Secured Transactions CANS – April 2008

Section Issue Significance of RuleSCOPE OF THE ACT

2(1) Does the PPSA apply?

Yes: transactions that create security interest despite form if it secures payment or performance of obligation

- Conditional sale: SP seller keeps title in goods to secure future payment

- Chattel mortgage: SP lends $ to debtor in exchange for interest in goods

- Trusts that are set up to secure repayment- Security Lease: lease for whole useful life of goods, or

lease with option to purchase at end that’s not a true option (factors: Newcourt Financial)

- Security consignment: agent looks like a buyer, carries the risk

3 Scope of the Act Commercial consignment- Both parties in business of dealing with those goods- Test for knowledge of consignee’s creditors is objective

for definition part (d) (Furmanek)Lease for >1 year (see defns)

- Indefinite lease, renewable lease, or if lessee possesses it for >1 year, but only after 1 year has passed 1(3)

9 SA Freedom of contract

ATTACHMENT and ENFORCEMENT12(1) Does SI attach? Security interest attaches when

(a) Value is given (includes past consideration: TD Bank)(b) Debtor has rights in collateral

Debtor need not own collateral (Hybeck)Any rights are sufficient (KTI)

(c) Interest is enforceable under s. 10 (against 3rd party)10(1) SI enforceable

against 3rd party?

SA writing requirements

Security interest is enforceable when:(a) SP has possession of collateral, or(b) Written agreement contains

(i) description of collateral, signed by debtor (ii) SI in all PAAP (iii) SI in all PAAP except things listed

10(3) Is description adequate for SA?

Description is inadequate if it describes equipment or consumer goods without reference to the kind of equipment, goods

10(4) Is description adequate for SA?

Description of inventory: only adequate while D holds goods as inventory

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PERFECTION19 When is SI

perfected?Security interest is perfected when

(a) Security interest has attached under s. 12, and (b) Do all other steps for perfection, regardless of order

2335(2)

Continuity SI is continuously perfected (by the first method: s. 35) if perfected in more than one way, without a lapse

24(1) Perfection by Possession

Won’t apply to intangibles

- SP need not comply with s. 10 writing requirements- Inadequate if possession is a result of repossession or

seizure after default (Bank of NS v. Royal Bank)- Possession alone isn’t enough; need subjective intention

to possess the goods for the purpose of perfecting your interest (Royal Trust v. No. 7 Honda)

24(2) Need actual possession, not just constructive possession26(1) Temporary

PerfectionPerfection by possession. SP loans collateral to debtor to sell, present. SI remains perfected, despite s. 10, for 15 days after collateral comes into debtor’s control

25 File FS PERFECTION BY REGISTRATION43(2) Registration effective from time assigned to it43(4) May register FS before SI attaches or before SA made43(6) Validity of

registration isn’t affected by defect, error, irregularity, or omission unless it is seriously misleading

An incorrect middle name does not invalidate the registry, especially if birth date is correct, as search would disclose registration (Munro)Would prevent a reasonable search from disclosing the registration, OR would cause a reasonable person to conclude that the search was not revealing the same chattel or the same debtor (Coates)Includes grammatical error IF the plain reading of the description can produce multiple conclusions (Alda Wholesale)Despite name error, if the serial # is correct, not seriously misleading error b/c reasonable person would search by serial # (Gold Key Pontiac)Error in re-registration is not misleading if the original registration was correct (UF Media)

43(7) Invalid Registration

If one or more debtors are required to be disclosed, or collateral is consumer goods, plus there’s a seriously misleading defect, registration is invalid

43(8) Misleading errors Need not show that someone was mislead by error/defect47 Notice Registration does not constitute notice35(4) Serial numbered

goodsSI in equipment that are serial numbered goods is not perfected by registration unless FS is registered containing description of goods by registration number

49 LTO Registration for fixtures

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PROCEEDS1 Definition (a) Identifiable or traceable personal property, fixtures and crops

(i) derived directly or indirectly from any dealing with collateral or the proceeds of collateral, and(ii) in which the debtor acquires an interest,

(b) a right to an insurance payment or any other payment as compensation for loss or damage to collateral or proceeds, and(c) a payment made in total or partial discharge or redemption of an intangible, an instrument, a security or chattel paper

28(1) Security Interest in Proceeds

If collateral is dealt with and/or gives rise to proceeds, SI(a) continues in collateral, unless SP (expressly or impliedly)

authorizes the dealing, AND(b) extends to the proceeds

but limited to the market value of the collateral at date of dealing28(2) Perfection of

Proceeds: original collateral perfected by FS

Proceeds are perfected if(a) original FS contains description of proceeds that would

be sufficient to perfect SI in original collateral (s. 10 requirement)

(b) Proceeds are of the same kind within description of original collateral in FS

(c) Proceeds consist of money, cheques, deposit accounts28(3) If none of the

above applySecurity interest in proceeds is continuously perfected for 15 days after interest attaches to proceeds, unless perfectedIf unperfected proceeds give rise to further proceeds, those further ones may be perfected, even if intervening ones aren’t

