Part 1
Security Interests in
Personal Property: The
PPSA
Section III
Enforcement
Outline

SP rights

Rights against collateral


Enforcement options set out in Part V of PPSA
Rights on the debt
Deficiency action
 Same rights as any unsecured creditor if SP so chooses

Outline

Debtor rights
Right of redemption
 Right of reinstatement
 Right to surplus
 Exemptions

Introduction – S.55

55(1) This Part does not apply to
(a) a transaction referred to in subsection 3(2), or
 Deemed security interests – treated as security
interests only for priority purposes

Introduction – S.55

55(1) This Part does not apply to
(b) a transaction between a pledgor and a
pawnbroker.
 Regulated by common law
 Less stringent requirements than PPSA
 Less regulation thought to facilitate law value credit
transactions


More ‘consumer protection’ drives up cost of debt
proportionately more in low value loans
Introduction – S.55

55(3) The rights and remedies in this Part are
cumulative.

Exercising one right does not exclude the others
Introduction – S.55

55(8) A security interest does not merge merely
because a secured party has reduced the claim to
judgment.
A secured creditor has both a debt claim and a
security interest
 The SP may sue on the debt, as if it were an
unsecured creditor, and doing so does not extinguish
its security interest

Secured Party Rights– s.56


56(2) Subject to subsection (4), if the debtor is in default under a security
agreement, the secured party has against the debtor only
 (a) the rights and remedies provided in the security agreement,
 (b) the rights and remedies provided in this Part and sections 36, 37
and 38 [fixtures, crops and accessions], and
 (c) when in possession of the collateral, the rights and remedies
provided in section 17 [rights of SP in possession].
No common law remedies

Only contract (2)(a) and statutory (2)(b),(c) remedies
Debtor Rights – S.56



56(3) Subject to subsection (4), if the debtor is in default under a security
agreement, the debtor has against the secured party
 (a) the rights and remedies provided in the security agreement,
 (b) the rights and remedies provided by any other Act or rule of law
not inconsistent with this Act, and
 (c) the rights and remedies provided in this Part and in section 17.
Contract & statutory rights
Plus rights given under any other Act unless
inconsistent with PPSA

Main example – extended notice period prior to
enforcement under the BIA
Waiver of Debtor Rights
56(4) Except as provided in sections 17, 59, 60 and
62, no provision of section 17 or sections 57 to 66,
to the extent that the provision gives rights and
remedies to the debtor or imposes obligations on the
secured party, can be waived or varied by agreement
or otherwise.
 Statutory debtor rights cannot be waived

Waiver of SP Obligations


66(7) Except as otherwise provided in this Act, a
provision in a security agreement or any other
agreement is void if it purports to exclude an
obligation or an onus imposed by this Act or
purports to limit the liability of or the amount of
damages recoverable from a person who has failed
to discharge an obligation imposed by this Act.
Statutory SP obligations cannot be waived
Rights of the Secured
Party: Enforcement
SP Enforcement Options





Right to possession of collateral
 Preliminary to disposal
Right to dispose of collateral and apply proceeds to
debt
 Right to sue on deficiency
Right to retain collateral in satisfaction of debt
 Excludes right to sue on deficiency
 Corresponds to traditional remedy of foreclosure
Right to collect on intangibles
Right appoint a receiver
Possession

58(2) Subject to [exemptions, notice periods and
special rules wrt collateral which is difficult to
separately possess, e.g. fixtures], if the debtor is in
default under a security agreement,
 (a) the secured party has, unless otherwise agreed,
the right to take possession of the collateral or
otherwise enforce the security interest by any
method permitted by law,
Possession

Under prior law the right to possession
depended on the form of the security device
Automatic under a mortgage
 Required express contractual provision under a
conditional law


Substance over form under the PPSA
Method of Repossession

“by any method permitted by law”
Self-help, but not if it will provoke a breach of the
peace
 Otherwise, method used for recovery of possession
of one’s own property (e.g. Rule 44 in N.B.)

