cleaning, maintenance or repair help, and would the increased value
justify the cost?
 See s. 17: imposes reasonable care requirement on SP, and allows SP
to collect expenses of taking care of collateral when it’s in SP’s
possession.
 Note: this might go differently under the current BC PPSA:
o S. 69 sets out consequences of non-compliance with the Act
 one party can sue for damages that are “reasonably foreseeable” that
was caused by the breach
 if you cannot prove (establish) your damages, then there is statutory
damages available
 (7) – debtor may raise as defence, failure of SP to comply with certain
sections:
 17 – care of collateral
 18 – requirement to give information to certain parties
 59 – process of sale
 60 – proper order of distribution
 BUT – non-compliance limits the right to the deficiency only if it
caused a problem
 Prof – often, the failure does not actually cause a loss to debtor
 Eg: shorter notice period, but didn’t really affect things
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o Donnelly was still probably decided correctly since they didn’t have proper
evidence of what they have already recovered (the true price they got from the
sale of the collateral)
Foreclosure
 SP just takes property in satisfaction – no sale.
o Can’t claim any deficiency.
 S. 61 sets out the requirements for voluntary foreclosure.
 Must notify debtor and any perfected subordinate SPs
o If they object, then SP must instead dispose of the collateral.
o If there’s no successful opposition to foreclosure, SP takes free of debtor and
subordinate interests.
 Note: SP can apply to court to find the objection ineffective. Reasons:
 1. The objector doesn’t have any interest in the collateral.
 2. The FMV of the collateral is less than the value of the debt.
 Situations where VF can work:
o 1. Where value of collateral is close to value of debt
o 2. Where collateral has some special interest to SP
o 3. Where debtor is judgment-proof, and unlikely to gain in the future
 VF is uncommon:
o SP will likely only be free of objections if value is less than debt, in which
case SP will be losing money.
 Criticism: the notice period is too short.
Angelkovski v. Trans-Canada Foods Ltd. [1986, MBQB]
 Facts
o ∆ sold restaurant to π, with balance of purchase price secured by chattel
mortgage
o January (82): after π defaulted on chattel mortgage, ∆ seized by having bailiff
lock the premises.
o March: sale attempted, not completed. No other effort was made to sell until
the following July. Following the abortive sale attempt, ∆ took control of
premises and restarted the restaurant business in ∆ name. Had to make some
repairs etc.
o August: letter sent to π stating costs of repair
o πs issued statement of claim dated August 17, served Sept 1.
 Alleged that ∆ had elected to receive the chattels in full satisfaction of
the debt, and therefore π had no further obligation to ∆.
o January (83): fire on the premises, chattels destroyed.
 Issue: did ∆ lose the right to claim deficiency by the manner in which they took
possession?
 Held: foreclosed, not entitled to claim deficiency (in BC).
 Reasons
o Court characterized ∆ behaviour as reopening the restaurant with the purpose
of operating it himself, with no intention of accounting to π for any surplus.
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
Based on this characterization, the chattels were appropriated in full
satisfaction of the debt.
o The court characterized it as a foreclosure (as opposed to ∆ just trying to
improve sale value/primary purpose being to recover amt owing) because:
 1. ∆ didn’t make serious attempt to sell
 2. No evidence of discussion or negotiation w/  re a plan to reopen
restaurant solely for purpose of selling the chattels; ∆ never indicated
to  that the intention was to improve the selling price, nor sought 
aid toward that objective. ∆ treated restaurant & assets as ∆ irrevocable
property.
 3. No adequate appraisal of chattels after seizure
 4. In March 82, ∆ gave equipment an insurance value of $150k; debt
was then worth max $112k.
o So, at CL,  would be entitled to declaration that they had no further
obligation to ∆ in rel’n to the debt.
o However, due to MB PPSA, SP can pursue the deficiency.
 Debtor retains right to redeem until 15 days’ notice is given that SP
intends to retain collateral in satisfaction of the debt.
 Basically, until the appropriate sections have been complied with, SP
can pursue the deficiency because debtor still has the right to redeem.
 Since SP didn’t give notice that they were treating it as VF, debtor
always had the right to redeem and SP maintained the right to sue for
deficiency.
 Note, though, that SP may have to account for the chattels, and may
thus be open to a damages claim by the debtor on that basis.
 Note: this decision has been not followed by some other cases.
o So, does CL presumption of VF (where SP treated collateral as its own) still
apply, with s. 69 merely as a supplement with clearer procedure?
o Later courts have said they stand side by side.
o Recall, s. 68 allows CL rules to apply.
o Waldron supports this view: it would be weird if a SP could do what was done
in this case and then also sue.
Inland Kenworth Ltd. v. Laboucane [2004, BCSC]
 Facts:
o Sale of equipment, SI to vendor. D defaulted.
o V picked up the equipment. V is a dealer in this type of equipment.
o Got equipment appraised, returned to their stock, and sold. Then sued for
deficiency.
 Issue: D argued that when they took the equipment they took it for themselves, as VF.
o So, what determines whether SP has appropriated the collateral for
themselves?
 Held: this was not a VF.
 Reasons
o The intent was always to sell. Not foreclosure, it was just a method of sale.
o Under PPSA, you can sell by various methods. This just happened to be a
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convenient method.
