Residual Priority(no other rule applies)



|Scope of the Act |

|1. |Is it a Secured Interest? |s.1 (def’n) |Substance over form – it is any transaction where an interest in personal property is taken to secure | |

| | | |payment or performance of an obligation, i.e. they do not have ownership, but a charge to the property as a | |

| | | |fall back position. Term is defined generally to keep with purpose of the Act, it is hypothecary in nature.| |

| |True Security Interest: |s.2(1)(a) |Act applies to every transaction that creates a Security Interest. Who has title is not relevant. | |

| | |s.2(1)(b) |Non exclusive list of pre-PPSA devices where it is deemed to be a Security Interest (chattel mtg, | |

| | | |conditional sale, floating charge, pledge, trust, indenture, trust receipt, an assignment, a consignment, a | |

| | | |lease, a trust, transfer of chattel paper) | |

| |Deemed Security Interest, |s.3 |Leases over a year, commercial consignments and transfers of account or chattel paper are within scope of | |

| | | |Act, even if they do not secure payment. | |

|2. |Is it a true trust or a |s. 2 |If it is a true trust, the PPSA will not apply. Even though they may fit definition, if they do not look | |

| |Security Interest? | |like creditors, will not force them into Act – must uphold practicality and commercial reality – holding | |

| | | |money in trust for creditor may not be a Security Interest (Sybridge). | |

|3. |Is it a True Lease, or a |s.3(c) |If it is a true lease, PPSA will not apply, so no need to register, unless it is for term more than one year| |

| |Security Interest dressed up | |– Act has chosen to include even non security leases, if they are more than one year | |

| |like a lease? | | | |

| | |s.1(def’n) |“lease for term of more than 1 yr” – inclusive definition -- lease of (a) indefinite term, but is | |

| | | |determinable after one year (b) initially 1 yr or less, but extended (c) has term of 1 yr or less, but | |

| | | |automatically renews. But, it does not include a lease if not “regularly engaged” in business of leasing | |

| | | |goods or a lease of furniture as part of a household | |

| | |1(3) |an extended lease does not become a lease for more than 1 year until possession extends past 1 year. | |

| | |s.55(2) |If it is a lease, but for term of more than one year so it fits 3(c), Part 5 remedies will not apply | |

|4. |Is it a Consignment or a |s. 3(b) |Consignment would not ordinarily be a Security Agreement, but If it is a “commercial consignment”, PPSA will| |

| |Conditional Sale? | |apply, so need to register. | |

| | | |Purpose of inclusion is that creditors could be mislead into believing property is debtors and that it | |

| | | |provides security. | |

| | |s.1 (def’n) |Exhaustive Definition ( goods are delivered for sale, lease or other disposition to a consignee who “in the | |

| | | |ordinary course of business” deals in goods of the description and reserves an interest in the goods after | |

| | | |delivery. Does not include delivery to auctioneer or if it is “generally known that they are in business of| |

| | | |selling or leasing goods” (i.e their name is Joe’s Consignment) | |

| | |s.12(2) |A borrower will be considered to have rights in leased or consigned goods upon obtaining possession for the | |

| | | |purpose of 12(1)(b) | |

| | |s.55(2) |If it is a commercial assignment under 3(b), Part 5 remedies will not apply | |

|5. |Is it a Transfer of Account |s. 3(a) |A transfer of account ($ obligation not evidence by chattel paper) or chattel paper (Security Interest in | |

| |or Chattel Paper? | |specific goods) is under scope of PPSA – if assignee does not register their interest after the transfer, | |

| | | |then they will not be a secured creditor. | |

| | |s.55(2) |If it is a transfer of account or chattel paper under 3(a), Part 5 remedies will not apply | |

| | |

|Attachment and Perfection | |

| | | |Attachment arises pursuant to the agreement (contract) between debtor & creditor, whereby he gets an interest| |

| | | |in the property (In rem interest). To protect rating amongst other creditors, must perfect via registering | |

| | | |their interest | |

|1. |Has there been Attachment? | | | |

| |Is there a Security Agreement?|s. 1 (def’n) |An agreement that provides for a Security Interest | |

| | |s, 9 |SA is effective according to its terms, i.e. there is freedom of contract, but only subject to the PPSA (i.e | |

| | | |cannot contract out of PPSA). | |

| | |s. 10 |An agreement is only enforceable against third parties if it is in writing. If there is a delay in executing| |

| | | |an agreement, may lose priority. | |

| | |s.11 |Secured party must give copy of Security Agreement to the debtor within 10 days | |

| | |s.14 |Contract does not have to provide term that future advances are covered by it – automatic tacking. | |

| | |s.16 |Acceleration clause may be included to allow Secured Party to seize for full outstanding debt, not just | |

| | | |amount in default. | |

| | | | | |

| |Is the Collateral Properly |s.10(1)(b) |Description of collateral must contain description of collateral by | |

| |Described? | |item or kind (with reference to goods, securities, instruments, documents of title, chattel paper, | |

| | | |intangibles, money), | |

| | | |ALLPAAP, or | |

| | | |ALLPAAP with exceptions | |

| |Re: ALLPAAP | |In terms of whether collateral was meant to include after acquired property (e.g. if it just says “all | |

| | | |personal property”) it will be a matter of construction and intent – rules of interpretation and can be | |

| | | |established by parol evidence. | |

| | |s.13(2) |Security Interest in ALLPAAP does not extend to: | |

| | | |future crops … | |

| | | |After acquired consumer goods unless the goods replace other collateral in the SA (which is destroyed or worn| |

| | | |out) or are purchased under a PMSI (this facilitates ability to still get consumer loans) or they are | |

| | | |accessions. | |

| |Re: Consumer Goods |s.10(3) |A description is inadequate if it just says “consumer goods” or “equipment” without further reference (but | |

| | | |you can just say “goods”). Description does not help warn 3rd parties since any given collateral may be both| |

| | | |equipment and goods. | |

| |Re: Inventory |s.10(4) |A description of collateral as “inventory” is adequate for the purposes of s.10(1)(b) but only while it is | |

| | | |held by the debtor as inventory and being used as inventroy. If use changes, interest will be lost. | |

| | | |(contrary to s. 1(4), see below). Also, note that regulations contain further particularization rules that | |

| | | |must also be followed. | |

| | |s.18 |Provides a way for a party to obtain further particulars of the collateral – they can demand particulars from| |

| | | |secured party | |

| | |s.1(4) |The determination of what the goods are (inventory, consumer goods, etc) is made at the time of attachment | |

| |Has it attached? |s. 12(1) |A Security Interest attaches when | |

| | | |value is given, -- roughly equivalent to consideration, i.e. if lender committed to granting credit or making| |

| | | |loan (If Loan is made, with security given later, this is value – past consideration is value: TD Bank v. | |

| | | |Nova) | |

| | | |the debtor has rights in the collateral, i.e. they must own it (Under Kinetics Technology, the definition of | |

| | | |“rights in collateral” is very broad. You do not have to have title: Hailbeck. Anyone entitled to use of | |

| | | |the goods is sufficient to be an “owner” for the purposes of the Act: GE v. Inland Kenworth. If unclear, | |

| | | |can look at Common Law property rights as per s.68), But Nemo Dat still applies, and the Security Interest | |

| | | |is in only what the debtor has and | |

| | | |it becomes enforceable under s. 10 (i.e. it is in written form or there is possession of the collateral) | |

| | | |It is unlikely that you can have retroactive attachment, but the Ont CA has suggested that an unenforceable | |

| | | |Security Interest can become retroactively enforceable when the agreement is put in writing, as long as it is| |

| | | |before enforcement proceedings are taken (Rogerson Lumber, 1970 Ont). However, a retroactive finding may be | |

| | | |contrary to the purpose of the statute (to provide corroboration of the claim to third parties) | |