Possession – Notice Obligations

58(2) Subject to . . . any other Act or rule of law
requiring a secured party to give prior notice of
the intention to enforce a security interest
Possession – Notice Obligations

“...rule of law...”
Possession by SP brings D’s business to a halt
 Common law developed a notice obligation


See Ronald Elwyn Lister v Ltd v Dunlop Canada [1982] 1 SCR
726
Notice obligation is preserved by s.58(2) “rule of
law”
 SP must give reasonable notice of the intention to
take possession
 “Reasonable” depends on circumstances

Possession – Notice Obligations

“...other Act...”
BIA S.244 also imposes notice obligation
 10 days notice before seizing. . .
 . . .substantially all. . .
 . . .inventory, accounts receivable or other
property

Foreclosure

Traditional remedy – Not a remedy under the
PPSA
 Under the purely legal form of mortgage,
collateral vests in mortgagee automatically on
default by D
Foreclosure

Modified by equity to protect debtor: D has
right to “redeem” property even after default


“Equity of redemption”
Mortgagee has correlative right to “foreclose”
equity of redemption

Exercise of right of foreclosure vests collateral in
mortgagee
Protracted
 Uncertain (can be reopened)

Foreclosure

Foreclosure was not satisfactory
Protracted and expensive
 Uncertain (can be reopened)


Contractual right of sale was implemented

Accepted by the courts and legislatures
Disposal - Right


59(2) After seizing or repossessing the collateral,
a secured party may dispose of it in its existing
condition or after repair, processing or
preparation for disposition.
Basic right to sell collateral to satisfy debt. . .
Disposal – Proceeds

59(3) The proceeds of the disposition of collateral
shall be applied consecutively to
(a) the reasonable expenses of seizing, repossessing,
holding, repairing, processing or preparing for disposition
and disposing of the collateral and any other reasonable
expenses incurred by the secured party, and
 (b) the satisfaction of the obligations secured by the
security interest of the party making the disposition.


. . .and apply proceeds to debt
Disposal – Surplus

60(2) If . . . the secured party has . . .disposed of [the
collateral], the secured party shall. . . pay any surplus in
the following order to
 (a) [subordinate SPs with perfected security interest]
 (b) [JC with registered notice of judgment]
 (c) [parties who have given written notice of their
interest]
 (d) [the debtor]

“...in the following order...” is poor drafting
Should read “...in order of their priority...”

Disposal – Surplus/Deficiency

Sale price/method of sale is very important to
debtor and other subordinate interest holders

60(6) Unless otherwise agreed, or unless otherwise
provided in this or any other Act, the debtor is liable
to pay any deficiency to the secured party.
Disposal – Method: Notice


59(8) Not less than twenty days before disposition of the
collateral, the secured party shall give a notice to
 (a) the debtor and any other person who is known by the
secured party to be an owner of the collateral,
 (b) [subordinate SPs with perfected security interest]
 (c) [JC with registered notice of judgment]
 (d) [parties who have given written notice of their
interest]
Must give notice to known parties whose
interests are affected: why?

Recall – Possession prior to disposal, notice prior to
possession
Disposal – Method: Notice

Notice allows subordinate parties to monitor
sale


66(5) In an action for a deficiency, the debtor may raise as a
defence the failure of the secured party to comply with
obligations in section 17, 18, 59 or 60, but non-compliance
shall limit the right to the deficiency only to the extent that it
has affected the debtor's ability to protect the debtor's
interest in the collateral or has made the accurate
determination of the deficiency impracticable.
Allowing for the exercise of the right of
redemption is, as a practical matter, secondary
Disposal – Method

59(5) Collateral may be disposed of
(a) by private sale,
 (b) by public sale, including public auction or closed
tender,
 (c) as a whole or in commercial units or parts, or
 (d) if the security agreement so provides, by lease.