Special Treatment of Consumer Goods under PPSA
 Taking SI in consumer goods, and seizing consumer goods, will limit rights of SP
 Things to remember about CG:
o must describe by item or kind
o if serial, then you must describe by serial number (e.g. motor vehicle)
o error in registration or debtor name or description of collateral – more
stringent test
o not covered by apaap clause
o automatic right of reinstatement – 2 times per year – more generous than
previous PPSA law
o can’t seize if more than two-thirds of the debt has been paid
o special protection for discharge – s.50(2)
 requires an SI in CG to be discharged within a month after obligations
in SI have expired
 i.e. if you have paid the debt, the SP must discharge more quickly than
regular commercial txns
 Note: the most significant consumer right added in PPSA is the right to reinstate twice
a year
o Because of limitations on seize and sue, many creditors are going to allow for
reinstatement
o Sometimes, creditor gets tired of this process, and want to just call the loan
and be done
o However, now, the debtor has the right to reinstate, so things are different
s.67 – Rights and Remedies: consumer goods
 (1) - You can still seize and sell, VF, sue, etc.
 (2) – if you do any of the things:
o seize (1)(a)
o take VF (1)(b)
o or accept surrender of the goods (1)(c)
then, the obligations under SI are extinguished
 (3) – SP has 20 days to return CS and proceed against only the non-CS items
 (4) – mortgage foreclosures – if you foreclose under LTA procedures, you are not at
risk of losing your deficiency
 (5) – you have a PMSI and you seize only some of the goods – part of them
o Proportionate part of the obligation gets extinguished
 (6) & (7) – plugs potential loophole
 (6) - if you sue, and then collect on your judgment, then you are limited to collect on
the amount you can collect from the goods.
 (7) – the debt is extinguished
o So you can sue, then seize all the other collateral
 (8) – accession – has been removed – preserves your right to accession
 (9) – gives court power to relieve against this section where the goods have been
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substantial damaged or deteriorated
o Rationale: prevents debtor from damaging their own consumer goods
 (10) – if you sue (1)(d), then your SI in the goods is extinguished
 So, you can sue and then look to their other stuff – but their other consumer might not
be worth anything and there consumer goods might already be governed by another
creditors S
Whitewater of Motors v Amatto
 Facts
o D bought truck from Vendor
o Truck was being used partly for commercial purposes – snow plowing
o V was going to allow D to pay back debt partly on proceeds of snow plowing
o Issue 1: Mixed goods?
 Court found that with this truck, personal use was dominant so it is
consumer goods
o D tries to return truck to V: parks truck on lot and gives V the keys.
o V’s lawyers writes a letter saying they will not accept it in satisfaction, and
they’re going to sue for payment.
o D said that he surrendered the truck and their right to sue him is gone.
o Ultimately, the truck gets sold  in the course of litigation they all agree to
dispose of the truck and hold the money.
 Issue: was the surrender an extinguishment of the debt?
 Held: no. there was no acceptance of surrender by creditor.
o The truck was sold by agreement.
o V wins and can sue D for full amount, then take judgment and proceed against
whatever assets they choose.
Supervisory Role of the Court
 S. 63:
o (1) – SP includes receiver
o (2) – court can make 1 or more of the following orders:
 (a) – order to ensure compliance with this section, s.17 (preservation
of collateral), 36, 36, 38
 (36-37-38 – fixtures, crops and accessions)
 (b) - also directions
 (c) – relieve compliance, but only on terms that are just and reasonable
to all parties affect
 (d) – staying enforcement of rights – we will talk more about
 (e) – order necessary to ensure protection of any person with interest in
collateral
Andrews and Trochie v. Mack Financial
 Facts
o Truck sold to A, SI to MF to finance the purchase.
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o In violation of SA, A sold truck to T without MF’s consent.
o T got into an accident, truck was badly damaged.
o Payment is in arrears, but the truck can’t be used  T needs truck to pay A to
pay MF.
o That’s when MF finds out the truck has been sold.
o A & T ask for money to repair the truck; MF agrees but demands the arrears
be paid first.
o Then T hides the truck, threatens to strip it and just give back the frame.
o So MF goes to court to get an ex parte order to get truck returned.
 T still won’t return the truck.
 A contempt hearing is set, and at that point T returns the truck.
o T then applies to court under s. 63, asking for order setting aside seizure.
 Proposed order: SI is extended money for repairs is advanced, then T
gets to operate the truck and pay the loan off from operating the truck
o Shockingly, the (lower) court granted this order.
Held: Court of Appeal overturned.
Court of Appeal lays down some principles:
o Can’t use the provisions of PPSA to re-write the agreement
o Only excuse to interfere with creditors is when there has been some problem
with the creditor’s execution.
o S. 63 is intended to allow the court to produce a commercially reasonable
result – not just go nuts.
In this case:
o TJ rewrote the SI  not allowed
o The problem is the debtor, not the creditor. Don’t mess with them.
o Also, the court refused to grant the order that arrears could be brought up and
reinstatement given.
Comment:
o The provisions may look broad, but you always have to consider the
commercially reasonable requirement – it plays into everything in this Part.
s. 69:
 (8) reverses the onus of proof in certain limited situations.
o Failure to comply with s. 17, 17, 59, 60 results in a reverse onus  must
argue that failure didn’t matter.
 E.g. even though we didn’t give sufficient notice, you didn’t have right
to redeem anyway
 Onus is on SP now.
 (9) Parties cannot contract out of obligations unless PPSA allows it.
Surviving Common Law Remedies
 Implied warranty of title
o If you bought an item in good faith and it is seized from you, can sue vendor
for breach of warranty of title.
o Nothing in PPSA extinguishes this [Ferror]
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 Rules for voluntary foreclosure
o As noted above, these continue
 Slander of Title: [see Osborne]5
o When you know you don’t have title to the property but you register a claim
anyway
o There’s no indication that this CL action wouldn’t survive PPSA.