| | | |If it does not comply with s. 10, it does not attach to property except to the extent necessary for remedies | |

| | | |under Part 5 | |

| | |s.12(1) |For ALLPAAP attachment does not happen until the debtor acquires the property. | |

| |Floating Charges: |s.12(1) |Security Interest includes a floating charge, but issue as to when attachment occurs ( at time of agreement | |

| | | |re: the floating charge, or at time of default. | |

| | | |Under Huxley, attachment does not occur until default. But, under Credit Suisse, which looked more closely | |

| | | |at s. 12 without reading into it, attachment occurs according to (a) to (c) requirements, so it attaches | |

| | | |immediately. In Credit Suisse, court said this did not usurp use of floating charges because they imposed an| |

| | | |agreement that credit is subordinate until time of default, as is provided for in s. 40. | |

|2. |Is the Collateral proceeds? |s.10(5) |A description of proceeds is not required in the Agreement. A lender cannot predict the form of proceeds and| |

| | | |cannot provide a description in the SA. | |

| | |s. 28(1)(b) |A Security Interest extends to proceeds – if the collateral is dealt with or gives rise to proceeds, the | |

| | | |Security Interest continues in the collateral and extends to the proceeds | |

| | | |SEE BELOW FOR PRIORITY RULES ON PROCEEDS | |

|3. |Is the Interest Perfected? |Part III | | |

| | |s,19 |A Security Interest is perfected when it has attached and all steps required for perfection are met, | |

| | | |regardless of order of occurrence. I.e., attachment can occur either before or after the other steps of | |

| | | |perfection. A financing statement can be registered before a Security Interest has attached, but the | |

| | | |Security Interest is not “perfected” until it has attached. | |

| | | |Can perfect by taking possession (s. 24) or by registration (s. 25) or by temporary perfection (s. 26). | |

| | |s.23 |Is a Security Interest is perfected under act, and then perfected again in some other way without an | |

| | | |intermediate period of un-perfection, it is continuously perfected. In other words, a change in the method | |

| | | |of perfection does not change priority status (but would have to file a financing change statement under s. | |

| | | |44 to continue original priority date). | |

| |Is it perfected by Possession?|s.24(1) |A Security Interest in most categories of collateral may be perfected by the secured party taking possession | |

| | | |(does not include intangibles or non-negotiable docs). | |

| | |s.24(2) |A secured party does not have possession of collateral that is in the actual or apparent possession of the | |

| | | |debtor or his agent. | |

| | |s.26 |If perfected by possession, can give up possession for 15 days and still retain perfection. | |

| | |s. 10(1) |To perfect by possession, don’t need writing requirement. | |

| | | |Arguably seizure of the property is not perfection by possession. Some Ont courts have said that it is | |

| | | |(Gilbert, 1979), but Sask and later Ont courts said it is not (Royal Trust v. No. 7 Honda, 1988). | |

| | | |Superior method when collateral is money, securities, negotiable documents of title or chattel paper. | |

| | | |Appointing a receiver does not constitute possession -- possession must be actual possession by the secured | |

| | | |party and not by their agent: Bank of NS and Royal Bank | |

| |` | |Secured Party has to intend to have possession ( debtor just dropping it off does not mean they have | |

| | | |possession (Royal Trust v. No. 7 Honda). | |

| |Is it perfected by |s. 25 |A Security Interest in all categories of collateral may be perfected by registering a financing statement | |

| |Registration? | | | |

| | |s.35(4) |Perfection of Security Interest in serial numbered goods is not perfected unless a fin stmt containing a | |

| | | |description of the goods by a serial number is registered | |

| | |s.43 |Submission of the financing statement at the registry is perfection. (2) Registration is effected by time | |

| | | |assigned by registry –(4) may be registered before the SA is made and before attachment (so as to establish | |

| | | |priority). (5) one registration can related to more than one SA | |

| | |s.44 |Can select length of registration 1- 25 yrs or infinity. | |

| | |s.47 |Registration does not by itself constitute notice to any person | |

| | | |The purpose of the registered financing statement is to give the user notice to go check the registry to find| |

| | | |out what exactly is covered by the SA – so information about collateral in the fin stmt can be general, and | |

| | | |only has to be sufficient to put the party on notice to conduct further investigation. | |

| |Are there any errors with |s. 43(6) |The validity of registration is not “affected” by defect, irregularity, omission or error in the financing | |

| |Registration? | |stmt unless it is seriously misleading. | |

| | |s. 43(7) |Registration will be invalid if 1 or more debtors are required to be disclosed and collateral is consumer | |

| | | |goods as serial numbered goods and there is a seriously misleading defect in the name of the debtor, or | |

| | | |serial number. | |

| | |s.43(8) |It is not necessary to prove that anyone was actually misled by the defect | |

| | |s.43(9) |Failure to provide a description if the fin stmt in relation to collateral does not affect validity with | |

| | | |respect to other collateral in same fin stmt. | |

| |What is seriously misleading? | |If the program is set up to give “like” names, and the computer will still show the listing if searched under| |

| | | |right name, it will not be seriously misleading: Re: Logan | |

| | | |Test of whether registration is seriously misleading is an objective one, independent of whether anyone was | |

| | | |misled, or if search was conducted | |

| | | |total accuracy is not necessary | |

| | | |a seriously misleading description will defeat registration | |

| | | |a seriously misleading registration is one that: | |

| | | |would prevent a reasonable search from disclosing registration | |

| | | |would cause a reasonable person to conclude the search was not revealing the same chattel, or same debtor – | |

| | | |the obligation is on the searcher to review similar registrations to make this determination | |

| | | |Whether a registry system program is reasonable will not be assessed – just whether a registry search will | |

| | | |reveal the incorrect registration | |

| | | |Coates v. GMAC | |

| | | |An error in the middle name is probably not seriously misleading (Munro). Just because it is only partially | |

| | | |wrong does not mean it is not misleading (GE Capital v. Inland Kenworth). | |

| | |

|Priority | |

| | | | | |

|1. |ADVANCES: |s.35(5) |A Security Interest under s. 35(1) applies to all advances, even future advances -- | |

| |Have advances been made? Is there | | | |

| |Tacking? | | | |

| | |s.1 (def’n) |“future advances” broad definition to include advance whether or not they are contractually bound to make | |

| | | |payment. Encompasses payments that are made for protection or repair of collateral. | |

| | |s. 35(6) |Note that there is an exception to the Section 35(5) rule -- where an unperfected party has seized | |

| | | |property under s. 20(a), there may a limit to the tacking. Perfected Security Interest has priority only | |

| | | |to extent of advances made before the interest of the s.20(a) person arose and the Perfected party had | |

| | | |notice of the s. 20(a) person. This section is necessary because a judgment creditor may otherwise be | |

| | | |prevented from enforcing judgment by the lender making future advances. | |

| |If Lapse in registration: |s. 35(7) |When registration of a Security Interest has lapsed or has been discharged fraudulently or in error, it | |

| | | |may be re-registered. If it is re-registered within 30 days after the lapse, the lender retains priority | |

| | | |position, except when new Security Interest has registered before and new advances are made by an existing| |

| | | |lender. | |

|2. |UNPERFECTED V. PERFECTED | |An unperfected Security Interest is enforceable against the debtor – s. 20 applies to competitions between| |

| | | |unperfected parties and third party claimants | |

| | |s.20 |Provides incentive for secured parties to perfect their interest in order to have priority. | |

| |Has there been Court seizure? |s.20(a) |Unperfected secured party is subordinate to unsecured parties who have taken actions to satisfy their | |

| | | |debts, ie. | |

| | | |a person who has had collateral seized | |

| | | |a sheriff who has seized property | |

| | | |a judgment creditor who had property seized | |

| | | |a rep of creditors who delivers writ of execution | |

| | |s. 35(6) |A perfected Security Interest has priority over interests of persons in s. 20(a) only to the extent of | |

