Post on 17-Apr-2020
SECURED CONSUMER FINANCING UNDER THE PERSONAL PROPERTY SECURITY ACT
I. Introduction
Our present system of personal property security is
based on the common law doctrine of the supremacy of legal title,
and on the maxim nemo dat quod non habet. The person who had
legal title to goods would defeat any person who claimed a
subsequent interest in the goods or who wished to seize the goods
under a writ of execution.
The ability of the common law to split legal title and
possession caused hardship for creditors of a person who possessed
many assets and appeared wealthy, yet "owned" no property which
could be seized to satisfy his debts. The registration statutes,
such as The Bills of Sale Act- and The Conditional Sales Ac-t,-
alleviated this situation somewhat by requiring a creditor who
claimed legal title to register his' interest, in order to be able
to assert it against creditors and subsequent purchasers.
The Personal property security Act sets up a notice
filing system, rather than a registration system. Priorities are
no longer based entirely on legal or equitable title, but rather
are awarded to certain types of security interests which it is
deemed necessary to preserve.
1
II. Priorities
1. General
The Personal Property Security Act creates a single
system of priorities hased on the attachment and perfection of a
security interest.
The priority scheme among perfected security interests
is based on the running shoe principle - the first secu_r.ed party,
to register, take possession or perfect has the f-irst right to
satisfy its debt out of the security. (s. 35).
Note that The Personal Property Security Act allows the
secured party to register and date its priority from the date of
registration if the security interest is later perfected. Thus,
under this general scheme, a secured party can register its
intention to take a security interest and later advance funds,
and date its priority from the date of registration rather than
the later data of perfection. This is similar to the system
established under s. 88 of The Bank Act.
If the competition is entirely among unperfected
security interests, priority goes to the first to attach .. _ (s.
35(1)).
2. Purchase Money security Interests (PMSI)
The Personal Property Security Act contains certain
"special" priorities. The most important of these in the context
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of consumer financing is the purchase money security interest.
If a secured party who gives value for the purpose of enabling
the debtor to obtain rights in the collateral registers its
security interest within fifteen (15) days of the date upon which
the debtor obtains possession of the collateral, that secured
party obtains priority over:
(1) any other security interest in the collateral given by'
the sarne debtor, (s. 34(1».
(2) a person who causes the collateral to be seized, a
sheriff who is entitled to the collateral under The
Creditors' Relief Act, or the trustee in bankruptcy,
(s. 21).
even if these people acquire their interest before the purchase
money security interest is registered. Note however that a bona
fide purchaser for value who acquires the collateral before the
purchase money security interest is actually perfected and who
takes delivery of the goods will defeat the security interest
even if it is registered within the fifteen (15) day period.
3. Bona Fide Purchaser of Consumer Goods
A bona fide purchaser or lessee for value without
notice takes free of a perfected security interest in goods
(other than motor vehicles or fixtures) acquired principally for
personal, family, household or farming use, if the goods are
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worth less than Five Hundred ($500.00) Dollars and possession
passes to the purchaser or lessee. {so 30(2} and (3». Registra
tion of a security interest is totally irrelevant here.
4. Retail Purchaser
A person who acquires goods from a retail seller in the
ordinary course of his business takes free of any security interest
created by the retail seller, even if the purchaser _knew of the
security interest, unless the purchaser also knew that the sale
was a breach of security agreement. (s.30(1».
This provision is somewhat broader than the present
legislation. However, note that this section does not provide
protection for a purchaser from a retail seller if the security
interest in the goods was granted by some person other than the
retail seller, such as, for example, a previOUS owner of used
goods.
5. Fixtures and Accessions
A secured party can assert its claim over accessions or
fixtures, against every other interest in the principal chattels
or land, if the security interest attaches before the collateral
is affixed to the principal chattel or land and the security
interest is registered in the Personal Property Security Registry
4.
(for accessions) or filed in the Land Titles Office (for fixtures)
before subsequent interests arise.
upon a seizure of the collateral, the secured party
must reimburse any person with an interest in the land or principal
chattel for damage caused to that person's interest by the removal
of the collateral. These persons may also demand that the secured
party provide seourity for the cost of anticipated damage before.
the collateral is removed. (ss. 36 and 37).