Bank Act Securities
 The issue: when does the PPSA supersede the Bank Act, and what is the relationship
between the two?
Background
 Origins of Provisions: right at confederation.
o At that time, provinces had various financial institutions operating, w/ varied
rules on things like interest.
o E.g. maritimes had usury laws, ON didn’t.
 Options:
o You could take a chattel mtge over personal property
 Security to lender for transfer of title.
 Right: to redeem title by paying off the loan. Or if you didn’t, lender
could come in and take your property
o Cond’l Sale Agreement
 Reserve title. Right to redeem.
 Again, if ≠ redeem, lender would take and sell to cover their loss
o Floating Charge
 Purely equitable – ≠ transfer of title
 Covered a shifting body of goods.
 The only way to cover a floating body of goods, like inventory, props,
products of mine/sea etc.
 Until it became fixed and floating charge crystallized over whatever
items of collateral, it could be displaced by a legal interest (like chattel
mtge or CSA)
o ON had another system to deal with lending:
 Documents of title  old idea, could use to secure title.
 Took deed to estate, brought it to lender and gave it to them in
security for a loan. Idea that they would redeem the deed by
paying off the loan. Basically pledging docs of title for the
loan.
 Came to be thought of as handing over actual title.
Osbourne: Vehicle sold at auction, doesn’t appear to be SI. Fraudster gives cheque then sells to a third
party. Cheque bounces, auction house files F/S claiming SI in the car. Third party doesn’t know about this
and goes to sell the car. A potential buyer checks PPR and finds the SI, so 3P loses the sale. She finds
another buyer, but doesn’t get as much as the original agreement. So, sues auction house for slander of title.
They had no justification for thinking they had a SI, but they registered a F/S anyway.
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
Bill of lading
 Shipper would deliver bill of lading, evidence that that party
had title to the goods
 Warehouse receipts
 Someone who owned the goods in the whouse could authorize
issuance of warehouse receipt, which could be transferred to
someone else and meant transf of title
 Only ppl who could do these were bailees, of course
 So, ON said: certain categories of ppl/industries can issue warehouse
receipts or bills of lading for goods they actually own (i.e. don’t have
to ship them), and can then pledge it to a lender, just like pledging a
doc of title.
 Then get loan, right to redeem by paying off the loan
 Basically you avoided a lot of the problems w/ floating charges
But then all the provinces combined! Confederation!
o Established a Bank Act under which Federal Banks are incorporated.
Categories of borrowers have broadened further
o It’s apparent in Bank Act – there’s a whole list.
o Farmers were added in 1913. Classic case for application of the Bank Act  v
difficult to get loans b/c of the rotating seasonal nature of having collateral,
and problems of floating charges.
 There were still small loan companies operating in provinces.
 People were paying maybe 25-30% interest, given all
the small charges etc.
 Farmers would borrow from these small loan
companies b/c they couldn’t get loans from bigger
banks, and then the small cos would borrow at lower
rate from bigger banks
 Important: although categories are broader, not all industries are
covered by Bank Act, even today.
 E.g. hospitality industry
Eventually, as the Bank Act evolved, the warehouse receipt/bill of lading thing was
replaced with a Notice of Intention to Give Security.
o The effect is the same as if you gave a bill of lading – transfer of title.
Also gradually added: categories of loans
Notice of Intention to Give Security:
o Not merely equitable – fixed charge.
o Gradually, came to cover after-acquired property  so you didn’t have to
issue a new Notice every time you caught a bunch of fish, e.g.
o Registration system: like PPSA
o Notice of Intention was a notice registration  still need SI, but don’t reg
that. You reg the Notice of Intention.
Note: only banks est’d under the Bank Act can take Bank Act Security.
o So, credit unions can’t.
Basic Priority Scheme
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 Starting point: nemo dat.
o Once you’ve transferred title, you don’t have it anymore, so you can’t transfer
it again.
 What happens when you purport to do it again? You don’t transfer
legal title.
 You can, however, transfer the right to redeem the legal title. And then
you immediately have a right to redeem that right to redeem. Which
you can then transfer.
 So, every transfer gives rise to a new right to redeem, which can be
transferred, giving rise to a new...etc. basically it can go on forever, as
long as you have ppl willing to lend.
o So you can have multiple bank act securities reg’d. Priority among them is
determined by a system that builds on arguments from long ago.
o There are certain specific priority rules that alter that:
 S. 427(7)  important rule.
 Unlike PPSA, Bank Act provides that if a debtor goes
bankrupt, there are two claims that take priority over a Bank
Act SI:
 1. 3 months’ wages for employees
 2. Producers of agricultural products who have supplied
them to manufacturers w/in 6 months of the bankruptcy
 Some jurisdictions force you to choose b/w PPSA and Bank Act, but
BC doesn’t.
 In some cases, PPSA is better for a lender than Bank Act – e.g. where
you’ll lose out to the employees who need wages
Outline of Relevant Bank Act Sections
 It’s a bit of a hodge podge of things that have been added onto one another for many
years.
 S. 425: fish incl shellfish, crustaceans and marine animals.
o Other things defined: forest, forestry, hydrocarbons, etc.
