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Law 316: Secured Transactions G. Morgan (Waldron, Fall 2012) |

Secured Transactions Outline(Waldron, Fall 2012)

Road MapPPSA, Bank Act or Bills of Exchange Act?

PPSA: any creditor Bank Act: creditor must be a bank Bills of Exchange Act: negotiation on bill of exchange, promissory note, cheque, consumer bill or note

Personal Property Security ActDo you have a secured interest?

What is your collateral? goods consumer goods inventory equipment other stuff: instruments, money, licenses, etc.

Is the transaction covered by the PPSA? is the transaction named in PPSA s. 4 (major exclusions)?

yes no PPSA if no, does the transaction secure payment or performance of an obligation?

yes all PPSA applies if no, is the transaction named in PPSA s. 3 (transfer of an account or chattel paper, a commercial consignment or a

lease > 1 year)?yes deemed security interest = PPSA Parts I-IV apply (not Part V – Realisation)

n.b. PPSA s. 1(3): lease must be > 1 year AND the lease has run past 1 year to be a deemed security interestno no PPSA

Did the security interest attach? PPSA s. 12: attachment = a) value; b) rights in the collateral; and c) except for the purpose of enforcing rights between

parties, s/i enforceable under PPSA s. 10 (formality requirement) [generally, signed and written security agreement] PPSA s. 13: attachment steamroller (exceptions: crops and generally consumer goods unless replacement of original

collateral)Is there a signed and written security agreement? If no, do you need one?

PPSA s. 10: formal requirements for a security agreement to be enforceable against third partiesDid the creditor make a subsequent advance on the same collateral?

PPSA s. 14: tacking


Do you have a perfected secured interest?Is the security interest perfected?

PPSA s. 19: perfection = (a) attachment + (b) all steps for perfection under PPSA completed

Three ways to fulfill PPSA s. 19(b) : PPSA s. 24: possession (but not seizure) PPSA s.25: registration of a financing statement temporary perfection provisions (period of time to either possess or (re)register the collateral)

PPSA ss. 26, 28(3),Did the creditor extend the money to purchase the collateral?

PPSA s. 22: perfection of PMSIsDid you register your secured interest properly?

Is the security interest perfected? PPSA s. 19: perfection = (a) attachment + (b) all steps for perfection under PPSA completed

Three ways to fulfill PPSA s. 19(b) : PPSA s. 24: possession (but not seizure) PPSA s.25: registration of a financing statement temporary perfection provisions (period of time to either possess or (re)register the collateral)

PPSA s. 26, 28(3), etc.Did something happen to your secured interest?

Was the collateral sold? cut-off rules(see below) PPSA s. 28: proceeds

n.b. requires a proper collateral description for the s/a to cover the proceeds tracing rules: lowest intermediate balance; tracing by subrogation

n.b. PPSA s. 1(5): equitable tracing rules can be applied to secured relationships that are not trustsDid the debtor change names or transfer the collateral to someone else?

PPSA s. 51: re-registration requirementsDid you accidentally discharge your financing statement?

PPSA s. 35(7): re-registration no more than 30 days to retain original priority (w/ exceptions)Did you make a mistake in your registration?

PPSA s. 43: seriously misleading objective test (Coates)

Who gets the stuff?Is the security interest cut-off?

PPSA s. 20(c): bona fide purchaser for value gets the collateral subject to an unperfected security interest PPSA s. 28(1): authorized dealing (express or implicit authorization) PPSA s. 30(2): OCB sale PPSA s. 30(3)(4): bona fide purchaser for value of consumer goods provided not fixtures nor purchase price/market value >

$1000 PPSA s. 30(5): cuts off grace period (15 day windows) for innocent third party buyers in PPSA s. 28(3) [proceeds]; s. 29(4)

[returned goods]; s. 51 [transfer of collateral to new debtor OR change in debtor name] PPSA s.30(6)(7): un-perfects serial numbered goods not registered by serial number for innocent third party buyers PPSA s. 51: transfer of collateral to new debtor OR change in debtor name

n.b. the specific priority rule always applies before the residual priority rules in s. 35(1)Does a specific priority rule apply?

PPSA s. 20(a)(b) notice provisionsn.b. grace period in PPSA s. 22 (15 days for PMSI holder to protect itself)

PPSA s. 28 proceedsn.b. requires a proper collateral description to cover proceeds

PPSA s. 35(4) failure to register serial number goods by serial number makes one unperfected for PPSA s. 35(1), lapsed registration rule in s. 35(7) and transfer in provision in s. 35(8)

PPSA s. 35(5)(6) future advance rules (creditor can tack future advances to priority position until the creditor has knowledge of a judgement creditor’s interest [n.b. can still tack some advances after knowledge

PPSA s. 35(7) 30 days from an inadvertent lapse or discharge of registration to re-register and retain priority (provided no one else has registered a s/i in the meantime notice principle)

PPSA s. 35(8) transfer in rule


n.b. can apply to priority between s/i given to 2 different debtors PPSA s. 34(1)(2) PMSI

n.b. the priority rules in s. 34 only apply to S/I’s given by the same debtor PPSA s. 34(4): PMSI vendor > PMSI lender PPSA s. 34(5): priority for accounts financers PPSA s. 34(6): PMSI in original collateral > PMSI in collateral as proceeds PPSA s. 34(8)(9): PMSI in crops and livestock

If no specific priority rule apples, apply the residual priority rule PPSA s. 35(1) residual priority rule = perfected s/i generally take priority by the date of registration of f/s (or possession if

perfected by possession); perfected > unperfected; unperfected s/i generally take priority by date of attachmento n.b. only applies if a specific priority rule DOES NOT apply including other sub-rules in s. 35 that must be

considered before s. 35(1) appliesIs the stuff an instrument or another special circumstance?

Is the collateral / proceeds a negotiable or quasi-negotiable instrument? PPSA s. 31(1): cash $ PPSA s. 31(2): instrument drawn by debtor and delivered in payment of a debt owing to the recipient (w/ or w/o knowledge) PPSA s. 31(3): purchaser of an instrument has priority over an instrument perfected under PPSA s. 25 or temporarily

perfected under PPSA s. 26 or 28(3) if a) gave value; b) acquired w/o knowledge; and c) took possession PPSA s. 31(6): priority for chattel paper purchaser for new value

Is the property a returned or repossessed good? PPSA s. 29(1)(2): reattached and new security interests in returned or reposed goods

n.b. last priority to the account holder and first priority to holder of chattel paper who has a right to the chattel papern.b. see the Moodle handout on s. 29

Is the property a fixture? PPSA s. 36: fixtures

n.b. not priority between two secured parties but between a secured party and the land holder PPSA s. 49: registration in Land Title Office

Is the property crops? PPSA s. 37: crops

n.b. not priority between two secured parties but between a secured party and the land holderIs the property an accession?

PPSA s. 38: accessionsIs the property a co-mingled good?

PPSA s. 39: co-mingled goods n.b. no overlap with s. 38 therefore determine whether accession first

Is the property subject to a repairers’ lien? PPSA s. 32: repairer liens

Is the project subject to a distraining landlord? Rent Distress Act 3 PMSI > distraining landlord > security interest

Are you trying to realize your collateral?Are you accelerating the loan?

PPSA s. 16: require commercially reasonable groundsAre you realizing in a commercially reasonable manner?

PPSA s. 68(2) considerations in Medi-Dent and Donnelly

Did you give notice? To debtor: Waldron To debtor and other creditors affected by the sale: PPSA s. 59

Is there a junior creditor with a security interest in only one item of collateral? marshalling

Are you appointing a receiver or a receiver manager? PPSA s. 64, 65 and 66

Are you trying to realize consumer goods? PPSA s. 62: automatic right to reinstatement PPSA s. 67: seize or sue PPSA s. 58(3): if 2/3 of the value has been paid, the consumer good(s) cannot be seized

Are you just going to take the collateral?


PPSA s. 61: voluntary foreclosureDo you still have a problem?

Is there a conflict with another provincial PPSA?What category of goods? consumer goods will never be governed by s. 7

s. 7: mobile goodss. 6: goods to be moved (anticipate moving)s. 5: everything else

n.b. PPSA s. 5 is subject to ss. 6-8 and PPSA s. 6 is subject to PPSA s. 7 therefore PPSA s. 7 is the controlling section

Three practical issues1) where do you have to search before a client takes an interest in the items2) where do you have to register if a client takes an interest in the items3) what happens if something changes

Is there a subordination agreement? parties can make subordination agreements to set up their own priority schedule

PPSA s. 40 allows a third party beneficiary to enforce a subordination agreement if for their benefit (exception to the doctrine of privity of K)

Did someone not comply with the PPSA? PPSA s. 69 Common law remedies: breach of warranty of title and slander of title

Is a court exercising its supervisory jurisdiction? PPSA s. 63 + three principles in Andrews and Trotchie

Bank ActIs the creditor a bank established under the Bank Act?

Yes: Bank Act applies No: try the PPSA

Is the borrower within one of the categories of eligible borrowers? Bank Act s. 427(1) Exclusions: tourism and hospitality, etc.

Does the agreement meeting the timelines?(1) Notice of Intention Bank Act s. 427(4)(a) cannot be registered more than three years in advance of the Security

Agreement(2) Security Agreement(3) Advance of loan Bank Act s. 429(2) security cannot be acquired unless the debt is contracted or made at the time of the

acquisition of the security by the bank or the agreement to give security (promise to give security)Priority rules

Nemo dat Priority = order in time (first legal title transfer then the first transferee of the right to redeem title, etc.) Bank Act s. 427(7): two priorities over security interests in the event of bankruptcy:

(1) three months’ wage(2) producers of agricultural products who have supplied them to a manufacturer within 6 months of the bankruptcy

Seizure and Sale requirement to act honestly and in good faith Bank Act s. 427: generally sale at public action unless perishable or agreement by parties

Guiding PrinciplesPPSApriority which creditor gets which stuff firstOld Rule and Bank Actnemo dat quod habet “you can’t give what you don’t have”

Supplementary DefinitionsVocabulary


Term DefinitionAccount a debt owed by the bank to the depositorAccounts receivable money that is owed to a company by clients/customers, which is an assetBill of lading issued by shipper and delivered to person receiving goods as evidence that the receiver received themCollateral physical and intangible property pledged to secure a loan

Consignment providing items to a seller to sell on your behalf (retaining a percentage of the proceeds), with the option to take back if not sold by a certain time or donated to charity or some similar term to dispose of the item if not sold

Financing statement legal form filed by a creditor to give notice that it has or may have an interest in the personal property of a debtor (a step in perfecting the creditor’s security notice by providing public notice that the creditor has a right to take possession for repayment of a specific debt with a certain priority)

Floating charge security interest that “floats” (cloud) over a body of changing assessment that crystalizes according to the terms of the loan agreement

Garnishment order a legal procedure by which a creditor can collect what a debtor owes by reaching the hands of someone other than the debtor

Holder person with possession of the bill or promissory noteInstrument pieces of paper that mean something (i.e. a cheque)Lessee a person to whom a lease is grantedLessor a person who grants a leaseMixed fund account multiple sources of deposits (i.e. sold inventory, interest, loans, etc.)Obligation a binding agreement committing a person to a payment or other actionPerfection security interest has the strongest possible protection under the PPSA (but does not automatically mean that

the protection will trump all other creditors)PMSI a security interest taken in collateral, other than investment property, to the extent that it secures payment of

all or part of its purchase priceReceiver realize assetsReceiver manager continue operating businessTracing rules equitable remedy that allowed a trust beneficiary to “follow the money” into a mixed fund account and, using

technical rules, identify the portion owed to the trust beneficiaryTransferee one to whom a transfer is madeTransferor one whom makes a transferWarehouse receipts someone who owned goods in warehouse could authorize warehouse keeper to issue receipts to another

party to transfer the goodsBreach of warranty of title

right to sue based on breach of implicit term that the party selling has the right to sell)

Slander of title know that one has no right to the item but purports that it does (i.e. files registration in the PPR)PPSA s. 1(1) Definitions

Term DefinitionCreditor person who is owed payment or performance of an obligation securedDebtor person who owes payment or performance of an obligation secured (obligation is more than just money

owing)Obligation secured when determining the amount payable under a lease that secures payment or performance of an obligation,

(a) the amount originally contracted to be paid under the lease,(b) any other amount payable in accordance with the terms of the lease, and(c) any other amount required to be paid by the lessee to obtain ownership of the collateral,less any amount paid before the determination

Secured party person who holds a security interest; person who holds a security interest for another; trustee, if the security interest is embodied in a trust indenture

Security interest an interest in goods (physical property); chattel paper; investment property; a document of title; an instrument; money; or an intangible (non-physical property like account s receivable) + three interests whether or not the interest secures payment or performance of an obligation:(i) a transferee arising from the transfer of an account or a transfer of chattel paper (incl. to make sure that transfers of accounts work);(ii) a person who delivers goods to another person under a commercial consignment (incl. any consignment agreements that function as a security interest as well as commercial consignments that do not secure payment or performance of an obligation to protect the public)


ex: small china shop that needs to purchase inventory; small china shop takes inventory on consignment with an agreement to remit part of the purchase price when sold; the vendor has a security in the china as can claim return of the property if not sold or if payment not remitted) commercial consignment = consignee (person receiving the goods) must ordinarily deal in goods of that description and reserves an interest in the good after they have been delivered but excludes c) an auctioneer when consigned goods are for sale, or d) a consignee 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

(iii) lease greater than 1 year including an indefinite term or a renewable lease with the total potential terms greater than 1 year but excludes a lease with a lessor who is not typically in the business of leasing goods or the lease of goods as part of a property lease, such as a furnished apartment (catch both the times where it is a security interest and the times where it it appear as if the lessee has ownership, so registration protects the public by providing notice that the lessee is not the owner)

Value any consideration sufficient to support a simple contract, and includes an antecedent debt or liability

New value = value other than antecedent debt or liabilityBills of Exchange Definitions

Term DefinitionBill of exchange “an unconditional order in writing, addressed by one person to another, signed by the person giving it,

requiring the person to whom it is addressed to pay, on demand or at a fixed or determinable future time, a sum certain in money to or to the order of a specified person or to bearer” (Bills of Exchange Act s. 16)

Cheque “cheque is a bill drawn on a bank, payable on demand” (Bills of Exchange s. 165)Promissory note “A promissory note is an unconditional promise in writing made by one person to another person, signed by

the maker, engaging to pay, on demand or at a fixed or determinable future time, a sum certain in money to, or to the order of, a specified person or to bearer” (Bills of Exchange Act s. 176)

Holder in due course person who has a bill that appears complete and regular provided a) became a holder before it was overdue and without notice that it has been dishonoured, and b) acquired in good faith and for value, and at time of negotiation no notice of defect in title of the person who negotiated it (Bills of Exchange Act s.55)

Policy ArgumentsPolicy Considerations in Secured Transactions

Policy Consideration Detailsfacilitate borrowing need capital to grow business, manage risk (permit business to save some capital in bankruptcy, spread

loss to others incl. vendor), make more money (leverage: capital of $100 plus loan of $1000 at 5% = investment of $1,100 with 10% interest = $110 profit - $50 interest = $60 gain = 60% rate of return on $100)

provide security way to ensure return of a loan (if you pay, you keep your property but if you don’t pay, you lose your property) more favourable interest rate with better security (i.e. interest rates are tailored to the risk of the loan, among other things, with a lower risk with a better security)

economic efficiency justification for the priority of secured debt: willing to lend money b/c there is assurance that the loan will be repaid need loans to promote commercial efficiency and productivity

Historical Framework for Secured TransactionsTerm Details Key ConceptsThree types of historical security arrangements

(1) Conditional sales agreement = vendor provides financing to a purchaser by accepting payments over a defined period of time (purchaser took possession from outset but the vendor retained title until the financing was paid in full)

(2) Chattel mortgage = purchaser borrows financing from a third party to make an expenditure from a vendor who is unable or unwilling to provide term financing under a CSA. As security, the purchaser will transfer some aspect of the title of an asset to the third party.

(3) Other legal arrangements that mimic the above transactions (i.e. a chattel lease, which mimics a CSA lease payments made over time with possession of the property, which the right to purchase outright at the end of the pre-defined lease term)

CSA = vendor financing

CM = third party financing

Historical context 16th century: pledge (similar to a contemporary pawn shop) unpaid vendor


give up a possession in exchange for $; pay back $ + interest = return of possession)

However, what happens if you need to retain possession of the valuable item?Ownership of property = bundle of rights (possession and title are independent)Therefore the seller could retain the legal title while passing possession (and transferring title when the full amount is paid); failure to pay = right to possession ends and seller exercises legal right as the title-holder Conditional sales agreements (“CSA”)

But if the vendor is not in a position to lend the money, the purchaser may arrange a loan from a third-party (i.e. a bank) purchaser gets full title and possession as vendor is completely paid third-party lender gets security by taking the title for the purchased item (similar set up to CSAs) Chattel mortgage (“CM”)

What happens if there is already an existing CSA but the business owner needs an additional loan? can’t transfer title as security because the title is still with the vendor in the CSA (“nemo dat quod non habet”) vendor has title = problem: innocent party can lose out (i.e. if the purchaser sold the property under the CSA to a third party)

Registry system document of CSA filed in a central public registry so third parties can check the registry (public notice that a creditor has an interest in the property of a debitor) carrot = business efficacy but very big stick = significant consequences if the creditor does not register the CSA (non-enforcement against certain groups of people; typically bona fide purchasers for value without notice, other secured creditors, judgement creditors, trustee in bankruptcy)

Other arrangements then arose to avoid the registry systemExamples:

(1) Lease for defined period + final payment = transfer of ownership (similar arrangement to CSA but long-term lease with either an option or obligation to purchase at the end of the lease term)

(2) Consignments(3) Transfers of Accounts Receivable

However, the same problems arise out of these arrangements in that there is the potential to defraud third parties by appearing to have ownership even though the title remained with a different person/business

= money lender

Legislative response

Multiple statutes (i.e. Conditional Sales Acts, Chattel Acts, etc.) governing these types of lending arrangements with multiple processes for registration and multiple consequences for failure to register

Modernization started with Ontario in the 1970s: rational, unified and orderly system to facilitate business borrowing while protecting creditors and innocent third party purchasers adapted Article 9 of the Uniform Commercial Code followed by BC in 1980 and virtually every other jurisdiction in Canada


Personal Property Security ActIntroduction

Term Details Key ConceptsFunctions of the PPSA

(1) regulates the creation and effectiveness of any instrument or document that creates a “security interest” (i.e. CSA, CMs, the “skirting” vehicles like long term leases

(2) pulls in some transactions that aren’t security interests but have the same capacity to deceive others about ownership (“deemed security interests”)

(3) registration or other public notice of these interests created in a debitor’s property (PPR registry)

(4) allows creditor to select the duration of registration (1 year to infinity)(5) consequences for non-registration (same as previous consequences)(6) rationalization of priorities(7) code for the realization of security interests (problem under the old law, which

said nothing about what happens when the debitor defaults on a loan)Relationships to other acts

s. 73 generally, the PPSA trumps other acts unless a specific provision that the other act applies despite the PPSAs. 74 two exceptions:

the Business Practices and Consumer Protection Act (or a provision for the protection of consumers in any other Act)

the Land Title Act

s. 75(1) references to Book Accounts Assignment Act, Chattel Mortgage Act, Company Act, Manufactured Home Act or the Sale of Goods on Condition Act that relates to a security interest = reference to the PPSA

s. 75(2) references to a chattel mortgage, conditional sales contract, floating charge, pledge, assignment of book accounts or other similar agreements = reference to the corresponding kind of security agreement in the PPSA

Marine Building Holdings Ltd. (BCSC 1993)

Facts: Δ makes a security agreement with the bank conveying a security interest in a number of items of Δ’s property (incl. Δ’s accounts receivable). Bank registers a financing statement, which achieved perfection of their security interest. Δ also became indebted to the Π. As Δ did not pay, Π sued Δ and got a legal judgement for the debt. Π began enforcement . Π serves garnishment orders to the Bank, Moli Energy and Westcoast Energy. Moli and Westcoast Energy paid their accounts receivable to the court. The bank argues that it is entitled to the money under the PPSA. The Π argues that it is entitled to the money under the judgement order.

Decision: PPSA trumps the other legislation therefore the bank gets the garnished funds as the Π was essentially an unsecured creditor

PPSA s. 20: groups that will win against an unperfected security interest (1) trustee in bankruptcy; (2) judgement creditor in the process of executing the order; (3) purchaser for value without notice

Justification for the priority of secured debt: economic efficiency (willing to lend money b/c there is assurance that the loan will be repaid)

Canamsucco Road House Food Co. (ONCtJ 1991)

Π owns a restaurant and is indebted to CIBC for a significant loan. CIBC has a registered GSA (General Security Agreement (GSA) = bank has security over absolutely everything). Π wants to sell the restaurant to Δ but Δ has to pay over time. Π agrees but takes out a GSA for the restaurant equipment to ensure Δ’s payment. If the Π fails to pay the money owed to CIBC, the agreement has a condition to allow the Δ to take over the CIBC payments (but taking that amount off the money owed to the Π). As Π is not paying the bank, the Δ starts making the payments directly to CIBC (and deducting from what is owed the Π). The Δ has an affiliated company, 936, provide the money to pay off CIBC in full, and CIBC assigns its GSA to 936 (936 essentially jumps into the shoes


of the bank with the first security interest). There is also a third GSA taken out in favour of 936 for some additional funds owing. Δ argues that this third GSA is tacked onto the first GSA (CIBC 936) and therefore has priority.Decision: cannot tack in this situation (assigned priority does not get tacked with future advances) however, the PPSA may permit this type of tacking; open to interpretation

Significance of case: limit on tacking ability; structure of sale transaction (common mechanism by which to sell a business)

TackingTerm Details Key ConceptsStatutory Authorization

PPSA s. 14 provides that future advances and tacking can be included (CP 7)

Definition T1: S/I for Creditor AT2: S/I for Creditor BT3: further advance by Creditor A

Generally, Creditor A can “tack” the further advance at T3 to the obligation secured at T1 (typically securing priority over Creditor B) however, not always applicable (c.f. Canamsucco where tacking was not permitted as it would defeat the purpose of the PPSA)

Example Ex: T0 = security interest registered; T1 = $50,000; T1A = new security interest registered + loan of $100,000; T2 = loan $100,000; T3 = loan $50,000 the security interest registered at T0 includes the loans made at T2 and T3 in advance of T1A (provided perfected) tacking = add later advances to priority position created earlier

Hypothetical:X owns a car valued at $20,000X still owes the bank $10,000 on the loan borrowed to purchase the carBank holds a security interest in the car.X decided to sell the car to Y.

(1) Y assumes the $10,000 loan and pays X $10,000(2) Y pays X $20,000 and X promises Y that $10,000 will be paid to the bank to

resolve the loan problem: what happens if X doesn’t pay off the bank? write one cheque for $10,000 to X and one cheque for $10,000 to X and the bank (forcing X to pay the loan by making the bank party to that payment)

Debt AccelerationTerm Details Key ConceptsDefinition If the debtor defaults, it accelerates the debt (i.e. it’s all due after defaulting instead of

the balance over the pre-scheduled payment periods)Limitation under PPSA

Acceleration limited under PPSA PPSA s. 16: acceleration only when there are commercially reasonable grounds to believe that payment or performance is (or is about to be) impaired, or that the collateral is (or is about to be) placed in jeopardy however, the limitation does not apply to default situations but rather only when the secured party believes itself to be insured or that the collateral is in jeopardy

Policy considerations

Why the limitation? most corporations do not have the funds on hand to accelerate repayment, which results in the company losing all assets

Formal RequirementsTerm Details Key ConceptsRiepe v. Stingray Holdings Ltd. (BCSC 2002)

Facts: Riepe Sr. leased a pick-up truck with a lease agreement (“true lease”). Written agreement but business conducted without regard for the terms of the written agreement. At the end of lease, Riepe Sr. wants to purchase but he has defaulted on some payments. However, some agreement that they would continue with the


purchase. Riepe Sr. sells truck to son, Riepe Jr. (not quite a bona fide purchaser for value without notice although it’s unclear what he knew). Payments not concluded. Stingray attempts to re-possess truck. However, was there a written security agreement to enforce rights against third party?