35(3) Time of perfection of original collateral is also time of perfection of proceeds

10(5) If you have SI, you don’t have to describe the proceeds in the original agreement; just have to describe the original collateralProceeds from proceeds are proceeds (CIBC)

TAKING FREE28(1)(a) Authorize dealing If SI is in inventory, SP is deemed to have authorized the

dealing (R. v. RBC SCC)Unlike s. 30(2), SP can prevent his interest from being released (Ford Motor Credit)

30(2) Protecting Buyer of goods

A buyer of goods sold (not agreement to sell) in ordinary course of seller’s business takes goods free of any interest given by the seller, unless buyer knows the sale constitutes breach of SA

30(3)

30(4)

Consumer goods Buyer takes free if he(a) gave value(b) bought the goods without knowledge of the SI

… unless the price of goods exceeds $100020(b)

22(1)

Unperfected SI Unperfected security interest is ineffective against(i) a trustee in bankruptcy(ii) a liquidator

… unless it’s a PMSI that’s perfected within 15 days

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PRIORITY RULESCL No rules apply Nemo Dat35(1)(a) 2 Perfected SI Priority between perfected security interests determined by:

(i) Date of registering FS (ii) Date of possession (iii) Date of perfection

35(1)(b) Perfected SI has priority over unperfected SI35(1)(c) 2 Unperfected SIs Determined by order of attachment

Note: attachment may be simultaneous (SI attach to proceeds)35(2) Continuous

PerfectionA continuously perfected security interest is perfected by the method by which it was originally perfected

35(3) Proceeds Subject to s. 28, the time of perfection of a security interest in original collateral is also the time of perfection of its proceeds

35(5) Tacking Subject to (6), the priority that a security interest has under (1) applies to all advances, including future advances

20(a) Unperfected SISubordinate

Unperfected security interest is subordinate to(i) person who causes collateral to be seized(ii) sheriff who seized or has right to seize collateral

Exception: s. 22(1) PMSI perfected within 15 days has priority20(b) Unperfected SI

Not effectiveAn unperfected SI is not effective against (i) trustee in bankruptcy (has better interest than debtor: Giffen)(ii) liquidatorException: s. 22(1) PMSI perfected within 15 days has priority

20(c) Unperfected SISubordinate(hard for 3rd party to use in dodgy circumstances)

Unperfected SI in intangibles is subordinate to transferee who: (i) acquires an interest under a transaction that is not a security agreement (sale, lease)(ii) gives value (not promise to pay: RBC v. Dawson Motors)(iii) acquires the interest without knowledge of security interest

35(6) Limits on Tacking Perfected SI has priority over persons referred to in s. 20 only to the extent of

(a) advances made before interests of persons arise, or before sheriff seizes the collateral,

(b) advances made before the SP has knowledge of the person’s interests or the seizure, and

(c) advances made in accordance with statutory requirement35(7) Lapse in

registration: SI lapsed vs. SI subordinate before the lapse

If FS discharged without authorization, and SP re-registers SI within 30 days, the lapse won’t affect his priority status vs. competing SP2 who had subordinate position immediately before the lapse, except to the extent that SP2 made advances after the lapse and before re-registration (see 43(6) errors)

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35(8) 2 debtor problem:transfer of collateral

If D2 transfers X to D1 (transferee), and, at the time of the transfer, X was subject to a perfected security interest granted by D2, that interest has priority over any other security interest granted by the transferee before the transfer.Exception: when the SP knows about the transfer, he has 15 days to register D1 as his debtor to retain his priority. If he does: he retains his priority. If he doesn’t: from the date after the 15 days expire, and before he re-registers, 35(8) won’t apply to any advances made during that period by the transferee’s SP.

35(9) 35(8) doesn’t apply where the transferee takes free of the interest of the transferor’s SPs interests (28(1), 30(2) or 30(3))

51(1) Competitions between SPs AFTER transfer of collateral

If no consent and no knowledge of the transfer, 51 won’t apply

SP consented to the transfer, but somehow the SI survived (you can transfer but not free from my interest, 28 won’t apply) (a, b): SP’s interest is subordinate to any perfected SI made from 15 days after the date of the transfer to the time that SP registers the transferee as a new debtor (15 day grace period to reregister, add transferee as new debtor)(c) SP is subordinate to any perfected SI within the 15 day grace period, if SP does not amend and disclose the transferee as the new debtor, or doesn’t take possession.