Flexibility in method of disposal
But subject to requirement of commercial
reasonableness: s.65

The statutory notice requirement does not exhaust
SP’s responsibility
Disposal – Method

Supplementary law and duties of good faith and
commercial reasonableness
65(2) All rights and obligations arising under a
security agreement, under this Act or under any
other applicable law shall be exercised and
discharged in good faith and in a commercially
reasonable manner
 Action for damages for breach of this duty: s.66(2)

Disposal – Method

Net effect – SP has duty to take reasonable steps
to secure fair market price

Method of disposal must be appropriate to the
goods and the market
Disposal – Method


Failure to comply with the duty of commercial
reasonableness gives rise to an action for
damages
66(2) If a person fails, without reasonable
excuse, to discharge any obligations imposed on
the person by this Act, the person to whom the
obligation is owed has a right to recover loss or
damage that was reasonably foreseeable as liable
to result from the failure.
Disposal – Method


Failure to comply with the notice does not
disentitle the SP from seeking a deficiency
Does not give any proprietary remedy against the
property
Disposal – Method


The harm from failure to give notice may
include inability to assess the value of the
collateral or monitor the sale
But the deficiency action is still not prohibited
Disposal – Method

66(5) In an action for a deficiency, the debtor
may raise as a defence the failure of the secured
party to comply with obligations in section 17,
18, 59 or 60, but non-compliance shall limit the
right to the deficiency only to the extent that it
has affected the debtor's ability to protect the
debtor's interest in the collateral or has made the
accurate determination of the deficiency
impracticable.
Disposal – Method

In the case of consumer goods, deemed
damages apply

66(3) If a secured party fails, without reasonable
excuse, to comply with obligations
 (b) in section 17, 18, 59, 60 or 61 and the collateral is
consumer goods,
the debtor . . .shall be deemed to have suffered
damages not less than the amount prescribed.


But the SP can still pursue a deficiency
Disposal – Method


Compare the PPSA with New Brunswick land
law
In NB land law the statutory notice requirement
does exhaust the seller’s responsibility


There is no duty (except on banks) to exercise
reasonable care to secure a fair market price
Is there any justification for the NB land law
rule?
Disposal – Method

59(14) The secured party may purchase the
collateral or any part of it but only at public sale,
including public auction or closed tender, and
only for a price that bears a reasonable
relationship to the market value of the collateral.
Disposal – Method

In real estate law in most jurisdictions, SP is
prohibited at common law from buying in for
their own benefit


Why?
Why should personal property be different?
Disposal – Effect



59(15) If a secured party disposes of collateral to a purchaser for
value and in good faith who takes possession of it, the purchaser
acquires the collateral, whether or not the requirements of this
section have been complied with by the secured party, free from
 (a) the interest of the debtor,
 (b) an interest subordinate to that of the debtor,
 (c) an interest subordinate to that of the secured party,
and all obligations secured by the subordinate interests shall be
deemed to be performed for the purposes of sections 49 and 50.
Purchaser take clear of all subordinate interests
Disposal – Effect


59(15). . .whether or not the requirements of
this section have been complied with by the
secured party. . .
Purchaser take clear of all subordinate interests
even if sale was improper

Why?
Retain in Satisfaction

Right to retain collateral in satisfaction of debt


61(1) After default, the secured party may propose
to take the collateral in satisfaction of the obligation
secured by it and shall give notice of the proposal to
[the debtor and known subordinate interest holders]
Person who is given notice may object (to SP):
s.61(2),(3)
In which case SP must sell collateral
 Except that SP may object to objection (to court):
s.61(7), to deter frivolous objections

Retain in Satisfaction



“...in satisfaction of the debt...”
61(4) If no notice of objection is given under subsection (2), the
secured party
 (a) shall be deemed, on the expiry of the fifteen day period or
periods referred to in subsection (2), to have irrevocably
elected to take the collateral in satisfaction of the obligation
secured by it, and
 [can then sell the collateral free of all subordinate interests]
No right to sue for any deficiency

Why not?
Right to Collect on Intangibles

57(2) If the debtor is in default under a security
agreement, the secured party is entitled
(a) to notify a debtor on an intangible or chattel
paper or an obligor on an instrument or security to
make payment to the secured party whether or not
the assignor was making collections on the collateral
before the notification,
 (b) [and apply the money to the debt]...