Decision: no written security agreement (however, no written agreement as there was only a verbal agreement to continue with the purchase. Waldron: unlikely that there was actually a security agreement after the lease agreement lapsed as no clear terms that the truck would be re-possessed)

Policy considerations: secured parties have an extraordinarily privileged position, which means that they must comply with the formalities of the PPSA to maintain that privileged position

674921 BC Ltd. v. New Solutions Financial Corp. (BCCA 2006)

Facts: two creditors of the same debtor. T1: Creditor A (674921) makes loan agreement with term that security would be given. T2: Creditor B (New Solutions) loaned the debtor money. T3: Debtor delivers GSA to Creditor A. New Solutions argues that at T2, there was no written agreement per the PPSA.

Decision: no security agreement at T1; further, no sufficient description for s. 10 – “assets” is not sufficiently precise

Waldron: it doesn’t take much to meet the requirements of the PPSA but they must be present to be enforceable

Inclusions / ExclusionsTerm Details Key ConceptsCommercial consignment

Commercial consignment (defined term) = goods delivered for sale, lease or other disposition (yes) to a consignee who, in the ordinary course of the consignee’s business, deals in goods of that description, by a consignor who,

(a) in the ordinary course of the consignor’s business, deals in goods of that description, and

(b) reserves an interest in the goods after they have been delivered (yes),but does not include an agreement under which goods are delivered(c) to an auctioneer for sale,(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 why significant? protecting innocent third party rights but not extended to creditors when it is likely obvious that the goods in the warehouse would not be owned by the debtor

Re Toyerama (OSCB 1980)

* ON case, and ON law differs from BC law (add’l factor that would be significant in BC)

Facts: in 1979, toy manufacturer (Regal) was not moving “Willi Walker” and “Laffy Cathy.” To dispose of excess inventory, entered K with Toyerama to consign these toys to Toyerama. Toyerama declares bankrupty. Trustee who represents unsecured creditors wants to sell the toys to divide proceeds to the unsecured creditors. Regal objects as the toys were provided under consignment, which means that Regal retained title. Trustee argues that the consignment was a disguised security interest. If security interest, it is covered by PPSA, which is problematic as Regal did not register a financing statement with respect to the toys (failure to perfect = losses to certain groups of people, including trustees in bankruptcy PPSA s. 20(b)). Regal objects that it was a true consignment (not intended as a security interest). n.b. Ontario PPSA does not automatically include commercial consignments.

Waldron: the agreement omits an important part what happens if Toyerama does not sell the items consigned to it? (hallmark of a true consignment is that the items are returned or disposed of according to the terms of the agreement no obligation to pay for the item if not sold)

Re Stephanian’s Persian Carpets (ON 1980): if there was no obligation to pay for the

commercial consignment?


items unless sold, there was no security agreement as there was not automatic debt

Decision: Regal retains ownership of items where there was no obligation to pay for; however, the trustee got ownership of items where there was an obligation to pay (i.e. returned items or items shipped to the retail locations)

BC is it a security interest? maybe/maybe not is it a commercial consignment under PPSA s. 3?

(a) in the ordinary course of the consignor’s business, deals in goods of that description (yes), and

(b) reserves an interest in the goods after they have been delivered (yes),but does not include an agreement under which goods are delivered(c) to an auctioneer for sale (no),(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 (problem) why significant? protecting innocent third party rights but not extended to creditors when it is likely obvious that the goods in the warehouse would not be owned by the debtor in this case, unlikely that there are sufficient facts to make an adequate determination

however, some indication that this would be a ‘yes’ in this case (which would exclude the agreement from the automatic inclusion of a commercial consignment)

Leases Whether or not a lease falls under part 5 of the PPSA (i.e. true security lease or incl. simply b/c the lease term is more than 1 year) is important for personal leases (less relevant with commercial leases, when the terms of part 5 closely parallel the commercial reality) why? consumer protection vs. seize/sue provision of part 5 of the PPSA

Large body of literature distinguishing a true lease from a lease disguising a security interest list of factors (CP 35-6) that are considered but problematically they are ambiguous (i.e. insurance provisions likely applicable to both situations

Key factors: substantial security deposit req’d (i.e does it look like a partial down payment

on the purchase price?) what happens at the end of the lease term?

no option to purchase = true lease unless all the lease payments add up to the purchase price and the item will be worthless at the end of the lease period option to purchase: does the purchase price reasonably reflect the value of the item at the end of the lease period? this likely indicates a true lease. however, a nominal price would perhaps indicate a disguised security lease

Considered factors ( Daimler Chrysler ) :1) whether there was an option to purchase for a nominal sum2) whether there was a provision in the lease granting the lessee an equity or

property interest in the equipment3) whether the nature of the lessor’s business was to act as a financing agency4) whether the lessee paid a sales tax incident to acquisition of the equipment5) whether the lessee paid all other taxes incident to ownership of the equipment6) whether the lessee was responsible for comprehensive insurance on the

equipment7) whether the lessee was required to pay any and all licence fees for operation of

the equipment and to maintain the equipment at his expense8) whether the agreement placed the entire risk of loss upon the lessee9) whether the agreement included a clause permitting the lessor to accelerate the

payment of rent upon default of the lessee and granted remedies similar to


those of a mortgagee10) whether the equipment subject to the agreement was selected by the lessee

and purchased by the lessor for this specific leaseDaimlerChrysler Services Canada Inc v Cameron (BCCA 2007)

@ trial: emphasis on the damages if the lessee failed to make lease payments (agreement provided that all monthly payments@ CA: term was a normal breach for a chattel sale agreementTwo options: (1) true lease (some PPSA would apply as the term was > 1 year but the realisation provisions would not apply); (2) lease intended as a security agreement (all PPSA applies incl. realisation provisions)

Debtor wants the lease to be considered (2) as the realization provisions incl. protection for consumer property (either repossess or sue for damages but not both)

@ trial focus on the default provision (¶18), which was inconsistent with the lease of property where taking the property back ended further damages (however, BCCA notes that this position was reversed by the SCC proper measure of damages is expectation damages, which is the measure described in ¶18) @BCCA factors considered in characterization of lease (¶22)

Big question: what happens at the end of the defined lease term? If there is no option to purchase, is there any value left in the item after the

defined lease term? (no value = intended as security agreement b/c it is like purchasing the item; some value = true lease)

If there is an option to purchase, is the option a nominal sum or is it set to reflect the real value of the item anticipated at the end of the lease period? (real value of item = true lease; nominal value = intended as security agreement)

lease

Newcourt Financial Ltd. v. Frizzell (BCSC 2000)

Facts: lease agreement for vehicle; debtor defaulted one payment, made two payments and then defaulted two payments; creditor attempted to speak to debtor ; creditor went to repossess the vehicle

Acceleration clause limited by PPSA commercially reasonable grounds to accelerate the owning balance if the creditor thinks that the debtor may default

The opposite of an acceleration clause is the right to re-instate payments after default under the PPSA, a consumer has a right to re-instate two payments per calendar year (in Part V of the PPSA)

Typically the re-instatement is acceptable to the creditor (given the limited options to realise consumer goods under the PPSA)

In this case, the creditor wanted to continue the acceleration the ability to seek this provision hinges on whether the lease is a true lease or a lease intended as a security agreement

Application: clearly a lease > 1 year but option price = “genuine pre-estimate of the vehicle’s fair market value on that date [end of the term]” accordingly, true lease

Trusts How could a trust be set up to provide security? (Waldron: used to be a common structure but no longer)

Ex: Retailer (“R”) who sells various items of inventory. R cannot afford to pay for inventory before it is sold (i.e. financing their inventory). R makes arrangement with Wholesaler (“W”). W can send inventory to R under a trust arrangement (trustee has possession and trust beneficiary has title with trustee obliged to act in the interests of the trust beneficiary incl. the money produced by the sale of goods). Trust arrangement meant that R held profits in trust for W. If R defaulted, W would have a right for the unsold inventory as well as a right to the proceeds (“trust funds.”) This model provided W with a very secure position.

Benefits:

Inventory supplier common actor in PPSA


In bankruptcy, the trustee in bankruptcy generally cannot touch trust funds W has equitable tracing rules

Skybridge Holidays Inc. (Trustee of) v. British Columbia (Registrar of Travel Services) (BCCA 1999)

Facts: Skybridge had money given by travellers purchasing travel packages with Skybridge (i.e. Customer X gives Skybridge $$$ to purchase tickets). Before the tickets are purchased, the money is placed in Skybridge’s account (with the money of different travellers.) At any given time, Skybridge’s account has money from multiple travellers.

Skybridge declares bankruptcy. The trustee in bankruptcy swoops in to get $ for unsecured bankruptcy. However, money owed to secured creditors and property not owned by Skybridge is not available to the trustee.

Skybridge was regulated by statute. The provincial statue required that Skybridge hold money received by travellers be held in trust. However, the Bankruptcy and Insolvency Act (federal legislation) did not recognized provincially created trusts and (through paramountcy) therefore the travellers become 1 of however many unsecured creditors.

@ trial, the travellers argue that there was a genuine trustProblem: each traveller will have to prove on the facts that the funds were provided to Skybridge in a trustee relationship trustee in bankrupty argues that the trusts were security interests (unregistered) therefore not perfected b/c not registered (PPSA s. 20 = failure to register means that the trustee in bankruptcy has priority) PPSA creates an exemption to the rule that trustees in bankruptcy cannot take property not owned by the bankrupt (if you are considered to have created a security interest in an item but fail to fulfill PPSA requirements, the trustee in bankruptcy can take the property)

Problem: is the trust a security interest? (i.e. is it securing payment or performance of an obligation? (analysis: what is the obligation and what happens if the obligation is unfulfilled)

in this case, customer X has no security for the transferred funds therefore not a security interest

accordingly, the case will proceed as an analysis of each individual’s trust relationship (if any) to Skybridge

Moral of the story: a trust can be a security interest but not always there needs to be an obligation secured by the right of the creditor to use some of the debtor’s property to fulfill the obligation if the debtor fails to repay the credit

Furmanek v. Community Futures Development Corp. of Howe Sound (BCSC 2000)

Facts: Spargo enters agreement to purchase Furmanek’s jewellery business. Spargo

borrows money from Community Futures to partially pay Furmanek, and Furmanek accepts the balance on a payment plan (i.e. as a creditor). Both Community Futures and Furmanek take security interests. Furmanek agrees that Community Futures should have first priority (only way to get a third party lender). However, in registration, Furmanek perfects first b/c Community Futures made a mistake in registration. However, the Court gave Community Futures priority as that was the agreement between the two creditors.

Spargo entered consignment agreement with Seca Gems (genuine consignment). Seca sends jewellery to Spargo.

Spargo defaults on loans from Furmanek and Community Futures, and Community Futures appoints receiver to engage in orderly realization of business property

Seca’s jewellery is still in Spargo’s inventory

Is Seca’s jewellery a commercial consignment (and therefore covered by the PPSA as an unperfected security interest)?

commercial consignment = goods deliver for sale, lease or other disposition (yes) to a consignee who, in the ordinary course of the consignee’s business,

commercial consignment?


deals in goods of that description (yes), by a consignor who,(e) in the ordinary course of the consignor’s business, deals in goods of that

description (yes), and(f) reserves an interest in the goods after they have been delivered (yes),but does not include an agreement under which goods are delivered(g) to an auctioneer for sale (no),(h) 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 (problem) Furmanek was aware b/c it was how Furmanek did business as the past owner however, Community Futures was not aware court: test is whether creditors generally now (not whether the specific creditors knee) in this case, creditors did not generally know that Spargo was in the business of selling or leasing goods of others

Accordingly, Seca was deemed to be a commercial consignment and therefore lost priority to the perfected secured creditors

However, Seca took back some of the property and the security interests of Furmanek and Community Futures specified inventory, which the property was no longer when Seca regained possession

Court not quite as the receiver was appointed by the property was regained (which defeats the purpose of the PPSA to orderly distribute assets)

CollateralTerm Details Key ConceptsCollateral Definition: personal property that is subject to a security interest

in PPSA, the categories under personal property are almost always mutually exclusive (i.e. if it falls into one category, it won’t all in the other)

two major divisions: (1) goods; (2) other stuff

Goods (defined term) = tangible personal property (stuff you can touch) plus fixtures, crops, unborn young of animals but does not include chattel paper, documents of title, money, trees other than crops, minerals and hydrocarbon prior to being extractedThree categories of goods:

(1) consumer goods(2) inventory(3) equipment

Other stuff = instruments (defined term includes cheques, letters of credit); accounts (defined term monetary obligation that cannot be touched; excludes chattel paper and instruments); chattel paper (defined term one or more writings that evidence both a monetary obligation and a security interest in goods; e.g. lease agreements in DaimlerChrysler and Newcourt Financial); intangible property; licenses (defined term right that entitles the holder to do some things); money (defined term medium of exchange)

debate over fishing licences: right issued by the government at the discretion of the minister (and which can be revoked); traditionally b/c of reliance on ministerial discretion it was not considered property; however, it is a very valuable item (essential to secure loans for holders as often most valuable property) therefore broader definition than common law (Saulnier)

ProceedsTerm Details Key ConceptsDefinition Definition of “proceeds” (defined term)


(a) identifiable or traceable personal property, fixtures and cropsi) derived directly or indirectly from any dealing with collateral or the

proceeds of collateral, andii) in which the debtor acquires an interest

(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

(c) a payment made in total or partial discharge or redemption of an intangible, an instrument, investment property or chattel paper, and

(d) rights arising out of, or property collected on, or distributed on account of, collateral that is investment property

(b) to (d) are additional inclusions that may not be evidenceExamples Ex: Vendor sells boat to debtor on a condition sales agreement. Debtor sells boat to X

duplicitously. If vendor registered, the vendor could follow and reclaim the boat from X as notice given. However, this could be complicated if the debtor is in the business of selling boats, etc. The vendor might actually want the proceeds from the sale to X (i.e. $1000 + smaller boat).

The old law did not give a right to the proceeds. However, the PPSA gives a right to the proceeds from the sale of collateral (PPSA s. 28).

Revised example:D receives $1000 and a blue boat for the sale of the collateral to X derived from the sale of the collateral.

identifiable personal property = blue boat + $1000 in cash traceable personal property = $1000 after deposit in mixed funds bank account

Hypothetical #1:A buys a red boat and gives the bank a security interest in the red boat to finance the purchase price. A sells the red boat to B in exchange for a blue boat plus $1000 in cash. B sells the red boat to C in exchange for a green boat.

Proceeds from red boat blue boat + $1000 cash Proceeds does not include the green boat (while the green boat is derived from

a dealing in the collateral, the debtor – A – did not acquire an interest in it)

The bank registers a financing statement reading “a security interest in A’s red boat.”S. 28(3) gives 15 days to amend the f/s otherwise the perfected status of the security interest is lost (hence subject to lesser priority under s. 20.)

Limitations Limitations to proceeds: PPSA s. 28(1): secured party expressly or impliedly authorizes the dealing

with the collateral what about inventory held for sale? likely implied authorization but also PPSA s. 30(2): a sale in the ordinary course of business of the seller (def’d s. 30(1))

* key to public notice: registration of a financing statement in the PPR

n.b. the PPSA includes proceeds of proceeds (i.e. exchanging the blue boat for a refrigerator.) This extends indefinitely.

Re CIBC & Marathon Realty Co. Ltd. (SKCA 1987)

Facts: Kiddies has loan to purchase inventory and also defaults on rent. Right to distraint: commercial landlords seize goods to sell off to pay for defaulted rent. However, right to distraint subject to certain types of security interests (Rent Distress Act).

Decision: CIBC had a properly perfected interest in the inventory (even though it was proceeds of proceeds) that the landlord could have found by searching the registry

Additional note: not commercial reasonable for third parties to expect secured parties’ to


enforce rights unilaterally

Tracing ProceedsTerm Details Key ConceptsTracing rules Customer uses a $20 bill to purchase an item of inventory. The bill goes in the cash

register and this money is then deposited in a bank account where it is credited to the vendor’s account. An account is a debt (i.e. the bank owes you the amount of money in the account.) The account will have different sources of money (i.e. funds from different items of inventory sold, some interest on investments, etc.) a mixed fund account.

Equitable tracing rules allow a trust beneficiary to follow funds into a mixed fund account and to claim a portion under technical rules that identified what portion belonged to the trust beneficiary.

Identifiable Proceeds

at common law, funds from a trust could not be followed once they were converted to a different form but equitable tracing rules allowed the trust beneficiary to follow the funds so long as the funds were identifiable the PPSA gives the tracing rules to secured parties (even outside the context of a trust) (see PPSA s. 1(5))Hypothetical:

T1: A gives bank security interest in “all freezers” and bank registers f/s to that effectT2: A sellers a freezer to B. B gives A a cheque for $6,000 assume that the sale is not in the course of ordinary business (i.e. A owns a restaurant) cheque = instrument = proceeds under s. 28(2) [perfected security interest]T3: A deposits cheque into an account at a credit union. account = proceeds of proceeds (i.e. B sells credit union the cheque for an account) cheques = bills of exchange under federal act (negotiable intstruments are an occupied field per s. 28(2), the bank has a security interest in the accountT4: A withdraws $2,000 cash, A used $1,000 to pay MasterCard bill and A gives $1,000 cash to niece as birthday gift. proceeds of proceeds (balance of account) + proceeds of proceeds of proceeds ($2,000 cash) money is a continuously perfected security interest per s.28(2) money is governed by the federal government and is the easiest security interest to lose (b/c it must be freely transferrable)

What if the account was a mixed fund account? turn to equitable tracing rules: lowest intermediate balance rule

Lowest Intermediate Balance Rule

Three principles:(1) total amount of deposits in the account form the account balance, and any

proceeds deposits to the account increase both the proceeds balance as well as the account balance

(2) funds deposited not reflecting proceeds raise the account balance but not the proceeds balanced

(3) with withdrawals, it is presumed that own money (i.e. non-proceeds) is spent first

Time

Proceeds Deposit

Non-proceeds Deposits

Withdrawals

Account Balance

Proceeds Balance

T1 $0 $8,000 $0 $8,000 $0T2 $5,000 $0 $0 $13,00 $5,000T3 $0 $0 -$7,000 $6,000 $5,000T4 $0 $0 -$2,000 $4,000 $4,000

($5,000)T5 $0 $3,000 $0 $7,000 $4,000T6 $2,000 $0 $0 $9,000 $6,000


($7,000)

* While in trusts, repentance would be recognized (and the $3,000 added at T5 would be used to restore the proceeds balance to $5,000), it is not recognized in PPSA as the remainder of the account goes to other creditors (less secured or unsecured creditors) policy benefit: balance secured creditors with other creditors

* Rule must be applied mechanically (no preference for specific creditors, etc.)Universal C.I.T. Credit Corporation v. Farmers Bank of Portageville (USDC 1973)

Facts: Ryan sells cars on a financing agreement for the Π. Π had financing statements filed reflecting security interest in the proceeds from the sale of the cars. Ryan deposits the funds in an account with the Δ. Ryan also owes money to the Δ on a promissory note. Π indicates that it will be cancelling the financing agreement. Ryan had written cheques to Π but they had not been deposited. Ryan tells the bank to withdraw the money owed on the promissory note (instead of letting the money go to the Π). The cheques bounced (NSF). Π sues the Δ for the withdrawn funds.

Application of lowest intermediary balance rule on CB 91

However, a slight tweak to the fact pattern may have resulted in a different outcome if the bank was not aware that proceeds were held in the account [innocent party] the withdrawal was irregular (after the close of business), which suggested a fraudulent practice to defraud the secured party [different if Ryan had withdrawn the money himself and then given it to the bank]

Tracing by subrogation

Broader understanding of tracing rules than strict “follow the money” (i.e. in situations where the accounts are more complex, or perhaps multiple accounts)

considers the commercial realities what is the original collateral, what role did it have in the debtor’s life/business, what interest does

is there a connection between the end going into the ball of yarn and the end going out? how much is the secured party entitled to?

Agricultural Credit Corp. of Sask. v. Pettyjohn (SKCA 1991)

Facts: the Pettyjohns took out money from ACCS to purchase cows. ACCS had a purchase money security interest in 47% of the cows as well as a general security interest in all cows (type of interest important as garden-variety security interest does not permit seizure of farm equipment.) The Pettyjohns started to sell herd to replace them with Watusi cattle. Given the complicated and often undocumented nature of the transactions, it was very difficult to trace the original cattle to the Watusi cattle (smaller herd).

the Pettyjohns argued that since ACCS could not trace (per trust law), ACCS could not

However, the court noted that the PPSA is not a trust therefore the strict trust rules do not apply replacement collateral (i.e. follow the string in and out)

the Watusi cattle perform the same function as the PMSI cattle clear that the funds from the PMSI cattle were used to purchase “replacement”

property

Dissent: security interest over all Watusi cattle to the total of the PPSIMajority: the dissent’s reasoning would be unfair to unsecured creditors therefore ACCS is entitled to a security

The dissent noted that the Pettyjohns would benefit (not unsecured creditors) and the mess was in part due to their mismanagement. The majority, however, was of the opinion that the outcome was specific to the particulars of this case (as opposed to a different situation with unsecured creditors)

Tracing by subrogation rule

look at the original collateral if the middle is too confusing, look to the end to see if there is replacement collateral that performs the same function in the debtor’s economic situation if there is replacement collateral, the creditor will get the same proportion of this


collateral in security interest as it had in the original collateral

* no requirement that the middle is too confusing because of a particular reason (i.e. poor bookkeeping in Pettyjohn) but it likely would be advantageous to be able to argue that there are reasons that tracing rules are not functioning (i.e. poor bookkeeping ;-) )

Re River Industries Ltd. (BCSC 1992)

BC example of application of tracing by subrogation rule

Facts: Acklands Ltd. had a security interest in some of the inventory of the debtor. The debtor sold everything in bulk.

Neither cut-off rule applied no consent to deal (sale in bulk different from individual inventory sale) and not a OCB sale

Accordingly, Acklands Ltd. was allowed to retrieve the inventory that it had supplied on credit. However, it did not account for proceeds (i.e. additional inventory purchased from the proceeds of the sale of other Acklands inventory and other inventory in general.)