| | | |advances made before the interest of the person arises or sheriff seizes collateral | |

| | | |advances made before the secured party acquires knowledge of the interest or seizure of the collateral | |

| | | |advances made under statutes or binding obligation | |

| | | |reasonable costs and expenses incurred by secured party | |

| | | |taxes paid by the secured party under Manuf. Home Act. | |

| |Has there been bankruptcy or |s.20(b) |Your secured interest is unenforceable and essentially non-existent if bankruptcy or liquidation under | |

| |liquidation? | |Winding Up Act occurs without you perfecting. | |

| | | |s.20(b) in terms of trustee in bankruptcy is not unconstitutional (Re: Giffen). | |

| | |s.20(b) |Issue as to whether s. 20(b) applies only to bankruptcy of debtor, or also to transferee so that if | |

| | | |transferee declares bankruptcy all unperfected interests in the collateral are ineffective. | |

| | |s.1(def’n) |“Debtor” – a person who owes payment or performance | |

|3. |TRANSFER OF COLLATERAL |s. 28(1)(a) |If the borrower disposes (e.g. sells) the collateral, the lender acquires a Security Interest in the | |

| | | |proceeds of the sale and may retain his rights in the original collateral. Subject to the Act (see 30(2) | |

| | | |situation, ordinary course of business etc.) if the borrower sells the collateral without the consent of | |

| | | |the lender, the lender can enforce against both proceeds and the original collateral. If the lender | |

| | | |authorized the sale, they can only claim against the proceeds (28(1)(a)) | |

| |Is original holder of Security Interest|s. 20(c) |An unperfected Security Interest will be subordinate to transferees if they are bona fide without | |

| |unperfected? | |knowledge of the Security Interest when they acquired. I.e. a buyer of the collateral who buys without | |

| | | |entering into a SA, gives value for it, and has no knowledge of the Security Interest, will defeat an | |

| | | |unperfected Security Interest. | |

| |Is it a sale of inventory? |s. 30(2) |Security Interest in collateral will not survive the sale if: | |

| | | |It’s in the ordinary course of business of the borrower | |

| |Does the buyer not know sale breaches | |it is small value consumer goods | |

| |SA? | |the goods are fixtures or accessions | |

| | | |it is equipment and searching the registry by lender’ | |

| |Has the debtor sold or transferred the | |Weak Argument that s. 35(1) residual priority rule does not apply to 2 debtors – but, it likely does as s.| |

| |collateral to someone who is a debtor | |35(8) addresses it and arguably it should be assumed that s. 35(1) applies. | |

| |under his own SA? | | | |

| |The Two Debtor Problem | | | |

| |Applies even If not transferred in |s.35(8) |Where a lender has a perfected Security Interest in collateral, and the borrower sells the collateral, the| |

| |ordinary course of business | |lender has 15 days from learning the details to amend the financing statement to reflect the new borrower.| |

| | | |If the amendment is not made within 15 days, the Security Interest granted in the collateral by the new | |

| |Applies when lender SI perfected | |borrower take priority until the amendment is registered. | |

| |& buyer’s SI in existence before | | | |

| |transfer | | | |

| |s. 35(8) Won’t apply to inventory |s.35(9) |The rule in 35(8) does not apply if the Security Interest of the borrower selling the collateral has been | |

| | | |discharged or the sale is in the ordinary course of business as the seller | |

| |Use Any Time, even if transferred |s.51(1) |Where a lender consents to the sale of the collateral by the borrower, the lender must do a financing | |

| |in ordinary course of business | |change stmt with new owner within 15 days of sale, or he will lose priority to: | |

| | | |a person who buys the collateral after 15 day grace period, | |

| |Can use where Buyer’s SI | |a lender who perfects his Security Interest after 15 day grace period | |

| |arises after transfer | |a lender who registers a Fin Stmt during the grace period, if the lender does not update the registry | |

| | | |during grace period | |

| |s.51(1) Lender Consents: | |Section protects third parties who lend to new owner or buy from new owner, however it gives lender enough| |

| | | |time to make changes in the original registration | |

| |s.51(2) Lender does not consent buy |s.51(2) |A lender must update the registration within 15 days of discovering of the transfer of collateral or the | |

| |later learns of transfer | |borrowers name change. If they don’t they will lose priority to: | |

| | | |a person who buys or seizes the collateral after 15 day grace period | |

| | | |a lender who perfects a Security Interest after the grace period but before the financing change statement| |

| | | |registered | |

| | | |a lender who registers a financing statement during the grace period if the original lender does not | |

| | | |update | |

| | |s.51(4) |Registry needs to only be updated to reveal current owner, not intervening transfers. | |

| | |s.51(5) |Only records at PPSA need to be updated, a different system exits under LTA. | |

|4. |NAME CHANG |s.51(2) |A lender must update the registration within 15 days of discovering of the transfer of collateral or the | |

| | | |borrowers name change. If they don’t they will lose priority to: | |

| | | |a person who buys or seizes the collateral after 15 day grace period | |

| | | |a lender who perfects a Security Interest after the grace period but before the financing change statement| |

| | | |registered | |

| | | |a lender who registers a financing statement during the grace period if the original lender does not | |

| | | |update | |

|5. |PROCEEDS |s. 10(5) |A Security Interest in proceeds is enforceable against a Third Party whether or not is contains a | |

| | | |description of the proceeds – but this does not say anything about whether it is perfected or about | |

| | | |ranking. | |

| | |s. 1 (def’n) |Proceeds “means” identifiable or traceable personal property, fixtures or crops derived directly or | |

| | | |indirectly from any dealing with the collateral or proceeds of the collateral, and in which the debtor | |

| | | |acquires an interest | |

| | | |Definition specifically includes proceeds of insurance. | |

| | | |Proceeds of Proceeds are proceeds (CIBC v. Marathon). They do not have to necessarily be “dealt with” by | |

| | | |the debtor directly (parent company can deal with them) – if it gives rise to proceeds, then there will | |

| | | |be a Security Interest (Royal Bank v. Pizza Bell). | |

| |Creditor may have Security Interest |s. 28 (1) |If the borrower disposes (e.g. sells) the collateral, the lender acquires a Security Interest in the | |

| |in proceeds and collateral | |proceeds of the sale and may retain his rights in the original collateral. Subject to the Act (see 30(2) | |

| | | |situation, ordinary course of business etc.) if the borrower sells the collateral without the consent of | |

| | | |the lender, the lender can enforce against both proceeds and the original collateral. If the lender | |

| | | |authorized the sale, they can only claim against the proceeds (28(1)(a)) | |

| | | |The secured party’s authorization may be conditional (i.e. SA says they can sell only if they obtain prior| |

| | | |written consent) in which case a failure to satisfy the condition will mean that the sale is unauthorized | |

| | | |under s. 28(1)(a) so the Secured Party’s interest in the collateral will survive the sale (Royal Bank v. | |

| | | |Gatekeeper, 1993 B.C.S.C.). | |

| |To have continuous perfection: |s. 28(2) |A separate Security Interest in proceeds does not have to be registered, i.e. it is continuously | |

| | | |perfected, If the financing statement relating to the original collateral is registered and proceeds are | |

| | | |of the kind of collateral described in the original registration or the proceeds are money, cheques or | |

| | | |deposit accounts. Otherwise, to be perfected, the proceeds must be described in the registered financing | |

| | | |statement | |

| | |s. 28(3) |However, the lender will have 15 days from the sale to register the Security Interest in the proceeds if | |

| | | |the proceeds are neither described in the original registration nor money. | |

| |Is it a sale of inventory |s. 30(2) |Security Interest in collateral will not survive the sale if: | |