 S. 426: dedicated to issues of hydrocarbons and minerals.
o Tells you when/how you can give security
o Rights: to take possession of, seize and ultimately sell the
hydrocarbons/minerals
 S. 427: the big section. More general lending provisions
o Will see references in case law to s. 88 and s. 178 SI  those are predecessors
to s. 427. What we now call either “Bank Act Security” or “ s. 427 Security”
used to be called s. 88/178 security.
o (1) What kind of loans and who can take on the loans.
 (a) wholesalers etc. of certain products, on security of those products
 (b) mftcers, on security of things theyre mftring
 (c) aquaculturalists
 (g), (j) and (m) also deal w/ aquaculturalists
 (d) loans to farmers
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

o
o
o
o
o
o
(c) used to be loans to farmers, but it got bumped down
(h), (l), (n), all read slightly differently, but basically they’ve been
interpreted to mean any loans to farmers. All overlapping categories.
 (o) fishers
 (p) forestry producers
(2) What rights the holder of security has on the items
sort of divided into two parts
 (c) deals w/ S taken on certain types under (1)  treats as if rec’d
warehouse receipt or bill of lading. That means a transfer of title
 (d) lists other subs of (1), which give bank a first and preferential lien
and claim
(3) gives rights and power to take possession (seize the property) on a number
of bases
 under agreement, but also a right to seizure given under the statute
(4) and (5) req’mts to file notice of intention
 how you file and how you search
 some definitions attached
 Basically, where you file and search: offices of the Bank of Canada.
 No PPR. File and search in BoC office or agent offices.
(6) regs of how you operate the registry system
 Fees, how much to inspect records, etc.
(7) priority of em’ees wages and producers of products (see above)
 428
o Hits a number of topics, but primarily focused on priority and realization
o Basically you have the rights as if you have bill of lading etc.
o All rights subs acquired in/on the property, and over claim of any unpaid
vendor
o Note: doesn’t necessarily mean a cond’l sales vendor, but we’ll get into that in
a bit
o (2) and (3) Parellels w/ PPSA: limited fixtures right
 limited right to SI in fixtures, particularly electric systems and forestry
equip that’s become part of real property
o (8)
o (9) gives good title to purchaser
o (10) different from PPSA: req’s seller to act honestly, in good faith, etc. 
but no req’mt of commercial reasonableness.
o (11)
o (12)
o You get security in goods mftred from goods over which you have security.
 S. 429 deals w/ timing of the loan
BMO v. Hall
 Bank Act has made itself compliant w/ some provincial legislation – compromise w/
prov limits on rights to seize
 Anyway, in the 1990s SK had a Limitation of Civil Rights Act, req’ing all creditors to
give notice before they could seize
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o Penalties: SI was cancelled, and any $ debtor had paid was returned
 Bank seized, Hall argued they were limited by the Act. Took it all the way up to the
SCC, because it was a big deal.
 SCC Held:
o 1. The Act was valid provincial legislation.
o 2. Bank Act Sy provs were valid fed Sy.
o 3. On interaction: prov leg does apply to some parts of banks and property
they hold
o 4. Valid fed leg, prov is inoperative insofar as it interferes w/ fed.
Timing Issues
 Key dates
o (1) Date of filing of Notice of Intention
o (2) Date of agreement to give security
o (3) Date of advance for the loan
 Two operative sections
o S. 427(4)
 (a) the rights and powers of the bank in respect of property covered by
the security are void as against creditors of the person giving the
security and as against subsequent purchasers or mortgagees in good
faith of the property covered by the security unless a notice of
intention signed by or on behalf of the person giving the security was
registered in the appropriate agency not more than three years
immediately before the security was given;
o s. 429(2):
 T1 and T2 have to be contemporaneous, or the advance has to be made
on a promise to give the security.
 Don’t have to actually sign the agreement, but have to have promised
to give that Security.
 Can’t use Bank Act Security to shore up antecedent debt.
 In PPSA, value includes antecedent debt, but that’s not the case
in Bank Act
Elgin




Farmer borrowed for revolving line of Sy
Gave Sy on crops, incl soybean crops
Then sold soybean crops to co-op.
Bank then sued co-op for conversion, claiming Bank Act Sy gave them title, which coop purported to take.
 One Argument: no advances made for purchase of seed/growing of crop in that year.
o Co-op said look at what’s now (f) – $ not used in that year for that purpose, so
not eligible
o Bank said some loans are only secured over particular crop, but also avail for
implements etc., and don’t have to interpret those as mutually exclusive.
o General security over goods. This was a general purpose loan secured over
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crops.
 You can take security under more than one heading.
A Case
 Loan made to purchase tractor, used to grow crops
 427(j) can loan to any farmer for purch of agri implements.
 Doesn’t say anything about taking Sy in crops to secure the tractor. Court says not
allowing that would be an enormous hindrance to lending, since no one wants to give
$ f they can only get Si over depreciating asset.
 So, they had SI in tractor, and also used general purpose provision to take security in
the crops
RBC v. BMO [1976, SKCA] [Dietz]





T1: D loan from bank. BA Sy over tractor and grain (will cover future grain)
T2: general purpose loan (from same bank), general purpose loan, BA sy over grain.
T3: Loan from Bank 2, BA sy.
T3: at the same time, another loan to D from Bank 1
Then, D defaults, banks fight over who gets the proceeds to grain/grapeseed that he
has sitting in accounts.