Application of tracing by subrogation rule Beginning: Acklands Ltd. had a security interest in X% of the inventory End: inventory that likely included proceeds Acklands granted X% of the end inventoryCreating the Security Interest: Perfection and Attachment

Term Details Key ConceptsPerfection PPSA s. 19 a security interest is perfected when

a) is has attached, andb) all steps required for perfection under this Act have been completed,regardless of the order of occurrence

Three ways to fulfill s.19(b):(1) PPSA s. 24 subject to s. 19 (i.e. must attach as well), possession of

collateral perfects a s/I in chattel paper, goods, an instrument, a negotiable document of title and money unless the possession is a result of seizure or repossession perfection = attachment + possession (but not seizure)

(2) PPSA s. 25 subject to s. 19, registration of a financing statement perfects a s/I in collateral perfection = attachment + registration of a financing statement

(3) provisions for temporary perfection such as PPSA s. 28(3) temporary perfection = attachment + a period of time to either possess or register the collateral

What do these methods achieve? notice to third party (either by possessing the collateral or by registering the

collateral)Attachment PPSA s. 12

(1) A security interest attaches whena) value is given,

valueb) the debtor has rights in the collateral or power to transfer rights in the

collateral to a secured party, and rights in the collateral

c) except for the purpose of enforcing rights between the parties to the security agreement, the security interest becomes enforceable under s. 10 (formality requirement either possession or a security agreement in writing signed by the debtor that properly described the collateral) generally, a signed written security agreement


PPSA s. 13(1) automatic attachment when the security agreement covers after acquired

property and the debtor purchases further assets (“attachment steamroller”)(2) exceptions:

a) crops that start to grow after a yearb) generally excludes consumer goods unless the newly acquired item is a

replacement for the original collateralTiming of Attachment and Perfection

Scenario 1:

T1: debtor buys collateralT2: creditor lends $ and a general security agreement is signedT3: creditor registers financing statement

Attachment = T2Perfection = T3

Scenario 2:

T1: creditor lends $ and a general security agreement is signedT2: creditor registers financing statementT3: debtor buys collateral


significant to PPSA s. 35

Scenario 3:

T1: creditor registers a financing statementT2: creditor lends $ and a general security agreement is signedT3: debtor buys collateral


Scenario 4:

T1: creditor registers a financing statementT2: debtor buys collateralT3: creditor lends $ and a general security agreement is signed


Components of AttachmentValue (defined term) any consideration sufficient to support a simple contract, and includes an

antecedent debt or liability the PPSA may specify new value but attachment only needs value

TD Bank v. Nova Entertainment (ABQB 1992)

Facts: parent company makes loans to subsidiary company at T1; parent company takes security interest/registers interest at T2

Another creditor argues that the parent company did not get value (i.e. was not perfected) however, as value includes an antecedent debt, the security interest was perfected

Rights in the Collateral

PPSA s. 12(2) a debtor has rights to leased goods or consigned goods when the debtor obtains possession of them in accordance with the lease or consignmentHowever, the secured party can only acquire the rights that the debtor has under the lease or consignment

PPSA s. 12(3)A debtor does not have rights in any of the following:

a) crops until they become growing cropsb) the young of animals until they are conceivedc) minerals or hydrocarbons until they are extractedd) tress, other than crops, until they are severed

* mere possession is (i.e. insufficient to be a gratuitous bailee or a bailee for hire)Kinetics Technology International Corp. v. The Fourth National Bank of Tulsa (US CA 10th circ. 1983)

Facts: Oklahoma Heat Transfer (OHT) indebted to the bank: took out loan and granted

security interest in inventory OHT entered K with KTI to produce furnace economizers KTI sent goods to OHT, who installed the goods in constructed items KTI would also send progress payments to OHT OHT was in financial difficulties so bank directed KTI to pay progress payments

directly to OHT


Bank goes to realise on debt KTI items are in OHT’s possession KTI claims ownership of items

Issue: does the bank have a perfected security interest in the items? did the bank’s security interest attach to the items sent by KTI? did OHT have sufficient rights in the items from KTI to allow the bank’s security interest to attach?

Decision: OHT had some rights to the property mere possession, however, is insufficient (i.e. borrowing grandma’s car)

need sufficient rights in the item for attachment in this case, OHT had more than a possessory right right to hold and use in manufacturing process = sufficient for attachment however, KTI was making partial payments to sale of the completed economizers accordingly, ordinary course of business sale, which the bank accepted as it took

the $ from KTI

Waldron: unsatisfactory solution although fair result(hard to see OCB sale for items that had not been installed into the completed units)

Alternative solution: in addition to attachment, there are other factors that must be considered in

determining who gets the other considerations: (1) rules provided by the Act; and (2) PPSA s. 68 in default,

the common law and the law of merchant applies

Example for (1) rules provided by the Act:

T1: A borrows from Bank 1 and gives Bank 1 a security interest in all present and after acquired property. Bank 1 registers a financing statement.T2: A borrows from Bank 2 and gives Bank 2 a security interest in all present and after acquired property. Bank 2 does not register a financing statement.

In this example, both banks have an attached security interests. However, this does not tell us who gets the assets. We have to turn to the Act and the priority rules to see that Bank 1, with its perfected security interest, has priority over Bank 2.

Accordingly, attachment is not determinative of which creditor gets the property.

Application to KTI: what is the nature of KTI’s interests in the goods? no security interest; not

transfer of account or chattel paper; not a lease of > 1 year; not a commercial consignment

given KTI’s interest (which is not that of a secured prarty), what part of the PPSA sorts out priority? no part of the PPSA governs

therefore consider the common law KTI has title (ownership) in the goods nothing in the common law gives the bank a right to items owned by KTI b/c it has a

security interest w/ OHTHaibeck v. No. 40 Taurus Ventures Ltd. (BCSC 1991)

Pre-PPSA security properly registered under the previous law was treated as perfected in the PPSA during the transition period if it came into competition with a PPSA perfected security interest, the PPSA governed

Facts: debenture (security interest) issued to RoyNat by No 40 and registered (i.e.

completed legal formalities under pre-PPSA law perfected security interest when PPSA came into effect)


Builders sold appliances to No. 40 on a condition sales contract Builders perfects security interest in appliances No. 40 defaults on CSC

Issue: RoyNat had security interest Builders had security interest Is there a rule in the act that covers this conflict? yes priority between competing

perfected security interests = registration date

Decision: RoyNat’s security interest was perfected before Builders accordingly it has priority in realization (i.e. gets to take its security interest out of No. 40 and any leftover would go to Builders)

Unfair? No, Builders could have obtained priority if it had registered quicker (rule within the Act that would have given priority provided registration was completed).

Purchase Money Security InterestsTopic Notes Key ConceptsDefinition (a) a security interest taken in collateral, other than investment property, to the extent

that it secures payment of all or part of its purchase price, vendor financing (security interest = likely the car)

(b) a security interest 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, third party financing (security interest = likely the car = PMSI)

(c) the interest of a lessor of goods under a lease for a term of more than one year, and long term lease equivalent to vendor financing

(d) the interest of a person who delivers goods to another person under a commercial consignment consignment equivalent to vendor financingbut 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;

Example A takes out an $80,000 loan from the bank to purchase a computer system. The bank takes a security interest in the computer system.

However, A finds a cheaper version of the computer system for $60,000. A then uses the excess $20,000 on a cruise.

What happens to the PMSI? PMSI in computer system to $60,000 qualification in (b) of “to the extent that the value is applied to acquire the rights”

Modified example:

A takes out an $80,000 loan from the bank to purchase a computer system. The bank takes a security interest in the computer system and all present and after acquired property. A finds a cheaper version of the computer system for $60,000. A then uses the excess $20,000 on a cruise.

security interest in the computer system and all business property to $80,000 PMSI in the computer system to $60,000

Priority rules for PMSIs

PPSA s. 34(1) subject to s. 28, a PMSI in (a) collateral or its proceeds that is perfected not later than 15 days after the day the debtor obtains possession of the collateral, or (b) an intangible or its proceeds that is perfected not later than 15 days after the day the security interest in the intangible attaches, has priority over any other security interest in the same collateral given by the same debtor hence the problem in Haibeck


Policy consideration: allows businesses to expand business base on security (as otherwise creditors would not extend financing)

Major exception to 34(1) inventory (items purchased to re-sell)

PPSA s. 34(2) = inventory provision PMSI in inventory or its proceeds has priority if

a) the PMSI is perfected at the time of possession (i.e. financing statement registered)b) the secured party gives notice to any other secured party that has before the time

registered a financing statement that includes the same type of collaterald) formal requirements for noticee) notice is given before possession

Example:

T1 = credit union has perfected security interest in all present and after acquired propertyT2 = inventory supplier provides inventory with a security interest in all inventory and proceeds (PMSI)

Did the inventory supplier meet the requirements in PPSA s. 34(2)? registration notice

Policy consideration: up to creditors to protect their interests in the PPSA

n.b. a reason why perfection is not always sufficient (i.e. can be subordinate to a PMSI)Impact on existing creditors

Generally, it is to the advantage of existing creditors for the debtor to be able to give PMSIs allows debtor expand asset base, build business

However, in some cases, the creditor has restricted the debtor’s ability to seek other credit (typically in situations with higher asset to debt ratios).

PMSI Priority PPSA s. 22 priority for a PMSI that is perfected no later than 15 days after the debtor obtains possession of a collateral / an intangible attaches

T1 bank loans debtor $ to purchase boiler, debtor takes possession of boilerT2 debtor defaults and trustee in bankruptcy is appointedT3 bank registers financing statement

If the bank is not providing a PMSI, the trustee in bankruptcy will get the boiler per PPSA .s. 20. However, if it is a PMSI, the bank has priority provided there is no more than 15 days between T1 and T3 per PPSA s. 21.

* most grace periods in the PPSA are 15 daysAgricultural Credit Corp. of Sask. v. Pettyjohn (SKCA 1991)

Facts: see earlier discussion in Proceeds

Did ACCS give value to the Pettyjohns to purchase the cows? YesMore difficult question: was the value used to acquire the cows? Pettyjohns argued that the funds were not used to buy the cows (rather, the funds were used to pay off the interim lender who financed the purchase of the cows.)

Court: commercially unreasonable to divide the transaction so minutely value from ACCS was used to pay off interim financing, but the interim financing was always based on the Pettyjohns’ acquiring financing accordingly, all part of the same transactional scheme

Unisource Canada Inc. v.

Facts:T1 = bank loans debtor $ for purchase of a printing press and registers a financing statement


Laurentian Bank (ONCA 2000)

but not a PMSI (why? transaction was a sale and lease back arrangement)T2 = debtor gives GSA to Unisource who registers a financing statementT3: debtor reorganizes finances, Laurentian loans money to debtor and debtor uses $ to pay off loan from bank. Laurentian registers a financing statement for the security interest in the printing press.*T4: debtor defaults

* mistake on the part of Laurentian should have taken an assignment of the bank’s security interest to maintain the bank’s priority

However, Laurentian had to argue that there was a PMSI in the printing press. As bank had the title (given the sale and lease back), discharging the debt met that the debtor now acquired title in the printing press and then provided a security interest to Laurentian

Waldron: technical argument as the debtor’s position didn’t really change (i.e. just swapped one creditor for another)

Prof. Cumming correct solution but not as a PMSI (rather, when the bank’s financing was paid off, Laurentian was subrogated to the position of the bank)

Inventory financing

Pre-PPSA: (1) floating charge that hovered over inventory until event of default when default occurred, the charge crystallized over the inventory at the time; or (2) specific charge on each item of inventory (most useful with big-ticket items like cars)

Post-PPSA: security interest in all inventory (PMSI entitled to super priority under s. 34(2))Chrysler Credit Canada v. Royal Bank of Canada (SKCA 1986)

Facts: financing arrangement was set up pre-PPSA and therefore continued to structure financing in the old way post-PPSA the structure was not consistent with the principles of the PPSA.

T1: dealer acquires car and gives chattel mortgage to CCCT2: dealer sells car and repays CCCRepeat giving specific charges to CCC as a separate transaction to be discharged when the car was sold

When the debtor defaults, CCC gets the new cars with registered chattel mortgages. With respect to used cars, CCC argues that they are proceeds of the sold cars. Receiver

Three groups(1) trade-ins on the sale of new cars where the loans to CCC had not been repaid

CCC had a S/I in the sold car (cut-off in OCB sale) but S/I in trade-in car that retains the PMSI priority

(2) 31 used cars traceable to the sale of new cars where the loans had been repaid(3) nine used cars of unknown origin CCC not entitled to PMSI priority as unable to

demonstrate that they are proceeds

Problem: group (2)

Security agreement provided expressly that the security interest secured any and all present and future obligations (including proceeds), and indebtedness that is from time to time reduced and thereafter increased or entirely extinguished and thereafter re-incurred (CB 122) indicated that CCC intended to have a security interest even after the loan was repaid

Waldron: conclusion based on private contract (not PPSA) further problem: not a PMSI as once the debt is discharged there is no value that secures payment

T1: loan of $25,000 to purchase boiler perfected PMSIT2: loan of $50,000 to purchase backhoe perfected PMSIT3: debtor starts making loan payments


The creditor may structure repayments to all pro rata across the collateral (i.e. each payment in the above scenario applied in a 1:2 ratio) ensures that the creditor retains a PMSI in both for the duration of the loan period

Perfection by RegistrationTopic Notes Key ConceptsRegistration of financing statement

PPSA s. 43 register with office of the registry (online submission), registration effective from time assigned (typically based on registration #), must pay fees, may be registered before attachment,

PPSA s. 18 gives right to a debtor, creditor, sheriff, person interested in the personal property of the debtor or an authorized individual of the above to make a request to the creditor to provide information including a copy of any security agreement, statement in writing of the amount of the indebtedness and terms of payment, a written approval or correction of an itemized list of personal property, written approval or correction of the amount of indebtedness and the terms of payment, and sufficient information as to the location of the security agreement to enable a person entitled to receive a copy to inspect it at that location however, excludes potential creditors (work around: have the debtor authorize the potential creditor to obtain it as a condition of the credit arrangement)

Error in Financing Statement

PPSA s. 43(6) defect does not affect validity unless “seriously misleading”(8) no requirement to prove, however, that someone was misled protection for the trustee in bankruptcy, judgement creditor, bona fide purchaser for value, etc.

Requirements for registration

PPSA Regulations Part 2 Division 1 (4) what type of registration length of registration (1-25 years or infinity) secured party’s name and mailing address name of each debtor must register second name if there is one description of collateral

PPSA Regulations Part 2 Division 1 (10)Serial number goods Schedule 2 must be described by serial number or in accordance with (11) however, non-registration by serial number for equipment leaves the collateral vulnerable in certain situations

PPSA Regulations Part 2 Division 1 (11)Non-serial number goods must describe collateral by item or kind OR statement of APAAP OR statement of APAAP exception certain specifies items or kinds OR inventory similar to requirements for security agreements in PPSA s. 10 (but not identical)

Seriously Misleading “Seriously misleading”

PPSA s. 43(6) the validity of the registration of a f/s is not affected by a defect, irregularly, omission or error in the f/s or in the registration of it unless the defect, irregularity, omission or error is seriously misleading

PPSA s. 43(7) in the registration of consumer goods, a seriously misleading error in the name of the debtor OR the serial number of the collateral will result in an invalid registration

Problem: what happens if there is an error in one field but not the other? especially in the registration of equipment where the serial number is not required commentators generally suggest that this section operates differently for equipment registration

PPSA s. 43(8) no requirement to prove that someone was actually seriously misled

PPSA s. 43(9) a defect in the description of one part of collateral does not affect the validity with respect to other properly registered collateral in the same f/s


What is seriously misleading?

Test ( Coates @ CB 136) :(1) objective test (regardless of whether anyone was misled or whether a search was

conducted)(2) total accuracy is not required(3) seriously mislead description of name or serial no. will defeat the registration

(Waldron: yes for consumer goods but likely not clear cut for equipment)(4) seriously misleading = a) preventing a reasonable search from disclosing the

registration, or b) would cause a reasonable person to conclude that the search was not revealing the same chattel or the same debtor

(5) with respect to the computer system, the only question is whether the registry system will reveal the incorrect registration

674921 BC Ltd. v. New Solutions Financial Corp. (BCCA 2006)

The financing statement is not invalid because it was registered before a security agreement came into effect.

Regal Feeds v. Walder and Niverville Credit Union (MBQB 1985)

n.b. some concern about describing collateral by a geographic area (although likely sufficient in this case b/c of the reference to “or any premises to which they are removed”.Was the description in the f/s statement sufficient? no specification of after-acquired property

Decision: f/s was sufficient as the f/s only needs to function as a “red flag” (notice to other creditors to look into further details)

Re Munro (BCSC 1992)

Facts: debtor’s middle name was excluded at the time, regulations were ambiguous as to whether the middle name was required courts generally held that the middle name was required* however, now it is abundantly clear that the middle name (if present) is required for registration

In this case, it is clear how significant the computer system is in determining “seriously misleading.” currently, the system allows for close matches to result

Coates v. General Motors Acceptance Corp. of Canada (BCSC 1999)

Facts: GMAC had a registered security interest in a dump truck but the serial number was defective. Coates loaned money to the dump truck debtor but his search did not show the match to GMAC registration.

Decision: Coates did not search properly therefore did not meet the objective testAlda Wholesale Ltd. (Re) (BCSC 2001)

Good authority on non-searchable field errors errors in non-searchable fields can invalidate the registration (in this case, a grammatical error)

Issue #1: grammatical error does the clause “leased by the debtor” refer to all three prior clauses

Less-than-good authority on after-acquired property contrary decision to Regal Feeds, majority of authority and commentators, Burnyeat J. concluded that the f/s must reference after acquired property (necessary part of notice)

Problem: PPSA s. 18 does not provide access to prospective creditors, but it does also debtors to disclose through authorization

Further glitch: failure to register serial no. equipment by serial no. does not general s/i unperfected in all circumstances (unperfected in certain circumstances s. 34(4))

Perfection by PossessionTopic Notes Key ConceptsIntroduction Generally speaking, creditors do not affect possession of tangible property given the

commercial inefficiencies (often the debtor needs possession to sell/make use of the


However, negotiable or quasi-negotiable collateral (i.e. cheques) will often be perfected by possession because it is otherwise easy for the creditor to lose the s/i (see PPSA s. 31)

Re Bank of Nova Scotia and Royal Bank of Canada (SKCA 1987)

Facts: Farm Rite granted GSA in apaap to Royal Bank of Canada Farm Rite purchases two trucks on CSAs from Chevrolet Chevrolet sells CSAs to Bank of Nova Scotia Royal Bank of Canada appoints receivers because Farm Rite defaults on loan Bank of Nova Scotia registers security interest in the trucks (too late for PMSI) Receiver sells the trucks

Problem: registration is not perfected for certain purposes unless registered by serial number, including PPSA s. 35(1) perfected security interest > unperfected security interest

Royal Bank was not perfected with respect to the trucks (as no serial number registered)

Bank of Nova Scotia, however, registered by serial number

Arguments re: appointment of receiver(1) at appointment of receiver, the Bank of Nova Scotia was completely unperfected

appointment of the receiver is the same as a judgement creditor / trustee in bankruptcy (accordingly, should be provided the priority in PPSA s. 20 over an unperfected security interest) problem: “just like” is not the same (distinction between a legal process and lawful means)

(2) perfected by possession through appointment of the receiver Saskatchewan act did not reject outright possession by seizure but did require that possession be based on collateral (distinction between seizure for realization and possession as collateral securing payment or an obligation) PPSA specifies that possession through seizure is not permissible (however, decision outlines many of the policy reasons why perfection cannot occur through seizure)

It is always to the benefit of the creditor to register serial numbered equipment by serial number problem: not all creditors keep close track of the property that a debtor is acquiringWhy? vulnerable to a purchaser (PPSA s. 30) and to a perfected security (PPSA s. 35)Where does the registration help? other places in the PPSA will return to these later

Royal Trust Corp. of Canada v. Number 7 Honda Sales (ON Div. Ct. 1988)

Facts: Otto purchased a car with an agreement that looked like a CSA but all of his cheques were returned NSF. Royal Trust advances money to the

Honda’s security interest was unperfected. Royal Trust perfected.

Issue #1:Honda argues that they had possession of the vehicle but court determined that the car was not being held as collateral. Accordingly, possession did not perfect the security interest.

Temporary PerfectionTopic Notes Key ConceptsProceeds not described in f/s

Hypothetical: f/s gives security interest in boilers. Boiler traded for a computer system.

According to PPSA s. 28(3), the creditor has 15 days to amend the f/s to maintain perfection.Temporary Perfection

PPSA s. 26 specifies the circumstances in which temporary perfection is granted when the creditor, who previously had perfection by possession, parts with possession

Priority and Cut-Off RulesTopic Notes Key ConceptsPriority rules Purpose: determines who gets the first cut from the realization of the property

Under the common law, there was only one priority rule: nemo dat (whoever had the title had the property)]


while functional in a number of circumstances, problems arise PPSA provides a code to govern interests within the act

Three Overriding Issues

(1) circular priorities n.b. omitting CB 161-168 for the time being (will address with fixtures)(2) subordination agreements CB 169-175(3) marshalling (rule of equity that preserves the position of subordinate creditors) n.b. omitting CB 175-181 for time being (will address with realization)

Circular Priority from the Residual Priority Rules

Example:T1: bank lends debtor $100,000 signed security agreement and registered f/s in apaapT2: credit union lends debtor $25,000 signed security agreement and registered f/s in apaap

credit union gets authorization from debtor to obtain information from bank re: f/s credit union anticipates being subject to a first charge for $100,000 therefore lends

the amount that it feels the debtor can still maintainT3: bank in error discharges its registrationT4: bank re-registers its f/s

PPSA s. 35(7): if the time lapse between T3 and T4 is no more than 30 days, it retains its original priority over the credit union policy consideration: the credit union would get a windfall to switch priority as it was not expecting to have first priority however, time limit because expectations will change with time

But what if a 3rd creditor (bank 2) searched the registry between T3 and T4? Bank 2 may lend the debtor $30,000 creates security agreement and registers f/s in apaap in this case, bank 2 relied on the register and was PPSA s. 35(7) does not change the normal priority rule for intervening creditors

What happens in this case? bank 1 > credit union for $100,000 (according to s. 35(7)) credit union > bank 2 for $25,000 (according to s. 35(1)) bank 2 > bank 1 for $30,000 (according to s. 35(1))

Result = impossible (circular priority) criticism of the act that it produces

One possible solution: to the best extent possible, protect the expectations of the parties (and the creditor whose registration was the problem should bear the risk) accordingly, use subrogation to give one creditor the piece of the pie for another creditorChronological priority (unfair to Bank 2) Proposed solution through subrogation$100,000 to Bank 1 $30,000 to Bank 2 + $70,000 to Bank 1$25,000 to Credit Union $25,000 to Credit Union$30,0000 to Bank 2 $30,000 to Bank 1 (total $100,000)

Second what if: debtor asks credit union for an additional loan; the credit union sees that the bank’s registration is gone and therefore loans an additional $30,000

PPSA s. 35(7) exception accordingly, in this case, the credit union would get first priority for the $30,000 loan,

then bank 1 for $100,000 and then credit union for $25,000Subordination Agreements

Creditors can arrange between themselves their own priority (so long as the agreements do not affect third party rights) subordination agreements (which are expressly recognized in PPSA s. 40, with a slight tweak to the common law rules)

PPSA s. 40: tweak to common law = third party enforcement if the third party is the person (or one of a class of persons) for whose benefit the subordination was intended


T1: Creditor 1 lends $100,000 s/a and registered f/s s/a between Creditor 1 and debtor states that priority will be postponed in specific circumstances typical when the s/a is for a venture where both parties recognize that they will need further money from an institutional lender who would not accept a second priority position

T2: Creditor 2 lends $500,000 registered f/s

Subordination agreement from T1 is effective according to its terms (i.e. to postpone Creditor 1’s priority to Creditor 2). According to PPSA s. 40, Creditor 2 can enforce that s/a (n.b. change privity of contract rules)

Subordination agreements can be registered per PPSA s. 45(6) permissive only and no consequences for non-registration (accordingly, uncommon to be registered)

Royal Bank of Canada v. Gabriel of Canada Ltd. (ON Ct. J. 1992)

Facts: 923 purchased muffler business from Fitzpatrick for $155,000. Fitzpatrick financed part of the purchase price ($30,000) and 923 took a loan for $72,000 as a small business loan. The s/a between 923 and Fitzpatrick clearly contemplated that the security for the $30,000 would be subordinate to the s/i of the major lender. It appears that the bank intended to register f/s in priority but that did not occur and Fitzpatrick ended up registering first (thus securing first priority). When 923 defaults, Fitzpatrick argues that it has first priority. However, bank points to the intention in the s/a.

