Law 587 PPSL Wood - Amazon S3 · 7/ SP can follow the collateral into the hands of a 3P Ex. Debtor...
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Law 587 PPSL Wood
Transcript of Law 587 PPSL Wood - Amazon S3 · 7/ SP can follow the collateral into the hands of a 3P Ex. Debtor...
Law 587 PPSL Wood
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Personal Property Security Law (PPSL) I) The Concept of Secured Financing ......................................................................... 6
a) What is a security interest? ................................................................................................. 6
b) Is secured credit a good thing? (PPSA assumes it is) ....................................................... 6
c) What are the advantages of having a security interest? ................................................... 6
Enhanced Position of Secured Creditors ........................................................................................ 6
1. Right of Enforcement ................................................................................................................. 6
2. Right to Priority ......................................................................................................................... 6
3. Right to Follow .......................................................................................................................... 6
d) History of Secured Credit ................................................................................................... 7
e) Reform of the Law ................................................................................................................ 7
f) Terminology .......................................................................................................................... 7
g) Change in Use of Goods ....................................................................................................... 8
II) Scope of the PPSA (s.3 & s.4) ................................................................................. 8
a) True SI: s.3(1) ....................................................................................................................... 8
b) Deemed SI: s.3(2) ................................................................................................................. 8
i) “lease for term of more than 1 year” .......................................................................................... 8
ii) Transfer of account or chattel paper .......................................................................................... 9
c) Lease vs. disguised SI ........................................................................................................... 9 Standard Finance (1984 MBQB 19) – true lease vs. disguised SI..................................................... 9
Re Cronin Fire (1993 OntGD 22) – disguised SI if lessee gets benefits + losses ............................. 9
d) Consignment vs. Disguised SI ........................................................................................... 10
CIBC v. Westfield (1990 SaskQB 26) – true consignment or SI, commercial consignment ............ 10
e) Licenses/quotas ................................................................................................................... 10
Saskatoon Auction Mart (1993 SaskQB 28) – Sask: license isn’t ppty............................................ 10
f) Non-application of the Act – s.4 ......................................................................................... 10
g) Non-application to Indian ppty ......................................................................................... 11
III) Conflict of Laws (ss.5 - 8.1) .................................................................................. 11
a) COL Rules ........................................................................................................................... 11
Gimli v. BDO (1998 AB) .................................................................................................................. 11
b) Relocation of Goods (s.5(2)) .............................................................................................. 12 Problem (See handout – Sept 18)................................................................................................. 12
c) Relocation of Debtor (s.7(3)).............................................................................................. 13
d) Operation of the grace periods ......................................................................................... 13
IV) The Security Agreement (SA) .............................................................................. 13
a) Enforceability ..................................................................................................................... 13
1) Possession or Written SA ........................................................................................................ 13
2) Granting clause ........................................................................................................................ 13
Guntel v. Kocian (1985 MBQB 40) – generous court; valid SA w/out charging provision ............ 13
3) Authorized Collateral Description (s.10(1)(d)) ....................................................................... 14
GE v. Dix (1994 BC 43) ................................................................................................................... 14
b) Attachment (s.12) ............................................................................................................... 14 1) Conditions for Attachment (s.12) ............................................................................................ 14
Sprung v. Caswan (1997 ABQB 45) – deemed SI + GSA includes <o/ship interests held by D ..... 15
Sprung v. Caswan (1998 ABCA 52) – CA: GSA doesn’t cover leased goodsWRONG ............... 15
c) After-Acquired Property & Future Advances................................................................. 15 1) After-acquired ppty (s.13) ....................................................................................................... 15
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2) Future Advances (s.14) ............................................................................................................ 16
V) Perfection ............................................................................................................... 16
a) Intro ..................................................................................................................................... 16 Rationale for perfection ............................................................................................................... 16
b) Methods of Perfection ........................................................................................................ 16
1) Perfection by Possession ......................................................................................................... 16
2) Perfection by Registration: most common .............................................................................. 16
3) Temporary perfection: limited circumstances ......................................................................... 17
4) Perfection by control: investment ppty ONLYs.24.1 .......................................................... 17
c) Timing of Perfection ........................................................................................................... 17
d) Effect of Non-perfection .................................................................................................... 17 1) Non-perfection & Bankruptcy (s.20(a)) .................................................................................. 17
2) Non-perfection & Transferees (s.20(b)) .................................................................................. 18
Re Giffen (1998 SCC 56) – nonperfected SP vs. T/B: SCC clarifies post-PPSA law ...................... 18
3) 2-Debtor Problem .................................................................................................................... 18
VI) The Registry System ............................................................................................ 18
a) Fundamentals of Registration ........................................................................................... 18 1) Notice Filing v. Document Filing ............................................................................................ 18
2) Disclosure of information ........................................................................................................ 19
3) Pre-agreement Registration: lower transaction costs............................................................... 19
4) Blanket registration.................................................................................................................. 19
5) Impact of First to Register Rule .............................................................................................. 19
6) Controlling Abuse of the System............................................................................................. 19
b) The Financing Statement .................................................................................................. 19
1) Contents of Reg ....................................................................................................................... 19
2) Amendments to Registrations .................................................................................................. 20
c) Registration Errors ............................................................................................................ 20 1) Errors in Search Criteria: what kind of errors are tolerated? ................................................... 20
Case Power (1994 ABCA 70) – test for SM in AB ........................................................................... 21
2) Dual Search Criteria: if reg requires SN + D name, must both be correct? ............................ 21
Stevenson v. GMAC (2993 NBCA) –bad NB law: ok as long as SN correct ................................... 22
John Deere Credit Inc. (2000 ABQB 99) – appln of AB law ........................................................... 22
Services Food (2006 NZCA) – overbroad collateral desc NOT SM ................................................ 22
3) Errors in Non-searchable Fields .............................................................................................. 23
VII) Competition with Buyers..................................................................................... 23
a) Buyer Priority Rules (ss. 20, 28(1)(a), 30, 66(3)) ............................................................. 23
1) Introduction: Sources of Priority Rules (s.30 + other provisions) ........................................... 23
2) Authorized Sales (s.28(1)) ....................................................................................................... 23
3) Ordinary Course Buyers (s.30(2)) ........................................................................................... 23
Lanson (1998 SaskCA 112) – appln of authorized sale + ordinary course B ................................. 24
Camco (1986 SaskCA 114) – ordinary course test: whether ordinary to that seller ...................... 24
RBC v. Wheaton Pontiac (1991 SaskQB 124) ................................................................................. 24
4) Garage Sale Exception: Buyers of Lower Value Consumer Goods (s.30(3), (4)) .................. 25
5) Temporary Perfection Protection (s.30(5)) .............................................................................. 25
6) SN Goods held as equipment................................................................................................... 25
b) Supplementary Principles ................................................................................................. 25
1) The Defn of Sale ...................................................................................................................... 25
RBC v. 216200 Alberta Ltd. (1987 SaskCA 127) – “sale” requires sales K + passing of ppty ...... 26
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Spittlehouse v. Northshore Marines (1994 OntCA 132) – misguided defn: sale only requires sales
K .............................................................................................................................................. 26
VIII: Competition with Secured Parties .................................................................... 26
1) General Priority Rule (s.35, 66) ........................................................................................ 26 a) Residual FIT rule (s.35) ........................................................................................................... 26
b) Continuity of Perfection .......................................................................................................... 27
c) SN Goods ................................................................................................................................. 27
d) Future Advances ...................................................................................................................... 27
e) Registration & Multiple SAs ................................................................................................... 27
ACS v. RBC (1994 SaskCA 139) –registration covers subsequent SAs ........................................... 27
f) Change of Name or Transfer (s.51) .......................................................................................... 28
RBC v. Headwest (2007 ABQB 147)................................................................................................ 28
2) Exceptions to the General Rule ......................................................................................... 28
a) Re-registration on Lapse or Discharge .................................................................................... 28
b) The Double Debtor Problem (s.35(9)) ..................................................................................... 28
c) Knowledge, Bad Faith & Priority ............................................................................................ 29
Carson Restaurants (1989 SaskQB 158) ......................................................................................... 29
d) Estoppel ................................................................................................................................... 29
e) Subrogation (rules of Equity) .................................................................................................. 29
Re N’Amerix (2001 OntSC 152) ...................................................................................................... 30
f) Assignment: assignment vs. subrogation ................................................................................. 30
g) Marshalling of Securities ......................................................................................................... 30
g) Amalgamations ........................................................................................................................ 30
IX: Purchase-Money Security Interest (PMSI) .......................................................... 30
a) Introduction to PMSI ......................................................................................................... 31
Wheatland Industries v. Baschuk (1993 SaskQB 167) – not PMSI if D hasn’t acquired new asset 31
b) Procedural Requirements for Super-Priority ................................................................. 31 1) PMSI in Inventory ................................................................................................................... 31
2) PMSI in Non-Inventory ........................................................................................................... 31
3) Determining “Date of D’s possn” ............................................................................................ 32
4) Two-Debtor Problem: “PMSI > SI given by same D” ............................................................ 32
c) Competition between PMSI vs. T/B & PMSI vs. B ......................................................... 32
d) Priority Competitions between 2+ PMSIs ....................................................................... 32 1) 2 PMSI lenders in same collateral ........................................................................................... 32
2) PMSI Seller vs. PMSI Lender in same collateral .................................................................... 32
3) PMSI lender in original collateral vs. PMSI lender in proceeds (p.355 text) .......................... 32
e) Maintaining PMSI Status .................................................................................................. 33
1) Effect of Cross-collateralization .............................................................................................. 33
Clark Equipment v. BMO (1984 MBQB 171) – SA can cover PMSI + non-PMSI obligations....... 33
Chrysler v. RBC (1986 SaskCA 187) – bad decision: cross-collateralization ................................ 33
2) Consolidation of Debts and Refinancing ................................................................................. 34
3) Paying out PMSI Held by 3P ................................................................................................... 35
Battlefords Credit Union (1991 SaskCA) – good decision, bad reasons: SP who pays out gets
PMSI ....................................................................................................................................... 35
f) Production Money Security Interests in Crops and Animals ......................................... 36
X) Proceeds ................................................................................................................. 36
a) SI in Proceeds ..................................................................................................................... 36
b) Defn of Proceeds – 4 requirements (s.1(1)) ...................................................................... 36
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1) Multi-Generation Proceeds ...................................................................................................... 36
2) “D must acquire an interest (in the proceeds)” ........................................................................ 37
3) Identifiable or Traceable Requirement .................................................................................... 37
PettyJohn (Watusi Cattle case) (1991 SaskCA 212) – f(n)l equivalence ......................................... 38
c) Proceeds and Perfection ..................................................................................................... 38
1) Proceeds and Priorities ............................................................................................................ 39
Transamerica v. RBC (1990 SaskCA 222) – appln of s.34(6) ......................................................... 39
c) Non-Proceeds PMSI vs. PMSI as proceeds – s. 34(7) ............................................................. 39
XI) Special Priority Rules ........................................................................................... 39
a) Negotiable Assets (s.31): SP vs. transferee w/ possn ....................................................... 40
1) Payments to Creditors .............................................................................................................. 40
2) Purchasers of Negotiable Collateral ........................................................................................ 40
Flexi-Coil (1994 SaskCA 230) ......................................................................................................... 41
b) Investment Ppty (s.35.1) .................................................................................................... 41
c) Non-Consensual SI (s.32) ................................................................................................... 41
Priority Rule under S.32 .............................................................................................................. 42
Garage Keeper’s Lien Act, s.4 ..................................................................................................... 42
Analysis for Priority Competitions: SP vs. non-consensual SP ................................................... 42
RBC v. Sparrow Electric (1997 SCC 244) – CRA loses priority ..................................................... 42
d) Fixtures, Accessions and Commingled Goods ................................................................. 43 1) Loss of Identity of Goods ........................................................................................................ 43
2) Fixtures (s.36): Goods attached to (enhance the value of) land .............................................. 43
National Trust .................................................................................................................................. 43
3) Growing Crops (s.37) .............................................................................................................. 44
4) Accessions (s.38): Goods attached to Other Goods ................................................................ 44
5) Processed or Commingled Goods............................................................................................ 44
e) Subordination Agreements – SP surrenders priority ..................................................... 45
Apparent Circular Priority ........................................................................................................... 45
Chiips (1994 ABCA 266) – bad decision: subordination doesn’t require clear language re
priorities .................................................................................................................................. 45
XII) Enforcement (Part V) ........................................................................................... 45
a) Application of Part 5 .......................................................................................................... 45
b) Enforcement Steps ............................................................................................................. 46
1) Default: D must default before SP can enforce ....................................................................... 46
2) Seizure: SP takes Possession ................................................................................................... 46
3a) Sale......................................................................................................................................... 46
3b) Foreclosure – SP takes collateral in satisfaction of the obligation ........................................ 47
4) Receivership – permitted only if in SA ................................................................................... 47
c) Redemption ......................................................................................................................... 47
d) Reinstatement ..................................................................................................................... 47
e) Supervisory Power of Court .............................................................................................. 47
XIII) Bank Act Security ............................................................................................... 47
a) Scope .................................................................................................................................... 47
b) Nature of the Security ........................................................................................................ 47
c) Obligation Secured ............................................................................................................. 47
d) Registration System ........................................................................................................... 47
e) Priorities .............................................................................................................................. 48
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Examples ...................................................................................................................................... 48
I) The Concept of Secured Financing
a) What is a security interest?