 Arguments:
o 1. B2 argues loan 1 is for agricultural implements, can’t be used to cover
grain, because BA says you can give loan to buy agri implements in exch for
Sy over the implements. Court says it would be ridiculous not to read all the
sections in conjunction; they don’t limit each other, they can overlap.  first
loan is properly secured.
o 2. B2 says loan 2 only specifies a set amount of grain, but that’s fine.
o 3. ...?
o 4. Third loan from Bank 1: loan from second bank was all good  BA was
given notice of intention, properly filed, and thus loan 3 from B1 goes after
B2.
 So, not really much in the way of tacking under the Bank Act
o If this had been PPSA, there would be a first F/S reg’d for the initial loan,
which would cover future advances.
 Another argument to be generally aware of: Allocation of payments
o D had been making payments to B1.
o B2 said if the bank had allocated the payments to the earliest loans (i.e. first to
loan 1, then to loan 2 once paid off), then the first two would have been paid
off.
o But they didn’t do that. There is kind of a presumption that you do that (pay
off the earliest loan). However, the SA had a clause saying the bank could
allocate it however they wanted. Presumption only operates if ≠ agreement to
the contrary
Proceeds Rights
 S. 428(12)  proceeds right to a bank who takes BA sy over items that are later used
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to mftr other items  i.e. you get rights in the mftred items.
 Courts have sometimes interpreted this as giving a “natural right” to proceeds
Re DeVries et al and Royal Bank of Canad [1975 OntHC]
 Facts
o Debtor gave Sy over cows. Barn burned down, cows destroyed.
o Rec’d insurance proceeds.
o Used those to buy replacement cows, which he took to another place, and he
then sold those cows to an innocent purchaser.
 Issue: does the bank get the cows, or does the BFP?
 Held: Bank.
 Analysis:
o By taking BA sy in original cows, bank had title to those cows.
o When destroyed and ins proceeds came back, they had title to those ins
proceeds.
o When ins proceeds used to buy new cows, bank had title to the new cows
o Therefore, unfortunately for the BFP, the bank keeps
Priority Claims under the Bank Act
 First, look at wording of section.
o There are some priority rules in the BA
o If those don’t get you anywhere, consider the consequences of the title
analysis
CIBC v. 281787 Alberta Ltd. (Crockets) [1984, ABCA]
 Requirement: “not more than three years prior”  or is that a requirement?
 Contrast w/ Davanti, below
 Facts:
o Sy taken, loan made, notice of intention to take Sy was filed a few days after.
o Then, landlord (Richfield) ≠ paid. Tries to distrain
o Bank comes in and says he can’t have the assets b/c they have Sy covering
them.
 Issue: turns on priority rules in the Act and the effect of the bank having filed their
notice of intention some days after taking Sy
 Analysis
o Priority section: S. 428(1)
 All rights and powers of Bank mentioned in warehouse receipt/bill of
lading are held by bank the same as if had acquired the warehouse
receipt/bill of lading.
o So bank says they have priority over landlord.
o Landlord says you have to also look at the section dealing w/ filing of notice
of intention.
 That takes us back to s. 427(4)
 This says: rights/pwrs of bank are void as against creditors
giving sy/subs BFPs, unless notice reg’d “not more than three
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years” before Sy given.
 LL says it had to be filed prior to giving Sy.
 Or does it simply mean you can’t do it more that 3 years
before?
 Held: court says you have to file before. So Sy void against this creditor. Landlord
wins.
Re Davanti Contemporary Interiors Ltd. [1992, ABQB]
 Facts
o
o
o
o
Bk files SoI twenty days after assignment is given
Davanti defaults
Bk demands payment – bailiff goes and seizes property – did not remove it
Made arrangement where Davanti would agree to sell the property on their
behalf – this is common, debtor will get better price through their regular
business channels
o Davanti goes bankrupt
o TiB goes through proof of claims
o TiB finds that NoI was filed late! You are void against other creditors!
 Court:
o BA gave bank title to the goods, subject to the debtor’s right to redeem them.
o But, if debtor fails to redeem, the right of the bank is to exercise their right to
title, and take absolute title to the property.
o At that point, no longer a BA Sy, the bank is just the complete and total owner
of the items. Right to redeem is gone – not Sy anymore, they just own the
stuff.
o Bank enforced it against the debtor, got absolute title, creditor can’t say it’s
void against them because it doesn’t exist anymore  converted into absolute
title.
Note: You CAN Perfect as a Result of Forced Seizure Under Bank Act
 PPSA doesn’t allow it.
o We don’t want a race to seize – can be seriously detrimental to debtor if we
encourage creditors to seize
 This doesn’t track in the Bank Act – a bank who seizes can indeed improve their
situation as against creditors.
 Very strict title analysis of these BA provisions.
 Also, adds to the timing assessment  has to be before the security is given.
Realization
 Recall Davanti.
 Per s. 428(7)-(11), the default method of disposition is a public auction, but you can
agree otherwise
o Also there is a provision for perishables
o Distribution is set: give to creditors in order of priority
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Lasquetie
 Southin J
 Facts
o BA Security in fish
o Debtor: Cassiar, fish processing plant. Arrangement with Lasquetie (fisher) to
sell fish to Cassiar.
o C occasionally loaned $ to L, who would then sell the fish to C  sometimes
for credit, sometimes for writing down the loan (if one was in existence at the
time)
o At one point, C had a bunch of L’s fish on hand, purch’d but not paid for.
o C defaulted.
o Bank came in and took the fish. L said no, unpaid vendor.