III. sills of Sale Absolute
The Bills of Sale Act, with its provisions for registra
tion of bills of sale absolute, will be repealed with the enactment
of The Personal Property Security Act. However, The Factors Act
and The Sale of Goods Act have been-amended to provide for registra
tion in the Personal Property security Registry of the interest
of a purchaser who leaves the goods purchased in the possession
of the seller. This registration will provide a method for a
subsequent purchaser from the seller to obtain information about
the interest of the first purchaser.
The registered interest of a purchaser under a bill of
sale absolute will defeat any person who later purchases the
goods from the seller. However, only a serial number registration
will defeat a person who buys from such a second purchaser, as if
the goods are not registered by serial number, this third purchaser
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would have no means of discovering the existence of the bill of
sale.
IV. Other Legislation
The enactment of The Personal PropertY,Security Act
will result in consequential amendments to numerous pieces of
legislation. including, in relat.ion to consumer financing, the
following:
1. The Exemptions Act
The amendments to this Act essentially change the terms
used to make them consistent ~ith those defined in The Personal
Property Security Act. Note that the purchase money exception to
exemption from seizure now applies to any "purchase money security
interest", not only to chattel mortgages given to a vendor to
secure. payment of the purchase price of the,. collateral. (s.
5 (2» •
2. The Executions Act
Section 2.1 of the amended Act merely restates the
effect of the issuance of a writ of execution. writs of execution
issued prior to the coming into force of The" Personal Property
security Act bind the goads of th~ debtor when delivered to the
sheriff, and take priority over chattel mortgages or bills of
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sale only when the old Bills of Sale Act so provides. The writ
does not take priority over a sale, accompanied by an immediate
change in possession, to a bona fide purchaser for value without
actual notice of the writ.
Writs issued after The Personal Property Security Act
comes into force again bind the goods of the debtor upon delivery
of the writ to the sheriff. When registered under The Personal
Property Security Act, such writs take priority over unregistered
or subsequently registered security interests. but lose to:
(al a bona fide purchaser who takes immediate delivery and
who has no actual notice of the writ. (Note that the
registr~~ion of the writ, or any other registration,
for that matter, in the Personal Property Security
Registry is not notice. (s. 51 of the PPSA»I
(b) a secured party who takes possession before the writ is
registered;
(c) a secured party who registers its purchase money
security interest ~'lithin fifteen (15) days of the date
when the debtor gets possession of the goods. (s. 2.2
of The Executions A_ct) .
Section 20 of The Personal Property Security Act provides
another avenue for an execution creditor to get priority over
unperfected security interests and, to a certain extent, over
perfected security interests. An execution creditor who causes
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the collateral to be seized under legal process will defeat an
unperfected security interest. There is no requirement that the
writ of execution pursuant to which the seizure is made be
registered. Such an execution creditor will also take priority
over advances made by a secured party after the secured party
receives notice of the interest of the creditor seizing.
The new section 11.1 of The Executions Act clarifies
the procedure for seizing real estate mortgages and registered
security interests owned by the debtor. The sheriff can seize
these interests by delivering written notice of the seizure to
the appropriate registration office.
The amendments also provide for the registration of a
writ of execution in the Personal Property Security Registry.
3. The Limitation of Civil Rights Act
Section 18 of The Limitation of civil Rights Act will
provide that where a vendor reserves a purchase money security
interest in goods, its right to recover the purchase price is
limited to its right to seize the goods. under the present Act
only a vendor with a conditional sales contract, or with a
chattel mortgage and promissory note, was so restricted. Note
that section 18 will only apply to purchase money security
interests taken by a vendor, and will not apply to purchase money
security interests taken by a secured party other than a vendor.
8.
The remaining amendments to The Limitation of Civil
Rights Act essentially change terminology to be consistent· with
The Personal Property Security Act.
4. The Distress Act
The amendments to this Act remove the requirement that
a creditor obtain a warrant from the sheriff before seizing goods
covered by a chattel ~ortgage. When this Act comes into force,
seizures under all security agreements will be able to be effected
by the creditor alone. However, the reatrictions on the actions
of the creditor contained ih Part V of The Personal Property
Security Act will apply.
The Act sets out the costs exigible on a distress for
rent, and on an extra-judicial seizure of consumer goods under a
security agreement.
The procedure for seizure of a house trailer has been
changed somewhat. Thirty (30) days' notice of an intention to
seize a house trailer, which notice is to set out particulars of
the default, will be required.