51(2) SP didn’t consent but obtained knowledge about the transfer after the fact: 15 day grace period starts after the SP gets knowledge of the transfer or the debtor changes his name (but there was no transfer)

TRACING1(5) If funds deposited in a mixed account, tracing is permissible

whether or not there’s a fiduciary dutyFunds that did not come from collateral, when deposited into a mixed account, are not presumed to count towards repayment of the debt unless that intention is clear SP is entitled to the “lowest intermediary balance” (Universal)Trace proceeds into new property via “close and substantial connection” test between collateral and proceeds, where the collateral is replaced with property of “like function” (Pettyjohn, River Industries)

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PMSI(a) Vendor PMSI: conditional sale security interest that secures payment of all or part of the collateral purchase price(b) Financier PMSI: SI taken in collateral by a person who lends money to enable the debtor to acquire rights in the collateral(c) The interest of a lessor under a lease for >1 year(d) The interest of a person who delivers goods under a commercial consignment

- Advances that allow a debtor to acquire greater rights in collateral give rise to PMSI, even if debtor already had rights in the property (Unisource)

34(1) Priority of PMSI not in inventory

Attached and Perfected PMSI in (a) collateral or proceeds that are not inventory, perfected

within 15 days of debtor getting possession, has priority over another SI given in same collateral by same debtor

(b) intangibles 15 days starts after the SI attachesIf SP’s $ is used to buy something that the debtor already had possession of, grace period only begins when debtor gets possession of it as collateral subject to the PMSI (McCleod)

34(2) Priority of PMSI in Inventory

PMSI in inventory only has priority over another SI if:(a) PMSI is perfected before D gets possession(b) SP gives notice to any other SPs who registered a FS in

the same (kind of) collateral(c) SP gives notice to any other SPs who have SA(d) Notice states that SP expects to get a PMSI in inventory(e) Notice must be given before D obtains possession

34(4) Seller PMSI vs. financier PMSI

(a) Seller PMSI (sold on credit) in inventory has priority over Financier PMSI (loaned D $ to acquire collateral) if he perfects within 15 days of D getting possession of inventory or collateral(b) Seller PMSI in collateral other than inventory has priority over another PMSI if seller’s PMSI is perfected within 15 days of the date the debtor possesses the collateral

34(5) SI in accounts vs. PMSI in accounts as proceeds

A non-proceeds security interest in accounts given for new value has priority over a PMSI in the accounts as proceeds of inventory IF it’s perfected before the PMSI is perfected

34(6) PMSI vs. PMSI in proceeds

Non-proceeds PMSI trumps PMSI in same collateral as proceeds if non-proceeds PMSI is perfected within 15 days

How much does the PMSI secure?

PMSI only to the extent that the debtor used the advance to acquire rights in the collateral.

If several pieces of collateral are purchased at once for a lump sum: Chrysler Credit

Where the amount secured by a PMSI in a single piece of collateral can’t be known due to a lump sum purchase, or even if the amount in each piece is known, the amount secured by a PMSI in each piece of collateral is deemed to be the total amount of the PMSI of all the collateral purchased. Even if you can tell how much $ was used to acquire each article of collateral, it’s all lumped together, and SP has a PMSI in everything.

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FIXTURES Not bldg material: heat, AC, conveyance, machinery36(3) SI pre-fixture Interest attaches before goods became fixtures has priority over

person with interest in land36(4) SI pre-fixture Interest attaches before goods became fixtures is subordinate

to a person who (a) acquires for value an interest in land after goods become fixtures, or (b) makes an advance under the mortgage after the goods become fixtures, for that advance, unless SP files s. 49 notice in LTO

36(5) SI post-fixture Security interest that arose after the goods become fixture is subordinate to a person who has interest in land at the time the goods become fixtures, or acquires interest in land after goods become fixtures, unless SP files s. 49 notice

ACCESSION38(2) SI arose

Pre-accessionSI pre-accession has priority over a SI in the goods that flows from having an interest in the whole

38(3) SI arosePre-accession

SI pre-accession is subordinate to parties who acquire an interest in the whole or make an advance, if the interest in the accession is not perfected by FS

38(4) SI arosePost-accession

SI that attaches post-accession subordinate to a person with an interest in the goods at the time the goods became an accession… unless the latter has consented, disclaimed, or otherwise subordinates their own interest

SUBORDINATION AGREEMENTFirst determine priorities, and then determine the effect a subordination agreement or marshalling has on the priorities.Sub agreements will be interpreted strictly (Transamerica)

40(1) SP may subordinate his SI, to anyone else, including a 3rd party for whose benefit the subordination was intended, even if he’s not a party to the agreement (so privity is not a problem)RBC v. Gabriel of Canada

40(2) An agreement to subordinate does not by itself create a SI45(6) Subordination agreement can be but need not be registered

MARSHALLING68(1) Residual

jurisdiction: Equity

Jr. SP can ask court to order sr. SP to go after other collateral to satisfy his debts, and to release his interest in the collateral, so jr. SP can deal with the collateral free of sr.’s interests

Surrey Metro Savings

Junior SP has burden to show that marshalling will absolutely not disadvantage the senior lender or any 3rd party in any way

9 DEFAULT: Up to parties to determine in security agreement 1 Definition of

DefaultFailure to pay or perform obligation secured when dueOccurrence of an event or set of circumstances that, under the terms of the security agreement, causes the security interest to become enforceable