2 types of interest in ppty:
o Personal right (in personam): enforceable against particular person
o Proprietary right (in rem): right in respect of a thing; exigible (enforceable) against an
indefinite class of people (all except person w/ better right/priority)
Security interest – an interest in personal property that secures payment or performance of an
obligation; must be created (K)
Secured credit – r/ship whereby debtor gives creditor proprietary interest in 1+ of her assetsif she
defaults, credit can look to value of assets to satisfy debt
o Interest in ppty secures the obligation
o Created by K
2 types of credit
1. Sale credit: sale now, buyer pays later
2. Loan credit: buyer borrows, promise to pay back
a) Fixed-sum credit: repayment schedule
b) Revolving credit: debtor takes line-of-credit: draw as required/repay when possible
b) Is secured credit a good thing? (PPSA assumes it is)
(+) Reduces risk of lending vs. (-) makes unsecured creditors more riskywhere’s the savings?
Theory/Criticism 1: Redistribution of wealth from poor to rich
o Involuntary creditors, e/ees can’t adjust interest rates to account for being unsecured
o Rebut: maj+ of unsecured creditors are large corporationse/ees often given priority
Theory 2: a) Screening theory – getting collateral reduces screening costs
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c) What are the advantages of having a security interest?
Unsecured creditor has personal right against debtorhas COA: sue + judgment
Enhanced Position of Secured Creditors
1. Right of Enforcement
SP has superior right to proceed against the collateral if debtor defaults
o Right to take Possession
Ex. unSP can’t just take collateral (theft) (Cf. SP: proceed immediately)
o Right to Sell
o Right to Foreclosure
o Right to appoint a receiver (receiver manager takes over business operations)
2. Right to Priority
SP has priority right against unsecured creditors
o Ex. 100 unsecured creditors: pro rata sharing of debtor’s assets
o SC can sell asset, recover his debt 1stsurplus shared by unSP
Q: SP has SI in D’s ppty for $500K loanD has $2.5M assetsunSC claims = $4M
o A: If SP registered correctly1st priority + fully recover$2M for unSC50¢ sharing
3. Right to Follow
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SP can follow the collateral into the hands of a 3P
Ex. Debtor gives SI to truck to SP + sells truck to BuyerSP has prior right + recovery against B
o Q: too onerous on B? A: No. SP must register right & B can do registry search
SP====(SI)======D
(Sale)
Terminology
SI (security interest) – secures payment of debt
Collateral - asset that’s subject to the SI
Obligation Secured – the loan/debt that’s protected
SP (secured party) – holder/receiver of the SI
D (debtor) – giver of SI
d) History of Secured Credit
Pledge – physical transfer of asset to SP (ex. pawn, overseas trade); debtor denied use to asset
Chattel Mortgage – non-possessory SI; early courts suspicious of this type of SI b/c no possession
Conditional Sales Agreement – buyer doesn’t get title until sales credit/loan paid in full
Floating Charge – company grants SI in all assets
Assignment of Book Debts – assign obligation to pay (ex. 3P must pay AA assigns debt to B)
e) Reform of the Law
Tradl: each SI had diff laws/rules/concepts/reg. Requirements
Modern: single statute governing all SIeasier to take SI
1. PPSA uses concepts that facilitate inventory financing
2. Creates unified & rational priorities system
3. Unified registry system
4. PPSA adopts single comprehensive enforcement system (code of remedies)
f) Terminology
7 classes of personal property
1. Goods – tangible personal property, including growing cropsS.1(v)
a) Consumer Goods – used/acquired primarily (51%) for personal/family/household purposes
b) Inventory – goods held for sale OR lease or to be furnished under K of service OR raw
materials or work in progress OR materials used or consumed in a business (ex. Paint)
c) Equipment (residual) – goods held by a debtor other than as inventory or consumer goods
2. Documents of title – rights embedded in paper (bill of lading & warehouse receipt)
o Receipts issued by bailees (ex. w/house) to show that bailee holding goods for person X
o Transferable: ex. A’s stuff stored at w/houseA transfer to BB can claim things
3. Instruments – (cheques) writing that evidences a right to payment of $$
o Transferable by delivery with any necessary endorsement
o Excludes {chattel paper, document of title or investment property}
4. Investment Property – stocks, security entitlements, security accounts, etc.
o Security (stocks, bonds) – an interest in an issuer that’s traded on securities exchange
o Security entitlement – customer-intermediary-issuer r/shipcustomer gets entitlement, brokers
hold security
5. Chattel Paper – writings that evidence both a monetary obligation + SI in or lease of specific
goods
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o Ex. A (car dealership) sells car to B, extends sale creditB gives security interest in car
(collateral)A grants SI in all assets as collateral to bank
Chattel paper = A’s arrangement w/ B (right to repayment + security interest)
Bank has SI to chattel paper, not the car
6. Money – actual paper currency (cf. right to be paid $)
7. Intangible – catch-all category (ex. IP, accounts (right to be paid $))
g) Change in Use of Goods
Change in use (S.1(5)): freeze characterization at time SI attaches to goods
o Subsequent changes irrelevant
See Problem Set 1 (Jack Horton) – Sept 20th
II) Scope of the PPSA (s.3 & s.4)
PPSA only regulates transactions covered w/in scope of PPSA; else, use ppty rules (nemo dat)
S.3(1) (True SI) & s.3(2) (deemed SI) are watertight compartments (no overlap)
a) True SI: s.3(1)
4-part test of true security interest:
1. Transaction creates a property interest in an asset
2. Asset is personal property
3. Transaction secures payment or performance of an obligation
4. Interest arises from K (agreement) between parties
Functionalist test: covered by PPSA if transaction in substance creates a SI (cf. form)s.3(1)
o F(n) test extends reach of PPSA by including disguised SI transactions
Includes older forms of SI (chattel mortgages, etc.)s.3(1)(b) 3(1) Subject to section 4, this Act applies to (a) every transaction that in substance creates a security interest, without regard to its form and without regard to the person who has title to the collateral, and (b) without limiting the generality of clause (a), a chattel mortgage, conditional sale, floating charge, pledge, trust indenture, trust receipt, assignment, consignment, lease, trust and transfer of chattel paper where they secure payment or performance of an obligation.
b) Deemed SI: s.3(2)
All PPSA (except remedies/enforcement rulesPart 5 (s.55-onwards)) applies to deemed SIs
o CL remedies apply to deemed s.3(2) SI
3(2) Subject to sections 4 and 55, this Act applies to (a) a transfer of an account or chattel paper, (b) a lease of goods for a term of more than one year, and (c) a commercial consignment,
that does not secure payment or performance of an obligation.
i) “lease for term of more than 1 year”
True leases are caught if for term of 1+ year (NOT disguised leases)
o Policy: problems of ostensible ownership applies to long term lease transactions too
o PPSA protects SP & 3P buyerrequire registration so 3P has notice of interest
o Same problem w/ lease: ex. A leases to BB sells to 3Psame risk to A & 3P
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“lease for a term of more than one year” includess.1(1)(z):
(i) Lease for indefinite term
(ii) Lease term < 1 year but parties continue r/ship after K expires
(iii) Lease term < 1 year but renewable
Excludes:
(iv) Lessors not normally in business of leasing goods
(v) Household goods part of leased land where goods incidental to use/enjoyment of land
Short-term, non-renewable true leases not covered by PPSA
ii) Transfer of account or chattel paper
Transfers of accounts/chattel paper covered
o Policy: difficult to distinguish between true SI or transfer of accounts
o Different rules for true SI & transfer (old vs. new rules)make PPSA applicable
Ex.1) D sells chattel paper to finance co.deemed SI (s.3(2))
Cf. D grants GSA to bank (incl. chattel paper)true SI (s.3(1))
c) Lease vs. disguised SI
True lease: A gives possession to B for considerationB returns when term ends
o S.3(2) may still apply in Alta (true leases > 1 year)
Disguised SI: A leases X to Bwhen term ends, B owns it (just paid over time)
o Ex1) A leases computer to B for 10 yrscmpt has no residual value (B paid in full)
o Ex2) A leases car to B (5 yrs) w/ option to buy for $1 post-5 yrs
If residual value > $1reasonable B would buy (paid purchase price + credit charges)
o Ex3) A leases car to B (5 yrs) w/ option to buy for $5K
Test: was $5K a reasonable estimate of expected residual value?