 Issue: s. 428(1) priority provision  bank has priority over all rights subs acquired in
re property, and over claim of any unpaid vendor.
o Seems straightforward, but L argues that this was all a conspiracy on the part
of the bank. Knew C didn’t have much to seize, so waited until they had the
fish in and hadn’t paid, to push L out and get the fish – dishonest.
o L asked for declaration of resulting trust. Hold proceeds on trust for unpaid
vendor.
 Held: Bank takes.
o Southin says if there was dishonesty, they could probably figure out
something for them.
 Though she doesn’t specify how they would have handled it/what they
would have found.
o But the TJ didn’t find dishonesty – luck of the draw, bank was in pos’n to
seize and they did so.
 Note: seems harsh on L, but recall PPSA:
o If SC had SI in apaap, claim of SC would have priority, if properly protected.
Bank Act & PPSA Interaction
 What happens if you have BA security and then a vendor takes CSA?
o Here, vendor is reserving their title until fully paid off.
o Issue: does s. 421 apply to give the bank security?\
Kawai Canada Music Ltd. v. Encore Music Ltd. [1993, ABCA]
 Cites Rogerson Lumber Co – Bk that chooses to live by the title will die by the title
o Bk Act security gives all the debtors title in its goods subject to right to
redemption
o If someone supplies an item to the debtor reserving title, then debtor does not
have title
o Therefore, you can’t give what you don’t have
 Facts:
o K supplied to debtor encore, piano, organs and miscellaneous stuff under CSA
 Held: Bank does not get priority over K
 Take away:
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o Although the classic CSA is ignored by PPSA, it will become important under
BA
o This is why we see people still using the CSA even though PPSA does not
care
o Again – under BA we will use a title analysis! We will not play by the rules
of PPSA.
Royal Bank of Canada v Agricultural Credit Corp of Sask [1994 SKCA]
 Facts:
o
o
 Law
o
o





Debtor paid for truck with money from Moosomin – gave PMSI
Here, we have a lender who advanced money to help buy truck
PPSA treats PMSI vendor and lender as PMSI – both can get super-priority
Bank Act (at CL) CSA are different from Chattel Mortgage (where you
borrow money to buy something)
o In the former, debtor does not get title, in the latter, debtor gets title then
transfer to third party lender
Argument:
o Moosomin argued that this is just the same thing as CSA, we should get
priority over Bk with BA security
Held:
o Bk wins. When debtor got the truck, they got title, Bk gets the truck.
o Title analysis.
 They no longer have title to give.
Court realizes that this puts limitation on a debtor that is trying to broaden it’s asset
base
Comment: so in practice, the debtor can make a deal – ask their lender to give priority
to Moosomin
o Bank might have agreed – it is to their benefit to let their asset base to be
expanded
Notes:
o BA imposes its own priority rules on provincial scheme – this can be to its
advantage
o Bank Act security is explicitly excluded from PPSA (and it would be anyway
due to paramountcy)
o Banks in BC usually doubt they are secure, and take security under both Acts
o Some other jurisdictions (e.g. Saskatchewan) try to stop Bks from double
securing
 Effect: squeeze Bks into province
Bank of Montreal v Innovation Canada [2010, SCC]
 One of two recent cases where the SCC pushed BA security to be more risky?
 In these cases, Bk had taken Bk security, then came to realize on their security
 Unknown to Bk, CU had already taken SI over debtors property but had not registered
a F/s in PPR
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 CU argument why they should get priority:
o Bank Act priority only apply to subsequently taken SI and purchasing – things
that happen after
o Also, when Bk purported to take the title, it was already encumbered with our
interest – it was not perfected, but it was enforceable
 Held: CU gets priority!!
o PPSA priority rules have no relevance, but PPSA generally does still have
relevance
o It is valid provincial legislation that can affect property
o PPSA does not say it gives a propriety interest, but it does give a correlative
interest to common law priority interest
 Bk – well then how can we ever take security and be sure that there is no prior interest
that effects our security?!
o Court – yes, that sucks, this is a consequence of the federal scheme being outdated
 Comment: so Bank Act has become just a clunky old relic – still doesn’t seem to go
anywhere
o Bks will not often just rely on Bank Act
o They will double security if they can
o If not, then they will choose PPSA
Negotiable Instruments and Bills of Exchange
Basics
 The Bills of Exchange Act
o Came out of codification of lex mercatoria – law/customs of merchants.
o Deals primarily with three types of documents:
 1. Bills of Exchange
 2. Cheques
 3. Promissory Notes
Definitions
 Definition of Bill of Exchange – s. 16 of Bills of Exchange Act
o An unconditional order in writing
 If there’s a condition attached, it cannot be a Bill of Exchange
o Addressed by one person to another, signed by the person giving it
 Must be signed
o Must require the person to whom it is addressed to pay, on demand or at a
fixed or determinable future time,
 Bill is due on the date it is to be paid – if payable on demand, it’s due
when demand is made.
 Alternative: fixed future time – specific future date on which the bill
will be presented for payment. That’s the date on which the bill is due.
 Or: determinable future time. Two ways to do this:
 1. Make it payable a certain # of days after an event that is
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certain to occur
 e.g. ten days after Christmas in x year
 can’t make it ten days after the NHL strike is settled,
because it’s not certain that will occur.
 2. Make it payable on sight
 when C takes it to B and shows it to them, then the bill
is due.
 Difference from payment on demand:
o Bills of Exchange provides for the addition of
days of grace to a bill before it will be overdue.
o Basically, you have three days added to the date
for presentment of payment before the bill
actually has to be paid.
o BUT, days of grace are not added to bills
payable on demand. So payable on sight gives
you three extra days, but demand doesn’t.
o See s. 41 for details.
o A sum certain in money
 Note: bills of exchange don’t transfer anything but money, and it has
to be a “sum certain”.