| | | |It’s in the ordinary course of business of the borrower | |

| |Does the buyer not know sale | |it is small value consumer goods | |

| |breaches SA | |the goods are fixtures or accessions | |

| | | |it is equipment and searching the registry by lender’ | |

| |Proceeds of Chattel Paper for Inventory|s. 34(6) |A purchaser of chattel paper (writings that evidence monetary obligation and a Security Interest of | |

| | | |specific goods) who takes the paper in the ordinary course of business and for new value, has priority in | |

| | | |any Security Interest that: | |

| | | |has attached to proceeds of inventory under s. 28, whatever the extent of the purchaser’s knowledge. | |

| |Priority of Proceeds: |s. 35(3) |The priority position of the Security Interest in proceeds (treated as extension of original collateral) | |

| | | |under s. 35(1) is to be determined as if proceeds were the original collateral, i.e. in the same order | |

| | | |Note: If, however, the secured party fails to take steps in 28(2) and (3) to continue perfection, s. | |

| | | |35(3) has no effect | |

| |If it is a PMSI and Proceeds |s. 34(5) |If the proceeds of the sale of collateral in which a PMSI is held is an account, then there is a special | |

| |Are accounts | |priority rule which overrides the usual PMSI priority rule (see PMSI section) – A Security Interest in the| |

| | | |account receives priority over a PMSI in the account as proceeds if the account Security Interest is | |

| | | |registered before the PMSI is perfected. I.e. the holder of the PMSI in the original collateral in the | |

| | | |form of inventory cannot rely on having the PMSI with respect to accounts generated by the sale of the | |

| | | |inventory over a financer who holds a Security Interest in the accounts as original collateral and who has| |

| | | |registered a financing statement relating to “accounts”. | |

| |Chrysler Credit Canada | |The scope of the PMSI is for everything the money was used to purchase, even if purchased later, or if | |

| | | |fhe Security Interest was paid in full – the Security Interest in the proceeds has priority so long as the| |

| | | |Debtor owes any money under the SA, even if the specific obligAtion relating to the item of original | |

| | | |collateral, the sale of which produced the proceeds, has been discharged. | |

| |Is there a tracing issue? |s. 1(5) |Proceeds are traceable whether or not there is a fiduciary relationship between the parties | |

| | |Equity |Equitable rules apply (except where removed by 1(5)), particularly: | |

| | | |A Close and substantial connection between the original collateral and whatever you are seeking a Security| |

| | | |Interest in (Agric Credit v. Pettyjohn). Will likely use the proportional method of valuating individual | |

| | | |secured party’s claim (River Industries). | |

| |Chsysler Credit Canada | |Security Interest for full amount can be claimed in each individual piece of collateral | |

|6. |PMSI’S | |A PMSI has super priority | |

| | |s.1 (def’n) |Security Interest in collateral to the extent that is secured payment of all or part of the purchase price| |

| | | |As long as the debtor has property in his hands which are derived from the property in which the PMSI was | |

| | | |obtained, then it is a PMSI, e.g. cows bought and sold to buy new cows – new cows are PMSI (Agric. Credit | |

| | | |v. Pettyjohn). | |

| |Competition between PMSI and creditor |s.22 |A lender with a PMSI in goods has 15 days to register a financing statement after the goods come into the | |

| |or trustee in bankruptcy under s. 20 | |borrower’s possession. If the collateral is an intangible, the lender has 15 days from attachment. If | |

| | | |registration occurs within 15 days, neither unsecured lenders nor the trustee in bankruptcy can defeat | |

| | | |interest – This is an exception to the general rule that a Security Interest does not have priority until | |

| | | |it is perfected. | |

| | |s. 22(2) |The 15 day time period to register a PMSI does not begin until possession. | |

| |PMSI not in inventory |s.34(1) |A PMSI has priority over another Security Interest if: | |

| | | |Collateral (or its proceeds) is not inventory or intangible, and registration takes place within 15 days | |

| | | |of the borrower (or agent) obtaining possession | |

| | | |Collateral (or its proceeds) is intangible and registration takes place within 15 days of the creation of | |

| | | |the Security Interest | |

| |PMSI in inventory: |s. 34(2) |A PMSI in inventory or its proceeds will have priority over other Security Interests if: | |

| | | |The lender has registered the interest before the borrower acquires possession of the collateral, and | |

| |Must have: | |the lender has notified prior lenders that a PMSI is being taken before the borrower acquires possession | |

| |Perfection | |and only after (1) and (2) is possession is taken | |

| |Notice | | | |

| |Possession | | | |

| | | |Notices in s. 34(2) may be served as per s. 72 procedure | |

| | |s. 34(1)& |Sections designed to assist borrowers in getting financing for the acquisition of new personal property | |

| | |s. 34 (2) |when they have signed SA which gives ALLPAAP | |

| |Competition between two PMSI’s | | | |

| |Seller v. Lender |s.34(4) |A seller’s, lessor’s or consignor’s PMSI has priority over all other PMSI’s in the same collateral, as | |

| | | |long as: | |

| | | |If Inventory, the seller’s PMSI is perfected when possession is taken | |

| | | |Or | |

| | | |If not inventory, within 15 days of possession | |

| | | |This section is designed to give priority to sellers, lessors and consignors when their PMSI competes with| |

| | | |a PMSI held by a lender. | |

| | | |34(4) does not apply with multiple debtors | |

| |Goods as Original v. Proceeds |s. 34(6) |A PMSI in the goods as original collateral perfected in time takes priority over a Security Interest in | |

| | | |the goods as proceeds. | |

| | | |If the goods are inventory, the non-proceeds interest must be perfected when the borrower takes | |

| | | |possession. | |

| | | |If the goods are not inventory, the non-proceeds interest must be perfected within 15 days of the borrower| |

| | | |obtaining possession. | |

| | | |34(6) will apply if more than one debtor | |

| |PMSI in Fixture |s. 36(7) |A PMSI holder in a fixture where the PMSI attached after the goods became a fixture still has priority | |

| | | |over those with a Security Interest in the land, but only if the file a s. 49 notice within 15 days of the| |

| | | |fixture becoming affixed. | |

| |Note: as between 2 lenders, | | | |

| |Residual Rule applies | | | |

| |15 day grace period | |15 day grace period to perfect does not start running until relationship of debtor/creditor established | |

| |for 34(4) and 34(6) | |and possession occurs (McLeod v. Price Waterhouse). | |

| |Competition between PMSI and other |s. 34(5) |If someone has a Security Interest in “accounts”, they have priority over a PMSI holder if that account is| |

| |Security Interests | |proceeds to the original collateral of the PMSI. | |

| | | | | |

| | | |the proceeds of the sale of collateral in which a PMSI is held is an account, then there is a special | |

| | | |priority rule which overrides the usual PMSI priority rule (see PMSI section) – A Security Interest in the| |

| | | |account receives priority over a PMSI in the account as proceeds if the account Security Interest is | |

| | | |registered before the PMSI is perfected. I.e. the holder of the PMSI in the original collateral in the | |

| | | |form of inventory cannot rely on having the PMSI with respect to accounts generated by the sale of the | |

| | | |inventory over a financer who holds a Security Interest in the accounts as original collateral and who has| |

| | | |registered a financing statement relating to “accounts”. | |

| | | |Without 34(5), the accounts financer would be subordinate to the holder of the PMSI in the original | |

| | | |collateral. | |

| |Chrysler Credit Canada | |The scope of the PMSI is for everything the money was used to purchase, even if purchased later, or if | |

| | | |fhe Security Interest was paid in full – the Security Interest in the proceeds has priority so long as the| |

| | | |Debtor owes any money under the SA, even if the specific obligtion relating to the item of original | |

| | | |collateral, the sale of which produced the proceeds, has been discharged. | |

|7. |NEGOTIABLE COLLATERAL |S.31(1) |A holder of money has priority over a Security Interest in negotiable collateral (money) that is perfected| |

| | | |by registration or is temporarily perfected as proceeds, even if there is knowledge of the prior Security | |