If residual value > option price (buyer gets bargain)disguised SI
Defn of “lease” highly litigious
Standard Finance (1984 MBQB 19) – true lease vs. disguised SI
Facts – National Typewriter, Econ, Standard Leasing
E wants copierNT sells to subsidiary (SL) & SL leases to EE bankruptSL claims ownership
o Lease for term w/ option to buy at ~residual value
Issue: Is the transaction a true lease OR lease intended as security (disguised SI)?
If lease intended as security – MB Act applies but P didn’t register (< T in bankruptcy)
Held: disguised SI (in form of a lease)
Option price was coincidentally approx. residual valueNOT enough
P must’ve chosen the option price w/ intention of estimating residual value to constitute true lease
SL never expected to get copier back: SL created to enable NT to sell w/out E paying in full up front
Note: MB & Ont PPSA didn’t cover true leasestrue lease vs. disguised SI was litigious issue
True lease: no reg necessarylessor > T in bankruptcy (T/B)
Disguised SI: reg necessarytypically unperfected (no reg)T/B > lessor
Re Cronin Fire (1993 OntGD 22) – disguised SI if lessee gets benefits + losses
3 yr lease w/ clause re: termination valuewhen term ends, lessee returns to lessorlessor sells
o If proceeds for sale > termination valuelessee gets surplus
o If proceeds for sale < termination valuelessee pays difference (to a max amount)
Onus on lessee to take case of object
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Lessee goes bankrupt: if it was disguised SIPPSA applies but unperfected b/c no regT/B wins
Issue: True lease or disguised SI (reg necessary)? Held: Disguised SI
Rule: If lessee benefits from gains & suffers lossesbenefits of o/ship imposed on lesseedisguised SI
Lessor got back purchase price + credit charges (suffered no risk)
d) Consignment vs. Disguised SI
True consignment SI: consignment is agency r/ship (A gives X to agent BB sellsA gets $$)
o Owner is still true owner; doesn’t get SI from agent
Test: Does consignee B have right to return goods to A if goods not sold?
o If yestrue consignment (s.3(2) applies if “commercial consignment”)
Commercial consignment = consignor & consignee ordinarily deal w/ this type of good
Unless: creditors of consignee (B) know they’re in business of consignment
o If noB forced to buy X (A is SP; B is debtor) disguised SI (s.3(1) applies)
CIBC v. Westfield (1990 SaskQB 26) – true consignment or SI, commercial consignment
Facts – Schulzke, CIBC, Westfield
W made tractorsgave tractors to S on “consignment”S to provide tractors to farmersS enters
GSA w/ CIBC (properly registered)S defaults on loan (CIBC vs. W have competing claims)
Issue: Was W-S transaction true consignment or SI? If true consignment, was it commercial consignment?
If disguised SIs.3(1) appliesS didn’t register its SICIBC wins
If true consignments.3(2) may applyIs it a commercial consignment?if no, W wins
o NOT commercial consignment if creditors knows consignee in consignment business
Held: CIBC wins: True consignmentcommercial consignment
Comm. consignment exception narrow: must be general knowledge that consignee doesn’t own goods
e) Licenses/quotas
License – permission to do smthg otherwise unlawful to do
Agricultural quota – state-imposed limit on amt producible
Live issue: Can license be collateral? Is it an intangible governed by PPSA?
Saskatoon Auction Mart (1993 SaskQB 28) – Sask: license isn’t ppty
Farmer grants SI to milk quota
o Problem: legislation creating the license says it’s non-transferable + not ppty
Issue: Is license/quota an intangible governed by PPSA? Held: No.
Look at legislation creating the license: if license issuer has unfettered discretion re: licensenot ppty
WOOD: there’s a market for quotas: Board routinely recognizes sale & reissues license in new name
o Law is changing: Ont. courts now recognize comm. reality: recognize as ppty
o RBC v. Saulnier (2006 NSCA): license isn’t ppty BUT right & expectation for Board to reissue
new license IS a ppty right (SCC will likely follow this)
f) Non-application of the Act – s.4
S.4(a): PPSA doesn’t apply to security interests created by law (ex. lien, charge)
o Policy: PPSA only applies to SI created by intention (K)
S.4(b): Federal SI, Bank Act Security, Cda Shipping Actgoverned by federal leg.
S.4(f), (g): land interestsgoverned by real ppty law
S.4(h): sale of accounts/chattel paper as part of sale of a business unless vendor still in control of
business after sale
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o Ex. A sells B his businessw/out (h), transfer falls under s.3(2) (new owner must register)
o Policy: no reg necessary if everyone can clearly see there’s new ownership
o Scenario: A sells B his businesstransfer accts to BA bankrupt 2 months later
B needn’t register: creditors of A can’t go after accounts
g) Non-application to Indian ppty
Indian Act, s.89: SI invalid if real/personal ppty situated on a reserve
Policy: prevent unscrupulous lenders/protect Native people
o Modern: many Native people find this a hurdle (doesn’t promote commerce)
o Soln (loophole): incorporate: s.89 doesn’t apply if debtor is incorporated
S.89(2): conditional sale of chattel to a band/member is ok (seller can exercise rights)
o Conditional sale = seller holds title until sale price fully repaid
III) Conflict of Laws (ss.5 - 8.1)
Objectives:
o Determine which JD’s laws governs a SI (in multi-JD transaction)
o Determine where to register? (Based on different connecting factors)
o Recognize what steps must be taken by SP upon relocation of collateral or debtor
PPSA contains COL Rs that govern the validity, perfection and enforcement of SI
o COL R re: perfection are v. important: determines which JD to register (gives priority)
a) COL Rules
S.6(1): Law of the other (destination) JD governs if:
o Goods to be removed from JD
Parties to the SA (that creates the SI) understand goods will be kept in another JD
S.7(2): Law of location of debtor (s.7(1)) governs if:
o Non-possessory SI in intangibles (except investment ppty – see s.7.1) OR
o Mobile goods that’s equipment or inventory leased or held for lease by debtor to others
Mobile = goods normally used in 1+ JD (ex. transport vehicle)
S.7.1: Investment property:
o S.7.1(1): validity of SI governed by following rules:
a) CertificatedJD where share certificate located
b) Uncertificatedissuer’s JD
c) Security entitlementsecurities intermediary’s JD
d) Futures contract or futures accountfutures intermediary’s JD
o Perfection (s.7.1(2): same as validity rules except s.7.1(5): debtor still controls shares)
S.5(1) (residual category): Law of location of collateral at time SI attaches if:
o SI in goods
o Possessory SI in chattel paper, negotiable document of title, instrument or money
Gimli v. BDO (1998 AB)
Facts – SP (Gimli, Eagle Ridge), T in bankruptcy, Debtor
Debtor in business of renting out campers: head office in AB, branch in BC
o Transn 1 (MB): D leases trucks from SP1MB PPSL: no reg needed for pure leases
D subsequently moved trucks to Alta
o Transn 2 (BC): D leases passenger vehicle from SP2reg in BC
Vehicle kept in BC, used by e/ees
D goes bankruptT reject SP claims (no reg in Alta)SP sues
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Issue: Which law governs? Held: AB law governs
Analysis
1) Does s.6 (goods to be moved) apply? (Not raised by parties)
2) Does s.7 apply? Yes
o Mobile goods? Trucks – yes; passenger vehicle – yes (doesn’t matter if it didn’t leave BC)
o Equipment or inventory leased or held for lease? Trucks – lease inventory; PV – equipment
Apply s.7(2): transactions governed by locn of debtor (s.7(1): D’s principal place of bus or R - AB)
o Apply AB PPSA scope provisions (s.3 & s.4): SI but not reg in ABSP < T
b) Relocation of Goods (s.5(2))
Situation: A & B have SAcollateral + registration in MBmoves to ABrecognize registration?
S.5(2): SI in goods continues to be perfected (treat as continuous) if it’s perfected in MB:
a) W/in 60 days after goods are moved (must re-register in AB),
b) W/in 15 days after SP finds out they were moved, OR
Actual knowledge w/ objective element (reasonable person)
c) Before MB registration ends (grace period ends as soon as MB reg ends)
(Whichever is earliest)
+ SI subordinate to Alta 3P buyer or lessee who acquires interest before MB SP re-perfects
Policy: balance needs of SP vs. 3P buyer w/out knowledge in AB
o 3P buyer in AB shouldn’t have to search in more than AB registry
o PPSA assumes MB SP sophisticated vs. lay AB buyer
Problem (See handout – Sept 18)
Edmonton: head office + major manufacturing plant
Sask: Manufacturing plant for special parts & 3 trucks used solely in Sask.