 Interest?  as long as it can be computed w/ certainty, it’s still a sum
certain.
 E.g. “the sum of $100, plus interest”  not uncertain, because
Canada Interest Act (s. 2, maybe) provides a default rate of
interest (i.e. if not specified  5% simple interest)
 It’s fine even if it’s payable in installments, or even w/ an acceleration
clause.
 Also ok: if you have an indicated or ascertainable rate of exchange
 E.g. payable at x US dollars, computed as of exchange rate
existing on x date.
o To, or to order of, a specified person, or to bearer
 E.g. Pay C or order  expressly allows C to transfer the bill to
someone else (D).
 If you name a specified person and don’t give any indication to the
contrary, we imply (per Bills Act) that it includes to the order of.
 E.g. To C  can transfer
 E.g. To C only  can’t transfer
 To bearer:
 Pay the person who has physical possession of the bill.
 Two ways to make a bill payable to bearer:
 1. Expressly state that it’s payable to bearer
 2. Payable to C, C endorses it but doesn’t list a specific
payee
 Definition of a Cheque
o Almost the same as Bill of Exchange, just a couple of additional specifics
o s. 365(1) a bill drawn on a bank, payable on demand
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o if you don’t specify, there’s a presumption that a bill is payable on demand.
o Cheques have name of bank, a date, a place for you to write the sum in words
& numbers, and a place for you to sign it. To complete a cheque properly,
that’s what you have to do.
 Promissory Notes – defined in s. 176
o An unconditional promise in writing
o Made by one person to another
o Engaging to pay, on demand or at a fixed or determinable future time,
o A sum certain in money
o To, or to the order of, a specified person or to bearer
 A bill of exchange is not the same thing as an assignment of a debt.
o One of the major differences b/w an assignment and a bill of exchange:
 If it were a straight assignment, B would be required to pay C and if
they failed B would be liable.
 In Bill of exchange, though, the drawee is not, in fact, liable to pay the
bill just because they’re the drawee.
 Generally speaking the liability of parties is that any person
who signs a bill or a note is liable to the party to whom they
have given if, if the note is ultimately not paid.
 You sue one signer back if endorsed through multiple parties
 X could sue D, who could sue C, who could sue A, but no one
could sue B solely on the basis of the bill/note.
 If you present a bill for payment and it’s refused, that’s known as
dishonouring the bill.
 If the bank dishonours the bill, can’t sue them as holder of the
cheque – you go sue the drawer of the cheque.
 The drawer may have rights against the bank, because they
have a K.
 Bank Ks generally say they promise to pay cheques
drawn on the account under certain circumstances (i.e.
enough money in the account, etc.)
 But it’s not because bank is the drawee.
 S. 26 of Bills Act tells you some things that do NOT make a
bill invalid
 Failure to date it doesn’t make it invalid
 But, if it’s a cheque on a bank they won’t pay it
if it’s not dated.
 Failure to specify value given in exchange doesn’t
make it invalid
o Don’t have to have value given to make a bill,
though it will impact parties’ rights
 Doesn’t have to say the place where it’s drawn or
payable
 Doesn’t matter if it’s drawn on a Sunday or nonjuridical day
 Not invalid if it’s ante-dated or post-dated.
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 Bill vs. Demand Bill
o Bill: presented for payment on due date, three days grace (where applicable)
o Demand bill: presumption that demand must be made w/in reasonable time
 Must have date on bill so you can tell whether it’s been presented for
payment w/in reasonable time
 If not, then overdue.
 If you don’t present w/in reasonable time (most banks say 6 months),
bank has no liability to pay the cheque.
 Two Steps to Negotiation:
o 1. Endorsement
o 2. Delivery
Why Do We Have These?
 Example: Assignment.
o A (drawer) to C (payee), C to D, but C fraudulent.
o C can’t convey to D any right they don’t have.
o This type of situation became difficult when these bills were used as constant
element of commerce, and frequently negotiated through a long chain of ppl
taking the endorsement and transferring.
 Law developed to protect remote transferees of these bills: concept of a holder in due
course.
o Holder: someone w/ physical possession.
o Holder in due course: holder who took a bill that on its face is complete and
regular.
o Conditions:
 1. Must become holder before bill is overdue
 2. Must take w/o any notice that it has been previously dishonoured
 3. Must be value given
 4. At the time the bill was negotiated to him, ≠ notice of any defect in
title of the person who negotiated it.
 So, can’t be a holder in due course unless you take the bill
through negotiation – has to be endorsed and transferred to
you. Means you can’t be the original payee.
 So, D in our example above might be protected as a holder in due course.
 S. 73(b)  if you are a holder in due course, you take the bill w/o any effect of any
previous defects in title or personal defences.
o Effect of becoming holder of due course
o And, may enforce payment against all parties liable on the bill.
 Also, parties who take after D count as holders in due course as well, even if they
don’t give value, e.g. So, x can take the bill from D and doesn’t have to worry about
whether there are personal defences arising earlier in the chain. Protected, and can sue.
Forgery
Basics
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 Creation of “holder in due course” protects payee from many problems in the bill’s
history.
o Basically meant that issuing a bill of exchange was a big liability, because you
could be held liable way down the road.
 S. 48(1): Where signature on bill ifs forged, the signature is wholly inoperative and no
right to retain the bill or.... ... can be acquired through or under than bill.