5. The Creditors' Relief Act
Certificates obtained by creditors under this Act (i.e.
in lieu of obtaining a judgment) are to be registered under
The Personal Property security Act.
9.
6. Sale of Goods Act and The Factors Act
In addition to the amendments referred to under Bills
of Sale Absolute above, The Sale of Goods Act and The Factors Act
provisions relating to buyers in possession have been amended by
the addition of section 26(4) of The sale of Goods Act and section
10(2) of The Factors Act. These sections provide that the
provisions of tbose Acts allowing a buyer in possession to pass .
good title do not apply to a buyer who has obtained possession of
the goods under a security agreement. Note however that if the
security agreement was not perfected under The Personal Property
Security Act at the time of the sale by the buyer in possession,
the transferee from the buyer in possession would defeat the
secured party by reason of section 20(1) of The Personal Property
Security Act. This right 'is somewhat broader than under the
present law, as it removes the necessity of an inquiry into
whether or not the buyer in possession sold the goods in the
ordinary course of its business as a mercantile agent, as was
required by reason of the Saskatchewan Court of Appeal decision
in Kozak v. J & DIS Auto Ltd. and Ford Motor Credit Ltd. f19?l}
3 W.W.R. 1.
The Factors Act provisions relating to consignment
sales will not apply to consignments to which The Personal Property
Security Act applies.
10.
)
7. The Garage Keepers' Act
The amendments to this Act essentially involve a change
in the terminology from a reference to conditional sales and
chattel mortgages to-a reference to security agreements.
section 32 of The Personal property Security Act states
that an artificer's lien has priority over a perfected security
interest unless the Act giving the lien expressly states that it
does not have such priority.
11.
GLOSSARY OF TERMS - CONSUMER SECURED FINANCING
1. "Accessions" are goods which are installed on or
affixed to other goods. (s. 2(a».
2. "Attachment" occurs when everything necessary to create
a security interest has taken place. Section 12 of 'The Personal
property Security Act states that the security intere.st attaches
when:
ta} value is given (by the secured party);
(b) the debtor has rights in the collate.i:al (upually
possession in the case of consumer transactions); and
(c) except for the purpose of enforcing· rights between the
debtor and the secured party, the security agreement
becomes enforceable against third parties.
Section 10 provides that the security interest becomes enforceable
against third parties when either:
3.
Ca) the secured party has possession (for example, a
pledge with a pawnbroker}; or
(b) a security agr.eement describing the collateral is
signed.
"Chattel Paper" is one or more documents which evidence
both an obligation to pay and a security interest. (s. 2(e}).
4. "Collateral" is a term used in The Personal Property
Security Act to describe the property that is subject to a
security interest. (s. 2(f».
12.
5. "Fixtures" are goods which are affixed to realty so as
to pass with the realty. (so 2(p».
6. "Perfection" occurs when the security interest has
attached and the secured party has done what is possible to
protect its security interest against third parties. The fact
that a secured party has perfected does not mean that it will
always have the first right to enforce its debt out of the
collateral. However, it is usually the best position that the
secured party can be in under The Personal Property Security Act •.
Perfection is accomplished by registration or by possession (i.e.
a pledge). The Act also provides for temporary perfection in
some circumstances. (ss. 19, 24 to 28).
7. "Proceeds" are identifiable or traceable items of
personal property which arise from any dealing with the collateral.
An example of the creation of proceeds is when the collateral is
traded in as part of the purchase price of a new item. The new
item is "proceeds" of the collateral. Insurance money payable as
a result of the loss of the collateral is another example of
proceeds, and is expressly referred to in "the definition of
proceeds in the Act. (s. 2 (e}) •
8. "Purchase money security interest" is a security
interest taken by a person who gives value to enable the debtor
to acquire rights in the collateral. In the context of consumer
financing, a purchase money security interest is either a security
interest taken by a seller to secure payment of the purchase
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price of the collateral, or one taken by a secured party to
secure repayment of money advanced to the debtor to enable the
debtor to purchase the collateral, to the extent the money is so
used. (s. 2(gg».
9. "Secured. party" is the person who has the security
interest. {so 2 (kk».