Victoria: acctg dept where accounts payable
Scenario 1: © signs GSA with bankwhere must SP register its SI? (assume s.6 doesn’t apply)
Edmonton collateral
o Manufacturing plant/heavy equipment = Goods (equipment)
o Office supplies = Goods (equipment)
o s.5 applies – Alta PPSL governs
Sask:
o Plant = goods (equipment), Trucks = goods (equipment), raw products = goods (inventory)
o S.7 applies to trucksplace of debtor governs (Alta)
o S.5 applies to plant + raw productsSask law governs
BC:
o Office supplies – Goods (equipment)s.5 applies
o Accounts – intangibles.7(2) applies (locn of debtor: AB)
o Shares – s.7.1 applies: locn where certificates located
If D (company) has possession of sharess.7.1(5): locn of debtor (Alta)
If bank has possessions.7.1(2) applies (BC)
Scenario 2: Relocation of collateral
May 1: D moves collateral (Sask to MB)May 25, SP finds out, registers in MB June 5
May 28: debtor grants SI to MB credit union who registers later that day
Answer:
S.5(2) applies: SP has max 60 days from May 1st to re-perfect
o Period cut short on May 25 when SP acquires knowledge15 days to re-perfect
o Treat Sask reg. As valid after June 5th
perfection
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SP > Credit union (different result if it was 3P buyer or lessee)
c) Relocation of Debtor (s.7(3))
Situation: SI in mobile collateralSP registers in MB (D’s head office)head office moves to AB
S.7(3): Recognize MB perfection if:
a) Re-perfected w/in 60 days post-move
b) Re-perfected w/in 15 days after SP has knowledge
c) Before original MB registration lapses
(even if 3P sale occurs before SP re-perfects)
d) Operation of the grace periods
s.5(2) & s.7(3) provide periods of temporary conditional perfection
If SP subsequently perfects w/in grace periodtreat it as continuously perfected
Ex. Feb 28: MB D gives SI1 in car (consumer good)May 10: move to ABJune 6: SI2
registeredAug1: SP1 learns of relocation + registers in AB
o SP2 not a 3P buyer or lessor; only has SI
o Grace period: SP1 must register by July 10if so, SP1 (Feb 28) > SP2 (June 6)
o Since SP2 didn’t register by July 10SP1 (Aug 1) < SP2 (June 6)
IV) The Security Agreement (SA)
a) Enforceability
Creation of SI may have adverse effects on innocent 3Ps
o 3P can reasonably expect there to be some evidence of the SI
Enforceable = enforceable against 3Ps
o If there is no written SA & no possession by SPSI remains valid as between D & SP
BUT SP doesn’t get priority over unsecured creditors
1) Possession or Written SA
2 methods of creating enforceable SI (all except investment ppty)s.10:
1) Written security agreement: 3 requirements:
i. Written SA,
ii. Signed by D, AND
iii. Containing description of collateral
2) SP takes possessn of collaterals.10(1)(a)-(c)
D must agree to give security but not necessarily in writing
Possessn must be visible to world; can’t be in apparent possessn of DS.10(2)
Rationale: Possession must be visible to 3P to assure existence of SA
Tip: even if SA not necessary, still good practice to have it in writing
Investment ppty: enforceable if SP takes control of investment ppty
2) Granting clause
SA must include charging provision: “I, D, grant SI in collateral to SP”
o Intention must be made clear on face of document
Guntel v. Kocian (1985 MBQB 40) – generous court; valid SA w/out charging provision
Facts – K, W (K’s deadbeat bf), Guntel, Scotia Bank, CIBC
W gets K to buy truck for his useK buys truck w/ financing from SP1 (SB)SP1 reg.
W gets K to transfer o/ship: parties sign 2 documents:
1) Transfer of title: I, K, sell truck (serial #) to W for $X
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2) Promise to repay: I, W, owe K $X for the truck (serial #)
W sells truck to 3P (G) for $2K
o Oct26, 8am: K registers SI on truck
o Same day, CIBC does registry search, finds nothing, finances G’s truck purchase
Issue: Who has priority in competition between K (SP) & G (3P)? Was s.10 complied?
If yes, (valid SA)K>G; elseG>K
Held: Yes, s.10 complied; K>G
Courts very generous: SA describes collateral & has signature
o Sufficient even though there’s no charging clause (“I grant SI in collateral”)
Note (WOOD):
K looks like promissory note: describes obligation but not SI (other courts aren’t so generous)
3) Authorized Collateral Description (s.10(1)(d))
4 ways to describe collateral:
i. Description by item (ex. Make model XXXSERIALXXX)s.10(1)(d)(i)
ii. Description by kind (goods/investment ppty/money/etc.)s.10(1)(d)(i)
Description as “consumer goods” or “equipment” alone is NOT good enoughS.10(3)
Be careful w/ Ont. decisions: their law allows this description
“GSA except equipment” is bad descriptionlikely excludes all goods
Description as “inventory” ok only while held by D as inventoryS.10(4)
Ex. D (car d/ship) gives SI in 30 cars (inventory) as collateral1 car changes
use (become equipment)SA no longer captures the car
Cf. GSA in all present & after-acquired motor vehicles: catches all 30 cars
despite change
iii. Description of investment ppty (security entitlement, securities acct, futures acct, etc.)
iv. GSA: all present/after-acquireds.10(1)(d)(iii)
v. GSA subject to exception {goods/investment ppty/money/etc.)s.10(1)(d)(iv)
GE v. Dix (1994 BC 43)
Issue: Does collateral description “shelving” comply w/ s.10? Held: Yes
Tradl: “identifiability test:” collateral must be sufficiently described in SA
o Prevent SP from subsequently claiming SI in greater range of collateral than agreed upon
Modern (PPSA): GSA allowed: AB courts adopt “simplicity & consistency” test
o Description can be specific (ex. car xxxxx or all applicances in AB) but can be more general
b) Attachment (s.12)
Attachment = time when SI arises, after which SP has real, enforceable rights against 3P
Significance:
o No attachment = SP can’t use Part 5 default remedies against collateral
o Time of attachment important for applying COL R
Attachment & priorities: time of attachment relevant in priority dispute
o a) D executes GSA (SP gave no promise to loan)----b) D sells to 3P B----c) SP approves loan
a) s.10 (written SA) satisfied
b) D gives up o/ship
c) s.12 satisfied: SI attachesB acquired title before attachmentSP < B
1) Conditions for Attachment (s.12)
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S.12: Attachment occurs when:
1) Value is givenS.12(1)(a)
Value = any consideration in K law (incl: loan, promise to loan)
Value needn’t flow from SPD: ex. D gives SI to SP who secures loan to T
Past consideration OK: ex. SP makes loan to Dlater asks for SIloan is ok as value
2) Debtor has rights (legal or equitable interest) in collateral S.12(1)(b)
If D has lease/consignment: D has rights when he has possessns.12(2)
No rights in crops until they become growing cropss.12(3)(a)
No rights in young animals until conceiveds.12(3)(b)
No rights in minerals until they’re extracteds.12(3)(c)
No rights in trees (cf. crops) until they’re severeds.12(3)(d)
3) S.10 requirement (possessn or written SA) satisfied S.12(1)(c)
Unless parties postpone attachment (rare)
Examples
Ex1. a) $$ advanced------------b) GSA executed------------c) D acquires new asset
Ex2. a) GSA executed---------b) $$ advanced--------------c) New asset acquired
o SI attaches to existing assets at b) + attaches to new assets at c) when asset acquired
Sprung v. Caswan (1997 ABQB 45) – deemed SI + GSA includes <o/ship interests held by D
Facts – Sprung (lessor), Caswan (lessee/bankrupt), RBC (creditor)
S leases portable tent-like structure to CC gives RBC SI in APAAGC bankrupt
o Priority dispute: RBC vs. S
Issue: Does the SA cover leased goods? Does PPSA apply to S-C lease?
S arg: nemo dat rule: C was only lessee, didn’t have tent to giveRBC has no interest
RBC arg: PPSA created to replace nemo dat rules: GSA includes everything incl. any interests
o S-C lease is deemed SI under s.3(2): S should’ve reg but didn’tlose priority
Held: RBC wins: PPSA applies to S-C lease + SA covers SI to tent
Sprung v. Caswan (1998 ABCA 52) – CA: GSA doesn’t cover leased goodsWRONG
CA briefly overturns QB’s carefully reasoned decision
o GSA doesn’t cover leased goods
Rebut: GSA very clearly included everything
o “bank seeks reversion”: bank can’t have interest in lessee’s possessory rightWRONG
PPSA created to change nemo dat rules (SCC in Re Giffens)
Lessor (>1 yr) must register & D can give SI to his rights (cf. o/ship)
Note
Graham Portacom (NZ): same facts & PPSAcourt: Sprung is wrong
Tip: draft around Sprung decision: GSA “includes collateral under lease”
c) After-Acquired Property & Future Advances
Tradl CL: Parties can’t create SI to ppty not yet existing (after-acquired ppty)need new SA
o Problem: inventory/accounts constantly turn over: inefficient to execute new SA each time
o Ex. revolving line of credit: SI must be able to secure future advances (w/ after-acquired ppty)
1) After-acquired ppty (s.13)
PPSA: SI may be taken in after-acquired ppty & attaches automatically w/out new transfers.13(1)
o Limit: requires intention to give SI to AAP (Tip: specify AAP in GSA)
“all accounts” or “all inventory”highly litigious
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o Exceptions:
Excludes future crops grown for >1 yrs.13(2)(a)
Excludes after-acquired consumer goodss.13(2)(b)
Unless:
o Accessions (paint applied to car; CD player installed to car) OR
o Goods acquired to replace existing collateral
Note: SA must give D right to replace; s.13(2)(b) doesn’t
o Purchase-money SI (SP financed D’s acquisition of the asset)
Ex. Bank (SP) loans $ to buy carSI attaches to AA car
2) Future Advances (s.14)
SA can provide for future advancess.14(1)
o Parties must include term on SA: “all obligations” clause
o Ex. SP takes SI in goods to secure loan repaymt ($50K)SP makes 2nd
loan ($20K)
If future advances incl in SA: SP is unsecured creditor for $20K: judgment + enforce
If SA included future advances: SP still secure creditor
V) Perfection
a) Intro
Rationale for perfection
Tradl: Court suspicious of SI if unaccompanied by transfer of possession: resulted in “secret interest”
o Resulted in “secret interest”: SP can pop out of nowhere & assert claim against unaware 3P
Modern: Require parties to SA to disclose the SI to public in public registries
o SI void against 3P unless SA was registered
Perfection = 2 steps that SP must take to give public notice of SI taken in collaterals.19
1) Attachment: SI must arise
2) Perfection step: procedure (usually reg) that perfects an attached SI
Avoid confusing terminology: perfection vs. perfection step:
o If SP reg”perfection step took place” vs. If SI attach + regperfected SI
b) Methods of Perfection
1) Perfection by Possession
SP can perfect by possession for SIs.24(1)
o Appln: goods, chattel paper, negotiable document of title, instrument, money
Excl: Intangible (no physical presence) & investmt ppty (perfection by control, s.24.1)
o Limit: Collateral can’t be in actual or apparent possessn of D or D’s agents.24(2)
o Limit2: SP can’t perfect by repossession/seizure in AB
SP takes SI + reg------reg lapses---------SP seizes collateral (valid enforcemt remedy)
Seizure valid perfection step