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16 Acceleration Clause

Can only use acceleration clause if you can justify that you reasonably think that there’s a danger that there will be a failure to pay in futureApplies to “deemed transactions” s. 3REMEDIES Part V

55(2)(a) Part V does not apply to deemed transactions s. 355(9) A court order allowing you to sue doesn’t preclude you from

going after the debtor in some other way56(2) SP have access to both contract remedies and PPSA remedies56(3) Cannot waive or contract out of remedial sections that protect

the debtor (give him rights) or place obligations on SP64 Receiver/

Receiver Manager

Appoint receiver (if in agreement) or ask court to appoint one. Even if there are provisions in SA to appointing receiver, court may not appoint one (White Cross Properties)

CL

58

SeizureNotice of seizure

Give notice to debtor re: intent to seize. “Reasonable notice” depends on the circumstances: who the debtor is, how much was repaid, honesty of debtor, risk to the collateral (Waldron)

59(2) SALE After seizing collateral, SP may dispose of collateral in its existing condition or fix it up first (s. 17 obligations)

59(3) Collateral may be disposed of by private/public sale or leaseSell in commercially reasonable manner (Copp v. Medi-Dent)

59(2)

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Proceeds of sale 1. Costs of disposition (expenses)2. Satisfy obligations of party making the disposition3. Any SPs with subordinate interests4. Surplus to debtor - Senior SP has interest in any $ going

to debtor 28(1)(d)59(6) Notice re: sale 15 days before disposition to debtor, subordinate parties59(14) Purchaser

protectionPurchaser who, in good faith, acquires interests and gives value and takes possession of collateral, takes collateral free from interests of anyone who had subordinate interests, from seller, and from debtor, whether or not requirements for this section have been complied with (if notice requirements weren’t proper)

69(7) If sale has already been conducted

Declaration by court that party who conducted sale is precluded from claiming that he’s owed anything further from debtor;Bring action for marshalling;Claim damages: show you suffered a loss, statutory damages

61(1) FORECLOSURE Give notice to debtor, subordinate parties stating what the collateral is, and that SP proposes to take collateral in satisfaction of the obligation secured or debt

61(2) Anyone who got notice can object to proposal, argue that their interests would be adversely affected within 15 days. If they object, SP who proposed foreclosure must proceed by sale.

61(3) If no notice of objection within 15 days, person who sent notice is deemed to have irrevocably chosen to foreclose, and the collateral is deemed to satisfy any amount that the debtor owes

61/17 Foreclosure and s. 17

Constructive foreclosure: if in satisfying s. 17 requirements, you treat the collateral as if it’s your own (Inland Kenworth)

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Nemo dat quod non habet: one can’t give that which they do not have to give

DOES THE PPSA APPLY?S. 2(1) Act applies to transactions that in substance create a security interest Security interest secures payment or performance of an obligation

- Conditional sale : SP seller keeps title in goods to secure future payment- Chattel mortgage : SP lends $ to debtor in exchange for interest in goods- Trusts that are set up to secure repayment- Security Lease : lease for whole useful life of goods, or lease with option to purchase at

end that’s not a true option (factors: Newcourt Financial)- Security consignment : agent looks like a buyer, carries the risk

S. 3 Act applies to:- Commercial Consignment

o Both parties must be in business of dealing with those goodso Test for knowledge of consignee’s creditors is objective for definition part (d)

(Furmanek)- Lease for a term of more than one year

o Indefinite lease, renewable lease, or if lessee possesses it for >1 year, but only after the 1 year limit has passed 1(3)

IS THERE A WRITTEN SECURITY AGREEMENT?- S. 9: security agreement is effective according to its terms (freedom of contract)- S. 10(1)(b) writing requirements

WHAT IS THE NATURE OF THE COLLATERAL?- 1(4) classify goods as equipment, inventory, consumer goods at the time of attachment- Note how the collateral was described in the agreement- Consumer goods

o Personal/family/household use- Inventory

o Leased or held for sale/leaseo Furnished under contract for serviceo Raw materials/works in progresso Materials consumed in business

- Equipment – everything else

WAS THERE ATTACHMENT? IF SO, WHEN?S. 12(1) SI attaches and is enforceable against the debtor when

- (a) Value is giveno S. 1 any considerationo Can include past consideration (TD Bank)

- (b) …and Debtor obtains rights in the collateralo Debtor need not have title in collateral (Hybeck)o Any rights are sufficient (KTI)

S. 12(1) SI is attached and effective against the world when:- (c) Security interest is enforceable under s. 10

S. 10 Requirements- SP has possession of the collateral, or

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- SP satisfies writing requirementso 10(1)(b) Debtor must sign it, must contain description of collateralo 10(3) Description is inadequate if it describes “consumer goods” or “equipment”

without describing the kind of collateralo 10(4) Description of collateral as “inventory” is adequate only while the collateral

is held by the debtor as inventory

HOW MUCH DOES THE INTEREST SECURE?