Decision: bank has first priority per PPSA , bank was able to enforce the s/a as a third party.

Transamerica Commercial Finance Corp. v. Imperial T.V. & Stereo Centre (ABQB 1994)

Facts: Debtor (Imperial) and credit union had security agreement that gave priority to a bank to secure loans for the usual course of Imperial’s business. However, the debtor did not have a bank but rather a financing company (Transamerica). Transamerica financed inventory to the debtor but did not register the PMSI in enough time to secure priority. Accordingly, when the debtor defaulted, Transamerica argued that it had priority given the subordination agreement between Imperial and the creditor.

Decision: Transamerica is not a bank and the court read the subordination agreement narrowly accordingly, Transamerica did not obtain priority through the subordination agreement

Marshalling Only application is realization; it does not charge the priority of creditors but rather adjusts the order of realization to protect junior creditors accordingly, will address with realization

PPSA s. 35 (1) only applies if no other method provided in the act for determining priority (i.e. the residualpriority rule) despite being “residual”, the rule applies in most situations however, explains why the specialized rules (i.e. PMSI in s. 34) get “super” priority

a) generally, priority between perfected security interests is based on the order of the following events:(i) registration of f/s(ii) possession(iii) perfection under ss. 5, 7, 26, 29 or 78whichever occurs earliest = first priority

b) perfected security interest > unperfected security interestc) priority between unperfected interests is based on the order of attachment

(2) a continuously perfected security interest is treated as perfected by the method by which it was originally perfected

(3) subject to s. 28, the time of registration, possession or perfection of collateral is also the time of registration for its proceeds


Issue: does s. 35 apply to security interests given by separate debtors? see the two debtor problem

Two debtor problem

Hypothetical:T1: D1 borrows $ from B and provides s/i in apaapT2: D1 sells boilers to D2T3: CU lends $ to D2.T4: CU takes s/i in boilers and registers f/s.

Case 1 : assume D1 has B’s permission to sell the boilers B’s s/i cut-off under s. 28(1) therefore CU has first priority (therefore s. 35 does not apply)

Case 2 : assume D1 is in the business of selling boilers B’s s/i cut-off under s. 30(2) therefore CU has first priority (therefore s. 35 does not apply)

Case 3 : assume B fails to perfect s/i unperfected s/i defeated under s. 20 therefore CU has first priority (therefore s. 35 does not apply)

Case 4 : assume the sale was not authorized and not OCB, and both B and CU have perfected their security interests, no cut-off rules apply and B is entitled to follow the money to D2 according to s. 35(1), B

But: does s. 35(1) apply to this problem? Should it apply? Three arguments for use:(1) no other rule applies accordingly s. 35 must apply (in keeping with its nature as the

residual rule)(2) PPSA s. 34 expressly limits application to collateral from the same debtor but s. 35

is silent(3) if s. 35(1) did not apply, there would be no need for s. 35(8)

Policy consideration: with non-serial numbered goods,PPSA s. 35(8)Transfer In Rule

Example:T1: B loans D1 $ (s/i in apaap; f/s registered)T2: CU loans D2 $ (s/i in apaap; f/s registered)T3: D2 sells boiler to D1

At T1, D1 did not have the boiler and therefore B was not aware of its existence when making the loan.At T2, CU lent $ in awareness and reliance on the boiler.

PPSA s. 35(8) states that the CU wins in this situation (protect their reliance over the lack of knowledge of B).

Transferee = D1 and transferor = D2 In effect, it reveres the “scoop” that would occur if s. 35(1) were applied (where B

would get the priority)

Further hypotheticalT4: CU becomes aware of sale w/o permissionT5: B goes to D1 and sees new boiler; D1 asks for a further $10,000 based on boiler (i.e. relies on boiler to advance further funds)

New problem two parties that acted in reliance on the boiler, and the CU was aware of the transfer

Under s. 28, CU has the right to follow the boiler therefore could register a f/s change statement listing D1 as the debtor (temporary perfected for 15 days)

If CU had registered at T4, B would have had the opportunity at T5 to check the PPR and seen the charge

Exception in s. 35(8): generally protects a creditor who has relied upon an item in preference to a creditor who did not rely on it (i.e. would receive a windfall), but burden on original creditor once knowledge of transfer to amend f/s to protect third parties that may advance funds later


PPSA s. 35(9) limits (8) no application if consent or OCB salesTwo debtor problem

Revised Hypothetical:T1: D1 borrows $ from B and provides s/i in a tow truck (serial numbered equipment)T2: D1 sells tow truck to D2T3: CU lends $ to D2 and take a s/i in the tow truck / properly registering a f/s

Cut-off rules:(1) if the bank approved the sale of the tow truck without it’s s/I, s. 28(1) will cut off the

s/i(2) if D1 is in the business of selling tow trucks and this is in OCB sale, the bank’s s/i

will be cut-off per s. 30(2)

If the bank did not register the f/s (or are otherwise unperfected), the perfected s/i of the CU will take priority per s. 35(1)

However, other possibilities raised b/c serial numbered equipment: If the bank registered a f/s with the debtor name and the item kind or description, s.

35(4) may result in the s/i being unperfected for the purposed of s. 35(1)(7) or (8) a second cut-off rule may also apply in s. 30, which protects a bone fide purchaser for value

If the bank registered a f/s with the serial number, ordinary priority applies (i.e. the first to register the f/s has priority, which would be the bank)

Lending Agreements that Contemplated +1 Advance

Examples: a line of credit (maximum value but the debtor will borrow and make repayments

the line of credit will fluctuate, often with increasing levels of loans) construction financing (mortgage over land plus s/i in other stuff as the financing

is used to purchase items, the value of the s/i will increase therefore the creditor will often require proof that the debtor is acquiring further assets to increase the s/i and/or used the funds towards paying contractors accordingly, the financing will often be provided in incremental stages of pre-planned advances)

PPSA s. 14(1) recognizes these types of advancesTacking Problem: what happens if the original loan was for $100,000 but the debtor then asks for a

further loan of $50,000? lender could amend the original security agreement to provide for a further sum lender could also enter a new loan agreement for a second loan

n.b. neither agreement is for future advances (per PPSA s. 14) but still a common arrangement

Question: what happens to the lender’s priority for future funds owned?

Hypothetical:T1 debtor borrows $100,000 from CU and gives a s/i in apaap; CU registers f/sT2 debtor borrows $50,000 from bank and gives a s/i in apaap; bank registers f/sT3 debtor borrows $100,000 from CU

Can the CU tack its advance at T3 to the s/I taken at T1 (to have priority for $200,000)? CL compromise position (NOT the statutory position): CU can only tack if it does not

have notice of the intervening creditor; once there is notice, no tacking (limit on unrestricted tacking)

PPSA position: broader view of the creditor’s ability to tack further advances PPSA s. 35(5) & (6) deal with future advances; generally, even if the security agreement does not specify future advances, the expectation is that the initial f/s provides notice enormously favours the initial lender


emphasizes the vital importance of PMSI and other super priority rules as the PPSA’s position tends to make it difficult for subsequent creditors to be clear on priority with a subordination agreement

In the above hypothetical, bank will get authorized by the debtor to obtain information from the CU and to be save, will likely make a subordination or priority agreement with the original creditor to protect against further tacking

Statutory Future Advance Rules

PPSA s. 35(5) and (6)

(5) Subject to subsection (6), the priority that a security interest under subsection (1) applies to all advances, including future advances unrestricted right to tack

(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 Creditors Assistance Act

* Parties in s. 20 have limited rights to stop tacking expect for tacking that occurs within one of five categories:1) advances made before interests arise2) advances made before knowledge3) advances made in accordance with statute or a legally binding obligation owing to a third party before knowledge in 2)4) reasonable costs incurred to protect the collateral

Hypothetical:T1: debtor takes a loan of $1 million from the CU to fund the purchase of plant equipment. The s/a specifies that the funds will be provided in five advances of $200,000. The s/a says that the CU is Ktually obliged to make the advances as the work advances (however, very rare most s/a’s give the creditor the discretion to end the advances in certain circumstances or at their discretion) The debtor receives first $100,000T2: second advance of $200,000T3: judgement creditor involved for enforcement of a $50,000 judgement enforcementT4: third advance of $200,000T5: judgement creditor seizes property and CU has notice of the seizureT6: fourth advance of $200,000T7: collateral is at risk (hole in roof) CU lends $5,000 to preserve collateral

Question: what amounts does the CU get priority for?

Per PPSA s. 35(6), anything within the pots (sections a-e)a) advances made before interests arise: likely protects $200,000 at T1 and T2b) advances made before knowledge: likely protects $200,000 at T4c) advances made in accordance with statute or a legally binding obligation owing to a

third party before knowledge in (b) i.e. letters of credit: problem with $200,000 at T6 because the legal obligation is not statutory and the arrangement is solely with the debtor (i.e. no third party)

d) reasonable costs incurred to protect the collateral: likely protects $5,000 at T7

But what about the binding contractual obligation? PPSA s. 14(2) says that at T6, the creditor was no longer under an obligation to provide the further advance provided that the creditor was aware that the collateral was seized consistent with s. 20(a)

Priority between Unsecured Parties

order of attachment

Attachment requires: (1) debtor has rights in the collateral; (2) creditor has been given value; and (3) is enforceable against third parties (i.e. a written s/a sufficient to satisfy the formal requirements of s.


Problem: attachment can occur at the same time if the last part is (1) because the debtor could have multiple securing interests secured by the same collateral

Ontario Dairy Cow: share pro rata problem: s. 35(1)(c) does not apply as there are not different rates solution: CL first security agreement gets priority problem: Waldron pro rata can be applied (done all the time with unsecured

creditors) and s. 35(1) seems to contemplate the PPSA as a complete code for security interests

No Future Advance Clauses in Security Agreement

Hypothetical:T1: debtor borrows $100,000 from CU; CU took s/i in apaap with registered f/sT2: bank lends $50,000 with s/i in apaap with registered f/sT3: debtor asks to borrow an additional $100,000 from the CU using the same collateral

Royal Bank of Canada v. Agricultural Credit Corp. of Saskatchewan (SKCA 1994)

Facts: beekeepers borrow money initially from ACCS; RBC makes loan with registered f/s; and ACCS and beekeepers make new security agreements for further loans

Trial judge: new security agreement = new f/s no prioritySKCA: no requirement for a new f/s (CB 191) provided that it’s the same collateral priority

PMSI Super Priority

Inventory? PPSA s. 34(2)Not inventory? PPSA s. 34(1)

PPSA s. 34(1) PMSI in either a) collateral or its proceeds perfected no later than 15 days after the

debtor obtains possession(2) PMSI in inventory

PPSA s. 34(4): PMSI vendor > PMSI lenderMcLeod & Co. v. Price Waterhouse Ltd. (SKQB 1992)

Typically, possession under PPSA s. 34(1) is straightforward. However, not so much in this case.

Facts: debtor initially had possession of the truck as a leasee; debtor enters an agreement to purchase the truck with financing from a 3rd party; K of sale specifies that the sale is not final until the credit arrangement is approved; 3rd party registers f/s within 15 days of accepting the credit arrangement

Other creditors the debtor had physical possession for much more than 15 days3rd party until the credit arrangement was accepted, the debtor did not have possession of the truck as the debtor (i.e. had possession as the leasee)

Decision: no possession until credit arrangement accepted

Problem: notice issue in this case, it appeared that the debtor owned the truck prior to the court’s decision on possession

policy drawbacks: difficult for other creditors to have known the nature of the debtor’s possession of the truck

however, the 3rd party would not likely have agreed to the credit arrangement if it thought that it would not have priority

Priority between Perfected PMSI Creditors

Hypothetical:T1 debtor borrows $50,000 from bank to purchase a piece of machinery; bank registers f/s covering the machineryT2 debtor purchases machinery from vendor and the debtor gives the vendor $50,000 from the bank / the vendor finances the balance ($100,000) on credit taking a s/i in the machinery and registering a f/s

Problem: both creditors have a PMSI who has priority?


PPSA s. 34(4): PMSI vendor > PMSI lender (provided both satisfy the requirements for the super priority)

Policy consideration: PPSA replaces the morass of the common law, which was created to facilitate

financing Vendors are typically better suited to make loans (encourages better rates to debtor

because the vendor knows the value of the security interest and knows that it is protected by the PPSA

Accounts Receivable Financing

typically financing companies (“FinCo”)

Hypothetical:T1: business borrows $ from the FinCo, which takes a s/i in accounts receivableT2: business takes loan from an inventory vendor to buy inventory on credit (s/i in inventory) if the inventory vendor registers prior to the business taking possession and providing notice to existing creditors, the inventory vendor takes a super priority in the inventory and its proceeds (which would include the accounts receivable)

PPSA s. 34(5) protects account receivable financers non-proceeds s/i in accounts receivable has priority over a PMSI with interests in the accounts as proceeds if a f/s statement related to the s/i in the accounts is registered before the PMSI is registered

Policy consideration: some businesses would not be able to function without the ability to finance based on accounts receivable; inventory financer is still protected because it will know the business and it will search the PPR (in order to give the notice required in s. 28)

Competition with Trustees and TransfereesTopic Notes Key ConceptsCompetition with transfers of collateral

In section 34 and 35, we are looking at competition between secured propertyHowever you often have non secured creditors. These are often buyersProtection of buyers

s 28(1): If the creditor has consented to the transfer s. 30(2): ordinary course of business

Re Giffen Ms Giffen had leased a car on a long term lease arrangement (through her employer, but that was irrelevant).Whether it was a true lease or a securety lease was not relevant.The owner of the car did not register anything with the PPR.She went bankrupt and the Trustee in Bankruptcy (TiB) sorted out who would get what.Generally the secured creditors take what is theirs and then the TiB divvies up items for the unsecured creditors.Note that TiB can only take the debtors property. (recall Skybridge)The TiB looks at the car. It is an unperfected security interest in a car. Look at s 20

But the other side, you cannot have security interest in more than you have title too.Royal Bank v Dawson Motors

T1: Fraudster buys a car with a loan from Royal BankT2: Fraudster agrees to sell car to Dawson Motors to purchase a new car (Aug 15)T3: Dawson Motors searches the registry (Aug 16) morningT4: Royal Bank registers the security interestT5: Dawson Motors trades the money for the car

Does 20(c) apply?

Two questions:1) Did they acquire the interest before the security interest was perfected?2) Did they give value

Waldron says this is wrong as the definition of value includes a consideration

Value is defined as “any consideration sufficient to support a simple contract, and includes


an antecedent debt or liability.

Note that a gift is not value.

Value must be considered

Debtor has inventory that a vendor has a interest in.

The debtor can sell the inventory and can take a security interest in these due to the combined effect of s 28(1) and s 31

The Queen v Royal Bank

A licence to deal does not cut down on the the secured interest in the inventory until the debtor actually does something with it under the implied licence to deal

Ordinary Course of BusinessTopic Notes Key ConceptsRoyal Bank v Wheaton Pontiac Buick Cadilac

Royal Bank had a security interest in Key West’s cars including the FioroKey West has an elaborate deal with Ken Steven whereby Ken Steven buys the Fiora.Drescher searches by serial numberDrescher sells to Wheaton PontiacWheaton Pontiac sells to Ms MorinBanks repossesses the car from Ms Morin.

Question 1: Was the first sale in the ordinary course of business?No, it was not in accordance with general commercial practise.

The normal practise that you would expect a dealer to be carrying on In this case, the company was out of business. This was a complicated private

transaction.Therefore 30(2) does not cut off the security interest.

Question 2:She could have sued for breach of warranty of title

Fairline The boat selling operation has defaulted on the loan and the creditor had repossessed some of the stuff, including the boat.The principal retrieved the boat (illegally)He then sold it to another dealer. The creditor finds out where the boat is. The dealer says that this was an “Ordinary course of business sale”Factors to Consider:1) Where was it made: normal place of business vs. no (Boat show would be fine)2)What was the amount of the sale? How many of the item was sold?3) To whom is the sale made? Most retail operations sell to customers, but in some cases sales to dealers are common. On this case, it didn’t seem likely as it was not common.4) What was the price? In this case it was determinative. If they are selling at well below the actual worth

In this case, the boat was sold for $15,000 and it was worth $24,000. This was a somewhat unusual place and he rarely sold to dealers, but the price was determinative.

Note that these are all things that the purchaser would have been aware of and therefore would have been on notice to make inquiries.

Royal Bank of Canada vs Alberta

(weight of authority goes with this one)

If you have bought furniture that needs to be ordered. You walk into the store and see the loveseat and chair. You tell the salesperson, you want that set.The salesperson can’t sell the floor model, we will order one from the factory. Just give a $200 deposit.Then the company (showroom) goes bankruptDo you get your $200 or the sofa?The definition of sale under the sales of good act is when title passes


This is when the parties intend it to pass. This happens when a specific item is identified. (So if there are 100 loveseats that are the same) If the warehouse manager puts a sold sign on it, it’s yours (What if it were made for you)Can you argue that the $200 is given in trust?This is a difficult argument. You have to deliver the trust property in the terms of the trustThis is really just a part payment

In this case4 types of people1) People who had paid in full for identified purchases (Ascertained and appropriated to the contract)2) People who had paid in full for non-indentified purchases3) People who had paid in part4) People who are owed refunds

Spittlehouse Some folks had bought a very expensive 45 foot boat. They bought it from the dealer on an conditional sales agreement. The PPSA had been in force for about 15 years, but the conditional sales contract was classic “Title will be transferred when you have paid all”Boat sellers go out of businessSpittlehouses have paid 90% of the priceCreditors goes after SpittlehouseSpittlehouse says this was an ordinary course of business saleTransAMerica says they are not protected because there was no sale, as there was no transfer of sale and the agreement expressely provided that title did not transfer .Therefore the Spittlehouses can be unsecured creditors.

The court says, yes, technically, but this is consumer protection act and so this is a silly way to look at this.Therefore this CSA is not a CSA as these do not exist anymoreThere was a sale with a reservation of a security interest to the vendor.

Ford Motor Credit and Central Motors

The plaintiff was financingFord said the sale was a violation of the agreement.

The court said that as far as the purchaser

It is the purchaser’s perspective that matters

Note the words “ “unless the buyer knows this constitutes a breach”

PPSA and Third PartiesTopic Notes Key ConceptsExample A grants a s/i in plant equipment to secured party. A sells plant equipment to B.

unless a cut-off rule applies, the secured party can take the item from B. problem: persons who deal with B will search the registry and find nothing in B’s name

Two situations:(1) secured party consents to transfer subject to its security i.e. (A owes $100,000 on

plant equipment but value is $200,000 therefore $100,000 still available)(2) transaction proceeds without SP’s knowledge

PPSA s. 51: 15 days to file a change in the f/s to reflect the new debtor name, etc. clock (15 days) starts at the time of the sp’s knowledge (i.e. immediately in (1) but at

an undetermined point in (2)) also includes circumstances of name change in the debtor (i.e. Orion Truck)

if another s/i arises within 15 days and before the change in the f/s, the new secured party is in a “wait and see” position the original creditor gets priority if the change in the f/s is filed within 15 days if the original creditor does not file within the 15 day window, the new secured


party gets the s/i PPSA s. 30(5) bona fide purchaser of value gets property if purchased during the

15 day window in s. 51 (or other 15 day windows) before f/s is amended express references to security interests and “interests other than security interest in

the collateral” broader, likely includes sales but does it also include the trustee in bankruptcy?

Re Orion Truck Centre

Facts: knowledge more than 15 days elapse trustee in bankruptcy enters picture registration of f/s

Decision: trustee in bankruptcy gets the collateral

n.b. PPSA s. 30(5) only deals with buyers but the time periods in s. 51 cover the trustee in bankruptcy’s interest

Negotiable and Quasi-Negotiable InstrumentsTopic Notes Key ConceptsPPSA s. 31 Generally speaking, negotiable = transferable items where the main part of the transfer is

transferring possession quasi-negotiable = transfer more than just handing it over (typically formalities to execute the transfer) chattel paper

Four types:(1) money(2) instruments(3) negotiable documents of title (minimal focus)(4) chattel papers

Indian Head Credit Union v. Andrew

PPSA s. 31(3) A purchaser of an instrument has priority over a security interest in the instrument perfected under section 25 or temporarily perfected under section 26 or 28 (3) if(a) the purchaser gave value for the instrument,(b) the purchaser acquired the instrument without knowledge that it was subject to a security interest, and(c) the purchaser took possession of the instrument.

Facts: CU had s/i in herd. Herd destroyed and compensation available from Department of Agriculture. CU had interest in insurance proceeds. Typically, the cheque would be issued to both the farmer and the SP. Farmer, however, received cheque for $40,000, which he deposited and used to purchase a term deposit. Bank asks about CU’s s/i but farmer says that it’s a different cheque. Farmer then borrows $40,000 and secures it with the term deposit. Things go poorly. CU claims term deposit as proceeds. Bank argues protection under s. 31(3) (purchaser of an instrument, gave value, no knowledge, etc.)

Decision: never any money involved therefore s. 31(1) does not apply (i.e. cheque term

deposit = no money) no s. 31(3) protection as the bank knew too much to be without knowledge. Yes,

farmer said that there was no s/i but not a long term customer (therefore more investigation appropriate)

likely also problem over characterization of purchase actually a debtExample A goes to Car Co. and signs agreement to pay purchase price and gives security interest in

car (chattel paper). A gets car. Car Co. registers f/s in the car to perfect security interest. Car Co’s bank is an inventory financing and therefore has a security interest in apaap including inventory and proceeds. Therefore, Bank has a true security interest in the chattel paper (proceeds of the car.) Car Co could “sell” (assign) chattel paper to financing company (FinCo) for a lump sum and FinCo will take over collecting debt

Two tier perfection w/ assignment of chattel paper:


(1) security interest in the car must be perfected(2) security interest in the chattel paper and deemed security interest must be perfected

Two ways to get s/i in chattel paper:(1) direct s/i (i.e. the Bank)(2) deemed s/i created by a transfer (even if outright assignment or sale)

Further Example T1: security agreement between Bank and car Co line of credit for inventory purchase. Registered f/s.T2: Car Co sells car to A for chattel paper. Bank has s/i in chattel paper.T3: Car Co sells chattel paper to FinCo on absolute assignmentT4: Car Co defaults and bank goes looking for chattel paper

Problem: bank has true security interest in chattel paper (perfected by reg. of f/s) and FinCo has deemed security interest in chattel paper (perfection by possession)

PPSA s. 31(6) priority rule FinCo takes possession in the regular course of FincCo’s business and provides new value FinCo accordingly has priority over the bank (special priority must have possession to get priority)

Chattel paper Two components: (1) promise to pay; and (2) grant of a security interest instruments (i.e. cheques) are just (1)

Recall: three deemed security interests (security interests that do not secure payment or performance) include PPSA s. 3(a) a transfer of account or chattelthe business remains financially viable

n.b. only way to perfect a security interest in an account is through registration b/c it is an intangible

Special priority to financing companies who purchase accounts/chattel papers PPSA s. 31(6) Chattel Paper Purchaser Priority

(a) chattel paper purchaser has priority over a security interest perfected by registration (PPSA s. 25) if the purchaser did not know that the chattel paper was subject to a security interest

(b) chattel paper purchaser has priority over a security interest that has attached to proceeds of inventory (PPSA s. 28) whatever the extent of the purchaser’s knowledge

What if it’s proceeds of inventory that have been perfected by registration? Clearly both (a) and (b) cannot apply. Generally, the opinion of academics is that (b) is the dominant provision.