10. "Security Interest" is an interest in personal property
which secures the performance of an obligation. The Act looks to
substance, not form, to decide if a document creates a security
interest. The person who has title is not an issue. There are
also certain deemed security interests which do not in fact
secure payment of an obligation, but are required to be registered
in the Personal Property Security Registry in order to avoid the
deception that arises when a person has possession, but is not
the owner. The most important of these, in the context of consumer
financing, is a lease for a term of more than one (1) year. (s.
2 (nn» .
14.
A.D. 19
BETWEEN:
SECURITY AGREEMENT - CONSUMER SECURED FINANCING
(Note: This security Agreement has been prepared for discussion purposes only. The author accepts no responsibility or liability for errors or omissions contained in it or in any communications associated with iL)
SECURITY AGREEMENT MADE THIS DAY OF
with head office at in the Province of Saskatchewan,
(Hereinafter referred to as the "CREDITOR")
- and -
of ________ _ in the p_rovince of Saskatchewan,
(Hereinafter referred to as the "DEB'l:OR")
WHEREAS the DEBTOR has applied for a loan. calculated
_____________ -"______________ in the
amount of ___________________________ -----------------
Dollars bearing interest at the rate of ____________ percent per
annum (hereinafter referred to as "the loan") from the CREDITOR;
AND WHEREAS to induce the CREDITOR to make the loan and
to better secure payment therefor the DEBTOR is willing to grant
to the CREDITOR a security interest in the personal property
described as follows:
15.
together with all proceeds thereof (all of which is hereinafter
referred to as "the collateral");
NOW THEREFORE THIS AGREEMENT WITNESSETH:
1. The DEBTOR grants to the CREDITOR and agrees that the
CREDITOR shall have a security interest in the collateral, on the
terms and conditions hereinafter set out, which security interest
is hereinafter referred to as "the security interest". 2. The
security interest shall attach immediately upon:
(a) consideration being given by the CREDITOR;
(bl the DEBTOR acquiring rights in the collateral; and
(c) this Agreement being executed by the DEBTOR.
3. The security intere,st secures repayment of all sums now
or hereafter owing by the DEBTOR to the CREDITOR, wnether owing
solely by the DEBTOR or by the DEBTOR jointly or severally with
some other person or persons including, but without limiting the
generality of the foregoing, all sums owing on account of the
loan and all sums payable to the CREDITOR hereunder.
16.
4. The DESTOR warrants:
(a) exclusive ownership and possession of the collateral,
free and clear of all liens, charges and encumbrances,
except as previously declared in writing to the CREDITOR;
(b) that no part of the collateral is affixed to another
item of personal property other than items of personal
property in respect of which the CREDITOR has a security
interest hereunder;
(c) that no part of the collateral is presently affixed to
realty sO as to constitute it a fixture.
5. The DEBTOR covenants and agrees:
(a) to care for the collateral in a reasonable and prudent
manner, and to maintain it in good repair. All replacement
parts which may be placed in or upon the cOllateral
shall be free and clear of all adverse claims, and
shall, immediately upon being placed in or upon the
collateral, form part of the CREDITOR's security
hereunder;
(b) to protect the CREDITOR's security interest in the
collateral, and in particular to keep the collateral
free from all other liens, encumbrances, security
interests, charges and claims;
(c) to not sell, dispose of or part with possession of the
collateral, or remove or permit it to be removed from
17.
the Province of Saskatchewan without the prior written
consent of the CREDITOR;
(d) to not affix the collateral or any part thereof or
permit it to be affixed so that it becomes part of
realty or becomes an accession to other personal property,
without the express written consent of the CREDITOR and
then only if the DEBTOR obtains a waiver in favour of
the CREDITOR from any landlord, encumbrancer, owner or
other person having any right in such realty or other
personal property;
(e) to keep the collateral insured against loss or damage
by fire, theft, and, in the event that the collateral
includes an automobile, collision. in an amount not
less than the full replacement cost thereof. The
proceeds of any insurance upon the collateral are
hereby assigned to the CREDITOR, to be applied toward
the repair or replacement of the said collateral or
payment of the indebtedness hereby secured. at the
option of the CREDITOR;
{fl in the event that the DEBTOR fai1s to maintain. repair
or insure the collateral, or allows any other liens.
encumbrances, security interests, charges or claims to
attach to the collateral, the CREDITOR may, but shall
not be required to, pay for the maintenance, repair or
18.