Policy: complicates situation, raises issues re: validity of seizure,
Creates incentive for SP to use enforcemt remedy for ulterior motive (perfect)
SI perfected only as long as SP has possession + SP holds as collateral (cf. bailee)
o easier for SP to monitor vs. D can’t use
2) Perfection by Registration: most common
Parties reg financing statementreg computerized & searchable
D retains possessn & ability to use; harder for SP to monitor
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3) Temporary perfection: limited circumstances
PPSA gives SP temporary perfection status for short: grace period
SP takes SI in shares of public ©----takes possessn of share certificates------D wants to sell shares to
buy shares in other ©--------SP temporarily gives up possessn knowing D will give up new shares
o SI temporarily perfected for 15 days after D obtains control of collaterals.26(1)(a)
o D bankrupt w/in 15 days: SP has priority (perfected)
o D goes bankrupt after 15 days + SP hasn’t perfected w/ other method: loses priority
4) Perfection by control: investment ppty ONLYs.24.1
PPSA uses diff system re: perfection of investmt ppty: 1ry method through control
Method of control depends on type of investment ppty
o Certificated: SP takes delivery of certificate
o Uncertificated: 1) reg SP as owner on issuer’s share reg 2) enter control agreement
o Security entitlement: 1) reg SP as entitlement holder 2) control agrmt 3) have 3P hold
entitlement as SP’s agent
Control agrmt = tripartite agrmt (SP, D, intermediary): D tells broker to act on SP’s instructions
c) Timing of Perfection
Perfection step can be performed before OR after SI attachess.19
1) SP executes SA (attachment)--------------------SP registers financing agrmt (perfection)
2) SP registers financing agrmt (perfection step)----------------GSA executed (perfection)
o Ex. SP (bank) registers financing stmt before SI attaches (before committing to financing)
o Ex2: D gives SP possessn of chattel paper to secure loanSP agrees to loan 5 days later
Adv: reduces transaction costs: SI is perfected as soon as it arises
Cf. SA 1st, register 2
ndperiod of vulnerability (priority det by 1
st to reg)
d) Effect of Non-perfection
Non-perfected SI enforceable against D
Non-perfected SI may lose priority against competing 3P interests: SP loses key benefits of SI
o Non-perfected SI < perfected SIs.35(1)
o Non-perfected SI (time of bankruptcy) < T/B or liquidators.20(a)(i)-(ii)
o Non-perfected SI (time of sale)< 3P B who gives value + no knowledge of SIs.20(b)
Rationale: at time of purchase/bankruptcy, there’s no notice of SP’s interest
Ex. SI perfected3P Breg expires: SP > 3P even though it became unperfected
Subsequent lapse didn’t affect 3P’s ability to check reg at time of sale
1st to perfect > other perfected SI
Examples
a) GSA (SP & D)---------------------b) SP reg-----------------------c) sale to 3P B-------------------d) reg lapses
SI perfected at Bat time of same, SI was perfectedSP > 3P B
1) Non-perfection & Bankruptcy (s.20(a))
2 types of bankruptcy (T/B appointed in both):
1. Involuntary: creditor files petition for receiving order
2. Voluntary: D files assignment in bankruptcy
T/B: liquidates assets + distributes proceeds to unsecured creditors who prove their claims
o SP (who regd) claims collateral fr T/B1st priority before unsecured creditors
o SP (unperfected) can only prove claim to T/Bsame priority as unsecured creditorspro rata
Time of bankruptcy:
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o Involuntary = bankruptcy court makes receiving order (not initial filing by creditors)
o Voluntary = assignment in bankruptcy made
2) Non-perfection & Transferees (s.20(b))
Appln: Non-perfected SI < 3P buyer + value + no knowledge
o Except: investment ppty (see Securities Transfers Act)
Knowledge = RP would’ve knowns.1(2)
Re Giffen (1998 SCC 56) – nonperfected SP vs. T/B: SCC clarifies post-PPSA law
Tradl (pre-PPSA): Lessor leases X to lesseelessee goes bankrupt
o T/B can’t take X: T/B only gets what lessee had: lessee had possession, not o/ship
o Problem: ostensible o/ship: 3P B easily duped if they buy from lessee
Lessor can come out of nowhere & assert better claimSoln: PPSA
Modern: s.3(2): true leases are deemed SI: lessor must register to perfect interest
o Unperfected SI (including lessor in true lease) < T/B
Post-intro of PPSA, issue of lessor vs. T/B priority competitions highly litigious
Analysis – SCC clarifies post-PPSA law
PPSA developed to change old law
Unperfected SI < 3P B
o Rationale: Protect innocent 3P: encourage lessor to reg so 3P knows about interest
Why Unperfected SI < T/B? Arg: T/B doesn’t rely on registry
o Rationale: T/B acts as representative for unsecured creditors
Bankruptcy crystallizes rights of unsecured creditorsgive T/B priority
PPSA constitutional: doesn’t interfere w/ internal distribution rules of bankruptcy regime
3) 2-Debtor Problem
Situation: SP takes SI--------------D sells to B1 (knowledge)
o Applying s.20(b): SP > B1 b/c B1 had knowledge
Cf. SP takes SI (unperfected)------D sells to B1 (knowledge)------B1 sells to B2 (no knowledge)
o Live issue: Does s.20 apply to B2?
If yes: B2 > SP > B1
If no: use “nemo dat rule”: SP > B1/B2: B1 didn’t have an interest to give: for B2
o Legal scholars: Yes, s.20 not limited in appln:
Arg: SN goods: if B2 searches reg + finds nothingshould be able to rely
Non-SN goods: B2 won’t find SP even if he searched by chain of title
VI) The Registry System
Objectives
Recognize fundamental characteristics & attributes of the computerized notice reg system
ID what must be registered for valid registration
Know how to reg can be amended & when it’s necessary for SP to do so
Determine when registration contains an invalidating error
a) Fundamentals of Registration
1) Notice Filing v. Document Filing
Doc filing (old system): reg the SA
o Cons: 1) Must re-reg every time SA amended 2) too much paper 3) no reg until SA executed
Notice filing (modern): reg financing statement w/ relevant details of SI
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o D name + addr, SP name + addr, collateral description
2) Disclosure of information
Interested parties can still obtain other details (incl. SA, amount of debt)s.18
o Inquiring party (IP) can sue SP who fails to comply for damagess.18(7)
o SP estopped from giving IP inaccurate infos.18(9)
3) Pre-agreement Registration: lower transaction costs
Post-notice filing: SP can reg SI before SA executed: SI perfected as soon as it arises
o D applies for financingbank does search, reg SIbank grants loanSI instantly perfected
4) Blanket registration
A single reg of financing statement (FS) can protect successive SAs (same parties/collateral)s.43(5)
o Ex. SP sells 50 TVs to D (retail seller), takes SIcollateral = TV3 mths later: sell another
50 TVs to Dno need to re-reg
5) Impact of First to Register Rule
1st to reg (cf. perfect) has prioritys.35
o Reg = reg of SA details on public registry
o Perfection = attachment + perfection step (reg, possession, etc.: most commonly reg)
Ex. 1) SP1 Reg (no SA)2) SP2 signs GSA + reg3) SP1 signs SA
o SP2 perfected 1st but SP1 has priority
6) Controlling Abuse of the System
Problem: Possible situations of abuse:
1) Collateral description overreaches
2) Maintaining reg when there’s no reasonable expectation of signing SA
3) Maintaining reg after obligation/debt has been discharged
Remedy: D/party w/ interest in collateral can demand reg be discharged or narroweds.50
b) The Financing Statement
1) Contents of Reg
1. Variable registration life: 1-25 yrs (longer = more expensive) OR ∞ ($400 fee)
o Tip: reg for SA term + 1 year (in case of default)
2. D name & addr: main field for searching: incorrect = maybe invalid = lose priority
o Individual D: last-, 1st-, middle nameReg. s.20(2),
Problem: D (immigrant) uses diff namesSoln: R. s.20(7) (determination of name)
Old law (Barrhead (1995 ABCA): reg as many variations as possible
Now: Usually reg legal name (irregardless of name used on driver’s license)
Sole proprietor: reg D name, NOT trade name
o Business DR. s.21(2)
3. SP name & addr
4. Collateral description: simple desc, not laundry list
i. Serial # goodsR. s.34
o SNG = {motor vehicle, trailer, mobile home, aircraft, boat, boat motorReg. s.(1)(1)(y))
o Use of APAAG description insufficient if collateral = SNG
a. Consumer goods: must reg. serial # (SN)
b. Equipment: optional but recommended (may lose priority if not)
SP (SN reg) OR 3P B w/out knowledge > SP (non-SN reg) > TB
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Ex. D (w/ vehicles as equipment) & SP1 enter GSASP1 reg financing
agreement (APAAG), not itemized:
o If D grants SI to SP2 & SP2 regSP2 > SP1
o D goes bankruptSP1 > T/B
o D replaces truckSP1 has SI in new truck but vulnerable to SP2/3P B
c. Inventory: optional (highly fluid; makes little sense to reg SN)
ii. General collateralR. s.36
o Situations: 1) collateral SN goods 2) SNG but SP reg general 2) SNG + SP reg general
o Desc = {by item, kind, all present & after-acquired goods, APAAG except}
Desc as “consumer goods” or “equipment”: insufficient
Inventory acceptable so long as use remains inventory
5. Name of registering party (if not SP) – authorized signature
2) Amendments to Registrations
Amend using financing change stmts.44(3)
o Can be used to renew SA terms.44(2) OR discharge reg before reg term ends
Amendments effective on date of regno retroactive appln
o Renewals must reg before original reg lapses
o Tip: if parties renew/renegotiate SAreg renewal, NOT new financing statement
Examples
Ex. SP1 reg SA (5 year term)SP2 reg w/in 5 yearsSP1 reg new financing agrmt w/in 5 years
o When 5 year term ends, initial reg lapses, SP2 has 1st reg: SP2 > SP1
Ex2. SP1 has SI in APAAG, reg June 25 w/ invalidating error in D nameJuly 5: D sells equipment
to BAug10: SP discovers error, reg financing change stmtSept 15: D bankrupt
o SP1 < B: at time of purchase, SP1’s reg was invalidlose priority
o SP1 > T/B: by time of bankruptcy, SP1 had corrected reg: perfected SI
3) Transfers & Changes of Names (s.51)
Situation: D gives SP SI to collateralSP reg1) D changes name OR 2) D transfers to 3P
o Problem: Reg no longer has correct D name: what happens if competing SI arises?
Rule: Transfer or change of name loss of perfections.51
a) SP (w/out knowledge) > subsequent SP or 3P B who acquire/reg SI in same collateral
Perfection valid so long as SP has no knowledge (RP) of change
b) SP (w/ knowledge) + doesn’t reg amendmt w/in 15 days < SP or 3P B arising during 15 days
Post-knowledge, SP has 15 days grace period to reg
Examples
1) A) SP Perfects SI-----------B) SP knowledge---------C) 15 days ends--------D) 3P B--------E) SP amends
SP < 3P: SI perfected until Cwhen 3P bought collateral, SP’s SI was vulnerable (unperfected)
c) Registration Errors
Issue: which errors in reg are forgiven & which result in invalidation of reg (unperfected)?
Rule: Defect, irregularity, omission or error invalid reg unless seriously misleadings.43(6)
o Seriously misleading = objective test (s.43(8)): SM to reasonable user of registry system?