| | | |Interest. | |

| | |s.31(2) |If a creditor receives payment of a debt by a debtor who has encumbered the asset used to make the | |

| | | |payment, the creditor has priority. | |

| | | |When a debtor makes a payment to a creditor, the creditor need not be concerned that the payment is | |

| | | |subject to a prior claim by a Secured Party who has a Security Interest in an instrument used to make the | |

| | | |payment | |

| | |s. 34(3) to (4)|34(3) deals with purchasing instruments or securities -- purchaser gets priority. Cheques may be | |

| | | |considered an instrument, which deposited into bank to pay down a line of credit gives the bank priority | |

| | | |as a purchaser (Flexi Coil) | |

| | | |34(4) deals with Uncertified securities | |

| | |s. 34(5) |Provides a special meaning of knowledge for purpose of (3) and (4). | |

| | |s. 34(6) |A purchaser of chattel paper (writings that evidence monetary obligation and a Security Interest of | |

| | | |specific goods) who takes the paper in the ordinary course of business and for new value, has priority in | |

| | | |any Security Interest that was | |

| | | |perfected under s. 25 (registered), if the purchaser does not know of the prior Security Interest, or | |

| | | |has attached to proceeds of inventory under s. 28, whatever the extent of the purchaser’s knowledge. | |

|8. |ACCOUNTS | |An account is simply a debt owed. | |

| | | |s. 31 (transfers of negotiable collateral) does not apply to accounts (Canadian Western Bank v. Gescan). | |

| | | | | |

| |Can always be assigned |s. 41(9) |An account can be assigned even if there is a specific clause in the contract against assignment. | |

| |Protection to Original Debtor |s. 41(2) |The assignor can only assign or pass the interest that he holds under the original account contract. | |

| | | |Further, any defence that the debtor had against the original creditor, is available against the new | |

| | | |creditor (such as a set-off or counterclaim). | |

| | |s. 41(3) |The contract between the assignor and the account debtor can be modified after the account has been | |

| | | |assigned (contrary to old Common Law and equity rules) This allows for business efficacy (parties may | |

| | | |have to change purchase details in sales contract etc.). If the contract is modified, the assignee | |

| | | |obtains the new rights. A modification will not affect the validity of the assignment. | |

| | |s. 41(7) |until the debtor is notified of the assignment, they can continue to make payments to assignor. | |

| |Priority Rules for Accounts |34(5) |If the proceeds of the sale of collateral in which a PMSI is held is an account, then there is a special | |

| | | |priority rule which overrides the usual PMSI priority rule (see PMSI section) – A Security Interest in the| |

| | | |account receives priority over a PMSI in the account as proceeds if the account Security Interest is | |

| | | |registered before the PMSI is perfected. I.e. the holder of the PMSI in the original collateral in the | |

| | | |form of inventory cannot rely on having the PMSI with respect to accounts generated by the sale of the | |

| | | |inventory over a financer who holds a Security Interest in the accounts as original collateral and who has| |

| | | |registered a financing statement relating to “accounts”. | |

| | |34(2) |Absent 34(5), s. 34(2) would say that the holder of the PMSI in account as proceeds of inventory would | |

| | | |have priority – 34(5) reverses this. | |

|9. |FIXTURES |s. 1 (def’n) |A fixture does not include building materials | |

| | | |Common Law definition of fixtures used | |

| | |s.30 |If creditor bought fixture in the ordinary course of business, any prior Security Interest held is | |

| | | |detached under s. 30. But, must be ordinary business to sell the product, a building contractor who | |

| | | |installs the fixture is not in ordinary course of selling (Manning v. Furnasman). However, s. 30 wording | |

| | | |changed to include supply of goods so Manning may be decided differently today | |

| |Security Interest in Fixture v. |s. 36 (2) |Applies only to land owned by individuals & corps, not crown land | |

| |Interest in Land | | | |

| |Security Interest attached |s. 36(3) |The priority of a Security Interest in a fixture that attaches before it becomes affixed to land is not | |

| |before it became a fixture | |affectd by a prior interest in the land. | |

| | |s. 36(4) |But, a fixture financer may lose priority over the fixture to either a subsequent purchaser of the land or| |

| | | |a mortgagee of the land. The purchaser or mortgagee will have priority if: | |

| | | |The purchaser gives value for his interest | |

| | | |The mortgagor acquired the mortgage for value or made advances under prior mtg without fraud and before | |

| | | |notice of fixture was filed in LTO | |

| |Security Interest attached |s.36(5) |A Security Interest that attaches to a fixture after the fixture is on the land, has priority over a prior| |

| |after it became a fixture | |interest I the land only if the holder of the prior interest has agreed. Later purchasers and mortgages | |

| | | |have priority over the Security Interest if they acquire their interest without fraud and before notice | |

| | | |filed in LTO. This section protects prior mortgages because they have advanced money thinking that the | |

| | | |fixture and land were charged. | |

| | |s. 36(6) – (8) |A judgment creditor of the borrower has priority over a fixture Security Interest if the judgment is filed| |

| | | |in the LTO after the goods are affixed to the land and before a notice of the fixture is filed but not | |

| | | |after. Exception to this is when a lender has a PMSI and filed in the LTO within 15 days of the goods | |

| | | |being affixed. | |

| |If ther is a conflict with LTO |s. 73 |S. 73 says that subject to s. 74, if there is a conflict between PPSA and any other act, PPSA prevails. | |

| | | |S. 74 says that if there is conflict between PPSA and LTA, the LTA prevails. | |

| | | |Right to seize fixtures is there regardless of priority | |

| |Seizing fixtures |s. 36(9) – (11)|A lender can seize a fixture but cannot cause unnecessary damage, and must pay compensation for damages. | |

| | |(13) |Can get security for damages in advance. Lender can apply to court to resolve issues re: damages. But, | |

| | | |before removing the fixture, must give notice to all parties who have an interest in land at the LTO, 15 | |

| | | |days in advance of removal – any person with interest can apply to court to postpone removal. | |

| | |s.36(12) |The person who has the interest in land, but doesn’t have priority, can by out the person with the | |

| | | |Security Interest in the fixture, by paying fmv or amount owing, whichever is less. | |

| | |s.49 |Secured Party can file SA in Land Title Office | |

|10. |ACCESSIONS |s.1 (def’n) |Accession means goods that are installed in or affixed to other goods. | |

| | | |Distinguish between accession and the whole. | |

| | |s. 38 (1) |Security Interest in goods continue after they are made accessions – A Security Interest in a good that is| |

| | | |already an accession can also be taken | |

| | | |s. 38 accession rules do not apply to serial numbered goods – if the accession and whole are serial | |

| | | |numbered, you must file a fin statement against the serial numbered goods separately and there will be no | |

| | | |accession. The Common Law test for accession will not apply. (Kuchyski). | |

| |Accession v. the Whole |s. 38(2) |A Security Interest in an accession that attaches before it becomes affixed to the other goods has | |

| | | |priority over a Security Interest in the whole. | |

| |Priority where Security Interest |s. 38(3) |Exceptions: Those with a Security Interest in the whole will have priority to Security Interest in | |

| |attached before accession | |Accession if: | |

| | | |A buyer buys the whole or a lender takes a Security Interest in the whole after the accession is affixed | |

| | | |but before the Security Interest in the accession is perfected | |

| | | |a lender with a prior Security Interest in the whole make an advance or enforces his Security Interest | |

| | | |against the whole | |

| | | |without knowledge of the Security Interest in the accession. | |

| |Priority where Security Interest |s.38(4) |A Security Interest in an accession that attaches after the accession is affixed has priority over an | |

| |attached after accession | |existing Security Interest in the whole if the holder of the interest agrees. The accession Security | |

| | | |Interest has priority over purchasers and mortgagers who advance funds after the Security Interest has | |