Enforcement by notification
Right to Collect on Intangibles Notice

57(3) A secured party who enforces a security by
giving notice in accordance with paragraph (2)(a)
shall notify the debtor within fifteen days after
doing so.
Right to Collect on Intangibles Notice

41(7) If collateral which is either an intangible or
chattel paper is assigned, the account debtor may make
payments to the assignor
 (a) before the account debtor receives notice of the
assignment in accordance with subsection (8), or
 (b) after the account debtor receives notice of the
assignment if the account debtor requests the
assignee to furnish proof of the assignment and the
assignee fails to furnish proof within fifteen days
after the request.
Right to Collect on Intangibles

41(9) Payment by an account debtor to an
assignee after the account debtor receives notice
of the assignment in accordance with subsection
(8) discharges the obligation of the account
debtor to the extent of the payment.
Right to sue on the Deficiency


Some jurisdictions (e.g. Alberta, California)
prohibit deficiency actions against individual
mortgagors of real property
Should SP have the right to sue on the
deficiency?
Is there any reason why land and personal property
should be treated differently?
 Is there any reason why individual mortgagors of
real property should be treated differently from
businesses?

Right to Appoint a Receiver


Receiver operates the business as a going
concern
Wears “two hats”
Agent of the debtor
 Agent of the SP


More detail in Part 3.II
Rights of the Debtor
Right of Redemption






Any time before final disposal...
any subordinate interest holder...
may redeem...
unless otherwise agreed after default...
by paying the debt...
plus expenses of seizing and preparing for
disposition.
Right of Redemption



62(2) At any time before the secured party has
disposed of the collateral or contracted for its
disposition under section 59, or before the
secured party is deemed to have irrevocably
elected to retain the collateral under section 61,..
The right of redemption is exercised after default
Notice periods before SP disposal allow
opportunity to redeem
Right of Redemption


62(2) . . .any person entitled to receive a notice
of disposition under subsection 59(8) or (11)
may redeem the collateral. . .
Subordinate interest holders may redeem


The same persons whose interests will be
extinguished by disposition
Redemption does not extinguish junior interests

It merely pays off the senior secured party
Right of Redemption

The party redeeming is subrogated to the rights
of the party whose interest is redeemed

The right of subrogation is not express in the PPSA,
but is due to the preservation of existing consistent
law: s.65(1)
Right of Redemption

Under prior law, a subordinate secured party
could redeem a senior security interest only if
the debtor was also in default under its own
security agreement
This appears to be reversed by s.62(2)
 But the point is usually moot as subordinate security
interests almost invariably provide that a default
under the senior interest is a default under the junior
interest

Right of Redemption - Example

SP1 has first priority for $5,000; SP2 has second priority for
$20,000; value of collateral is $22,000; D default on loan from
SP1; SP1 seeks to dispose of collateral
 To redeem, SP2 must pay $5,000 to SP1
 SP2 has right to redeem even if D did not default on loan
from SP2
 SP2 is then subrogated to the rights of SP1
 Ie SP2 now has a first security interest for $5,000 and has
the right to sue D for the $5,000 owing; and SP2 has a
second security interest for $20,000
Right of Redemption


Why would SP2 want to redeem in the previous
example?
 If it does not exercise its right of redemption (and
neither does D), SP1 will sell the collateral for
$22,000, apply $5,000 to its debt, and turn over
$17,000 to SP2, for a deficiency of $3,000
 If SP2 redeems, it will have total debt of $25,000.
SP2 then sells the collateral for $22,000, for a
deficiency of $3,000
The bottom line is the same in either case, so why
would SP2 want to redeem?
Right of Redemption


Now suppose D tries to exercise its right of
redemption
62(3) If more than one person elects to redeem
under subsection (2), the priority of their rights
to redeem is the same as the priority of their
respective interests.
Right of Redemption

If SP1 faces conflicting requests, SP2 has first right to
redeem
 But what if D gets there first and redeems?
 The formal answer is not clear
 (Under prior law, you could only redeem the
party immediately above you in priority, so the
problem did not arise)
 But as a practical matter, D gets no advantage, as
SP2's interest is not extinguished
Right of Redemption


62(2) . . .unless that person has otherwise agreed
in writing after default. . .
Right of redemption cannot be waived before
default: see s.56(4)



In particular, it cannot be waived in the security
agreement itself
Right of redemption can be waived after default
Why?
Right of Redemption


62(2) . . . by tendering fulfillment of the
obligations secured by the security interest,
together with a sum equal to the reasonable
expenses referred to in paragraph 59(3)(a) to the
extent that such expenses have actually been
incurred by the secured party.
Redeem by payment of debt plus reasonable
expenses of realizing on collateral actually
incurred
Acceleration

Security agreements which provide for
repayment by periodic installments (e.g. a
standard house mortgage) inevitably provide
that if any payment is missed (or if there is any
other default under the agreement, e.g. failure to
keep the collateral insured) the entire debt
immediately becomes due.