Policy: promotes certainty/efficiency: easier for courts to apply objective test
Cf. consideration of actual knowledge (more fair but harder to resolve disputes)
1) Errors in Search Criteria: what kind of errors are tolerated?
Errors in D name & serial #: often seriously misleading (SM)
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o Rationale: searching party often use these fieldswon’t be able to find the reg
o Ont vs. AB registry:
Ont/US registry: 0 error tolerance: if serial # or D name wrongfatal
Reg system alg won’t find inexact matches (erroneous middle name = fatal)
AB/rest of Cda: reg search gives exact + inexact matches: higher tolerance for error
A seriously misleading error doesn’t invalidate the entire regs.43(9)
o Ex. SP reg 3 cars by serial #; 2 correct, 1 wrong2 still valid
Case Power (1994 ABCA 70) – test for SM in AB
SP1 (Case Power) supplies construction co. w/ 4 machines (equipment)SP1 reg by SN
o Note: reg by SN highly recommended for equipment: priority to SP1 who reg by SNs.35(4)
1) SP1 reg errors-------SP1 corrects some errors
1) Machine 1: incorrect D name
2) Machine 2: incorrect D name
3) Excavator: incorrect D name
4) Bulldozer: incorrect D name + incorrect SN
2) SP2 reg, but not by SN (non-s.35(4) compliant)
3) SP1 corrects some errors:
1) Corrected
2) Corrected
3) Excavator: D name still incorrect
4) Bulldozer: SN still incorrect
4) SP2 corrects reg: reg by SN
Issue: Who has priority? 3) & 4): is error SM?
Held: 1) SP1 > SP2; 2) SP1 > SP2; 3) not SM: SP1 > SP2; 4) SM: SP1 < SP2
Test:
1. Does error in reg prevent searchg pty from finding it in registry? If yes…SM (invalid reg)
o Searchg pty must into this EV: show search they performed
2. If searchg pty finds reg as inexact match, would RP think it’s likely same item/person? If no…SM
Application:
Excavator: erroneous D name appeared in inexact matches & reasonable to think same person
Bulldozer: search for SN couldn’t find erroneous SNSM
Minority (Cote)
Disregard EV of how registry system actually works: judge should look at error & determine if trivial
o Test: would error be reasonably disclosed by system? (as determined by judge)WRONG
Problem: Judge essentially judging how reasonable the cmpt sys is: not in posn to do that
o Result would penalize party who registered corrected for drawbacks of the cmpt system
Note: Law muddled by recent decision in Harder (2004 ABQB)
Facts: SP vs. T/B over trailer (consumer goodpriority requires reg by SN)SP reg erroneous
SNnot found by registry searchshould be SM if applying Case Power
Held: Not SM b/c searching pty knew (actual knowledge) about SI through non-registry disclosure
o Part 2 of Case Power test not limited to disclosure from inexact match results
o Problem: introducing actual knowledge to objective test: creates uncertainty
Ex. SP1: reg errorSP2: knowledge of errorSP3 no knowledge
Applying Harder: SP2 < SP1, SP1 < SP3, SP3 < SP2creates circular priority
2) Dual Search Criteria: if reg requires SN + D name, must both be correct?
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Situation: consumer good registration contains SN + D nameif 1 is SM error, can other save it?
o Rule (Consumer goods: reg by SN is reqd): D name + SN must be free of SM errorss.43(7)
Cf. BC: SN is more important: even if D name has SM error, reg still valid
Equipment: if SN wrongreg still valid (perfected) but erroneous party loses priority if error is SM
Stevenson v. GMAC (2993 NBCA) –bad NB law: ok as long as SN correct
Facts – SP (Car dealer), D (MM Trailer Sales), 3P (GMAC)
SP takes SI to goods (supplies) from MHSP assigns SI to 3P under GSA
o Correct D name: Moncton Motor Home
o Reg D name: Moncton Motorhome
NOT disclosed as inexact match for search by D name; SN search would’ve disclosed registration
Issue: Does incorrect D name invalidate the reg? Held: No; SN more powerful; if SN correctok
Analysis: What would RP do?
RP would’ve searched by SN b/c SN search more powerful (finds all interests in the asset)
o Cf. search by D name only finds D’s interest in the collateral
Ex. 1) DSP1 2) D3P buyer: 3P buyer search by D name wouldn’t find SP1
Note:
Problem: decision assumes only buyers & SPs would search
o Judgement enforcemt creditors & T/B also use reg search: more reasonable to search D name
o Ex. D has 50 itemscreditor more likely to search by D name to find asset to satisfy judgment
BC/Ont follow Stevenson: Reg valid if SN correct
AB/Sask: SN + D name must BOTH be correct (follows Caln (Sask))
Since BC/AB/Sask/NB have identical PPSA, this discrepancy likely to be resolved by reform or SCC
John Deere Credit Inc. (2000 ABQB 99) – appln of AB law
Facts: Deermart, Standard, John Deere Credit Union
1) Deermart owns vehicleleases to StandardReg w/ erroneous D name
o Standard Oilfields vs. Standard Bobcat
D name search did NOT disclose erroneous reg; SN search disclosed the reg
2) Deermart assigns lease to JDJD registers w/ erroneous D name
o Standard Oilfield Services Inc. vs. Standard Oilfield Service
Erroneous reg disclosed by D name search
3) Parties go through refinancingJD backs outDeermart becomes SPReg wasn’t changed
o Deermart vs. John Deere
Issue: Do errors invalidate reg?
Held:
1) Applying Case Power: SMinvalidates reg
2) Not SM: a) found as inexact match + b) RP would’ve checked it out
3) SM error: even though parties don’t search by SP name, RP would make demand fr wrong SP
Services Food (2006 NZCA) – overbroad collateral desc NOT SM
SP has SI in specific goodsreg financing stmt w/ collateral desc = APAAG
Issue: Is overbroad collateral desc seriously misleading? Held: No
Searching party wouldn’t be misled to think that there’s no SI
Note: avoid being overbroad: damages business r/ship
Creates problems for D (can’t secure financing elsewhere)D can use s.50 to force correction
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3) Errors in Non-searchable Fields
Reg containing errors in non-searchable fields are disclosed by searchinvalid only if SM to RP
o Error in SP name/addr – valid unless so significant that searching party couldn’t ID SP
o Error in general collateral desc (usually under-inclusive): reg valid for collateral described
VII) Competition with Buyers
SI gives SP the right to follow the collateral + claim against 3P who acquire it from D
o Unless: buyer priority rules gives 3P B priority over SP
Objectives:
o Resolve priority competitions between SP vs. B by determining if B priority rules apply
o Determine priorities where B re-sells the goods to sub-B or otherwise transfers interest to 3P
o Recognize situations where a registry search may fail to disclose SI that may nevertheless
encumber the interest of a B
PPSA: ss.28(1)(a), 30, 66(3)
a) Buyer Priority Rules (ss. 20, 28(1)(a), 30, 66(3))
1) Introduction: Sources of Priority Rules (s.30 + other provisions)
Rules
1. Unperfected SI < 3P B w/out knowledge + values.20
2. Unattached SI < 3P Bs.10
3. SI in collateral that changes locn < 3P interest arising during grace periods.5(2)
4. SP w/ knowl of D name change/transfer + no re-perfect < 3P interest arise after knowls.51
5. Perfected SI < 3P B w/out knowledge + value in limited circumstances:
a) Sales authorized by SPs.28(1)(a)
b) Ordinary course buyer rules.30(2)
c) Sales of lower value consumer goodss.30(3), (4)
d) Buyer protection against temporary perfections.30(5)
e) Serial number goods rules.30(6), (7)
Appln: B or lessee of goods for {cash, exchange of ppty, credits.30(8)}
B priority rules can overlap: B may claim priority because of 1+ rule
2) Authorized Sales (s.28(1))
General: SP gets SI to collateralD sells to 3P BSI extends to proceeds + collateral
o Except: Authorized dealingSP < 3Ps.28(1)
Written authorization provision (common in K covering inventory)
Implied authorization
3) Ordinary Course Buyers (s.30(2))
SP (perfected or no) < B of goods in ordinary course of business of the sellers.30(2)
o Except: B knows sale = breach of SA
Cf. mere knowledge of SI (no knowl of breach of SI)
o Rationale: if D in ordinary course of business of selling collateralput risk on SP
“given by the seller or lessor”
o Situation: SP gets SI------D sells to B (not ordinary course)------B sells to B2 (ordinary course)
Q: Does B2 take collateral free of SP’s SI b/c ordinary course? NO
PPSA won’t protect every B (too much risk on SP)
Only protect 3P B who acquires interest from D seller
SP > B2: B2 can give goods back OR pay off SP (payout the debt)
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“Ordinary course” = ordinary course of business for the particular seller in questionCamco
o Irregardless of whether particular type of business is ordinary
o Goods need not be inventorySask courts
o Volume is irrelevant so long as ordinary part of business
Ex. rental co’s 1ry business is short-term rentaloccasionally sellstill ordinary
Cf. D (ordinary sale to customers) does 1 time sale to d/ship to make $non-ordinary
Lanson (1998 SaskCA 112) – appln of authorized sale + ordinary course B
Facts – Lanson (SP), Nickel (D), Spruce Meadow Trucking (B), Rempel (B2), Sask Valley (SP2)
SA: SP gives $16K loan to DD gives SI to mobile homeD to resell to repay loan
D resells to B but doesn’t remit sale proceeds to SPB resells to B2B2 gives SI to SP2
SP-------(SA)--------------D
B
SP2------(SA)-------------B2
Issue: Who has priority between SP vs. SP2? Was sale to B authorized? Ordinary course B?
If authorizedSP < B (& subsequent interests)subsequent interests take good title
If not authorizedSP > BSP can follow collateral into hands of B
Held: Authorized sale; SP loses
a) Authorized sale
SP arg: authorization was conditionalcondition not satisfiednot authorized
o Court rejects: resale still authorized despite failure to meet condition
Cf. SP/D/B all know abt SAB pays SP directly OR B to ensure proceeds go to SP
b) Ordinary course buyer (s.30(2))
If B was ordinary course B (of D’s business)SP < B
o DB not ordinary business saleS.30(2) doesn’t apply
o BB2 is ordinary course saleirrelevant for SP vs. B competition
Camco (1986 SaskCA 114) – ordinary course test: whether ordinary to that seller
Facts – Camco (SP), Muxlow (D), Condo buyers (B)
SA: SP gives sale credit to DD gives SI in appliancesD puts appliances in condossale to B
o DB K: title doesn’t pass until B
o D bankrupt/disappears: SP vs. B
S.28(1)(a): NOT applicable: not authorized
Issue: SP v. B competition: was DB transaction an ordinary course sale?