Accounts distinguish from chattel paper as an intangible (a debt, which does not have a corporal form)

Ex: service provider has given a security interest in apaap to Bank. Service provider has clients and therefore accounts. The service provider than assigns the account to an Accounts Financer who must register a f/s (only way to perfect an intangible.)

What happens if the service provider also sells things (i.e. a plumbing operation) and there is an Inventory Financer who has a security interest in inventory and proceeds? In this hypothetical, the client purchases a larger number of inventory items to furnish an apartment building. Who gets p wdqwdqqwdriority to the account (assuming

PPSA s. 34(5): non-proceeds security interest in accounts has priority over a PMSI in accounts as proceeds if the f/s is registered before the PMSI is registered OR a f/s relating to it is registered.Why priority? Immediate influx of cash to the business (commercial efficiency reasons)


Canada Western Bank v. Gescan (1991)

Facts:T1: Lender loans A money and A gives a security interest in accounts. Perfected through registration of a f/s.T2: A assigns a specific account to a Creditor.T3: A defaults and Lender starts to collect. Lender realizes that A had assigned to the Creditor. Lender advises that it has priority. Creditor argues old law as it had been collecting on the accounts.

Old law (Durell v. Halli): when competing claims for accounts, the first party to give notice to a debtor wins.

New law (PPSA): competing security interests. The assignment to Creditor is a (deemed) security interest.

Accordingly, Lender has a perfected security interest and according has priority over the unperfected security interest of the Creditor. Therefore Creditor must pay the Lender any money collected on the account.

Assignment RulesTopic Notes Key ConceptsAssignment Rules (PPSA s. 41)

Example:A owes B $100 (A purchased 100 widgets from B).A = account debtor (see PPSA s. 41(1))B = has a bare (unsecured) debt or chattel paper

B sells A’s debt to C for $85.B = assignorC = assignee

Assignment Rules:(1) PPSA s. 41(2) rights are subject to a) the terms of the contract, and b) any other

defence or claim of the account debtor against the assignor

Tl;dr assignment = subject to the equities that arose under the original K

Right of set off = common law right to set off mutual debts e.g. A overpaid another bill by $50 so “sets off” the debt sold to day for $50 (i.e. only pays $50.) Because the contracts are closely related by commercial transactions, this is permitted under s. 41(2)(a). Further, even if the set off is unrelated to the contract, A would not be required to pay the debt to C if A has a defence against B AND the defence accrued before A became aware of the assignment (unrelated claims cut off with notice)

(2) The assignee is also subject to the state of accounts between A and B. until notice, the account debtor is entitled to continue payment to the assignor

Ex: B assigns debt to C for $85. A pays $20 to B. C asks A for $100 owed. A advises that A only owes $80.

notice that stops the running of the accounts must a) identify the contract under which the amount payable; and b) the assignee must furnish proof of the assignment within 15 days of a request from the account debtor

without the above, the account debtor

Modifications of the common law(1) PPSA s. 41(3) contract modification that is commercially reasonable will be

supported

Ex: blanket contract in which A purchases widgets from B on a regular, scheduled basis. B


assigns all debts to C. B changes terms of delivery for one month, which A agrees to.

(2) PPSA s. 41(9)

Ex: A (municipality) is going to pay B (construction company) $500,000 to build a road. B will have a right to collect $500,000 in the future. B is in difficult circumstances and B, in breach of non-assignment clause, assigns this debt to FinCo for $400,000. After B builds road, C attempts to get payment. A declines to pay on the grounds that the contract was breached. common law did not permit assignment of a future debt but permitted under equity, and now the PPSA. However, commonly contracts will include blanket non-assignment clauses.

Competing arguments(1) C is subject to the terms of the contract between A and B(2) Unfair and unreasonable that A would get something for nothing

(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. i.e. A can sue B for breach of contract but C is entitled to payment

Returned and Repossessed GoodsTopic Notes Key ConceptsPPSA s. 29 See CB 196

Example:T1 Bank loans Car Co $ and Car Co gives Bank a security interest in inventory and proceeds.T2 Car Co sells car to Purchaser for cash (Bank’s security interest cut-off per PPSA s. 30(2))T3 Purchaser returns car to Car Co.

PPSA s. 29(1): security interest reattaches if the goods are returned to the debtor and the obligation secured remains unpaid or unperformed

Slightly more complicated example:T1 Bank loans Car Co $ and Car Co gives Bank a security interest in inventory and proceeds.

T2 Car Co also has a line of credit with Credit Union and CU has a security interest in inventory.T3 Car Co sells to Purchaser; security interest cut off per PPSA s. 30(2)T4 Purchaser returns car to Car Co

Priority depending on registration of financing statement (and whether someone is a PMSI); likely bank had priorityBut what happens when the car is returned? PPSA s. 29(2): assuming both registrations are still valid (i.e. not expired), the security interests continue perfected with the original time of registration (i.e. the priority remains the same maintain status quo)

Example T1: Bank loans Car Co $; Car Co gives S/I in apaap; Bank registers f/sT2: Inventory Financer (IF) provides inventory to Car Car; Car Co gives S/I in inventory and proceeds; IF registers f/s and gives PMSI notice to BankT3: Purchaser buys car from Car Co with cash both S/I’s are cut off as OCB saleT4: Purchaser returns car to Car Co S/I’s reattach per PPSA s. 29(2)

But what if the Purchaser gave a promise to pay (chattel paper)?T3: Purchaser buys car from Car Co and Purchaser gives chattel paper both S/I’s are cut off as OCB sale


T4: Car Co sells chattel paper to a Fin CoT5: Purchaser returns car to Car Co S/I in the chattel paper is essentially spent (b/c Car Co has possession of the car again) PPSA s. 29(3): FinCo gets new S/I in returned car (same rule applies if account created out of the sale)

This time with all the security interests:T3: Purchaser buys car from Car Co, which creates a chattel paper ($50,000) and an account ($10,000) both S/I’s cut off OCB saleT4: Car Co sells account to Account Financer (AF) and chattel paper to a FInCoT5: Purchaser returns car to Car Co account essentially closed PPSA s. 29(3): AF gets new S/I in returned car

Priority of new S/Is created by PPSA s. 29(3) per PPSA s. 29(4), the new S/I has priority if the interest in the chattel paper was perfected (by possession) or the interest in the account was perfected (by registration of f/s)* however, S/Is become unperfected 15 days after unless the FinCo or AF registers a f/s or takes possession of the collateral (exception to note that a S/I cannot be perfected by seizure)

Four S/I’s in competition (Bank, IF, FinCo, AF) PPSA s. 29(6): FinCo if would have priority under PPSA s. 31(6) I/F (PMSI) Bank PPSA s. 29(5): AF’s S/I = last priority (why? never had a S/I before)

More standard example:T1: Bank loans Car Co $; Car Co gives S/I in apaap; Bank registers f/sT2: Purchaser buys car from Car Co with chattel paper Bank’s S/I cut off as OCB saleT3: Car Co sells chattel paper to FinCo (likely priority under PPSA s. 31(6))T4: Purchaser returns car to Car Co S/I’s reattach per PPSA s. 29(2)Example:T1: Bank loans Car Co $; Car Co gives S/I in apaap; Bank registers f/sT2: Purchaser borrows $ from CU to purchase car and gives S/I in car; CU registers f/sT3: Purchaser buys car from Car Co with money from CU S/I of bank cut-off therefore CU only S/I in carT4: Purchaser returns car to Car Co CU now in competition with Bank (whose S/I reattached per s. 29(1)(2))

PPSA s. 29(7) CU still has the priority over the reattached S/IFixtures

Topic Notes Key ConceptsLand Title Act Registry system (contrast: PPSA = notice system):

priority = date of application to registration full document registration (not notice, like the PPSA)

Common law = no security interest in fixtures as fixtures belong to the land owner

However, policy reasons to allow security interest to remain (i.e. facilitate borrowing)

According, the PPSA s. 36 allows lenders to take and hold a security interest in fixtures however, limited definition of fixture in PPSA

Definition: fixtures do not include building materials building materials = “materials that are incorporated into a building and includes goods

attached to the building such that their removal would(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 of the building 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, or(d) machinery installed in a building or on land for use in carrying on an activity inside

the building or on the land;

PPSA s. 36: Security interests in fixtures application = land under Land Title Act (i.e. excludes large tracts of Crown land) perfected security interest in goods that attaches before at the time that the goods

become fixtures > interest in the landBasic Example 2000: Julie purchased a house with a $520,000 mortgage from the CU; CU registered

mortgage in Land Title Office balance $475,000Jan 2012: Julie buys $30,000 worth of cabinets from Classy K and gives a S/I in cabinetsApr 2012: Julie requests $20,000 increase in her mortgage. CU may reappraise the house to determine current value and will search the land title registry.** to have priority, Classy K will have to register in the Land Title Act s. 49

If Classy K registered, priority = Classy K > mortgageIf Classy K did not register, priority = CU $20,000 > Classy K > mortgage

Policy considerations: mortgage was lent based on the value of the house in 2000 while the cabinet loan was based on the value of the cabinets; registration in Land Title Act as that’s where people will look

Security Interests in Pre-Existing Fixtures (Example)

James owns a manufacturing plant.T1: James takes out mortgage of $1 million from the Bank to buy manufacturing plantT2: James borrows $30,000 from CU and gives s/i in plant machinery

Problem: James gave a S/I in fixtures that were present when the mortgage was granted (and therefore may have been considered in the loan scenario.)

PPSA s. 36(5): S/I in fixtures subordinate to(a) has an interest in the land at the time the goods become fixtures and who

(i) has not consented to the security interest,(ii) has not disclaimed an interest in the goods or fixtures,(iii) has not entered into an agreement under which a person is entitled to remove the goods, or(iv) is not otherwise precluded from preventing the debtor from removing the goods, or

(b) acquires an interest in the land after the goods become fixtures if the interest is acquired without fraud and before the notice of the security interest in the goods is filed in accordance with section 49.

i.e. CU does not have priority unless Bank agrees to subordination

Further complication:T3: James approaches Bank 2 for a mortgage for $300,000 with a security interest in plant and its expensive equipment. Bank 2 will a) appraise the property; and b) search the LTO (will find the Bank’s registered mortgage)

For CU to maintain priority, it must be registered in Land Title Office under PPSA s. 49 question of who relied on the items with priority going to the person who relid

Judgement Creditors

2000: Julie purchased a house with a $520,000 mortgage from the CU; CU registered mortgage in Land Title Office balance $475,000Jan 2012: Julie buys $30,000 worth of cabinets from Classy K and gives a S/I in cabinetsApr 2012: Judgement against Julie registered in the LTO


If Classy K was registered under s. 49, Classy K has priority over the judgement creditor per PPSA s. 36(6)If Classy K was not registered, Classy K has a the chance to maintain its priority per PPSA s. 36(7)

PPSA s. 36 distinguish s/i'’s taken at or before becoming fixtures, and s/i's taken after becoming fixtures policy considerations: who relied on the fixtures? typically, priority is given to the first under PPSA s. 36(3) while not in the second under PPSA s. 36(4) exceptions: individuals acquiring interests in the land after the goods become fixtures only are subordinate if notice registered under Land Title Act s. 49 further exception in PPSA s. 36(6): if judgement creditor registers, there is no notice under the s. 49 and there is a PMSI, the creditor has 15 days from date of affixing to the land to file notice in LTA s. 49 and have priority

Example Elevator in apartment building. When the building was purchased, the buyer took out a mortgage from the bank. The elevator is old and costly to repair. Buyer purchases a new elevator from Elevator Co for $200,000 and give s/i in the new elevator, which is installed in the building.

(1) Is this a fixture within the meaning of the PPSA? Yes, not building materials (definition excludes conveyancing devices)

(2) Removal of the fixture governed by PPSA s. 36(8)(9)(10) right to go to court for enforcement (protect those with rights in the land)

Problem: while bank did not rely on the new elevator, it did rely on the old elevator (which is no longer there)

Solution: PPSA s. 36(12) if there is an interest in the land subordinate to another interest in s. 36, the person holding the interest in the land can either pay out the balance owing on the debt or the market value of the goods if the goods were removed (whichever is lesser) normally mortgages provide for

(13) requirement to provide notice prior to removing goods (notice to everyone listed in Land Title Office) person entitled to the notice can get a postponement order

Manning v Furnasman Heating

Facts: Mr. and Mrs. Manning were building a house with a general contractor (GC). GC was purchasing supplies from various dealers. GC purchased a furnace from Furnasman. House was completed, and Mr. and Mrs. Manning paid the GC. However, GC never paid Furnasman. Instead of filing a builder’s lien, Furnasman tried to reclaim the property

Decision: both QB and CA found that Furnasman’s security interest was cut-off

Rejected from the Manning’s:(1) purchased from the contractor and it was an OCB sale no, the Court found that

the GC was not in the business of selling furnaces, etc. (in the business of building) amendment in PPSA s. 30(1):

"buyer of goods" includes a person who obtains vested rights in goods under a contract to which the person is a party as a consequence of the goods becoming a fixture or accession to property in which the person has an interest;"seller" includes a person who supplies goods that become a fixture or accession under a contract with a buyer of goods or under a contract with a person who is party to a contract with the buyer;"the ordinary course of business of the seller" includes the supply of goods in the ordinary course of business as part of a contract for services and materials.

(2)GMS Securities(CB 161)

circular priorities under PPSA s.36 soundly criticized decision


Facts: property defaults; valued at $110,000T1 mortgage #1 ($90,000)T2 RW supplied cabinets ($10,000) to property and given s/i in cabinets (but not s. 49 notice)T3 mortgage #2 ($30,000)

Priority under LTA: mortgange #1 > mortgage #2Priority under PPSA s. 36: RW > mortgage #1 BUT mortgage #2 > RW b/c no s. 49 notice accordingly, circular priority

Trial decision: mortgage #1 > RW > mortgage #2CA: mortgage #1 - $10,000 > RW > mortgage #2 > remaining $10,000 on mortgage #1

Problem: RW caused the situation by not filing notice but mortgage #1 bears the loss because the property was not valued highly enough to recoup all three creditors’ debts

Potential solution: RW lost right to remove cabinets once mortgage #2 filed and found no notice in s. 49 (i.e. had no security interest in the cabinets) accordingly, mortgage #1 > mortgage #2 > unsecured creditors (incl. RW)

CropsTopic Notes Key ConceptsCrops(PPSA s. 37)

PPSA s. 37(3) security interest > interest in the landPPSA s. 37(4) interest in the land > security interest if interest in the land is obtained without fraud and before notice in Land Title Office per PPSA s. 49

AccessionsTopic Notes Key ConceptsAccessions(PPSA s. 38)

Common law: when a subordinate chattel is attached to a main chattel is such a way that it becomes a permanent and inseparable part, the security interest in the subordinate chattel ceases

PPSA definition: accessions = goods that are installed in or affixed to other goods

Example #1:T1 A purchases a boat and gives a s/i in the boat to the BankT2 A purchases a new engine and installs in the boat. s/i in the engine to Engine Supply.

Who has priority? Engine Supply. Bank did not rely on the new engine while Engine Supply clearly relies on this security.

PPSA s. 38(2) s/i in the new engine has priority over a claim to the goods through accession

Example #2:T1 A purchases a boat and gives a s/i in the boat to the BankT2 CU advances $10,000 on engine.

Who has priority? Bank has priority provided that it did not consent to the CU taking a s/i in the engine

Kulchyski v. Shuswap Ventures

Facts: tractor + backhoe

Decision: accession because the backhoe is affixed to the tractor such that its identity is not lost (i.e. not the sugar in the flour)

Pratt & Whitney Canada v. Ellis

Facts: helicopter sold to debtor and creditor takes s/i in helicopter. helicopter engines can only fly for a certain number of hours. P&W leased engine to debtor and installed it in the


Air helicopter (access). However, s/i not perfected. Debtor entered creditor protection so the helicopter creditor obtained a court order to seize the helicopter. However, P&W did not receive notice of the application (had not filed an appearance). After seizure, P&W explains that it has priority over the engine.

Decision: no vesting order in court order to seize therefore it does not extinguish any other parties’ rights. According, P&W took engine with a priority security interest

Potential problem: when the creditor seized the engine, they discovered useful life left in the engine. While the creditor may have had some suspicion that the debtor still owed money on it, they gave credit to the debtor for this useful life advance made after the goods became accession but before the s/i was perfected?

Co-Mingled GoodsTopic Notes Key ConceptsCo-Mingled Goods (PPSA s. 39)

PPSA s.39(8) no overlap between s. 38 and s. 39 therefore must determine whether the item is an accession

Example:T1 bank loans debtor $2,000 to purchase sugar; debtor gives s/i in sugarT2 CU loans debtor $8,000 to purchase cocoa; debtor gives s/i in cocoaT3 debtor makes candy

PPSA s. 39 bank and CU’s s/i's continue in the candy perfected, provided that they were perfected in

Where there is more than one s/i, the value of the candy is divided in the ratio of the debt

Application to the Example:If the candy is valued at $5,000, the respective security interests are as follows:Bank = $1,000CU = $4,00

Review: Accessions and Commingled Goods

Distinguish between an accession (where two chattels are attached to each other but retain separate identities) and a co-mingled good (where the separate identities are lost)

PPSA s. 39(6): if there is a PMSI in one of the components of the commingled good, this fraction of the mass has priority over other fraction(s) of the mass and, essentially, a PMSI in the whole (i.e. priority over someone who has a security interest in the whole)

Repairers LiensTopic Notes Key ConceptsRepairer Liens Example:

T1: A has a loan to purchase the truck and the Bank has a perfected security interest in the truckT2: A takes truck to repair shop to install new brakesT3:

Repairers Lien Act: continues the right of a repairer to hold something on which they have worked; repairers liens are filed in the PPR

What’s the priority? PPSA s. 32 lien on goods that arises in the OCB has priority same policy consideration as PMSI > general s/i by putting effort and work into

the collateral, the repairer has improved / retained the value of the collateral (i.e. benefited the creditor as well as the debtor)

Landlord’s Right to DistrainTopic Notes Key ConceptsLandlord Right to Distrain

Recall: Marathon Realty


Common law right to distrain codified in the Rent Distress Act, RSBC 1996, ch 403 n.b. that landlords are prohibited to destrain on residential properties per the Residential Tenancy Act, SBC 2002, ch 78 s. 26(3)

What’s the priority if a creditor has a security in Marathon Realty, the question was whether the inventory supplier had a PMSI in the inventory generally, the creditors’ s/i must be a PMSI to trump the landlords’ right to destrain

RealizationTopic Notes Key ConceptsExample T1: A borrows $20,000 from the bank and gives a security interest in A’s truck.

T2: A defaults* on the loan repayment.T3: Bank notifies A that it is seizing the truck. Bank seizes the truck. Bank sells the truck for $15,000.T4: Despite realization, A has a remaining debt of $7,000. The Bank would then sue for the deficiency.

* depending on the loan agreement, an act of default can encompass a range of activities (typically, failure to make the scheduled payments on the loan but also things like letting the insurance lapse on the truck, non-repair of damage to the truck, etc.)

What if A’s loan covers more property than the truck?

T3: Bank appoints a receiver or a receiver manager to effect an orderly realization of the security.

n.b. the bank or its receiver / receiver manager must behave in a commercially reasonable fashion (i.e. obtain a fair market price, etc.)

Marshalling Equitable doctrine developed by the courts intended to assist junior creditorsDefinition: an order sought by the junior creditor to require the senior creditor to realize in such a fashion to not prejudice the junior creditor

Example:T1: Bank loans A $100,000. Bank has security interest in Machine #1 ($75,000) and Machine #2 ($50,000).T2: CU loans A $25,000 and takes a security interest in Machine #1 ($75,000).

Provided the values are stable, there is sufficient interest for both loans.

T3: A defaults on loans with Bank and CU.

Problem: what if Bank sells Machine #1 first (taking the whole $75,000) and then sell Machine #2 to take the final $25,000?

CU would go to court to get a marshalling order to have the Bank sell Machine #2 first and then Machine #1 in order to not prejudice the CU sometimes, however, the Bank will be allowed to s Machine #ll1 first (i.e. Machine #2 is proving difficult to sell) but will be ordered to treat CU has a junior creditor on Machine #2

Problem: what if there is a second junior creditor?

T1: Bank loans A $100,000. Bank has security interest in Machine #1 ($75,000) and Machine #2 ($50,000).T2: CU loans A $25,000 and takes a security interest in Machine #1 ($75,000).T3: FinCo loans A $20,000 and takes a security interest in Machine #2 ($50,000)

Courts will not order marshalling to the prejudice of third parties. However, there is case law to suggest that the court will order the Bank to realize in ratio from Machine #1 and Machine


#2 to leave something for both junior creditors. Ratio is based on the value of the assets (in this case, $75,000:$50,000 = 3:2. Accordingly, Bank will realize $60,000 from Machine #1 and $40,000 from Machine #2.)

However, uncommon as junior creditors would likely ask for security over both pieces of machinery.

Pre-Seizure Notice

The debtor has a minor default, which gives the creditor the right to accelerate the loan.

Pre-1982, the lender would write a letter demanding immediate payment of the loan. The lender would present to the debtor’s bank (probably the same bank) who would check the accounts. If the money was not in the account to pay out the loan, the bank would call the receiver who would change the locks and resume operation of the

Famous case (quoted in Waldron v. Royal Bank): Lister v. Dunlop the debtor argued that he should have had the opportunity to secure alternate financing

Principle: “a person from whom a seizure is being made under a security instrument is entitled to receive such notice of the proposed seizure as is reasonable in the circumstances” (Waldron ¶6)

Factors to determine what constitutes reasonable notice before a seizure: How reasonable is it that the debtor will be able to secure alternate financing? Has the debtor been dishonest in any way?

Wrinkle in the 1990s: federal government has jurisdiction over bankruptcy and insolvency but prior to the 1990s in the 1990s, the federal government introduced legislation the legislation required a minimum of 10 days’ notice prior to seizing collateral if the debtor is insolvent

Problem: how do you know whether the debtor is insolvent? Typically satisfy(1) debtor’s liabilities > assets(2) debtor unable to meet obligations when they are due

How does this function with the common law in Lister? typically used to extent the notice period beyond 10 days

PPSA does not discuss notice (silent)Receivers and Receiver Managers

Topic Notes Key ConceptsHistorical Context

Receivers arose in the context of equitable courts. Wherever it was fair and necessary to have the orderly realization of the property, courts had the inherent jurisdiction to appoint a receiver to facilitate this process. Secured parties could ask the court to exercise its jurisdiction and" Law and Equity Act confirms the courts’ jurisdiction to appoint(broad appointment power retained " Law and Equity Act s. 39: where “it appears to the court to be just or convenient that the order should be made”)

Historically, receivers who were appointed by the court were protected by the court (i.e. no liability as acting as an officer of the court). However, receivers appointed by contract were viewed as agents, which could incur liability.

Further, courts often granted broad powers to receivers while receivers appointed by contract often had limited powers (especially to borrow funds, which entailed granting a new priority).

PPSA Provisions not distinction between court-appointed and privately-appointed receivers

By definition, receivers include receiver managers.