| | | |attached unless the purchasers and mortgagers: | |

| | | |acquire the interest before the accession Security Interest is perfected and | |

| | | |are without knowledge of the accession Security Interest | |

| |Priority of Jugment Creditor |s. 38(5) (6) |A judgment creditor has priority over an accession Security Interest if the judgment creditor seizes the | |

| |PMSI in Accesion | |whole before the accession Security Interest is perfected. – If a PMSI is perfected within the 15 day | |

| | | |grace period, they do not lose priority to judgment creditor | |

| |Removal of Accession |s.38(7) – (11) |A lender can seize accession but cannot cause unnecessary damage, and must pay compensation for damages. | |

| | | |Can get security for damages in advance. Lender can apply to court to resolve issues re: damages. But, | |

| | | |before removing the accession, must give notice to all parties who have an interest in the whole or have a| |

| | | |filed fin statement, 15 days in advance of removal – any person with interest can apply to court to | |

| | | |postpone removal. | |

| | |s.38(12) |The person who has the interest in whole, but doesn’t have priority, can by out the person with the | |

| | | |Security Interest in the accession, by paying fmv or amount owing, whichever is less. | |

|11. |LIENS |s.4 |Excludes liens charge from the PPSA. | |

| | |s.32 |But, under s. 32, a lien which arises in the provision of the ordinary course of business, of materials or| |

| | | |services with respect to the goods, has priority over a perfected or unperfected Security Interest unless | |

| | | |the lien arises under an enactment that gives priority to the Security Interest. | |

|12. |RESIDUAL PRIORITY RULE |s.35 |First in Time Rule—on basis of date of registration (not date of perfection or attachment, although | |

| |(no other rule applies) | |perfection relevant) | |

| | | |Knowledge (even actual notice) of the existence of a prior, perfected or unperfected Security Interest in | |

| | | |collateral does not affect priorities unless it is a accompanied by bad faith: Robert Simpson, CIBC v. AK| |

| | | |Construction, however, query whether this is consistent with s. 68(2) which states that all duties must be| |

| | | |exercised in good faith --- is knowing about and ignoring other parties interest good faith? | |

| |Is it Perfected? If Yes: |s.35(1)(b) |Perfected SI has priority over unperfected Security Interest | |

| | |s.35(1)(a) |If all perfected, then priority is in order of the earliest of: | |

| | | |date of registration of fin. Stmt. (date of attachment irrelevant) – if they file same date, then | |

| | | |according to registration number given by registry. | |

| | | |date of possession of collateral under s. 24 (for purpose of perfecting SI) | |

| | | |date of perfection under s. 5,7 ( conflict of laws sections), 26 (temporary perfection N/R), 29 | |

| | | |(returned/repossessed goods N/R), 78 (transitions for old acts – N/R) – not relevant for exam | |

| | |s.35(7) |If registration lapses as a result of failure to renew the registration, has a 30 day grace period – if | |

| | | |re-registers within 30 days, lapse does not affect priority as against those Parties with Security | |

| | | |Interest immediately before the lapse (i.e. it will not cover them for secured party who gets Security | |

| | | |Interest after the lapse and before re-registration) | |

| |Is it Perfected? If Not: |s.35(1)(c) |If all unperfected, then priority is in order of attachment | |

| | | |If they attach on same date, then there is no rank and they share in funds pro rata: Ontario Dairy Cow | |

| | | |Leasing. | |

| |Is there an issue as to continual | | | |

| |perfection: | | | |

| | |s.35(2) |A continuously perfected Security Interest is treated at all times as perfected by the method it was | |

| | | |originally perfected. | |

|13. |SUBORDINATION AGREEMENTS | |Subordination Agreement significant in PPSA regime because easy to take and perfect broadly-based fixed | |

| | | |security interest in ALL PAAP. Can use Subordination Agreement to reverse effect of priority rules but not| |

| | | |priority itself – contract is only valid as b/w parties. | |

| |Form of the Agreement | |Subordination Agreement no particular form – can be part of the Security Agreement. Courts will interpret | |

| | | |plain meaning of Subordination Agreement (Royal Bank v. Gabriel, 1992). However not everything a Secured | |

| | | |Party does to prejudice its position will be considered a Subordination Agreement, i.e. SP can let Debtor | |

| | | |deal with collateral under s.28 (Queen v. RBC) | |

| |Interpretation | |Courts will strictly interpret language of Subordination Clauses – like where Court held that a | |

| | | |subordination provision in favour of “bankers” did not cover other non-Chartered bank lenders | |

| | | |(Transamerica v. Imperial TV, 1994). | |

| | |s.40(1) |Section 40 authorizes SP to subordinate their interests to a junior creditor. Subordination Agreement is | |

| | | |enforceable by third parties i.e. junior creditor can enforce agreement b/w Debtor and Secured Party if | |

| | | |junior is the person or class of person who is an intended beneficiary of the Agreement. | |

| | |s.40(2) |Standard Subordination Agreement does not create a security interest and does not have to meet the | |

| | | |requirements of a security agreement. | |

| |Financing Change Statement |s.45(6) |When a SP has subordinated his interest – financing change statement may be registered to disclose the | |

| | | |subordination but its not required and failure to register does not effect the validity of the security | |

| | | |interest or the subordination. So other parties can’t rely on checking the registry to know if there is a | |

| | | |Subordination Agreement. | |

| | | | | |

|Detachment / Taking Free | |

|1. |INVENTORY |s. 28(1)(a) |Prior Security Interest in Inventory is deemed to be detached when dealt with, unless parties expressly | |

| | | |state that it does not detach. | |

|2. |BUYERS AND LESSORS |s.20(c) |If you have an unperfected Security Interest it will be defeated by a buyer of the collateral who buys | |

| | | |without entering into a SA, gives value for it, and has no knowledge of the unperfected Security Interest.| |

| | | |In BC, value is defined as consideration in a contract, and a promise is consideration. However, Ont. Ct | |

| | | |has said that promise is not value (Royal Bank v. Dawson), but this would likely not apply in BC. | |

| | |s. 30 |Section 30 contains special set of priority rules under which buyers and lessees of goods take free from | |

| | | |any prior perfected and unperfected Security Interest in the goods. | |

| | | |s. 30 compatible with s. 30 of Sale of Goods Act which also allows a 2nd buyer to take free as well. | |

| |Only applies to goods | |S. 30 only applies to: | |

| | | |goods, or | |

| | | |Security Interest in the goods given by the seller (Royal Bank v. Wheaton Pontiac) | |

| |Ordinary Course Buyer Rule |s. 30(2) |Ensures that a buyer who acquires an interest in goods from a seller under a transaction carried out in | |

| | | |the “ordinary course of the seller’s business” takes them free of any prior Security Interest. The fact | |

| | | |the buyer is aware of the existence of a prior Security Interest in the goods does not invalidate this. | |

| | | |However, if the buyer is aware that the seller is selling in violation of the SA, the buyer does lose his | |

| | | |protection. | |

| | | |The priority of the buyer cannot be displaced by agreement | |

| |What is “ordinary course” | |A sale of goods by a contractor who, as part of her business, sells houses equipped with appliances falls | |

| | | |within s 30(2). Even though in fact the seller is not in business of selling goods of that kind, if sale| |

| | | |to a reasonable buyer in course of business it may satisfy s. 30(2) (Fairline boats) even though this is | |

| | | |arguably too broad of an interpretation of s. 30(2). | |

| | | |Determination is question of fact dependent, on consideration of: | |

| | | |All the circumstances of the sale | |

| | | |Evaluation of usual business practices | |

| | | |Factors such as | |

| | | |Type of transaction (normal part of business) | |

| | | |Where agreement is made (at premises of seller?) | |

| | | |Quantity of Goods | |

| | | |Price Charged for goods (FMV – usual market profit made?) often the determinative factor | |