SP arg: 1) There was no sale: D was our agent & agreement was for construction of units
o 2) If sale, not ordinary course
Held: There is sale + ordinary course sale
No agency r/ship: SPD K entered into before condo B identities were known
Ordinary course sale: sale from seller’s inventory to public + accordance w/ seller’s usual bus practice
o Test: does this particular D ordinarily sell like this? (cf. is this type of sale typical)
RBC v. Wheaton Pontiac (1991 SaskQB 124)
Facts – RBC (SP), Keywest (D), Stieben (B1), Deschner (B2), Wheaton Pontiac (B3), Morin (B4)
D gives SP SID sale to B1 (non-ordinary)B1 sale to B2B2 sale to B3B3 sale to B4 (ordinary)
D bankruptPriority competition: SP vs. B3
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Issue: Who has priority? Held: SP (SP > all Bs)
If DB1 transaction was ordinary course sale: B1>SP
o B1 takes free of SP’s interest + sheltering principle: all subsequent Bs take free
Application: DB1 transaction NOT ordinary course sale: SP>B1
o Ordinary course sale priority rule doesn’t apply to B3B4 transaction
Note:
B4 has personal right against B3 for return of purchase $
Registry is not a guarantee of unencumbered title: searching doesn’t guarantee B won’t suffer loss
o RBC reg general collateral desc for inventory (no advantage in reg by SN)
o B2, B3, B4 can’t find encumbrance on registry system (by D name nor SN)
4) Garage Sale Exception: Buyers of Lower Value Consumer Goods (s.30(3), (4))
SP < B of low value consumer goods + value + no knowledge of SI + <$1000s.30(3), (4)
o Appln: only if B acquires as consumer good
o “given by seller” condition doesn’t apply: B takes free of all SI in the goods, not just those
Rationale: unreasonable to expect B to search registry for every low value good
Example
SP takes SI in D’s bike-----D sells to B ($1500): not ordinary course-------B sells to B2 ($900)
o SP > B: garage sale exception doesn’t apply b/c purchase price > $1500
o SP < B2: s.30(2) appliesB2 gets priority even though SI wasn’t granted by seller (B1)
SP remedies: 1) Debt action against D + 2) Action in conversion against B
D default is triggered upon unauthorized saleSP has right to repossessconversion
5) Temporary Perfection Protection (s.30(5))
Situation: SP reg SI in Xtransfer/change in D name + SP knowltemporarily perfected 15 days
o Temporarily perfected SI > competing SI arising during 15 days
o Temporarily perfected SI > T/B
o Temporarily perfected SI < 3P B value + no knowl of SI
Example
SP reg SI to bikeD changes name + SP knowls.28(3) 15 days temporary perfectionB buys bike
during 15 daysSP reg name change
o B > SP: B takes free of SP’s SI
6) SN Goods held as equipment
SI in SN good held as equipment + not reg by SN < 3P B value no knowl of SI + value
SI in SN good held as equipment + not reg by SN < SI reg by SN
SI in SN good held as equipment + not reg by SN > T/B
b) Supplementary Principles
1) The Defn of Sale
Defn of “sale” is important for every s.30 B priority rule
o Includes {sales K, interests acquired in an asset by virtue of law of fixtures}S.30(1)
o Sale may be for cash, on credit or for the exch of other pptyS.30(8)
Excludes: transfer that is in total or partial satisfaction of past liability
Ex. D signs GSA w/ SPD transfers truck to A in satisfaction of debt to Ano sale
Live issue: competing defns of when sale occurs:
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o 1) Sales law principles: Sale occurs when a) goods pass to the B + b) under K of salebetter
o 2) Broader defn: sale occurs when parties enter sales K (but ppty will pass in future)
RBC v. 216200 Alberta Ltd. (1987 SaskCA 127) – “sale” requires sales K + passing of ppty
Facts – RBC (SP), # Corp. (D), customers (B)
D (waterbed store) grants GSA to SPD enters K to sell beds to BD defaultspriority competition
o Class 1 sales: customer pays in full + seller not in possessn of ppty yet
o Class 2: part paymt + seller has ppty matching desc
o Class 3: part paymt + seller not in possessn
o Class 4: customer owed refunds
Issue: Which classes of Bs have priority?
Held:
Class 1 & 3: No proprietary claim: ppty hasn’t been identified yet: SP > B
o Potential arg: $ paid in trust + identifiable
Likely rejected b/c can’t have constructive trust in commercial context
McInnes: constructive trust elevates unsecured claimsdisturbs bankruptcy regime
Class 2: has “sale” occurred under s.30? YesB > SP
o Sale = 1) K of sale + 2) Passing of ppty to B
o Ppty has passed here b/c D has possesn of pptyquestionable reasoning
Counter: D having possessn passing of ppty
Ex. Sale K + D has possessn BUT hasn’t allocated pptyppty has NOT passed
Can’t give B priority b/c B can’t show proprietary right to specific ppty
Class 4: customers have right to be repaid $$unsecured creditors
Spittlehouse v. Northshore Marines (1994 OntCA 132) – misguided defn: sale only requires sales K
Facts – Transamerica (SP), N/shore Marine (D), Spittlehouse (B)
D grants GSA to SPD sells $550K boat to B: condl sales K: title passes when fully paid90% paid
D disappears/defaultspriority competition: SP vs. B
Issue: Did a sale occur? If yes, B > SP Held: Sale occurred: B > SP
Sale = sales K (no passing of ppty needed)
o Cf. RBC (Sask): no sale b/c ppty hasn’t passed
Note – BAD DECISION: creates uncertainty
Is this blanket rule protecting all Bs (including those who can’t ID their ppty (unascertained ppty))?
Scholars: better approach: sale = sales K + passing ppty
o Ppty passed in this caseprovision reserving title merely creates SI
Wood: Sask defn of sales is better
VIII: Competition with Secured Parties
Objective:
o Learn to apply general priority rule in resolving priority competition between 2+ SP
o Understand the interplay between operation of the registry system & first in time rule (FIT)
o Recognize important exceptions to FIT rule of priority
1) General Priority Rule (s.35, 66)
a) Residual FIT rule (s.35)
Rule: 2 Perfected SP: 1st to complete perfection step winss.35(1)(a)
i) Reg irregardless of date of attachment
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ii) Possession under s.24
iii) (temporary perfection): perfection under ss.5, 7, 26, 29, 77
Rule: Perfected SI > unperfected SIs.35(1)(b)
Rule: 2 unperfected SI: 1st to attach winss.35(1)(c)
o Tip: SP2 not perfectedSP1 finds reg errorreg asap, don’t rely on s.35(1)(c)
o Priorities fixed at date SP seizes/enforces: reg after that is useless
o If attach at same time (ie after acquired good), first to enter SA wins qui est in tempore
potior est jure in Equity
b) Continuity of Perfection
Rule: SP can change method of perfection w/out losing priority iff SI continuously perfecteds.23, 35(2)
Continuous perfect. treated as having been perfected in manner of original perfect.
Ex. Jan 15: SP1 perfects by possessnApril 15: SP2 gets SI + regOct 1: SP1 releases possessn to
DOct 25: SP1 reg
o SP1 < SP2: gap in continuity of perfection; SP1 loses 1st perfection step date
o If SP1 reg’d before releasing possessn: continuous perfectionSP1>SP2 (using Jan 15 date)
treated as perfection by possessn. (not reflected in Reg., as SP2 seems to be first)
c) SN Goods
Rule: SI in SN equipment not considered registered or perfected by reg unless reg contains SN
descs.35(4)
d) Future Advances
Rule: FIT priority rule applies to future advances (even if SP1 advances after knowledge of SI2)s.35(5)
o Limit: Future advance must be covered in SA: s.35(5) doesn’t give automatic protection
Ex. SP1 takes SI in APAAG for present + future indebtednessSept5: SP1 regSept6: advances
$10K to DSept20: SP2 takes SI in D’s inventorySept21: SP2 regSept25: SP1 learns of SP2’s
SISept30: SP1 makes further advance of $25K
o SP1 > SP2 wrt $10K & $25K
Except: SP < writ of enforcement if SP gives future advance with knowledge of writs.35(6)
Rationale: judgment enforcer has no choice whether to register writ (D owes them $$)
o Cf. SP2 who has a choice whether to advance $ to D
Tip (judgment enforcer): notify SP of your intereststops SP from further lending
o Q: What if SP has promised to further lend? A: Obligation not binding anymore if there’s writ
e) Registration & Multiple SAs
ACS v. RBC (1994 SaskCA 139) –registration covers subsequent SAs
Facts – D, SP1 (ACS), SP2 (RBC)
SP1 makes loan + reg + SA only covers this debtSP2 makes loan + reg GSA
SP1 makes another loan + signs/reg new SA covering future debtsSP1 makes future loan of $30K
Issue: SP1 vs. SP2 priority competition; which reg date do we go by for SP1? Held: SP1 wins
Loan A: SP1 > SP2s.35(1): SP1 reg 1st
Loan B & C: SP1 > SP2
Rule: 1st reg covers future SAs iff it applies to same registered collateral + same D + same SP
Note
Ex: SP1 doesn’t sign new SA covering future loans: SP2 > SP1 over loans B & C
Ex2: SP1 reg new SA w/ SM error: SP1 > SP2 b/c we go by 1st reg for priority dispute
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Problem: SP1 gets potential situational monopolySoln: 1) PMSI or 2) subordination agreements
o Ex. SP2 pays out SP1 & assumes role of financier
f) Change of Name or Transfer (s.51)
Rule: Transfer or change of name loss of perfections.51
a) SP (w/out knowledge) > subsequent SP or 3P B who acquire/reg SI in same collateral
Perfection valid so long as SP has no knowledge (RP) of change
b) SP (w/ knowledge):
i. SP reg w/in 15 days post-knowledge: SI continuously perfected
ii. SP reg after 15 days passes (ex. Knowledge---[15 days][gap]---SP amends reg)
SP < 3P B or T/B or other non-SI arising during the gap
SP < SI reg or perfected in the gap
SP < SI reg or perfected in 15 days
RBC v. Headwest (2007 ABQB 147)
Lessor (SP) reg SIlessee name changenotice to lessor: name change: 2 companies will run
parallel, then 1st will be dissolved (no dates given)lessor doesn’t change reg
SP2 subsequently acquires SI in collateral
Issue: Does notice give sufficient info? Held: Yes
Creditors need now know exact date of name change: should’ve done something w/ info