 Example:
o C has forged a bill of exchange and forged A’s signature.
o Forgery is inoperative, and C’s endorsement to D doesn’t mean
anything/doesn’t convey any rights. So X can’t take from D and get rights.
 Biggest losers: banks.
o A bank that pays out on a forged signature is liable to repay the funds. Don’t
let them dick you around.
Non-Existent and Fictitious Payees
 Payroll Fraud  A number of high-profile cases have gone to the SCC
o Boma Manufacturing v. CIBC
 Basic scheme:
o Corporation, some dishonest employee in charge of payroll starts issuing
cheques to people who aren’t entitled to receive money.
o Sometimes they just make up names to put on the cheques, and the signers
just trust that it’s properly prepared etc.
o Sometimes they’re made to actual employees, who just aren’t owed any
money.
o In many cases, the dishonest party will take these cheques, forge an
endorsement, and get the bank to pay them.
 Now, if a bank pays under a forged endorsement, they are strictly liable to replace the
money.
 BUT: s. 20 of the Bills of Exchange Act
o Deals w/ issues of negotiation and the payee of a bill; and other things
o (5) where payee is fictitious or non-existent, the bill may be treated as payable
to bearer
 In that case, bank is entitled to pay whoever hands them the cheque.
 So, when can we say a bill is payable to a fictitious or non-existent person? (when
does s. 20(5) apply?)
o SCC has consistently said it’s the intention of the drawer  the
corporation/corporate signatories  that matters.
 If they believe it’s a legitimate payment to someone who deserves to
be paid, then it’s not a fictitious/non-existent party
o Strong dissents in both SCC cases:
 For policy reasons, we should hold that the intention is that of the
party preparing the cheque, not the drawer (corporate signatory)
 Corporations are the ones with the best position to catch forgeries
o Majority says no, there’s a strong public policy in favour of making banks
liable.
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
If corp signatory intended this person, who is a real person, to receive
the money, then it’s not fictitious and the bank can’t treat it as payable
to bearer.
Rules re Fictitious vs. Non-Existing Payees:
 (per Boma Manufacturing v. CIBC)
 1. If drawer inserts the name of someone who’s definitely made up, e.g. the Tooth
Fairy  definitely fictitious, possibly non-existent
o If drawer makes up a random name  fictitious, but may exist.
 2. If drawer inserts the name of someone they know to be dead  non-existing, but
not fictitious.
 3. If drawer inserts name of a real person, never expecting the person to be made 
fictitious
 4. If drawer inserts the name of a real person, and intends to pay out to them, even if
the drawer has been deceived about this, then it’s not fictitious/non-existent, and bank
can’t pay out as if payable to bearer.
Consumer Notes
 Problems and revision (addition of a part to Bills of Exchange Act) dealing w/
consumer bills and notes.
 Background
o In the 70s and onward: people buying things in installments (e.g. freezer)
o More recently: things like loan agreements an dpromissory notes used by
private consumers
o Issue arose: were these actually promissory notes?
 Promise to pay was attached to a sale K, clearly could be set aside for
some reasons (e.g. if freezer didn’t work)  so, clearly had conditions.
 SCC originally said it didn’t fall w/in the definition, and therefore
couldn’t be negotiated per the Bills of Exchange Act
o But, later, SCC said you could make the note separable from the K, e.g. by
putting it on a detachable piece of paper.
 You could detach it and treat it as a promissory note separate from the
sales K.
 Shady lenders got the idea that they could protect themselves by taking advantage of
the provisions for holders in due course.
o Example:
 A signs promissory note for Appliance Sales, re a freezer (financed by
AS)
 Then, AS would negotiate the promissory note to a FinCo, which was
in many cases closely related to AS. FinCo would give money (take
for value), and claim to be a holder in due course
 So now, A’s freezer turns out to be a dud and he goes back to AS
saying he won’t pay (has been defrauded).
 FinCo comes along and says that’s unfortunate, but we’re holders in
due course so you still have to pay us for the freezer.
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 If you want to sue, sue AS. But that was typically useless.
 Courts tried to fix this issue:
o If we can show that FinCo was sufficiently closely connected to AS, then
we’ll make the assumption that they didn’t take it in good faith.
 But you weren’t always able to show the close rel’ship
 And, it was a bit of a stretch on the wording of the statute.
 So, the government decided to amend the statute, and added part V to the Act
o Special rules for consumer bills and notes.
Part V
 Definition of consumer purchase
o Slightly different from PPSA definitions of consumer goods
 Definition of consumer bill [189(1)]
o A bill issued in respect of a consumer purchase
o Doesn’t include most cheques.
 If you give a cheque in return to AS, bank will be able to act on that
cheque if it comes into the hands of a holder in due course.
o In most cases, consumer bills would be cheques, which are excluded.
 Definition of consumer notes [more important definition] 189(2)
o Promissory note issued in respect of a consumer purchase, on which purchaser
or anyone signing to accommodate him is liable as a party
 Requirements:
o S. 190: Bill has to be marked as being in respect of a consumer purchase. If ≠
marked, then it’s void.
 But it’s not void in the hands of an innocent holder in due course
 If they don’t know it’s a consumer bill/note
o Rights of holder of note are subject to any defences or rights of sell-off that
the purchaser would have had against the seller.
o In our freezer example, A would have had right against AS for refund, then
that right is also enforceable against FinCo
o There is a penalty for failure to mark a consumer note
o Also a penalty for transferring an unmarked note
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