| | | |Advertising (does seller advertise to public) | |

| | | |Percentage of overall volume of sales | |

| | | |(Fairline Boats, expanded by Albera Pacific Leasing (1995 Alta). | |

| |Who is a buyer of goods? | |Someone can be a buyer even if title has not yet passes to them (Spittlehouse, which is consistent with US| |

| | | |law) Although, should note that there is contrary authority in Royal Bank v. 216200 that buyer must meet | |

| | | |definition of buyer in Sale of Goods Act, i.e. have title. Spittlehouse is likely the law that would | |

| | | |follow. | |

| |Low Value Consumer Goods Rule |s. 30(3) |Even if outside the course of business of the seller, a buyer will be protected if he buys low value | |

| | | |consumer goods (the “garage sale” priority rule to protect remote buyers of goods under $1000 in value). | |

| | | |But, buyer must have given some value and not have knowledge of the prior Security Interest. | |

| | |s. 30(4) |s.30(3) does not apply to a Security Interest in a fixture or goods the purchase price of which exceeds | |

| | | |$1000 (or in a lease, the fmv exceeds $1000) | |

| |The Buyer Protection against Temporary |s. 30(5) |If the Security Interest in goods is temporarily perfected under s. 26(1), 28(3) or 29(4), or continued | |

| |Perfection Rule | |under s. 51 during the 15 days grace period, and the goods are sold the buyer takes free of the Security | |

| | | |Interest if they gave value and did not have knowledge of the Security Interest (protection since a search| |

| | | |of the PPSA would not reveal the Security Interest). | |

| |The Serial Numbered Goods Rule |s. 30(6) |If Serial Numbered goods are not properly described in the financing statement, and a buyer has no | |

| | | |knowledge of the Security Interest, the buyer takes the goods free of the Security Interest. | |

| | |s. 30(7) |This only applies to goods described in the Regs as Serial Numbered Goods. | |

| | |

|Remedies | |

|1. |WHAT IF THE DEBTOR DEFAULTS? | |PPSA is self-help so if debtor defaults then Secured Party can realize on their security; default | |

| | | |provisions in security agreement determine what is default. | |

| | |s.1 |Default means the failure to pay or otherwise perform obligations secured when due or occurrence of any | |

| | | |event that triggers the security interest to become enforceable. | |

| |Acceleration clauses | |Default usually relates to amount owing at that time unless there is an acceleration clause. If clause | |

| | | |then full amount is due immediately. | |

| | |s.16 |Limitation on clauses – will be construed to mean that Secured Party has right to accelerate only if | |

| | | |Secured Party has commercially reasonable grounds for belief that prospect for payment is impaired or | |

| | | |collateral is in jeopardy. | |

|2. |What remedies are available? | |Secured Party has rights of any creditor so can choose to use collateral or sue the debtor (governed by | |

| | | |debtor/creditor law). If they choose to use the collateral they can sell it or foreclose, both of which | |

| | | |are governed by the PPSA. | |

| |Common Law Remedies | |Secured Party can sue the debtor for the entire amount. Or they can seize and sell the collateral and sue | |

| | | |for the deficiency. | |

| |Secured Party Includes a Receiver | | | |

| |PPSA Remedies |Part V |Part V is the source of PPSA remedies and states general rules a Secured Party must follow when seizing | |

| | | |and selling collateral. | |

| | |s.56(2) |Secured Parties only have remedies set out in security agreement and certain sections of PPSA. | |

| |Good Faith |s.68(2) |Secured Parties are required to exercise rights and duties in good faith and a commercially reasonable | |

| | | |manner and so in acting on their statutory remedial rights they should look beyond strict compliance with | |

| | | |requirements of the PPSA. | |

| |Application of Remedies Provisions |s.55 |Remedies provisions do no apply to deemed transactions in s.3 – lease for term of more than one year, | |

| | | |assignment of accounts and commercial consignments. For these transactions, Secured Party must look to the| |

| | | |common law. | |

| |Repossession or Seizure |s.58(2)(a) |On default - Secured Party has right to take possession of the collateral (or enforce security agreement | |

| | | |by any method permitted by law). Any Secured Party can seize collateral regardless of their priority. | |

| | |s.58(2)(b), (c)|If collateral can’t be readily moved from Debtor’s premises or adequate storage not available then Secured| |

| | | |Party can dispose of collateral on Debtor’s premise. | |

| |Notice of Seizure | |Notice requirement – common law still applies though not explicit in PPSA. Secured Party must give | |

| | | |reasonable notice (Waldron v. Royal Bank, 1991) | |

|3. |When and How Can The Secured Party Sell|s.59(2) |After seizing or repossessing collateral, Secured Party can dispose of it in its existing condition, or | |

| |the Collateral? | |fix it up and then sell it. If commercially reasonable to fix before selling then Court can say should | |

| | | |have repaired it. | |

| |Proceeds of Sale | |Proceeds are to be applied first to reasonable expenses of seizing and then to satisfaction of Debtor’s | |

| | | |obligations secured by the collateral. | |

| |Disposition |s.59(3) |Collateral may be disposed of by (a) private sale; (b) public sale; (c) as a whole or in commercial units | |

| | | |or parts; (d) by lease (if provided for in agreement) | |

| |Sale Must be Commercially Reasonable | |Commercially reasonable sale determined by Court and most likely will be public not private sale. Test | |

| | | |includes factors like appraisal of value, advertisement (Copp v. Medi-Dent, 1991). If not commercially | |

| | | |reasonable, Court can set aside the sale (but problem if bf purchaser) or prevent SP from suing for | |

| | | |deficiency. Secured Party can also be liable in damages to subordinate secured parties (Donnelly v. Intl | |

| | | |Harvester Credit, 1983). | |

| |Secured Party can Buy Collateral |s.59(13) |Secured Party can purchase the collateral only if disposition is public sale and only if purchase price | |

| | | |bears a reasonable relationship to market value. This avoid conflict of interest if SP is both buyer and | |

| | | |seller. | |

| |Secured Party can Delay Sale |s.59(5) |Secured Party can delay disposition for a commercially reasonable period of time. | |

| |Notice of Disposition |s.59(6), (7) |20 days after the seizure of the collateral and before the sale, Secured Party must give notice to Debtor,| |

| | | |subordinate secured parties, and other interested parties of intention to dispose. Section 59(7) contains | |

| | | |a description of what the notice should include. Statutory notice requirement for disposition has to be | |

| | | |strictly followed and must contain information as dictated by PPSA.(Ford Credit v. Preushoff, 1983) | |

| |BF Purchaser Takes Free |s.59(14) |If disposition to bona fide purchaser for value and purchaser takes possession of collateral then | |

| | | |interest not affected if SP has not complied with s.59 | |

| | | |purchaser takes free from interest of Debtor, Secured Party, subordinate secured parties. | |

| | | |BUT not interest of a senior secured party who has higher priority, unless the senior secured party has | |

| | | |consented | |

| | | |AND NOT interest of owner with superior title than that possessed by Debtor. | |

| |Distribution of surplus |s.60 |If Secured Party has sold collateral then can keep only amount owing. Surplus should be distributed | |

| | | |according to this section | |

| | |s.69(2) |Surplus to (in this order) | |

| | | |perfected subordinate security interest; | |

| | | |unsecured creditors (with prior notice to Debtor); | |

| | | |Debtor. | |

|4. |When and How can the Secured Party |s.61(1) |Secured Party can keep the collateral in exchange for forgiving the remainder of the debt. | |

| |Foreclose on the Collateral? | | | |

| |Notice |s.61(1) |Secured Party must send a notice of the proposal for foreclosure to the Debtor, all other secured parties | |

| | | |who have a perfected interest in the collateral and anyone who has informed the Debtor that they have an | |

| | | |interest | |

| | | |Foreclosure does not allow for subsequent suit for deficiency – it is in full satisfaction of the Debtor’s| |