IS SECURITY INTEREST PERFECTED? IF SO, WHEN?- S. 19 Attachment- All the steps required for perfection have been completed, regardless of the order

WHAT WAS THE METHOD OF PERFECTION?Perfection by Possession

- SP need not comply with s. 10 writing requirements- 24(2) need actual possession, not just constructive possession- Cannot get perfection by repossession or seizure after default (Royal Bank)- Possession alone isn’t enough; need subjective intention to possess the goods for the

purpose of perfecting your interest (Royal Trust v. No. 7 Honda)

Perfection by Registration of Financing Statement- S. 25 allows you to register financing statement- 43(2) 2 financing statements cannot have the same filing times- 43(4) can file FS before you have security agreement- 43(6) Validity of registration isn’t affected by defect, error, irregularity, or omission

unless it is seriously misleadingo An incorrect middle name does not invalidate the registry, especially if birth date

is correct, as search would disclose registration (Munro)o Would prevent a reasonable search from disclosing the registration, OR would

cause a reasonable person to conclude that the search was not revealing the same chattel or the same debtor (Coates)

o Includes grammatical error IF the plain reading of the description can produce multiple conclusions (Alda Wholesale)

o Despite name error, if the serial # is correct, not seriously misleading error b/c reasonable person would search by serial # (Gold Key Pontiac)

o Error in re-registration is not misleading if the original registration was correct (UF Media)

- S. 43(7) If one or more debtors are required to be disclosed, or collateral is consumer goods, plus there’s a seriously misleading defect, then the registration is invalid

- 43(8) Misleading errors: Don’t have to show that someone was actually mislead by the error/defect

Temporary Perfection- S. 26 (1) A security interest in certain collateral perfected by possession (s. 24), and

then collateral is given to the debtor. Interest remains perfected for the first 15 days after the collateral comes under the debtor’s control, despite s. 10

- (2) after 15 days, if nothing else is done, security interest is deemed unperfected

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PRIORITY RULESActual notice or knowledge of SI does not affect priorities established by PPSA (Simpson v. Shadlock)

S. 35(1) General Residual Priority Rules- (a) Priority between perfected security interests in the same collateral:

o (i) First to file in registry or (ii) first to possess (first to perfect)- (b) Perfected security interest has priority over an unperfected security interest - (c) Between unperfected security interests determined by order of attachment of the

security interests35(2) Continuous Perfection

- A continuously perfected security interest is perfected by the method by which it was originally perfected

35(3) Proceeds- Subject to s. 28, the time of perfection of a security interest in original collateral is also

the time of perfection of its proceeds35(4) Registering serial numbered goods

- A security interest equipment that are serial numbered goods is not perfected by registration unless a financing statement relating to the security interest and containing a description of the goods by serial number is registered

S. 35(5) Tacking- Subject to subsection (6), the priority that a security interest has under (1) applies to all

advances, including future advancesS. 20 Unperfected interests vs. unsecured creditors

- (a) An unperfected security interest is subordinate to:o Anyone who causes X to be seized to enforce judgmento Sheriff who seizes Xo Judgment creditor entitled to property

- (b) An unperfected SI is not effective against o (i) trustee in bankruptcy (he can have better in interest than debtor: Giffen)o (ii) liquidator

- (c) Unperfected SI in intangibles is subordinate to transferee who: o (i) acquires an interest under a transaction that is not a security agreement (sale,

lease)o (ii) gives valueo (iii) acquires the interest without knowledge of the security interest

- Exception : s. 22(1) PMSI that is perfected within 15 days has priority over 20(a)(b)S. 35(6) Limits on Tacking

- (a) A perfected security interest has priority over the persons referred to above only for advances made before collateral is seized

- (b) An advance made by an SP after it has knowledge that the collateral has been seized, or of an order giving sheriff that right, is subordinate to the interests of the unsecured creditors

S. 35(7) Gap in Perfection- If there’s a gap in perfection, and the SP re-registers within 30 days, the lapse does not

affect his priority status in relation to a competing perfected security interest that immediately before the lapse or discharge had a subordinate priority position, except to

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the extent that the competing security interest made advances after the lapse and before the re-registration (competing SP has priority for those advances)

S. 35(8) Two Debtor Problem - If D2 transfers X to D1 (transferee), and, at the time of the transfer, X was subject to a

perfected security interest granted by D2, that interest has priority over any other security interest granted by the transferee before the transfer

- Exception period: when the secured party has knowledge about the transfer, he has 15 days to register D1 as his debtor to retain his priority. If he does: he retains his priority. If he doesn’t: from the date after the 15 days expire, and before he re-registers, 35(8) won’t apply to any advances made during that period by the transferee’s secured party.