Who they are, what they do and the PPSA collapsing the


PPSA s. 64: Appointment and qualifications of receivers typically receivers are chartered accounts and licensed trustees in bankruptcy

PPSA s. 65: Obligations of receivers provide notice of appointment take custody or control keep records

PPSA s. 66: Court supervision of receiverships and exemption from compliance courts have broader appointment powers than s. 64 courts can remove or replace a receiver appointed by a court or by contract

two categorise (private vs. court appointment)

RBC v. White Cross Properties (SKQB 1984)

Facts: RBC applied for an order for the court to appoint a company as the receiver for White Cross. However, RBC already had provisions in the contract with White Cross to appoint a receiver.

Decision: in the absence of a reason (a deficiency in the K), let the K govern.Roadmap to PPSA Provisions on Realization

Topic Notes Key ConceptsAcceleration Clauses

PPSA s. 16: “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.”

Rights and Remedies

PPSA s. 56:

Rights of seizure or repossession

PPSA s. 58

Order of redistribution

PPSA s. 60

Voluntary foreclosure

PPSA s. 61

Rights of redemption and reinstatement

PPSA s. 62

Supervisory Jurisdiction of the Court

PPSA s. 63

Receiver / Receiver Managers

PPSA ss. 64-66

Limits on Remedies for Consumer Goods

PPSA s. 67 “seize or sue” provisions

Collection of payments under intangibles

T1: Bank loans $ to XYZ firm with security interest in account receivable.T2: XYZ defaults.

PPSA s. 57(2) secured party can notify the debtors who owe money to XYZ that their payments must now be made to the secured party (the Bank). The Bank applies this money to the satisfaction of XYZ’s obligations. important to do so quickly because the debtors have the right to continue paying to XYZ until notice is received, which limits the money that the secured party can recoup

PPSA s. 58(2)(a) Even if the secured agreement did not stipulate the right to seize the collateral, the PPSA


gives the secured party the right to seize collateral that is a security interestSeizure of consumer goods

Limitations:(1) if 2/3 of the value has been paid, the consumer good(s) cannot be seized(2) PPSA s. 62(2): automatic right to reinstatement not more than twice a year

Notice of disposition of collateral

PPSA s. 59: any creditor affected by the sale (and the debtor) is entitled to notice; the notice must include amount owing and rights to redeem collateral (PPSA s. 62)

Right to reinstate PPSA s. 62

Example:A has defaulted on loan payments on truck. If A has a right to reinstate, A goes to the bank and pays the defaulted

If consumer goods, automatic right to reinstatement not more than twice a year

For all other property, the debtor must apply to court for the right to reinstate. rarely granted: must show that there is a reason that it is unfair to accelerate the loan example of a successful application: commercial mortgage; owner was unavailable and did not find out about the case until it was too late other considerations: bad faith on the part of the creditor (or other sharp dealing)

Order of distribution

PPSA s. 60 Subordinate security interests Any person with interest in the collateral if notice given to secured party before

distribution The debtor or any other person known to the secured party as an owner of the

collateral If there is a deficiency after the disposition, the debtor is liable for this amount

Commercially Reasonable MannerTopic Notes Key ConceptsHistorical context At common law, the only limit on the sale was to not act in bad faith

PPSA s. 68(2) imposes a requirement to act in a commercially reasonable manner. However, what does this mean?

should the creditor repair the item before selling it?Copp v. Medi-Dent Service (ON Gen. Div. 1991)

“feuding dentists”

Facts: partners in a dental office who incorporated a management company. The management company leased dental equipment for the office. Dispute between partners and one partner stops making payments on lease. Default. Medi-Dent gives notice that it will sell the property. One of the dentists approaches Medi-Dent to purchase the equipment.

Decision: not a commercially reasonable sale

Reasons:(1) private sale to a party adverse in interests to all parties(2) no attempt to advertise(3) no attempt to value the security(4) value 2x the sale price

Considerations for private sales: independent evaluation, if applicable advertised sold in a manner that would produce the fairest price

Donnelly v. International Harvester Credit Corp. of Canada (ONC County Ct.

Facts: truck unit seized and sold to a related company with no effort. Appears that price set as a matter of convenience. Eventual sale to 3rd party but the records of the sale were “lost.”

Decision: not commercially reasonable


1983) Reasons:(1) no effort to recondition or put on the market for sale(2) transferred for convenience (accounting arrangement)(3) no evidence of the price that it eventually sold for (i.e. no idea of value of the

equipment)(4) left on lot for a long time

Considerations: was there an effort to find the best price for sale? did the creditor consider the sale venue that would generate the best revenue? would advertising help and be cost-effective? is an appraisal needed and would it be useful?

Voluntary ForeclosureTopic Notes Key ConceptsPPSA s. 61 (1) secured party gives notice to the debtor (criticism: too short at 15 days)

(2) debtor can file an objection if it believes that the collateral is valued more(3) secured party can take the objection to court

Angelkovski v. Trans-Canada Foods (MBQB 1986)

severely criticized (SKQB refused to follow it)

Facts: sale of a restaurant business; vendor provided financing for purchase and took a security interest in the restaurant; purchaser defaults and vendor re-possesses the restaurant; effort to sell but unsuccessful; vendor renovates, re-opens restaurant and operates it; profits from operation do not appear to be credited to the purchaser; no attempt to sell restaurant; restaurant burns down

Issue: insurance proceeds but less than original purchase price so vendor seeks an order for the deficiency purchaser argues voluntary foreclosure (pre-PPSA, there was always a voluntary disclosure remedy at common law: if a secured party took collateral and treated it as its own as if it were in satisfaction of the debt, there was no claim for deficiency)

Decision: under common law, would find voluntary foreclosure BUT under PPSA

Reasons: common law: vendor ceased attempting to sell (a prudent vendor would operate it

while attempting to sell it but in this case there was no evidence that the vendor was continuing to seek a buyer)

common law: if the vendor was operating the restaurant on behalf of the purchaser, the profits should have been credited to the purchaser’s loan account (writing down the debt)

under PPSA, there is no voluntary foreclosure without notice PPSA s. 61 was not triggered b/c no notice to purchaser (i.e. the purchaser’s right to redeem is left open, and keeps open the vendor’s right to sue for a deficiency judgement)

problem: how long can the vendor wait until it gives notice? seems to leave the debtor in limbo

See also PPSA s. 62 prior to disposition or foreclosure, debtor can redeem by tendering fulfillment of the obligation secured by the collateral plus expenses incurred in seizing / disposing of the collateral

Question:

Inland Kenworth Ltd. v. Laboucane (BCSC 2004)

Assuming that s. 61 is not the only way that the creditor can appropriate the collateral, how do we determine when the creditor has done so?

Facts: creditor placed item in own inventory to sell and sued for deficiency between amount owing on debt and ; debtor claimed foreclosure

Decision: clear intention to sell item (sold as part of inventory; multiple ways to sell acceptable within the PPSA) no question of foreclosure


Consumer ProtectionsTopic Notes Key ConceptsConsumer protections in PPSA

Recall: cannot simply describe collateral as consumer goods; in a f/s, consumer goods must be described by item or kind; serial numbered consumer goods MUST be registered by serial number; more stringent test for error in the f/s; cannot describe consumer goods as apaap; s. 13 the only way to get a s/i in after acquired property = PMSI + replacement goods (i.e. s/i in Car A; Car A sold and Car B purchased to replace it); generous provisions on reinstatement (but trade-off elsewhere in the act)

Other protections: s. 58PPSA s. 50(2) discharge of a security interest in consumer goods must take place within 1 month of all

obligations being satisfiedPPSA s. 67Seize or sue provisions

subject to PPSA s. 58(3): cannot sue if more than 2/3 of the debt paid

s. 67(2): if the secured party proceeds under PPSA s. 58 (seizure) or 61 (voluntary foreclosure) or accepts surrender of the goods, the interest in the collateral is extinguished (i.e. no right to sue for deficiency)

s. 67(3): if consumer goods is seized with other collateral, the obligations are extinguished per above unless the secured party returns all the consumer goods before 20 days expire

s. 67(4): frequent to have security interest in land and chattel no loss of deficiency if proceeding under Land Title Act

s. 67(5): if secured party has a PMSI, the extinguishment only applies to the portion of the total obligation related to the goods seized, repossessed or surrendered

s. 67(6)(7): if you sue and seize in execution of the judgement, limited to the amount that the seized goods will sell for and the remaining debt is extinguished to avoid the seize or sue provisions, essentially the only way is to sue and go over non-consumer goods property

s. 67(8): accession removed but not replaced

s. 67(9): court has the power to relive against the provisions of the section where the consumer goods have been severely damaged or deteriorated

s. 67(10): if suing, the security interest in the goods is extinguished therefore proceeding against other property (problem: if the debtor is defaulting, it’s likely the debtor has other encumbrances)

Whitewater Motor Ltd. v. Amatto (BCSC 1993)

Facts: truck purchased with some intent to use as a snowplough; debtor defaults and calls creditor who advisers to return, which the debtor does (returns truck, keys and transfer papers); dealer does not want the truck back; dealer’s lawyer sends letter that truck has not been accepted and they will be suing (but truck sitting on lot); truck sold (in the course of litigation, it becomes clear that the truck will need to be sold therefore all parties agree to dispose of the truck and hold the $)

Issue:(1) mixed use consumer good?(2) seize or sue?

Decision:(1) consumer goods(2) sue

Reasons:


letter indicated not accepting return (i.e. not seizing) some dispute about instruction by phone and who “authorized” the return

Court’s Supervisory JurisdictionTopic Notes Key ConceptsPPSA s. 63 PPSA s. 63(2) types of orders:

(a) an order to ensure complaint with ss. 17, 36, 37, 38 and 63(b) an order giving directions with respect to the exercise of the person’s rights or the

discharge of the person’s obligations under ss. 17, 36, 37, 38 and 63(c) an order reliving a person from compliance with ss. 17, 36, 37, 38 and 63 but only

on terms that are just and reasonable to all parties affected example: order eliminating notice if unable to find party to be notified

(d) an order staying the enforcement of rights under ss. 17, 36, 37, 38 and 63(e) an order necessary to ensure protection of the interest of any person in the

collateral

Broad and general powers: what is the scope of these powers? Andrews and Trotchie

Andrews and Trotchie v. Mack Financial (Canada) Ltd. (SKCA 1987)

Facts: truck sold to Andrews; s/i in truck given to Mack Financial; Andrews sold to Trotchie in violation of security agreement with Mack Financial; Trotchie paid Andrews and Andrews paid Mack Financial; Andrews stopped paying (in arrears); truck badly damaged in an accident; Mack Financial starts proceedings to realize on the truck; Trotchie instructs employee to hide truck; Trotchie writes Mack Financial and advises that he will strip the truck down and only return the skeleton unless repairs paid for; Mack Financial obtains an order from the court to have the truck returned; Trotchie does not return truck until date for contempt hearing set; Trotchie then applies to the court under the SK equivalent to PPSA s. 63 for an order to set aside the seizure, extend the security agreement, repair funds advanced and Trotchie gets to continue payments; QB court grants order; Mack Financial appeals

Decision: order overturned

Reasons: three principles

(1) cannot use this power to rewrite the agreement(2) only reason to interfere with creditor’s rights is if there has been a problem with

the creditor’s exercise of their rights(3) broad general powers intended to enable the court to facilitate a commercially

reasonable result (i.e. vary the PPSA to effect this result) reinstatement order

no evidence that arrears could be brought up generally in cases where the debtor has acted dishonesty the court is disinclined to grant a reinstatement order

Application of broad general powers = facilitate a commercially reasonable result

Consequences for Non-Compliance with the PPSATopic Notes Key ConceptsPPSA s. 69 (8) reverses onus of proof in limited situations (i.e. failure to abide by certain provisions of the

act) with respect to an action of deficiency(9) cannot limit liability for failure to perform under the Act (if in security agreement, void)

Common law remedies

breach of warranty of title = right to sue based on breach of implicit term that the party selling has the right to sell)

Balance of authority = old rules with respect to voluntary foreclosure pertain

Remedy of slander of title = know that one has no right to the item but purports that it does (i.e. files registration in the PPR)

Osman Auction Inc. v. Murray

Facts: vehicle purchased at auction by rogue; rogue gives fake cheque; rogue sold to purchaser; purchaser decides to sell and reaches an agreement contingent on clear title;


(ABQB 1994) new purchaser finds security interest listed in PPR

Decision: slander of titleConflict Rules under the PPSA

Topic Notes Key ConceptsIntroduction Security interest in personal property raises problems not present with land security

interests, for example matter of property and civil rights within the property = each province has own regime and own registry (but property is easily transportable from one jurisdiction to another)

How to balance parties’ rights?(1) where does a security interest have to be registered(2) where does one look for security interests in a property

Organizing Structure

PPSA s. 5 is subject to ss. 6-8 and PPSA s. 6 is subject to PPSA s. 7 herefore PPSA s. 7 is the controlling section

How to Determine What Conflict Rule Applies

What category of goods? consumer goods will never be governed by s. 7

s. 7: mobile goodss. 6: goods to be moved (anticipate moving)s. 5: everything else

Three practical issues4) where do you have to search before a client takes an interest in the items5) where do you have to register if a client takes an interest in the items6) what happens if something changes

PPSA s. 7 PPSA s. 7(2) the validity, perfection and effect of perfection or non-perfection of a) a security interest in i) an intangible, ii) goods (excluding foreign registered ship) that are normally used in more than one jurisdiction if the goods are equipment or inventory leased or held for lease by the debtor to others [mobile goods]; and b) a non-possessory security interest in an instrument or negotiable document

Examples of mobile goods: vehicles (cars, trucks); air craft; earth moving equipment; cranes n.b. must be leased or held for lease

If s. 7 applies, debtor location determines the applicable law

Debtor location = a) the place of business, if any, of the debtor; b) at the chief executive office of the debtor, if the debtor has more than one place of business; c) at the place of principal residence of the debtor, if the debtor has no place of business

Example: if considering the purchase of an aircraft, s. 7 applies. If the head office is in Calgary, this means that allBut what if the debtor changes location? (i.e. the head office moves to Vancouver) problem: subsequent creditors will check the BC registry instead of the Alberta registry

PPSA s. 7(3): what happens if the world changes (i.e. the debtor changes location) the security interest remains perfected in British Columbia if it is perfected in the

other jurisdictiona) not later than 60 days after the day the debtor relocates or transfers an

interest in the collateral to a person located in the other jurisdictionb) not later than 15 days after the day the secured party has knowledge that the

debtor has relocated or has transferred an interest in the collateral to a person located in the other jurisdiction, or

c) before the date that perfection ceases under the law of the first jurisdictionwhichever is earliest

Is it covered by s. 7? check s. 7(2): intangible?


Example 1:T1: date of relocationT2 (Day 10): knowledge of relocationT3 (Day 25): 15 days after knowledge of relocationT4: (Day 40): registration expires in first jurisdictionT5 (Day 60): 60 days after relocation

In the above example, the earliest marker is Day 25 (15 days after knowledge.)

Example 2:T1: date of relocationT2 (Day 60): 60 days after relocationT3 (Day 61): knowledge of relocationT4: (Day 76): 15 days after knowledge of relocation

In the above example, 60 days is the hard limit

Example:Client is a trucking company who transports produce between Vancouver and Kelowna. Client wishes to lease a truck from a company who has a head office in Toronto.

PPSA s. 7 applies: while intended to be used only within BC, it is covered by s. 7 Where is the debtor located? Head office = Toronto = Ontario PPR Where to check?

check all jurisdictions (especially wait 60 days

Client wishes to move trucking company to Vancouver Re-register within 15 days of move (as knowledge = date of relocation is known at

time of move) n.b. can register f/s in advance of move (may pre-emptively register f/s in multiple jurisdictions)

PPSA s. 6 What if the item is not covered by s. 7? Check s. 6

PPSA s.6(1): narrow application: security interest in goods in one jurisdiction but knowledge that they will be moved to another jurisdiction

Example: client is a used car dealer in Vancouver. Client sells car to a client that lives in Thunder Bay (better used car in Vancouver than Ontario given winter road conditions.) If the car is moved within 30 days of attachment, the Ontario PPSA governs.

PPSA s.6(2): However, if the car is returned to BC, security interest is governed by PPSA s. 5(3)

PPSA s. 5 Jurisdiction = where the collateral is located when the security interest attaches

PPSA s. 5(3) if perfected in the first jurisdiction, the security interest remains perfected if it is

perfected in British Columbiad) not later than 60 days after the day the collateral moves into British Columbiae) not later than 15 days after the day the secured party has knowledge that the

collateral moves into British Columbia, orf) before the date that perfection ceases under the law of the first jurisdiction

whichever is earliest

Wrinkle: “but the security interest is subordinate to the interest of a buyer or lessee of the goods who acquires his or her interest without knowledge of the security interest and before it is perfected in British Columbia under section 24 or 25.”

Application of PPSA ss. 5-7

Example:Client (Victoria) selling family car to a purchaser in Victoria.

s. 7 does not apply as consumer goods (not equipment)


s. 6 does not apply as no intention to move accordingly, PPSA s. 5 applies

Problems: potentially shipped from another jurisdiction to be sold in BC (in that case, check

the registry of the other location) what happens if the goods move? PPSA s. 5(3)

Example:Used car purchased in Alberta. Properly registered in the Alberta PPR. Family moves to BC. To maintain perfection, the Alberta creditor must re-register in BC per PPSA s. 5(3):

Example 1:T1: date of collateral moveT2 (Day 20): knowledge of collateral moveT3 (Day 35): 15 days after knowledge of collateral moveT4: (Day 40): registration expires in first jurisdictionT5 (Day 60): 60 days after collateral move

In the above example, the earliest marker is Day 35 (15 days after knowledge.)

Questions to consider with s. 7 goods (mobile equipment): how long have you owned the equipment? how long has your head office been located here? how valuable is the equipment (i.e. is it worth searching more than one registry)?

Jukes (Trustee of) v. Holiday Chevrolet Oldsmobile (1983) Ltd. (SKQB 1990)

heavily critiqued (judge should have applied the equivalent of PPSA s. 7(4))

Facts: at time of registration, debtor was in Manitoba. At the time, long term leases were not considered security interests under the Manitoba PPSA. The debtor moved its place of business to Saskatchewan. Holiday did not re-perfect under the timelines of the Act.

Problem: in Manitoba, the common law applies and Holiday was the owner of the truck (i.e. the interest was perfected in that it was safe from other creditors and the trustee).

Decision: when the place of business changed, Holiday should have registered. As Holiday didn’t, it was unperfected.

Problem: PPSA s. 7(4) no requirement for public registration in first jurisdiction

Re Searcy (BCSC 1991)

Facts: Searcy Jr. purchases a GMC Tracker in Calgary with debt to GMAC and a co-signer (Searcy Sr). Where to register security interest? Alberta. Searcy Jr. moves to BC in February and goes bankrupt on March 1. GMAC receives notice from the trustee in bankruptcy on March 8. GMAC registers security interest April 15.

Issue: was there a date before the 60 day window that the registration needed to be re-perfected? trustee in bankruptcy alleged that the notice from the trustee in bankruptcy started the 15 day clock (and April 15 was past this deadline) GMAC argued that there was no reason to believe that the car was in BC (co-buyer was still in Albert and payments were received from Alberta until April)

What constitutes knowledge?PPSA s. 1(2) (c) a corporation knows or has knowledge when information has come to the attention of

(i) a managing director or officer of the corporation, or(ii) a senior employee of the corporation with responsibility for matters to which the

information relates,under circumstances in which a reasonable person would take cognizance of it or

when the information in writing has been delivered to the corporation's registered


office or attorney for serviceNorthwest Equipment Inc. v. Daewoo Heavy Industries America Corp. (ABCA 2002)

Facts: excavator purchased and registered in BC. Excavator sold to Northwest and moved to Washington state. The excavator is then moved to Alberta. Creditor (Daewoo) did not consent to sale. why not s. 7? not commonly used in more than one jurisdiction

Cut off for OCB sale? No. not inventory (sold when wrapping up business); sold for shares instead of cash (as typical); purchaser was a dealer (not a usual customer)

Cut off for consent? No. Insufficient evidence.

Did Daewoo re-register? Not after move to Washington and not after move to Alberta accordingly, lost perfection in excavator

Novel argument: in Alberta, Northwest leases the excavator to Wind Industries. When leased, Northwest registered a f/s in the PPR with respect to the lease. Accordingly, Northwest argued that it had a perfected security interest in Alberta.

Problem: at the date of sale to Northwest, Daewoo had a perfected security interest and therefore the registration of the subsequent f/s by Northwest didn’t

Problem: the court concludes that even if Northwest had a security interest, s. 35(1) does not apply

Two-debtor problemT1: Bank has a security interest in dealer’s boiler (inventory)T2: dealer sells (not OCB) to AT3: A sells boiler to B

Further problem: the manager of the original debtor was acting for Northwest handled the leasing in Alberta. Why did Northwest file the f/s? To create another security which it could use to defeat the existing, known security interest of Daewoo (i.e. use the Act to perpetuate a fraud)


Advance Diamond Drilling Ltd. (Receiver of) v. National Bank Leasing Inc. (BCSC 1992)

Facts: At the time of attachment, the tractor and trailer unit was located in Ontario (as was the debtor). Two creditors: 1) RoyNat (debenture; security interest in all property) and 2) National Bank Leasing (two lease agreements over the tractor unit and the trailer unit). NBL had a properly perfected interest in Ontario over the tractor unit and the trailer unit. Priority was clear as RoyNat registered after NBL. The tractor and trailer were moved to BC. RoyNat registers in BC first and then NBL registered. Who has priority?

Decision: s. 7 validity governed by jurisdiction of debtor (Ontario); nothing has changed because the debtor is still located in Ontario and therefore the priority is still determined by Ontario

Added wrinkle as the provisions do not line up as much as they do now (will discuss next week)

NBL had a properly perfected interest in Ontario over the tractor unit and the trailer unit. Priority was clear as RoyNat registered after NBL. The tractor and trailer were moved to BC but debtor’s business remained based in Ontario . RoyNat registers in BC first and then NBL registered. Who has priority?

Decision: mobile goods = s. 7 validity governed by jurisdiction of debtor (Ontario); nothing has changed because the debtor is still located in Ontario and therefore the priority is still determined by Ontario

However, the BC and Ontario laws did not match up. Counsel for RoyNat argued that Ontario’s PPSA required registration where the collateral was located, and conflict of law rule stated that the governing

Court, however, stated that it was unnecessary to consider conflict of law rules in Ontario because at the time of attachment the interest was properly perfected in Ontario.

n.b. PPSA s. 7(6) anti-flip back law to prevent circularity problem


Bank ActIntroduction

Topic Notes Key ConceptsHistorical Context

In 1867, the provinces entering confederation had different financial institutions with varying rules on interest, etc. (i.e. the Maritime provinces had anti-usury laws but Ontario didn’t).

All provinces had rules allowing institutions to take an interest in collateral but all based on old 19th century law chattel mortgage (transfer of title) + conditional sales agreement (reserve title) with right to redeem floating charge (equitable charge with no transfer of title) to cover a shifting body of goods (i.e. inventory, crops, products of the mine or the sea)

While all provinces had the same general principle, but the registry acts had different requirements, forms, periods of registration, etc.