This is known as an “acceleration clause”
Reinstatement

A right of reinstatement provides from relief
against acceleration
Reinstatement

62(4) At any time before the secured party has
disposed of the collateral . . . , or before the
secured party is deemed to have irrevocably
elected to retain the collateral under section 61,
the debtor. . .may reinstate the security
agreement. . .by
 (a) paying the sum actually in arrears,
exclusive of the operation of an acceleration
clause in the security agreement, . . .
Reinstatement

And
(b) curing any other default by reason of which the
secured party intends to dispose of the collateral,
and
 (c) paying a sum equal to the reasonable expenses
referred to in paragraph 59(3)(a) to the extent that
such expenses have actually been incurred by the
secured party.

Reinstatement

“Redemption” and “reinstatement” both start
with “re” but they are completely separate rights
 The right of reinstatement applies only to
relieve againt an acceleration clause
 The right of reinstatement is meaningless if
there is no acceleration clause in the security
agreement
Reinstatement



The right of redemption is a universal feature of
secured lending law
The right of reinstatement is not
Generally a right of reinstatement
 is a feature of the PPSA
 is not found in land law
 was not found in prior personal property law
Reinstatement

Except, Ontario (& most U.S. states)
 Ontario does have a right of reinstatement in
land law
 In the Ontario PPSA the right of
reinstatement applies only to consumer goods
Reinstatement

62(4) “. . .unless the debtor has otherwise agreed
in writing after default. . .”

Like the right or redemption, the right of
reinstatement can be waived after default, but not
before
Reinstatement

62(1) In subsection (2) [but not subsection (4)]



"secured party" includes a receiver.
62(4) At any time before the secured party has
disposed of the collateral or contracted for its
disposition under section 59, or before the
secured party is deemed to have irrevocably
elected to retain the collateral under section 61...
The right of reinstatement cannot be exercised
after the appointment of a receiver.
Reinstatement


62(5) Unless otherwise agreed, the debtor is not entitled
to reinstate a security agreement
 (a) more than twice, [if agreement is <1 year], or
 (b) more than twice each year, if the security
agreement provides for payment by the debtor
during a period of time of more than one year after
value was given by the secured party.
Protections against the abuse of the right of
reinstatement
Reinstatement



Is the right of reinstatement a good idea from
the debtor’s perspective?
Conversely, is an acceleration clause a bad idea,
from the debtor’s perspective
Ask the question at the time the security agreement is
entered into

“Ex ante” as opposed to “ex post”
Exemptions

58(3) Subject to subsection (7), a debtor may
claim the following items of collateral to be
exempt from seizure by a secured party:

(a) furniture, household furnishings and appliances
used by the debtor or a dependent to a realizable
value of five thousand dollars or to any greater
amount that may be prescribed;
Exemptions

(b) one motor vehicle having a realizable value of
not more than six thousand five hundred dollars at
the time the claim for exemption is made, or not
more than any greater amount that may be
prescribed, if the motor vehicle is required by the
debtor in the course of or to retain employment or
in the course of and necessary to the debtor's trade,
profession or occupation or for transportation to a
place of employment where public transportation
facilities are not reasonably available;
Exemptions
(c) medical or health aids necessary to enable the
debtor or a dependent to work or to sustain health;
and
 (d) consumer goods in the possession and use of the
debtor or a dependent if, on application, the Court
determines that

(i) the loss of the consumer goods would cause serious
hardship to the debtor or dependent, or
 (ii) the costs of seizing and selling the goods would be
disproportionate to the value that would be realized.

Exemptions

Exception to the exemptions


58(7) Paragraphs (3)(a) to (c) and subsections (4), (5)
and (6) do not apply in relation to goods that are
subject to a purchase money security interest held by
the secured party against whom the claim to
exemption is made.
Exemption cannot be claimed when the money
lent was used to purchase the collateral itself.
Exemptions


Exemptions are unique to Atlantic PPSAs
Are exemptions a good idea?