S. 35(9)- 35(8) doesn’t apply where the transferee takes free of the interest of the transferor’s

SPs interests (because of 28(1), 30(2) or 30(3)).S. 51

- Competitions between D2’s SP and D1’s SPs AFTER the transfer of collateral- If no consent and no knowledge of the transfer, 51 won’t apply- 51(1) SP consented to the transfer, but somehow the SI survived (you can transfer but

not free from my interest, 28 won’t apply) o 51(1)(a, b): SP’s interest is subordinate to any perfected SI made from 15 days

after the date of the transfer to the time that SP registers the transferee as a new debtor (15 day grace period to reregister, add transferee as new debtor)

o 51(1)(c) SP is subordinate to any perfected SI within the 15 day grace period, if SP does not amend and disclose the transferee as the new debtor, or doesn’t take possession.

- 51(2) SP didn’t consent but obtained knowledge about the transfer after the facto 15 day grace period starts after the SP gets knowledge of the transfer or the

debtor changes his name (but there was no transfer)

TRACING- If funds deposited in a mixed account, tracing is permissible whether or not there’s a

fiduciary duty s. 1(5), and the SP is entitled to the “lowest intermediary balance” (Universal CI)

- PMSI in original collateral PMSI in proceeds (Pettyjohn)- You can trace proceeds into new property via the close and substantial connection test

between collateral and proceeds, where the collateral is replaced with property of “like function” (Pettyjohn, adopted in BC by River Industries)

ACCOUNTS- 34(5)- SP has security interest in x, original collateral. Debtor sells x to 3rd party buyer, who

doesn’t pay the debtor, but gives him an IOU (account). Debtor “assigns” his status as account creditor to SP, so buyer must make payments to SP.

- S. 41(9) if there’s a term in the contract that says it can’t be assigned, that term is ineffective against 3rd party

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PROCEEDS- Identifiable or traceable personal property (i) derived directly or indirectly from any

dealing with collateral or the proceeds of collateral, and (ii) in which the debtor acquires an interest

- 28(1) If collateral is dealt with or otherwise gives rise to proceeds, the security interest (a) continues in the collateral unless the secured party expressly or impliedly authorizes the dealing, and (b) extends to the proceeds

o But: If SP enforces a security interest against both the collateral and the proceeds, the amount secured by the security interest in the collateral and the proceeds is limited to the market value of the collateral at the date of the dealing

- S. 10(5) if you have a security interest, you don’t have to describe the proceeds in the original agreement; rather, you just have to describe the original collateral

- Proceeds from proceeds are proceeds (CIBC)

Are Proceeds Perfected?- 28(2) Proceeds are continuously perfected if the FS perfecting the original collateral:

o (a) describes proceeds that would be sufficient to perfect a security interest in original collateral of the same kind (see s. 10(3)),

o (b) covers the original collateral, and the proceeds are of a kind that are within the description of the original collateral (“all swine”), or

o (c) covers the original collateral, if the proceeds are money, cheques- 28(3) If proceeds do not fit perfection by FS (a-c) above, SP has 15 days after the date

of attachment to proceeds to register FS in proceeds to retain continuously perfected status

PMSI- (a) Vendor PMSI: conditional sale security interest that secures payment of all or part of

the collateral purchase price- (b) Financier PMSI: SI taken in collateral by a person who lends money to enable the

debtor to acquire rights in the collateral- (c) The interest of a lessor under a lease for more than one year- (d) The interest of a person who delivers goods under a commercial consignment- Advances that allow a debtor to acquire greater rights in collateral give rise to PMSI,

even if debtor already had rights in the property (Unisource)- If you have PMSI in collateral, you have a PMSI in proceeds derived from that collateral

(Pettyjohn)

How much does the PMSI secure?- PMSI only to the extent that the advance was used by the debtor to acquire rights in the

collateral - If several pieces of collateral are purchased at the same time for a lump sum: Where

the amount secured by a PMSI in a single piece of collateral can’t be known due to a lump sum purchase, or even if the amount in each piece can be known, the amount secured by a PMSI in each piece of collateral is deemed to be the total amount of the PMSI of all the collateral purchased (Chrysler Credit)

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Perfection of PMSI- To get super-priority, security interest must be attached and perfected- S. 22 SP who holds PMSI has 15 day grace period to perfect his interest- 34(1) a PMSI in (a) collateral or its proceeds, other than intangibles or inventory, 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 attaches, has priority over any other security interest in the same collateral given by the same debtor

o If SP’s $ is used to buy something that the debtor already had possession of, 34(1) grace period only begins when the thing in D’s possession becomes collateral subject to the PMSI (McLeod)

- 34(2) For PMSI in inventory to have priority:o PMSI must be perfected before D gets possession of collateralo SP must give notice to any other party who has registered a FSo Notice must include SP’s intention to take a PMSI in collateralo Notice must describe the inventoryo Notice must be given before debtor takes possession of collateral

- 34(4) 2 PMSIs in same collateral competing seller PSMI (who sold on credit) has priority over financier PMSI (who loaned $ to debtor to acquire the collateral) if he perfects within 15 days of the debtor obtaining possession of the inventory