Mortgage as a pledge: deed of estate given to lender in exchange for loan limited ability to do this for personal property with a bill of lading or warehouse receipts (situations where a bailee could effect transfer of title) Ontario permitted some industries to issue a bill of lading or warehouse receipt for owned goods, which could then be pledged to a lender (essentially allowed a fixed charged on things that could change)

In Confederation, banking was given to the federal government to create a unified system that would facilitate a strong national economy

Problem: seasonal industries struggled to raise money despite being solvent (issues with the floating charge and the inconsistent systems)

Solution: Bank Act, which adopted Ontario’s system of warehouse receipts for owned property to facilitate more flexible lending (no need to know multiple individual provincial systems; overcome issues with the floating charge model)

Bank Act: who’s included

Categories of eligible borrowers broadened to manufacturing, mining and forestry industries continue to broaden: farming (1913), fishing, hydro-carbon extracting

n.b. prior to inclusion, farmers borrowed from little loan companies (26%) who would borrow from big banks (6%)

While the categories are broader, some industries are still excluded (i.e. tourism and hospitality)

n.b. only banks established under the Bank Act can take security (i.e. excludes credit unions)

Bank Act: how to give security

Notice of Intention to Give Security replaces artificial bill of lading or warehouse receipt however, the effect is the same (i.e. a transfer of title)

Through amendments to the statute, the Notice of Intention was able to cover after acquired property in a single transaction (as opposed to issuing one for each catch of fish, crop, etc.)

Bank Act: what types of loan

Categories of loans

Bank Act: notice registration system

Chattel mortgages, condition sales agreement and floating charges = registration of entire documentNotice of Intention = registration of notice (no requirement to register security agreement)


Bank Act: priority rules

Nemo dat principle applies Notice of Intention = transfer of title Accordingly, can only transfer legal title once (can only to purport to transfer if a

transfer has already been completed fraud) However, the transfer of title creates a Right to Redeem Title Accordingly, can transfer the Right to Redeem Title (ad infinitum as each

subsequent transfer creates a new Right to Redeem to transfer)

Priority = order in time (first legal title transfer then the first transferee of the right to redeem title, etc.)

Bank Act s. 427(7): in the event of a bankruptcy, two priorities over security interest:1) three months’ wage2) producers of agricultural products who have supplied them to a manufacturer

within 6 months of the bankruptcyWhat security does a lender want?

If the bank is established in the Bank Act and the debtor’s business falls within one of the categories, the bank is able to take security either in the Bank Act or the provincial PPSA equivalent. Alternatively, the bank could also take security under both.

However, some provinces (Saskatchewan in particular) oblige the bank to select either Bank Act security or PPSA security.

Solutions? Some commentators suggest that the federal legislation should become PPSA-like. However, the provinces are not necessarily in favour because in some cases, PPSA security is better for a lender than Bank Act security. Conflict issues would likely disappear as the banks would register with the federal system. There would also be a general flight to the federal registry system, which would reduce revenue from fees for the registry system.

Waldron’s prediction: Bank Act security will disappear (especially in light of recent case law that makes Bank Act security riskier)

Bank Act provisions

s. 426: security provisions for hydro-carbons and mineralss. 427 (previously s. 88 and s. 178): general security provisions

(1) categories of debtors(2) rights with transfer of title differences in wording have not resulted in a

difference in application (i.e. security taken under (1) effects a transfer in title)(3) right to seizure for non-payment and failure to care for some of the items

(especially produce, etc. that requires “a certain degree of care” © Waldron)(4) requirements to the file the Notice of Intention (how to file and how to search

offices of the Bank of Canada or its agents)(5) definitions(6) regulations(7) priority of wages and perishable agricultural products

s. 428: primarily priority and realization provisions(1) rights = same as if one had a warehouse receipt or a bill of lading; priority over all

subsequent rights incl. over unpaid(3) limited right to security interest in fixtures (particularly electrical systems and

forestry product that has attached to the land) tied to historical context (responses that facilitate certain commercial necessities like getting farms onto electrical grids)

(7) realization provisions: sale has to generally be by public auction(12) proceeds right = goods manufactured from goods over which you hold a security

interest (broadened by case law)s. 429: timing of the loan

Overview of Bank Act provisions

Giving of the security private contract agreementNotice of Intention (like f/s) that must be filed in the appropriate office

Bank of Balance with provincial limits example = s.427(1)(h): farmer or farm BUT security not


Montreal v. Hall (SCC 1990)

effective with respect to other property?

Saskatchewan: limitation of civil rights act that required all creditors to give notice of seizure and stiff penalties if no notice (“big stick”: security interest cancelled, paid money returned to debtor)

While the provincial legislation was validly enacted, Bank Act security provisions govern how realization occurs, and the provincial legislation could not limit these rights given to bank. Accordingly, the provincial legislation is inoperative to the extent that it interferes with the operation of the Bank Act

n.b. Waldron was Bank Act security applied common law requirements around noticefurther n.b. Bankruptcy and Insolvency Act is federal legislation and therefore applies (incl. requirement for notice)

Timelines under the Bank Act

Three dates:(4) Notice of Intention Bank Act s. 427(4)(a) cannot be registered more than three

years in advance of the Security Agreement(5) Security Agreement(6) Advance of loan Bank Act s. 429(2) security cannot be acquired unless the

debt is contracted or made at the time of the acquisition of the security by the bank or the agreement to give security (promise to give security)

CategoriesTopic Notes Key ConceptsBank of Montreal v. Elgin Co-operative Services (ONCA 1983)

Facts: ???

Arguments:1) no advancement had been made for the purchase of the seed or the growing of

the crop in that year s. 427(1)(f)2) but the Bank Act also provides for general security over present and future goods

(crops)Royal Bank of Canada v. Bank of Montreal (SKCA 1976)

Facts: security over tractor and crops given depreciation, the security over the crops was necessary

T1: debtor takes loan with B1 for the purchase of a tractor. Bank Act security in tractor and grain.T2: debtor takes loan from B1 with Bank Act security in grain (listed specific grain that debtor had at the time)T3: debtor takes loan from B2T4: debtor takes a further loan from B1

Priority dispute over who gets the rapeseed that the debtor has when he defaults

Argument #1:Decision: not mutually exclusive (can take security under the general security provision and the crops provision)

Argument #2: security interest at T2 listed specific grain, which was an exhaustive list of what B1 has a claim toDecision: not an exclusive list; intended to cover future grains

Argument #3: B2’s security interest at T3 comes after B1’s security interest at T4 because $ was not advanced under the agreement at T3 until after T4Decision: sufficient at it fulfills the

Reasons: straight title analysis: at T1, debtor conveyed the title to the grain to B1; at T2, he

conveyed the right to redemption (if such a thing exists) to B1; at T3, he conveyed the right of redemption from T2 to B2 despite the $ not being immediately


advanced n.b. minimal rights of tacking (i.e. under the PPSA, T4 would have been incorporated into the earlier

allocation of payments: the debtor had been making payments to B1; B2 argued that if the payments had been allocated to the loans at T1 and T2, these debts had been discharged; typically, the expectation is that payments will retire the earliest debts first; however, the security agreement gave B1 the right to allocate the payments as it saw fit (accordingly, the typical presumption does not apply)

ProceedsTopic Notes Key ConceptsProceeds As Bank Act is a title system, there is a natural right to the proceeds that result from the

sale or other disposition of the collateral.

Ex: if you sell a car that you own, you have a right to the money because you had title for the car

Re DeVries et. al. and Royal Bank of Canada (ON H Ct J 1975, aff’d ONCA 1976)

Facts: debtor gave security over cows; cows were destroyed in a barn fire and the debtor received insurance proceeds; debtor purchased replacement cows and sold them to an innocent purchaser

Issue: who gets the cows?

Reasons: title analysis: by taking security in the original cows, the bank acquired the title to

the cows; when the cows were destroyed, the bank had title to the insurance proceeds; accordingly, the bank still had title and the purchaser is out of luck n.b. PPSA: statutory right to proceeds because it is not a title based system

Registration of NoticeTopic Notes Key ConceptsProcedural Requirements

Three dates1) filing notice of intention no more than 3 years prior to granting the security

interest2) granting security interest3) making the loan

Issue: does not more than 3 years prior mean what it says? i.e. does it have to be prior? See CIBC v. 281787 Alberta Ltd. and Re Davanti Contemporary Interiors Ltd. clearly there would be exposure when the Notice of Intention is not filed but does it “plug the hole” after

CIBC v. 281787 Alberta Ltd. (ABCA 1984)

Facts: security was taken and a loan was made by CIBC but the notice of intention was filed a few days later. Landlord is not paid and therefore exercises right to distrain. CIBC objects given the Bank Act security.

Priority in Bank Act s. 428(1): priority over all rights subsequently acquired and any unpaid vendor or person who has an unperfected security interest in the property at the time that the bank acquires the security interests. 427(4): void against creditors and subsequent purchasers unless the notice of intention was registered not more than 3 years before the loan was given

Decision: the wording of the section is clear that the notice must be filled before the security is granted; accordingly, the bank’s security was void against the landlord accordingly, preferable to

However, if the bank had filed properly, the bank would have had priority over the distraining landlord under the Bank Act (where in PPSA the

Re Davanti Contemporary

Facts: notice of intention to give Bank Act security signed and debtor executed an assignment of title; bank registered notice 20 days after assignment was given. Debtor


Interiors Ltd. (ABQB 1992)

defaulted. Bank appointed bailiff who seized the property but left on premises for the debtor to sell on the bank’s behalf (often preferable to auctioning off the property). Debtor goes bankrupt and trustee in bankruptcy is appointed.

Decision: CIBC does not apply as the bank had acquired title via the seizure

Reasons: if debtor fails to redeem, the bank now owns the property in full because the title

was transferred and the right of redemption ceases effect of not filing the notice is NOT to invalidate the security against the debtor

but rather against other creditors accordingly, the bank was able to convert the security interest to an absolute right

of title by seizing the property (and therefore converting to full title) limits the impact of s. 427(4) allows the bank to improve its position by doing a quick seizure (contrast with the PPSA where the parties cannot perfect through seizure)

Seizure and SaleTopic Notes Key ConceptsSeizure and Sale

Bank Act s. 427(7)-(11) generally sale at public auction unless the property is perishable or the party from

whom the security was given agrees otherwise (and it may be better to sell privately through the debtor to secure the best price through the debtor’s existing commercial avenues)

distribution: proceeds to creditors in order of priority with any remainder to the debtor

requirement to act honestly and in good faith (not standard of care per PPSA) no action against the bank for failing to get the best price (making the Bank Act

more favourable to the creditor)Lasqueti Fishing Co. v. Royal Bank (BCCA 1990)

Facts: bank had Bank Act security in fish; purchase arrangement between the debtor (Cassiar) and the fishers (Lasqueti); Cassiar occasionally loaned money to Lasqueti; sometimes fish from Lasqueti were for purchase and sometimes fish were to pay down the debt; Cassiar had fish on hand that it had not paid for; Cassiar defaulted and bank seized fish.

Issues: Lasqueti argued that it was an unpaid vendor but not a helpful argument under

Bank Act s. 428(1) Lasqueti then argued that the bank was dishonest because it waited until there

was a bunch of unpaid fish to seize; it therefore argued that the money should be held in trust

Reasons: if the trial court had found evidence of dishonesty, there might have been a

remedy difficult, however, to give an equitable interest in fish dead or alive

however, the trial court did not find dishonesty (the timing was luck of the draw) accordingly, the simple priority rule applies similar problem with PPSA: secured party with apaap would have priority over

unpaid goods provided it’s security interest was properly perfectedInteractions between the Bank Act and the PPSA

Topic Notes Key ConceptsHypothetical:What happens if you have Bank Act security and a vendor supplies an item to the debor under a conditional sales agreement? In that case, the vendor retains the title until the debt is discharged (at which point the title transfers to the debtor). Under the PPSA, it’s treated as a PMSI. However, under the Bank Act, does s. 428(1) apply


Solution: the bank that lives by the title dies by the title Rogerson Lumber Co. Ltd. v. Four Seasons Chalet Lts. ONCA 1980) nemo dat (you can’t give what you don’t have)

Kawai Canada Music v. Encore Music

Facts: Encore Music gave a Bank Act security interest to RBC. Kawai Canada sold pianos and organs to Encore Music under a conditional sales agreement. Encore Music defaults on debt to RBC. RBC attempts to seize the pianos and organs.

Decision: the bank can only have the interest that Encore Music held Kawai Canada gets the pianos and organs because it retained title in the condition sales agreement

Accordingly, a client that sells on credit will have to take PPSA security (because the client is not a bank) but the security agreement must also reserve title to mimic the classic conditional sales agreement to protect against Bank Act security interests (even though unnecessary to compete against other PPSA interests)

n.b. priority does not apply PPSA rules (Bank Act paramount per Hall) but proprietary title analysis

Royal Bank v. Agricultural Credit Corp. of Saskatchewan

n.b. critique from SCC that this analysis is not perfect but appropriate for a “rough and ready”

Analysis of priority disputes between the PPSA and the Bank Act (1) eliminate PPSA (SCC critiqued this step Waldron: shove to the side PPSA

priority rules)(2) do the provisions of the Bank Act cover the situation? if yes, analysis complete(3) if the Bank Act does not apply, apply a title analysis (first in time analysis)

Royal Bank of Canada v. Moosomin Credit Union (SKCA 2003)

Facts: Bank has Bank Act security interest in a truck. Debtor purchased the truck using money borrowed from Moosomin. Moosomin had a PMSI under the PPSA (SK).

Argument: PMSI is the same as a conditional sales agreement (treated the same under the PPSA)

Decision: while PPSA gives Moosomin, the PPSA priority rules do not apply under the Bank Act regime. Accordingly, the title analysis applies. The Bank Act gives the title to the bank

In these circumstances, the Bank Act security is stronger because it only yields to one category of PMSIs after the security interest is formed. policy perspective: limits the ability of debtor’s to expand asset bases (contrast with the broader PMSI principle that it is preferable to expand asset bases) however, can negotiate with lender (i.e. bank could have postponed interest in truck to Moosomin)

The Future of the Bank ActTopic Notes Key ConceptsBank Act going forward

Two recent SCC decisions that essentially make Bank Act security riskier and more difficult to rely on:

Royal Bank of Canada v. Radius Credit Union (2010 SCC 47) Bank of Montreal and Judgement Credit Union (2010 SCC 48)

Facts: bank took security interest in property under the Bank Act where an earlier security interest (unperfected) had already been taken by the credit unions.

However, Bank Act priority provisions only cover subsequently taken interests. Further, the title was encumbered by the unperfected security interests.

Arguments: unperfected security interests should not be relevant problem: that’s a feature

of PPSA and we’re not within the PPSA


PPSA s. 20(c) makes the unperfected security interests invalid against other creditors’ interests problem: the section only deals with interests that are not security interests (and Bank Act security is a security interest)

PPSA is valid provincial legislation that is relevant (defines property, etc. which is within Property and Civil Rights) problem: while the PPSA does not transfer title, the PPSA is correlative to the encumbrance on title at common law

Problem: the bank was not aware of the prior interest because it was unperfected SCC: incident of the fact that the federal scheme is outdated, and must live with the consequences

Likely still will find Bank Act security interests in practise (still common to engage in loans under Bank Act s. 426) but increasingly more common and safer to take PPSA security interest when available

Bills of Exchange Act


Bills of Exchange ActIntroduction

Topic Notes Key ConceptsHistorical context

19th century codification of the merchant laws based on customs of merchants and economic convenience from that period

Three types of documents:1) generic bill of exchange used infrequently2) cheque applicable in a number of contexts3) promissory note still very common when money borrowed

While still around, the documents are used differently and less extensively than earlier.Bill of Exchange

Topic Notes Key ConceptsExample of a Bill of Exchange

T1: Goldsmith (A) sells to Jeweller (B) a quantity of gold under an agreement that B will pay A $X.T2: A goes to Mine (C) and buys a quantity of gold. Instead of paying C directly, A wrote a document (“To B: Pay C $X on November 30, 1565. Signed, A”). This document is a bill of exchange.

A = drawer (the party who draws the bill)B = drawee (the party upon who the bill is drawn)C = payee (the party to whom the bill is payable)

Definition of a Bill of Exchange

Definition (Bills of Exchange Act s. 16): A bill of exchange is an unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay, on demand or at a fixed or determinable future time, a sum certain in money to or to the order of a specified person or to bearer.

Negotiation Further wrinkle:C could endorse the bill to D. This endorsement plus delivery to D is called the process of negotiation.

D = holder (either a holder for value or another type)

By simply signing the bill in C’s name, it’s a general endorsement and therefore payable to bearer (i.e. D

However, can do a restrictive endorsement (“Pay D. Signed C.”) To pass this on, D would have to endorse to E (either through a general endorsement or restrictive endorsement). To end negotiation, the endorsement would have to be a specific restrictive endorsement (“Pay E only. Signed D.”)

Historically, it was possible for negotiation to continue for a very long period of time. However, eventually someone would have to present to B on the date payable.If the bill is dishonoured (i.e. B refuses to pay), the endorsements provide a chain of liability (hence why the bank makes you sign a cheque before depositing).

Assignment to one party = take on the equities of the contractHowever, the whole commercial system up to the early 20th century was based on negotiation. Given the number of parties involved,

Bills of exchange created a “holder in due course” who can sue on the bill free of many of the defences that an assignee was subject to

Timing Fixed future time “January 4, 1564”

Determinable future time certain number of days happening after an event is certain to occur (i.e. “ten days after Christmas 1565”) but cannot say “ten days after the NHL strike is


settled” because it is uncertain that the event will occur

Alternative to “determinable future time” payable on sight (i.e. when C takes it to B and shows it to them)

tied to the issue of being overdueBills of Exchange Act s. 41: computation of time

when not payable on demandAmount only transfer rights to money

must be a certain sum

What if the sum includes “interest” without a specifiedIf the rate of interest is not specified, 5% simple interest applies per s. 2 of the Canada Interest Act

c.f. Bills of Exchange Act s.27(1) sum still certain even if:

sum + interest payable in installments payable in installments with acceleration clause indicated rate of exchange or ascertainable rate of exchange

Payee The bill of exchange must be made out to a specified person, a bearer or “To the order of” (express indication that the specified person can transfer)

Two ways to make a bill payable to bearer:1) expressly state “Payable to bearer”2) Endorse the back in general (as opposed to a specific person)

ChequeTopic Notes Key ConceptsCheque Bills of Exchange Act s. 165

Payable on demand or not expressed (presumption that it is payable on demand)Example of a Cheque

DateTo Bank (drawee)Pay C Mines (payee)The sum of X $Signed A (drawer)

Promissory NoteTopic Notes Key ConceptsPromissory notes

Bills of Exchange Act s. 176

Example of a Promissory Note

To S. Smith [or to the order of a specified person or bearer].I promise to pay on November 30, 2012 the sum of X dollars plus interest at X%Signed, A.

Maker = APayee = Smith

Not drawn on a third party promise of A (maker) to payLiability Drawer, maker = liable to pay to payee or negotiated party

+ generally, any endorser is liable to the person who receives the endorsed

n.b. with a bill of exchange, no one can sue the drawee by virtue of the note (although the drawer may have a contractual reason to sue) same principle with a cheque: no obligation of the bank to pay (can be “dishonoured”) but drawer may have

Invalidity Bills of Exchange Act s. 26(1)


Failure to date does not make the bill of exchange invalid however, the bank may not honour without a date

Bills of Exchange Act s. 26(2)Failure to specify value given does not make the bill of exchange invalid however, may affect the parties rights

Bills of Exchange Act s. 26(3)Failure to specify where drawn or where payable doesn’t matter

Bills of Exchange Act s. 26(4)Ante-dated or post-dated bills are valid as well as bills dated on a Sunday

Overdue A bill becomes overdue when it is not presented on the (+ 3 days of grace if applicable not applicable for demand bills)

Presumption: demand bill is overdue when it is not called within a reasonable period of time for a cheque, it requires the cheque to be dated to determine whether it has been presented for payment within a reasonable time of the date if unreasonable, the bill is specified to be overdue banks typically apply a rule of 6 months see Bills of Exchange Act s. 85

Presentment for Acceptance

If the drawee accepts the bill, the drawee becomes liable

Negotiation Two steps: (1) endorsement [sign] and (2) deliver

Problem with assignment: what happened difficult issue when negotiated on a long chain

Holder in due course = must receive the bill through negotiation every subsequent holder gets the rights of the holder in due course per Bills of Exchange Act s. 56

ForgeryTopic Notes Key ConceptsForged Signature

Bills of Exchange Act s. 48:Where a signature is forged, the forged signature is “wholly inoperative” and there are no rights that result from the forged signature. stringent rule problem for banks who are the biggest users of bills of exchange, etc. as the bnak is liable for money processed under a forged instrument

Limitation in s. 48(3): require notice to drawee within one year of notice of the forgeryPayroll Fraud Basic scheme: corporation where a dishonest employee in charge of payroll starts issuing

cheques to people who are not entitled to receive money or to fictitious persons. The dishonest employee then forges an endorsement and deposits at the bank.

If the bank pays under a forged endorsement, the bank is strictly liable to replace the money.

Bank’s defence:Bills of Exchange Act s. 20(5) where the payee is a fictitious or non-existing person, the bill may be treated as payable to bearer if the bill is payable to bearer, the bank is entitled to process the payment

Accordingly, the bank would argue that cheques endorsed to a fictitious person were *not*


paid on a forgery but rather payable to bearer (therefore endorsement not necessary) with persons not entitled to receive the money, the intention of the dishonest employee was never to pay this person and accordingly the payee was fictitious

However, the SCC has consistently said “no” it is the intention of the corporation (not the dishonest employee) that is the relevant drawer and if the corporation believed that the person is intended to get the payment, it is not a fictitious employee

Most recent decision: Boma Manufacturing v. CIBC (SCC 1996)

BUT strong dissent argument of fairness surely it is responsibility of the corporation to prevent the

fraud as they are in the position to verify the dishonest employee’s work intention = person

Majority public policy reasons to leave bank liable: encourages the banks to be more cautious when cashing cheques

Three rules:1) if the drawer inserts the name of a made-up person, the payee is fictitious (and

possibly non-existing; e.g. the Tooth Fairy)2) if the drawer of the cheque does not intend the person to receive the money, the

payee is fictitious but existing3) if the drawer of the cheque writes the cheque to a person who exists and intends

the person to receive the funds, the payee is NOT fictitious even if the drawer was induced to draw the instruments through 3rd party fraud

Consumer Bills and NotesTopic Notes Key ConceptsProblem Applies to bills of exchange but arose with promissory notes

Promissory notes are an unconditional promises to pay. However, when they are attached to a sales contract, there is a security interest and reasons to set aside the contract (i.e. conditions such as warranty of goods, etc.)