6.
insurance of the collateral, or discharge such liens,
encumbrances, security interests, charges or claims.
The DEBTOR shall promptly reimburse the CREDITOR for
all monies so paid, and the same shall be added to the
debt hereby secured and shall bear interest at the loan
rate and shall be payable with the principal sum.
In the event of default by the DEBTOR hereunder, all
sums secured hereby will immediately become due and payable. The
CREDITOR may thereupon take such measures to realize on its
secqrity hereunder as it may deem necessaJ:y or advis,a,ble including,
without limiting the generality of the foregoing:
(a) take immediate possess'ion of any or all of the collateral
and for this purpose enter upon the premises where the
said collateral may be and remove the same. The DEBTOR
shall be liable for any damage occasioned by such entry
and removal and shall indemnify the CREDITOR therefor;
(b) sell the collateral at public or private sale, in
return for a lump sum or deferred payments, or lease
the collateral. Any such sale or lease may be with or
without notice to the DEBTOR, and the CREDITOR shall
have the right to bid at any public sale. The CREDITOR
shall thereafter deduct from the proceeds of such
disposition all expenses for retaking, repairing and
selling or leasing the collateral, and apply the
19.
balance to the amount owing by the DEBTOR to the CREDITOR.
The DEBTOR covenants to pay any deficiency forthwith,
with interest at the loan rate,
(c) retain the collateral repossessed and in addition
retain any sum of money theretofore paid by the DEBTOR
as liquidated damages and not as penalty;
Cd) as the irrevocally appointed agent of the DEBTOR, tak~
possession of the collateral or any portion thereof and
sell, lease or otherwise deal with the collateral I and
apply any proceeds thereof, after deducting the expenses
incurred therebYI to the indebtedness secured hereunder.
All remedies and recourses available to the CREDITOR are cumulative
and may be exercised by the CREDITOR either concurrently or
successively.
7. The DEBTOR shall be deemed to have defaulted hereunder
upon the happening of one (1) or more of the following events:
(a) th.6 death, bankruptcy, insolvency, making of an assign
ment for the benefit of creditors, or making of a
proposal for the composition of any liability, of the
DEBTOR;
(b) any indebtedness of the DEBTOR to the CREDITOR being
past due and unpaid;
(c) failure of the DEBTOR to perform any obligation required
by this Agreement or any other agreement, present or
future, between the DEBTOR and the CREDITOR;
20.
8.
(d) the CREDITOR finding that any fact covenanted by the
DEBTOR to be true is, was or has become false;
(e) the CREDITOR deeming the collateral to be in danger of
misuse, loss, seizure or confiscation, or the CREDITOR
deeming itself to be insecure;
(fl any execution, sequestration, attachment or other
similar process becoming enforceable against the DEBTOR,
or any distress or similar process being levied against
the DEBTOR;
(g) upon the CREDITOR being notified that another person
intends to take or has taken a security interest in the
collateral.
No waiver by the CREDITOR of any default in the performance
of any part of this Agreement by the DEBTOR shall be deemed a
waiver of any prior or subsequent default of any of the provisions
of this A9~e_e_rn~~1;. A~y _C;:()J:)._~_~_I1.~ ___ g:r;~nted hereunder shall apply
only in relation to the specific event in respect of which the
consent is given. In the event that the CREDITOR obtains a
judgment against the DEBTOR for any sums secured hereby, the
security interest granted hereunder shall not merge in the said
judgment.
9. Any term of this Agreement which is or is held to be
void, prohibited or unenforceable shall be severable herefrom
without in any way invalidating the remaining terms hereof.
21.
10. This Agreement shall.enure to the benefit of and be
binding upon the respective heirs, executors, administrators,
successors and assigns of the parties hereto. In the construction
of this Agreement, the masculine shall include the feminine and
the neuter, and vice versa, and the singular shall include the
plural, as the context may require.
11. If the DEaTOR is more than one (1) person, their
obligations shall be several as well as joint. If more than one
(I) person has covenanted to repay the indebtedness secured
hereby, the obligations among all such persons shall be several
as well as joint.
12. The proper law of this Agreement shall be the law of
the Province of Saskatchewan.
IN WITNESS WHEREOF the DEBTOR has executed this Agreement,
the day and year first above written.
SIGNED, SEALED AND DELIVERED ) in the presence of: )
) )
witness )
22.