- 34(4)(b) Seller PMSI in collateral other than inventory has priority over another PMSI if seller’s PMSI is perfected within 15 days of the date the debtor possesses the collateral

- 34(5) A non-proceeds security interest in accounts given for new value has priority over a PMSI in the accounts as proceeds of inventory IF it’s perfected before the PMSI is perfected

- 34(6) 2 PMSIs given by different debtors

FIXTURES- Goods that are not building materials: integral parts of the whole construction (Gencare)- Fixtures: heating, air conditioning, conveyance devices, or machinery- S. 36 Interest arose before goods became fixtures:

o (3) has priority over interest in lando (4) is subordinate to a person who acquires an interest in land or makes a

mortgage payment after the goods become fixtures, unless SP files s. 49 notice in LTO

- S. 36 Interest arose after the goods become fixtures:o (5) is subordinate to a person who has interest in land at the time the goods

become fixtures, or acquires interest in land after goods become fixtures, unless SP files s. 49 notice

ACCESSION- 38(2) an interest pre-accession has priority over an interest in the goods that flows from

having an interest in the whole- 38(3) an interest pre-accession is subordinate to parties who acquire an interest or

make an advance, if the interest in the accession is not perfected by FS- 38(4) an interest that attaches post-accession subordinate to a person with an

interest in the goods at the time the goods became an accession. Unless the latter has consented, disclaimed, or otherwise subordinates their own interest

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TAKING FREE- S. 28(1) when collateral is dealt with, security interest continues in the collateral and

extends to proceeds, unless SP expressly or impliedly authorizes the dealingo If you have a SI in inventory, you’re deemed to have authorized the dealing (R. v.

RBC SCC)o It’s in SP’s control: can prevent his interest from being released (Ford Motor

Credit)- S. 20(b) an unperfected security interest in collateral is not effective against a trustee in

bankruptcy or liquidator- S. 20(c) an unperfected SI is subordinate to a purchaser’s interest who:

o gets interest under a normal saleo gives value (does not include promise to pay: Dawson Motors)o acquires the interest without knowledge of the unperfected SI

- 30(2) Buyer of goods, in ordinary course of seller’s business, takes free of any perfected or unperfected security interest, even if the buyer knows about the security interest, unless the buyer knows that the sale constitutes a breach of the security agreement under which the security interest was created

o Limits: only allows buyer to take goods free from security interests given by the seller, not previous interests (Wheaton Pontiac)

o Does not require authorization from SP, out of his controlo Ordinary course : factors (Fairline Boats)

Type of goods involved Place where transaction (sale) occurred Quantity of goods involved Price of goods If sale is consistent with what normally occurs in seller’s business

o A party to an agreement to sell is not a purchaser who can use 30(2)- 30(3) A buyer of consumer goods takes the goods free from security interest if the buyer

gave value, didn’t know about the SI- 30(4) above won’t apply to interest in fixtures, or if value is > $1000

SUBORDINATION AGREEMENTS- First determine priorities, then determine how subordination agreement or marshalling

changes what the statute says (the effect it has on the priorities)- S. 40 allows for their creation- 40(1) SP may subordinate his SI, to anyone else, including a 3rd party for whose benefit

the subordination was intended, even if he’s not a party to the agreement (so doctrine of privity is not a problem: RBC v. Gabriel of Canada)

- 40(2) An agreement to subordinate does not by itself create a SI- S. 45(6) subordination agreement can be but is not required to be registered- Form is not important, but subordination agreement will be interpreted strictly

(Transamerica)MARSHALLING

- Jr. lender can ask court to order sr. party to go after other collateral first to satisfy his debts, and to release his interest in the collateral, so that Jr. SP can deal with the collateral free of senior’s interests

- Residual jurisdiction s. 68(1) equitable principles apply

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- Junior SP has burden to show that the marshalling will absolutely not disadvantage the senior lender or any 3rd party in any way (Surrey Metro Savings)

DEFAULT- Default: up to parties to determine in security agreement

o Failure to pay or otherwise perform obligation secured when dueo Occurrence of an event or set of circumstances that, under the terms of the

security agreement, causes the security interest to become enforceable - Acceleration Clause s. 16

o Can only use acceleration clause if you can justify that you reasonably think that there’s a danger that there will be a failure to pay in future

o Applies to “deemed transactions”

REMEDIES- 55(2)(a): Part V does not apply to deemed transactions s. 3- 55(9) If you have a court order allowing you to sue, doesn’t preclude you from going

after the debtor in some other way- 56(3) Cannot waive or contract out of remedial sections that protect the debtor (give him

rights) or place obligations on SP- 56(2) A SP has all the remedies that would be available to unsecured creditors

o Ordinary creditors remedies: sue and get judgment

SP options for remedies- Put debtor into receivership, appoint receiver manager to take over business

o S. 64 appoint receiver (if SA says you can) or ask court to appoint oneo Even if there are provisions in SA to appointing receiver, court may not appoint

one (White Cross Properties)- Give notice to debtor re: intent to seize

o Notice must be “reasonable” which depends on the circumstances: who the debtor is, how much was repaid, honesty of debtor, risk to the collateral, etc. (Waldron)