Initially, SCC determined that they were not promissory notes (and therefore could not be negotiated per the Bills of Exchange Act)

Eventually, SCC determined that the promissory note was separable from the contract (i.e. on a detachable piece of paper) and therefore could be addressed separately from the contract

Problem: shaddy dealers could use the protections for holders in due course to protect themselves from the consumers

Example: A writes promissory note to Appliance Sales. Appliance Sales would negotiate the promissory note a FinCo closely related to Appliance Sales. FinCo would claim to be a holder in due course. When the freezer turned out to be a dud, FinCo would argue that it was not affected by the fraud in the original transaction

Attempted solution: if FinCo was shown to be sufficiently close to Appliance Sales, will assume not in

good faith problem: had to show close association; stretch on the wording of the statute

Consumer purchase

Bills of Exchange s. 188:“consumer purchase” means a purchase, other than a cash purchase, of goods or services or an agreement to purchase goods or services(a) by an individual other than for resale or for use in the course of his business, profession or calling, and


(b) from a person who is engaged in the business of selling or providing those goods or services;

Bills of Exchange s. 188:Consumer bill = “bill of exchange issued in respect of a consumer purchase and on which the purchaser or any person signing to accommodate the purchaser is liable as a party, but does not include”

a) chequeb) bill of exchange that would be a cheque but is not drawn on a bank

Consumer note = promissory note with respect to a consumer purchase and the purchaser is liable as a party

Bill of Exchange Act s. 190:If the bill is not marked as a consumer purchase, it is void but not void in the hands of an innocent holder in due course (hole but not significant)

Rights to consumer in Bills of Exchange Act s. 191“Notwithstanding any agreement to the contrary, the right of a holder of a consumer bill or consumer note that is marked as required by section 190 to have the whole or any part thereof paid by the purchaser or any party signing to accommodate the purchaser is subject to any defence or right of set-off, other than counter-claim, that the purchaser would have had in an action by the seller on the consumer bill or consumer note”

Penalty for transferring an unmarked note under s. 192


Index of CasesPersonal Property Security Act (BC)

Situating the PPSACase Ct/Yr Short Description CBMarine Bldg Holdings v. Proton

BCSC 1993

Δ has s/a w/ bank and Π. Bank perfected. Δ defaults. Π obtains judgement for debt. Bank > Π as Π unsecured. PPSA trumps other legislation. [s. 35(1)(b), 73]

2

Transactions Creating a Security Interest: Parties, Form and the Obligation SecuredCase Ct/Yr Short Description CBThe Obligation SecuredCanamsucco Road House v. Lngas

ON Ct. J. 1991

Restaurant Π has GSA w/CIBC. Δ purchases restaurant but pays over time. Condition in K to permit takeover of CIBC loan if Π defaults. Limits tacking: commercially reasonable. [s 14, 35(5), 35(6)]

7

The Form of the AgreementRiepe v. Stingray Holdings

BCSC 2002

Purchase leased truck at end of K despite defaulted payments. Sold to Riepe Jr. No written s/a. Even if written, need notice (actual knowledge insufficient) for PPSA. [s 10]

11

674921 BC v. New Solutions Financial

BCCA 2006

T1: loan agreement w/ 674921. T2: NSF loans $. T3: debtor gives GSA to 674921. No security at T1 (not written) and insufficient description for s. 10. Must meet PPSA to be enforceable. [s 10(1)(d)]

16

Consignment as Security AgreementRe Toyerama ON 1980 Manufacturer consigns toys to Toyerama. No s/a. Bankruptcy. Manufacturer retains ownership where no

obligation to pay but trustee got ownership of returned items (oblig. to pay). [s 2(1)(b)]28

Re Stephanian’s Persian Carpets

ON 1980 if there was no obligation to pay for the items unless sold, there was no s/a b/c no automatic debt. What happens with the unsold items is key for a consignment vs a S/I. [s 2(1)(b)]

---

LeaseDaimler Chrysler Services v. Cameron

BCCA 2007

Truck lease. True lease (no Part V) or lease as a s/a (all PPSA)? Essentially, true lease if no option to purchase + value left OR option to purchase w/ option price = real value post-leaseList of factors page 35-36 [s. 2(1)(b), 3(c)]

32

Newcourt Financial v. Frizzel

BCSC 2000

Vehicle lease. Debtor defaulted. Creditor moved to repossess. True lease b/c option price = genuine pre-estimate of post-lease value. [s. 3(c), 2(1)(b), Part V]

43

TrustSkybridge Holidays v. BC BCCA

1999Bankruptcy. Prov. statute req’d $ for travel held in trust. Only trust if secured obligation so no trust found. [s1(5), 2(1)(b)]

49

Transactions Deemed to Create Security InterestsNewcourt Financial v. Frizzel

BCSC 2000

Vehicle lease. Deemed security interest as > 1 year. See PPSA [s. 1.1] 61

Furmanek v. Community Futures

BCSC 2000

Jewellery = commercial consignment? Yes if generally known. In this case, specific knowledge but no general. Accordingly, inventory = s/i therefore lost priority to secured parties). [s. 10(1), 2, 3, 55(2)(a)]

61

The Property Encumbered: Collateral and ProceedsCase Ct/Yr Short Description CBCollateralSaulnier v. RBC Fishing license = equipment. PPSA definition broader than CL. [s 1(1), 1(4)] 70Furmanek v. Community Futures

BCSC 2000

Goods characterised as inventory and therefore subject to GSA [s 1(1), 1(4), 10(4)] 81

Proceeds and TracingRe CIBC & Marathon Realty

SKCA 1987

Kiddies has loan for inventory and defaults on rent. s/i perfected therefore no right to distraint. Do not need to be described [s 1(1), 10(5), 28(2), 35(3)]

82

Universal C.I.T. Credit v. Farmers Bank

USDC 1973

Car sales f/a w/ CIT + promissory note w/FB. CIT cancels Ryan’s f/a with cheques outstanding. Ryan tells FB to take $ owed on promissory note. Cheques bounce. Lowest intermediate balance rule, borderline fraud. [s 1(1), 28(2), 35(3)] similar facts may involve s. 68

85

Agricultural Credit Corp. of Saskatchewan v. Pettyjohn

SKCA 1991

Cows. Replaced herd with Watusi (smaller herd b/c +$). Tracing by subrogation: clear Watusi were replacement collateral in similar role to orig. collateral. s/i in Watusi to value of orig. s/I [s 1(1),28(2), 35(3)]

92

Re River Industries BCSC 1992

s/i in debtor’s inventory. Sold in bulk. No cut-off. Got equivalent % in end inventory (supplied + proceeds.) Pettyjohn adopted in BC. [s 1(1), 10(5), 28(2), 35(3)]

100

Creating the Security Interest: AttachmentCase Ct/Yr Short Description CBAttachment: General matters in perfected and unperfected security interests [s 12, s 13]TD Bank v. Nova Entertainment

ABQB 1992

T1: parent co. loans $ to subsid. T2: registers s/i. Perfected b/c “value” incl. antecedent debt.. [s.1(1), 12, 28(1)(a)]

103

Kinetics Technology v. Fourth National Bank

US 10th Cir. CA 1983

OHT had loan w/ 4th; s/i in inventory. K w/ KTI to produce furnace economizers. OHT installed goods from KTI in constructed items. OCB sale (progress payments.) [s.1(1), 12, 28(1)(a)]

105

Haibeck v. No. 40 Taurus Ventures

BCSC 1991

Perfected s/i from No. 40 to RoyNat. Builders sold appliances to No. 40 (perfected s/i). No. 40 defaults. Priority = order of registration = RoyNat > Builders. (Builders did not register PMSI). [s.1(1), 12, 28(1)(a), 35(1)]

109

Attachment: Purchase Money Security InterestAgricultural Credit Corp. of Saskatchewan v.

SKCA 1991

PMSI? ACCS provided funds to pay off interim financing, which was used to purchase the cows. Commercially unreasonable to divide transaction (interim financing contingent on ACCS financing).[ s 22, 34,]

113


PettyjohnUnisource Canada Inc. v. Laurentian Bank

ONCA 2000

T1: bank loans $ to buy printing press. T2: debtor grants GSA to Unisource. T3: LB loans $ to pay off bank loan. PMSI b/c sale and lease back (bank had title). Technical argument. [s 22, 34]

116

Chrysler Credit Canada v. RBC

SKCA 1986

(1) car to dealer/CM to CCC. (2) car sold/CCC repaid. Default. No PMSI in used cards traceable to new car sales with loans repaid. Debt discharged therefore no value securing payment. [s 22, 34]

119

Perfecting the Security InterestCase Ct/Yr Short Description CBThe Registry System: 1(2), 18, 19, 23(2), 25, 28(2), 35(4), 42-48, 50, 52, 54674921 BC v. New Solutions Financial

BCCA 2006

F/s is not invalid on the grounds that it was registered before the security agreement. duh! [s 43(5), 44, 43(4), 19, 25]

125

Regal Feeds v. Walder and Niverville Credit Union

MBQB 1985

F/s was sufficient as only notice to other creditors to obtain further details. Some concern about description of collateral by geographic area (but also “or any premises to which they are removed”) [s 12, 12(3)(b),13, 19, 25, ] hints at 18, 47

127

RBC v. Agricultural Credit Corp. of Saskatchewan

SKCA 1994

Beekeepers. Initial loan w/ ACCS. RBC makes loan. ACCS and beekeepers make new s/a for lots of further loans. No requirement for new f/s provided same collateral. ACCS keeps priority. [43(4), 68(2) 68(3)]

183

Reasonable Search of Registry: 1(2), 18, 19, 23(2), 25, 28(2), 35(4), 42-48, 50, 52, 54Re Munro BCSC

1992Debtor’s middle name excluded. Now clear that middle name req’d. Sig. of computer search. [s 43(6), s 48] 130

Coates v. GMAC Canada BCSC 1999

Serial # defective. No match to GMAC reg. Seriously misleading? Obj. test: a) reasonable search does not disclose reg; or b) reasonable person concludes did not reveal same debtor or chattel.[s 43, 43(6)]

131

Re Alda Wholesale BCSC 2001

Errors in non-searchable fields can invalidate reg. Unclear what property included due to grammar. [s 43(6)] 138

By Possession (or Delivery): 17, 24, 29, 31Re Bank of Nova Scotia and RBC

SKCA 1987

RBC has apaap for FarmRite. FarmRite purchases 2 trucks. BNS acquires CSAs for trucks. Default. RBC appoints receiver. BNS registers s/i (PMSI.) RBS not perfected by serial # therefore BNS perfected 1st. Receiver did not possess collateral (possessed for realization.) [17, 24, 29, 31

147

Royal Trust Corp. v. Number 7 Honda Sales

ON Div. Ct. 1988

Sold car to defendant who later defaulted and left the car on the lot. Still not possession for perfecting a security interest, also no attachment of security interest [s 12, s 24]

153

Competing Interests: Priority and Detachment RulesCase Ct/Yr Short Description CBWhat is a Priority Rule?Robert Simpson Co. v. Shadlock

ONHCtJ 1981

Priority between s/i's = PPSA when 2nd creditor had knowledge of prev. unperfected s/I . [s 35] 159

Circularity ProblemsGMS Securities v. Rich-Wood Kitchens

ONCA 1995

Mortgage, Fixtures, mortgage can give circular priority. Solved with math! [s 36] 161

Subordination AgreementsRBC v. Gabriel of Canada

ON Ct.J.1992

Sale of muffler co. s/a subordinated sale loan to bank loan. Reg. late but bank ok b/c subordinated. [s. 35(1) s 40]

169

Transamerica Commercial Finance v. Imperial TV

ABQB 1994

Debtor & CU had s/a that gave priority to a bank to secure loans for OCB financing. Debtor, had FinCo. No priority b/c s/a was for a bank (not FinCo). Strict definition of bank [s 40]

172

MarshallingSurrey Metro Savings v. Chestnut Hill Homes

BCSC 1997

Marshalling can be timely requested of the courts by lower priority party, but only done if commercially reasonable for higher priority party. [s 68(1)]

176

Residual Priority Rules: Competition with Another Security InterestOntario Dairy Cow v. Ontario Milk Marketing

ONCA 1993

Unperfected Parties: Date of attachment is the same and therefore equal priority and pro rata share. Overrides C/L that would give priority to first interest created. [s 35(1)(c)],

182

RBC v. Agricultural Credit Corp. of Saskatchewan

SKCA 1994

Beekeepers. Initial loan w/ ACCS. RBC makes loan. ACCS and beekeepers make new s/a for lots of further loans. No requirement for new f/s provided same collateral. ACCS keeps priority. [s. 14 19, s 35(1) 43(4)] hints at 68(2) 68(3)]

183

Specific Priority Rules: Competition with Another Security InterestMcLeod & Co. v. Price Waterhouse

SKQB 1992

Debtor leased truck. K to purchase truck but sale not final until 3rd party financing secured. 3rd party registers f/s w/i 15 days of accepting credit agreement. Possession = acceptance of c/a. [s. 22, s. 34(1)

194

Specific Priority Rules: Competition with a Trustee in Bankruptcy or a LiquidatorRe Giffen SCC

1988Car lease by employer for employee. Employee went bankrupt. No reg. in PPR. Unperfected s/i therefore trustee got car (title irrelevant under PPSA). Exception to nemo dat [s. 20(b)]

197

Specific Priority Rules: Competition with Transferees where Security Interest UnperfectedRBC v. Dawson Motors ON

County Ct. 1981

DM agrees to trade-in car bought w/ RBC loan for new car + $. DM searches PPR before RBC reg. f/s. 20(c) did not apply b/c no value only promise to buy. Problem: promise=consideration=value.

206

Specific Priority Rules: Competition with Transferees where Express or Implicit AuthorizationR. v. RBC (“Sparrow Electric”)

SCC 1997

License to deal does not cut off s/i unless debtor acted on license (i.e. sold inventory). [s.28(1)(a)] 209

Specific Priority Rules: Competition with Buyer (or Lessee) in the Ordinary Course of Business


Royal Bank v. Wheaton Pontiac

SKQB 1990

ABCD. A sells inventory (serial # goods) in fire sale (not OCB) to B. s/i still attached. B sells to C OCB. C sells to D OCB. Cut-off only counts for 1st sale. Bank’s s/i remained attached [s. 30(2)]

212

Fairline Boats v. Leger ONSC 1980

Boat repossessed. Dealer stole back and sold to new dealer. OCB = objective consideration of all circ. incl. location of agreement, parties, quantity of goods, price. Non-exhaustive. [s. 30(2)]

215

Royal Bank v. 216200 Alberta [“Sofa Factory”]

SKCA 1986

Buyer in OCB = members of public at large, normal T&Cs at retail location. Sale of Goods Act provides definition of sale but not OCB. Needed to be able to identify good by customer [s. 30(2)]

220

Spittlehouse v. Northshore Marine

ONCA 1994

Sofa Factory (SGA inapplicable). Sale = agreement for the dealer to sell and the buyer to purchase with reference to the equipment being purchased. Buyer can finish buying. [s. 30(2)]

225

Ford Motor Credit v. Centre Motors

ON H.Ct.J. 1982

s. 28(1) involves debtor + SP but s. 30(2) only involves debtor + new purchaser no consent of SP. OCB = obj. consideration of all the circumstances that the purchaser knew or ought to know.

228

Northwest Equipment v. Daewoo Heavy Industries America Corp.

ABCA 2002

Excavator sold to X OCB / consent. NW bought from X but did not search PPR. No OCB b/c fire sale and never completed. [s. 30(2)]

233

Competition with Holders of Interests Given after Transfer of CollateralRe Orion Truck Centre BCSC

2003Name change. Amend f/s +15 days after knowledge.. S.51 protects trustee’s interest. [s. 51(2)(b)] 254

Competition with Transferees of Negotiable or Quasi-Negotiable Collateral or of IntangiblesIndian Head Credit Union v. Andrew

SKCA 1992

CU had s/i in herd. Herd destroyed. CU had interest in proceeds (fed. compensation) but debtor deposited at bank. BUT no $ (cheque term deposit) = no. s. 31. Alt: actual knowledge [s. 31(3)]

263

Canadian Western Bank v. Gescan

ABQB 1991

CWB had s/i in accounts w/ reg. f/s. Specific account assigned to Gescan. Gescan starts collecting on debt (old rule = 1st notice.) PPSA governs: CWB had priority. Assignment = (deemed) s/i.

266

Competition with Holders of Interests in a Fixture or in Crops: s. 36 and s. 37Manning v. Furnasman MBQB

1985MBCA 1985

House built w/ gen. contractor. GC purchased furnace. Home owners paid GC. GC never paid for furnace. Attempt to reclaim furnace instead of builders’ lien. However, no s/i b/c sale not CSA.

270

276

GMS Securities v. Rich-Wood Kitchens

ONCA 1995

Criticized. Fixtures not reg. per LTA S.49. Problem: fixtures caused problem but mortgage 1 bears risk b/c fixture installer was entitled to remove their value from the house prior to sale but sold 1st.

277

Competition with Holders of Interests in an Accession and Co-Mingled Goods: s. 38 and s. 39Kulchyski v. Shuswap Ventures

BCSC 1994

Tractor + backhoe = accession b/c backhoe affixed such that its identity is not lost. 278

Pratt & Whitney v. Ellis Air

BCSC 2002

Leased helicopter engine. Unperfected s/i. Rights not extinguished by seizure order on helicopter. Problem: creditor credited debtor for life in engine at time of re-possession. [s. 38(3)(b)(ii)]

280

Default and RemediesCase Ct/Yr Short Description CBRemedies: Statutory vs. Other RemediesAndrews and Trotchie v. Mack Financial

SKCA 1987

Hostile debtor. Security agreements can specify own remedies instead of PPSA remedies but if close to PPSA courts will ensure that parties do not K out procedural protections in PPSA. [s. 56]

287

Remedies: Preliminary NoticeWaldron v. RBC BCCA

1991Provide reasonable notice for debtor to pay before seizure (replaced phone call + immediate seizure). Bank Act security.

288

Remedies: Receives and ManagersRBC v. White Cross Properties

SKQB 1984

Ask court to appoint receiver but K had provision to app. No reason for court to app. b/c K term. 290

Remedies: Disposition in a Commercially Reasonable Manner [s. 58(1), 59(1), 68(2)]Copp v. Medi-Dent Service

ON Gen. Div. 1991

Leased dental equip. Default. Medi-Dent gives notice to sell. Offer from 1 partner. Not commercially reasonable: private sale adverse to all parties’ interest. Value 2x sale price.

293

Donnelly v. International Harvester Credit

ON County Ct. 1983

Seized truck. Sold to related co. w/ price that appeared to be set as a matter of convenience. Not commercially reasonable. No effort to put on market for sale and no evidence of value.

298

Remedies: Voluntary Foreclosure [s. 61 and 68(1(2)]Angelkovski v. Trans-Canada

MBQB 1986

Vendor financed purchase of restaurant. Default. Vendor operates after re-possession. Criticized: not voluntary foreclosure b/c no notice (req’d by PPSA) but facts indicated foreclosure.

302

Inland Kenworth v. Laboucane

BCSC 2004

Creditor put re-possessed item in inventory to sell; sued for deficiency. Not foreclosure. 306

Remedies: Rights of Redemption and ReinstatementAngelkovski v. Trans-Canada

MBQB 1986

No notice = right to redeem AND right to sue for deficiency left open. Criticized. [s. 62(a)] 311

Remedies: Consumer Goods [s. 67]Whitewater of Motors v. Amatto

BCSC 1993

Truck w/some intent to use as snowplough. Default. Creditor tells to return. Dealer refuses to accept. Mixed use but consumer goods. However, elected to sue (not seize.) [s. 67(1)(c) and (2)]

312

Court Variance: s. 63Andrews and Trotchie v. Mack Financial

SKCA 1987

Hostile debtor. 3 principles for court orders: cannot rewrite K; only interfere w creditor’s rights if problem w/exercise of rights; facilitate commercially reasonable result. No order in this case.

315


Remedies for Non-Compliance with PPSA: s. 69Osman Auction v. Murray ABQB Vehicle purchased at auction by rogue. Rogue sold to innocent 3rd party. Cheque bounced. No s/i in vehicle but

registered f/s. Slander of title. [s. 69(3)]321

Conflict Rules: s. 5, 6, 7 and 8Case Ct/Yr Short Description CBJuckes v. Holiday Chev. Olds.

SKQB 1990

Criticized. Debtor was in MB but no deemed s/i in long term lease. No (re)perfection when place of business changed to SK. Accordingly, unperfected. Problem: should have applied PPSA s.7(4).

324

Re Searcy BCSC 1991

Trucked purchased in AB w/ Jr. and Sr. as co-signer. Jr. moves to BC in Feb. Bankruptcy. After receipt of notice, registers s/i. No actual knowledge. Statement + payments in AB. [s. 5(3)(b)]

326

Northwest Equipment v. Daewoo Heavy Industries America

ABCA 2002

Excavator reg in BC. Sold and moved to WA then AB. No cut-off: not OCB (fire sale), no consent to sale. No re-registration. Leased in AB, f/s reg. Used to defraud orig. s/i. Mobile goods [s.7(2)(a)]

328

Advance Diamond Drilling v. National Bank Leasing

BCSC 1992

Tractor and trailer in ON. 2 creditors with priority based on perfection order in ON. Moved to BC. Re-registered in opposite order. Priority = per original registration. Mobile goods [s.7(2)(a)]

328

Bank Act (Federal)History and Purpose

Case Ct/Yr Short Description CBBank of Montreal v. Hall SCC

1990When Bank Act governs realization, the prov. legislation cannot limit the rights given to bank (paramountcy) but Bankruptcy and Insolvency Act applies (incl. requirements for notice.)

333

Operation of Bank Act SecurityCase Ct/Yr Short Description CBBank of Montreal v. Elgin Co-op

ONCA 1983

Bank had interest in seed under s. 427(1)(f) and also had interest in crops through provision for general security over present and future goods. Categories are not mutually exclusive.

349

Royal Bank v. Bank of Montreal

SKCA 1976

Security over tractor and crops. Given depreciation of tractor, security over crops was necessary. Categories are not mutually exclusive: can take security under the general security provision and the crops provision.

354

Re DeVries and Royal Bank

ONHCtJ 1975ONCA 1976

Debtor gave security over cows; cows were destroyed in a barn fire and the debtor received insurance proceeds; debtor purchased replacement cows and sold them to an innocent purchaser. Title analysis: bank acquired title to the cows, which gave the bank title to the insurance proceeds. Accordingly, purchase is out of luck per nemo dat.

360

362

CIBC v. 281787 Alberta ABCA 1984

Security taken and loan made by CIBC. Notice of intention filed a few days later. Landlord exercises right to distrain. Bank Act clear that notice must be filled before the security is granted. Accordingly, landlord can distrain.

363

Re Davanti Contemporary Interiors

ABQB 1992

Notice of intention to give Bank Act security signed and assignment executed. Notice registered 20 days after assignment. Default & seizure. Debtor to sell on bank’s behalf. Bankruptcy. CIBC b/c bank had title (seizure).

365

Lasqueti Fishing v. Royal Bank

BCCA 1990

Security in fish. K btwn debtor and fishers. Debtor loaned $ to fishers so fish could be for purchase or debt payment. Default. Bank seized unpaid fish held by debtor. No dishonesty in seizure. Simple priority applies.

368

Bank Act and PPSA InteractionsKawai Canada v. Encore Music

ABCA 1993

Kawai sold pianos to Encore under CSA. Encore defaults on debt to bank (who had BA security). Bank seizes pianos. Bank only entitled to the interest Encore held. Kawai keeps pianos b/c title retained in CSA

370

Royal Bank v. Agricultural Credit Corporation

SKCA 1994

SCC critique: rough (not perfect) framework. (1) eliminate PPSA [Waldron: put aside PPSA priority rules]; (2) do Bank Act provisions apply?; (3) if Bank Act does not apply, apply a title analysis (first in time analysis)

374

Royal Bank v. Moosomin CU

SKCA 2002

Bank Act security in truck. Debtor purchased truck w/ $ borrowed from CU. CU had PMSI. While CU argued PMSI = CSA, PPSA priority rules do not apply. Title analysis = title to Bank per Bank Act.

375

Bills of Exchange Act (Federal)Case Ct/Yr Short Description CBBoma Manufacturing v. CIBC

SCC 1996

Intention = corp. (not dishonest employee). Public policy: encourage banks to be cautious when cashing cheques. Strong dissent: corp. in best position to verify dishonest employee’s work + intention = person (corp.)

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