| | | |obligations. | |

| |Other Secured Parties Can Object |s.61(2) |Persons receiving notices can object to foreclosure if their interests will be adversely affected. The | |

| | | |objection must be made within 15 days of receiving the notice. If a legitimate objection is made then SP | |

| | | |must dispose of collateral as set out in s.59. | |

| | |s.61(7) |Court can overrule an objection if objection not made to protect interest in the collateral OR market | |

| | | |value is less than total amount owing to SP plus costs of disposition. | |

| | |s.61(3) |If no notice of objection given then after 15 days SP is deemed to have irrevocably elected to retain | |

| | | |collateral in full satisfaction of obligation. SP takes free of Debtor’s interest and interests of other | |

| | | |secured parties given notices under s.61(2) BUT NOT other interests who were not entitled to receive | |

| | | |notices. | |

| |Deemed Foreclosure | |Even if Secured Party holds collateral for a long time, will not be deemed to have foreclosed unless gave | |

| | | |notice to interests parties of their rights to redeem under s.62 (Angelkovski v. Trans-Canada Foods, | |

| | | |1986). | |

|5. |When can Parties Reclaim Collateral – |s.62 |Before disposition or foreclosure, the Debtor and other interested parties can reclaim the collateral that| |

| |Rights of Redemption and Reinstatement?| |has been seized by paying amount secured. | |

| |Collateral that is Consumer Goods |s.62(1)(b) |Collateral may be reclaimed by Debtor by making outstanding payments rather than full amount owed. The | |

| | | |loan would then be “reinstated”. Section 62(2) says the consumer cannot reinstate the security agreement | |

| | | |more than twice a year. | |

| |Collateral that is Not Consumer Goods |s.62(1)(a) |Collateral may be reclaimed if entire loan is paid off. The item would then be “redeemed”. | |

| | |s.62(3) |Court may allow a non-consumer to make payments owing instead of paying off entire debt by either ordering| |

| | | |that the loan is “reinstated” or relieving the Debtor of other consequence of default. | |

| |Waiving rights of redemption |s.62(1)(a) |A party who is entitled to receive notice under s.59 can waive their right of redemption, but only after | |

| | | |the Debtor has defaulted. Involvement in Court action with the collateral does not constitute a waiver of | |

| | | |rights (Bank of NS v. Sherstobitoff, 1987). | |

|6. |Can the Court Exercise Discretion in | | | |

| |Remedies? | | | |

| |Court Supervisory Jurisdiction |s.63 |Court has supervisory jurisdiction and can relieve any party from some of the duties imposed by the PPSA. | |

| | | |Court can make binding declaration of rights, order injunctive relief and give directions regarding | |

| | | |exercise of rights. | |

| |BCSC has PPSA Jurisdiction | |Provincial court does not have PPSA jurisdiction (First City Trust v. 282674 BC, 1993). | |

| |Court Orders under PPSA | |Section 63 does not authorize the court to rewrite or change the substance of a contract. It cannot be | |

| | | |used to prevent a Secured Party from acting in a commercially unreasonable manner. It also can’t be used | |

| | | |to undermine PPSA remedies available to SP (Andrews v. Mack Financial, 1987). | |

| |PPSA not Exclusive | |PPSA remedies are not exclusive – parties can choose to exercise their common law rights instead (Osman | |

| | | |Auction v. Murray, 1994). | |

| |Time Limits |s.71 |Court can extend some of the time limits in the Act. | |

|7. |When can Parties Get Damages? |s.69(2) |A party who is owed duty or obligation under the PPSA can get damages for non-compliance with provisions, | |

| | | |without reasonable excuse. So Debtor can get damages if Secured Party failed to do something under PPSA, | |

| | | |like give notice. | |

| |Foreseeable Damages |s.69(3) |Damages must be foreseeable as resulting from the breach of PPSA, subject to a minimum level of damages | |

| | | |for certain types of breaches. | |

| |Non-Compliance Can be A Defence |s.69(7) |If SP sues Debtor for deficiency – Debtor can use the defence that the SP has not complied with certain | |

| | | |sections of PPSA. But only to extent that Debtor can show that SP’s conduct hampered his ability to | |

| | | |protect his interests or determine the amount owing. | |

| |Prescribed Damages |s.69(4) |Prescribed damages if Secured Party (in Regs) | |

| | | |has not discharged an expired or unwarranted registration, | |

| | | |has failed to recognize rights of consumers, | |

| | | |has failed to provide consumers with required notices or information. | |

| | | | | |

| | | |Defendant not liable for both prescribed and actual damages. | |

| | | | | |

| | |s.69(6) | | |

| |Debtor’s Rights Cannot be Waived |s.56(3) |Section 56(3) provides that, the Debtor’s rights and remedies may not be waived or varied by the Secured | |

| | | |Party. Lenders cannot require borrowers to give up the protection of the PPSA as a condition of receiving| |

| | | |a loan. Exception for sections listed. | |

|8. |What about Remedies Against Third | |The broad definition of debtor in s.1 means that Secured Party’s ability to claim payment may not be | |

| |Parties? | |limited to party that borrowed money. The definition includes a person who has guaranteed the repayment | |

| | | |of the obligation. In the case of a default, SP can proceed against either person who got the money under | |

| | | |the agreement or the guarantor. | |

|9. |Special Provisions for Consumers |s.67 |If collateral is consumer goods then Secured Party can: | |

| | |s.55(2) |seize goods under s.58 | |

| | | |take goods through voluntary foreclosure | |

| | | |allow Debtor to surrender the goods or | |

| | | |sue the Debtor for the amount owing | |

| |SP can Seize or Sue But Not Both |s.67(2) |If SP seizes goods or gets them by foreclosure or surrender, then cannot subsequently sue for any | |

| | | |deficiency. Obligations of Debtor are extinguished when consumer goods are taken by SP. | |

| | |s.67(6) |If SP sues as an unsecured judgment creditor then the sheriff can seize property but not collateral that | |

| | | |was the subject of the Security Agreement. If the SP seizes property that was collateral under the | |

| | | |Security Agreement then the right to recovery is limited to the amount realized from the sale of that | |

| | | |collateral. Once the collateral has been sold, the Debtor’s obligations and those of any guarantor are | |

| | | |extinguished. | |

| |Secured Party has Choice of Remedy | |Debtor can’t force a particular remedy on a Secured Party – the SP has choice of remedy under s.67(1) | |

| | | |(like leaving the car on a dealer’s lot Whitewater Motors v. Amatto, 1993) | |

| | |s.58(3) |If consumer has paid off 2/3 of the loan then goods may not be seized. | |

| | | | | |

|10. |Marshalling |s.68 |Equitable doctrine – not explicitly mentioned in PPSA but comes under s.68 which provides that common law | |

| | | |and equity continue to apply insofar as it is not inconsistent with the PPSA. | |

| |Application | |Marshalling applies where: | |

| | | |2 debtors, same creditor | |

| | | |senior creditor has right to resort to 2 funds of Debtor for payment of obligation (oversecured) | |

| | | |junior creditor has right to only 1 of these funds (undersecured) | |

| | | |Court may marshal funds so that senior creditor must first resort to fund in which junior creditor has no | |

| | | |interest. Used to distribute property to as many eligible parties as possible. | |

| | | |Secured Party seeking to invoke marshalling must raise the claim in a timely manner (Surrey Metro v. | |

| | | |Chestnut Hill, 1997). (This is Mickey D’s case.) | |

| | | |Generally, Secured Party has to be ready to deal with collateral before Court will order marshalling, but | |

| | | |a Calif. Court found marshalling applicable even where there was no default of the Security Agreement | |

| | | |(Shedoudy v. Beverly Surgical, 1980) | |

| | | |Equitable doctrine and so will not apply where it would cause hardship to senior creditor. | |

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