- S. 58 Seize collateral. From there, either sell or foreclose

Sell the collateral- If you seize and sell, can keep seizing and selling until you’re paid back everything

you’re owed (more common)- 59(2) After seizing collateral, SP may dispose of collateral in its existing condition or fix

it up first (s. 17 obligations). Proceeds from sale disposed of as follows:o Costs of disposition (expenses)o Satisfy obligations of party making the dispositiono Rest according to s. 60

Any SPs with subordinate interests Surplus to debtor - Senior SP hasinterest in $ that goes to debtor 28(1)(d)

- 59(3) Collateral may be disposed of by private sale, public sale, OR leaseo If private sale, easy to argue that it wasn’t commercially reasonable sale

- Sale conducted in “commercially reasonable” manner (Copp v. Medi-Dent)o Need independent appraisalo Need advertisementso Need to give notice

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o Need assessment of when/where’s the best place to hold saleo Assess whether it’s best to sell in parts or as a wholeo Seller doesn’t have to make top dollar, but must do well

- 59(6) Must sent out notice of the sale:o No less than 15 days before dispositiono Must give notice to parties listed in 59(6):

Debtor Subordinate interest Subordinate security interest

o No notice requirement for someone who has senior interest, but not likely that you’d be selling it, b/c seller would have to disclose that there’s a SI still in goods

- 59(14) when SP sells collateral to purchaser who, in good faith, acquires interests and gives value and takes possession of collateral, purchaser takes collateral free from interests of anyone who had subordinate interests, from seller, and from debtor, whether or not requirements for this section have been complied with (if notice requirements weren’t proper)

If sale has already been conducted: o S. 69(7): Declaration by court that party who conducted sale is precluded from

claiming that he’s owed anything further from debtoro Bring action for marshalling: court order that SP release interest in some

collateralo Claim damages: show you suffered a loss, or statutory damages

Foreclose- After default, SP can seize collateral, and propose to take collateral in satisfaction of

obligations or debt- 61(1) Must give notice to debtor, subordinate parties stating what the collateral is, and

that you propose to take collateral in satisfaction of the obligation secured- (2) Anyone who got notice can argue that their interests would be adversely affected, so

within 15 days can object to proposal. If they object, SP who proposed foreclosure would have to proceed by sale (give notice again, etc.)

- (3) If no notice of objection within 15 days, person who sent notice is deemed to have irrevocably chosen to foreclose, and the collateral is deemed to satisfy any amount that the debtor owes

o Once SP forecloses, debtor doesn’t owe him anything anymore- Constructive foreclosure if s. 17, treat the collateral as your own (Inland Kenworth)

REDEMPTION- S. 62 Before foreclosure or sale, any party who gets notice can pay the full amount

owing to the SP so the debtor can continue with his businesso Happens when the other SPs want debtor to continue with his business

- Consumers goods: above applies but can ignore acceleration clause

JUDICIAL DISCRETION- S. 63: Court can order procedural requirements to be waived or altered, can order

stays, changes wrt how the PPSA operateso Must ask court to make an order to alter or waive a provision, but not easyo Court will not deprive SP of remedy (Andrews and Trotchie)

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- S. 69 (7) if you fail to follow procedural requirements and to comply with the PPSA, it’s a defence against action for deficiency

- S. 70 Summary proceedings: Court can make order determining questions of priority or entitlement to collateral

CONSUMER GOODS- PPSA treats debtor better if the collateral is “consumer goods”- s. 10(3) writing requirements: “consumer goods” or “equipment” not enough – must

describe the collateral more specifically to meet writing requirement.- s. 13(2) after-acquired property: SI does not attach to after-acquired consumer goods

(other than accessions) unless it is a PMSI or SI in collateral obtained as replacement for the original collateral.

- s. 30(3) buyer/lessee of consumer goods takes free if:o Gave value, ANDo Bought/leased without knowledge of the security interest.

- S. 50(2) discharge of registration relating to consumer good: SP must discharge registration (if it relates ONLY to consumer goods) within one month after all obligations under the security agreement are met

- s. 58(3) prohibits seizure of consumer goods if debtor has paid at least two thirds of the total amount secured.

- s. 62 where collateral is consumer goods, debtor can reinstate security agreement after default by paying the amount actually in arrears (plus reasonable costs), regardless of acceleration clause

o Debtor can only use this twice per year- S. 67 in the event of default, SP can either seize collateral or sue, but not both- Courts will scrutinize why the SP has the collateral: if they have it b/c it was returned by

debtor, but it wasn’t seized, it won’t constitute seizure, so can still sue (Whitewater Motors)

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