o Info was type that RP would take cognizance ofhad knowledge (s.1(2))
2) Exceptions to the General Rule
a) Re-registration on Lapse or Discharge
Situation: SP1 regSP2 regSP1’s reg lapses or is dischargedSP3 regSP1 re-reg
Rule: SP who re-registers w/in 30 days of lapse/discharge > subordinate SI or registered writ existing
pre-lapses.35(8)
o Note: SP whose reg lapses/discharged < B or T/B irregardless of re-reg
Rule: SP < newly registered SI between the lapse & re-registration (SP3)
Defn: “re-register” = special reg procedure (Reg. s.18); re-reg reg new financing stmts.35(7)
Situation: SP erroneously or tricked into discharging reggets noticere-reg
Situation2: reg lapses (rare b/c SP wouldn’t get notice; wouldn’t know to re-reg w/in 30 days)
Situation3: SP registers new financing statement instead of renewing existing financing stmt
Ex. SP1 reg------SP2 reg---------Lapse [--------------30 days grace period--------------]
o a) SP1 re-reg w/in 30 days: SP1 > SP2
o b) SP1 re-reg w/in 30 days + SP3 reg before SP1 re-reg: SP3 > SP1
Problem: SP2 > SP3 (s.35(1): SP2 was 1st
to reg)circular priority
No soln: judge arbitrarily picks OR parties settle
Reg. s. 18: Special reg. procedure
o Form requires reg # of previous lapsed or discharged reg
b) The Double Debtor Problem (s.35(9))
Situation: D1 signs GSA w/ SP1 (reg April)D2 signs GSA w/ SP2 (reg Feb)D1 sells smthg to D2
SP1 D1 GSA: reg Feb
Sale
SP2 D2
GSA: reg Jan
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Rule: SP1 > SP2 despite SP2’s earlier reg iff SI1 was perfected at time of transfer to D2s.35(9)
Except: Doesn’t cover future advances made 15 days after SP1 finds out about SP2’s interest +
doesn’t change reg (to amend new D name)
Rule: if D2 > SP1 (takes free of SP1’s interest)SP2 > SP1 (sheltering principle)s.35(10)
Situation2: D1 signs GSA w/ SP1 + unperfectedD2/SP2 GSA perfectedsale to D2
o Assume D2 had knowledge of SI1doesn’t take free
SP1 D1 GSA: unperfected
Sale
SP2 D2
GSA: reg Jan
Issue: apply s.35(9) or s.35(1)? Wood: likely s.35(1): SP2 > SP1
c) Knowledge, Bad Faith & Priority
Rule: priority rule has no knowledge component unless SP acted in bad faith (fraud)
Rule: SP must act in good faith & commercially reasonable manners.66(1)
Rule: mere knowledge bad faiths.66(2)
Rule: other CL, Equity principles operates.66(3)
o Ex. SI1 attaches but not reg OR SM reg error OR reg lapses + SP2 w/ knowledge of SI reg
o Cda: SP2 > SP1 irregardless of knowledge of SI
1) Textual reading: if knowledge intended, it would’ve been included
2) Policy: knowledge increases uncertainty, hard/time-consuming to prove
o US: highly debatable: see Shallcross
Ex. July 10: SP1 correctly regJuly 25, SP2 gets SIJuly 30, SP2 regAug 15: D signs SA w/ SP1
o SP1 > SP2: SP1 was 1st to complete perfection step (even though SP2 attach + perfected 1
st)
Carson Restaurants (1989 SaskQB 158)
Facts – SP1, SP2, D (D & SP1 are related businesses)
SP1 takes SI in D + not perfectedSP2 takes SI in D + reg w/ SM error
D has financial troubleSP2 wants to enforce
D asks SP2 not to enforceD tells SP1 to regSP1 regSP2 fixed reg
Issue: Was D’s conduct in bad faith? Held: Yes
Deceitful delay of enforcement in order to allow D’s related business to gain priority
Mere knowledge bad faith BUT some other misleading/active step is enough
d) Estoppel
Used in lieu of arguing bad faith
Arises when SP makes false/misleading statement about nature of its SA
S.18(10): SP who provided SA statement under (s.18(1)) is estopped from denying
o a) The accuracy of the statement
o b) That the copy of the SA provided to the Plaintiff is a true copy of the SA
Need not prove that Plaintiff detrimentally relied on the information
e) Subrogation (rules of Equity)
Defn: substitute A for B so B may exercise rights of A in respect of a claim
Situation: D asks 3P to pay off SP1 so 3P gets 1st ranking SI on the collateral
o In Equity: 3P can assert SP’s SI
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Re N’Amerix (2001 OntSC 152)
SP signs + reg GSASP2 pays out SPSP2 reg SI w/ SM errorBankruptcy
Issue: priority competition: SP2 vs. T/B Held: SP2 wins
SP2 paid out SP: through subrogation, they received all of SP’s rightscan rely on original reg
Hypo
Ex. SP signs + reg GSA3P SI arise + regSP2 pays out SP + reg w/ SM error
o SP2 > 3P: SP2 gets all the rights of SP1
Ex2. SP signs + reg for $50K loan3P SI arise + regSP2 loans $100K to D ($50K to pay out SP,
$50K additional loan)
o SP2 > 3P in respect of SP’s $50K loan
o SP2 derives higher priority from SP’s rightshigher priority only in respect of SP’s loan
Ex3. SP signs + reg3P SI arise + regSP’s reg lapsesSP2 pays out SP + reg
o SP2 < 3P SI: since SP’s SI became unperfectedSP doesn’t have better priority
f) Assignment: assignment vs. subrogation
Subrogation: equitable doctrine where one party is placed into the position of another by operation of
law, and possesses the rights and obligations of that party
Assignment: similar to subrogation, but arising from contract between the parties, where one party
agrees to assign their rights/obligations to another
Same analysis as subrogation applies for assignment
o Assignee cannot use Assignor’s financing statement to give it priority for new SA terms if
new terms, date of Financing Change statement used to determine priority
g) Marshalling of Securities
Situation: 2 credits, 2 assets, 1 D: 1) SP1: has SI in both assets 2) SP2: SI in only 1 asset
Equity: SP1 compelled to tap resources from unshared asset before going after shared asset
Rationale: unfair to SP2 otherwise (ex. SP1 depletes shared assethe still has other asset but leaves
SP2 nothing)
Problem: SP1 has SI in bank account & goods vs. SP2 has SI in bank account
o Marshalling forces SP1 to go after goods even though it’s more difficult to tap that resource
Soln: SP1 can tap account 1st + SP2 subrogated to SP1’s rights in respect of goods (to extent of SI2)
Ex. SP1 loans $100K, SP2 loans $50KGoods worth $150K, accounts worth $50K
o SP1 collects $50K from bank account + 50K from goods
o SP2 can collect his debt from goods (he’s subrogated to SP1’s rights)
g) Amalgamations
Situation: 2 ©s who have given SIs in APAAP amalgamate not covered by act who has priority?
o Problem: new © has all the obligations and debts of the two old ©s.
Ex. SP1 regs SI1 in A Inc. on Jan 1; SP2 regs SI2 in B Inc. on July 1; A Inc and B Inc amalgamate on
Sept 1, with A owing $300 K to SP1, and B owing $100k to SP2. SP2 then lends $200k after
amalgamation.
o Both SP1 and SP2 have APAAP SIs in AB Inc.
o Problem: Who has priority over new property, how is old property to be distributed?
o Soln: (no case law) Pro-rata distribution of AAPP based on outstanding obligation at time of
amalgamation if assts worth $200K, SP1 gets $150K; SP2 gets $50K.
IX: Purchase-Money Security Interest (PMSI)
Objectives
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o Identify transactions that fall w/in defn of PMSI
o Determine procedural steps needed to be taken to qualify for super-priority
o Resolve priority competitions between SPs where 1 or more SI is PMSI
o Appreciate the potential consequences that a loan consolidation or cross-collaterization feature
may have on SP’s ability to claim PMSI status
a) Introduction to PMSI
Defn (s.1(1)): PMSI = {secured credit sale, purchase-money loan, lease 1+ year, commercial consign}
o Secured credit sale – seller sells good to buyer + reserves SI in goods to secure unpaid $$
o Purchase-money loan – lender lends to D for purpose of allowing D acquire new asset
o Lease & commercial consignmt – deemed SI; included in defn of PMSI to ensure that lessor or
consignor enjoys priority over prior SP who has been given GSA
o Excludes: investment ppty (priority governed by s.35.1)
Super priority: 2nd
in time PMSP > competing SP in respect of a new asset acquired by D
o Rationale: avoid situational monopoly created by SPs with GSA
o Limit: 1) PMSP gave value to allow D to acquire asset + 2) funds in fact used for that purpose
Tip: lenders typically pay seller director to ensure funds used towards asset
Wheatland Industries v. Baschuk (1993 SaskQB 167) – not PMSI if D hasn’t acquired new asset
Facts – D (Baschuk), SP (lender)
D’s combine is damagedneeds $ for repairenter agrmt w/ SP:
o SP buys combine, then resells to D under installment planD repays over time
Issue: Does this create PMSI? Held: No
D hasn’t acquired any new asset: combine was only used as collateral for extension of credit
Purpose of PMSI is to allow D to enhance his asset pool
o Here, D already owned the combinedidn’t need money to acquire it; needed credit for repairs
b) Procedural Requirements for Super-Priority
1) PMSI in Inventory
Rule: PMSI in inventory > other SI in same collateral given by same D if PMSI is perfected at time D
takes possn as a debtor + notice to all SP w/ SI in same collateral before D takes possns.34(3)
o Notice = notice of PMSI intention + desc by item or kind
Ex. SP takes SI in APAAGD gives PMSI to SP2priority competition: SP vs. SP2
o SP2 > SP iff SP2 gives notice + reg before D takes possn
Tip to PMSI for compliance:
o 1) Reg PMSI in “computers”
o 2) Search registry & find other reg covering computers
o 3) Notify prior-reg SP
o 4) Reg by/before D’s possn
2) PMSI in Non-Inventory
Rule: PMSI in intangible > other SI in same collateral given by same D if perfected 15 days after SI in
intangible attachess.34(2)(b)
Rule: PMSI (non-intang, non-inventory) > other SI in same collateral given by same D if perfected 15
days after D takes possn as Ds.34(2)
o “D acquires possn” = {D gets possn OR 3P acquires possn at D’s request}
o PMSI < other SI if reg has SM error or lapses
Note: in AB, PMSI in SN goods as equipment need not register by SN to gain priority goes against
philosophy of PPSA.
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3) Determining “Date of D’s possn”
Situation: Seller gives D possn of collateral for trial periodno real sale until trial period ends
Issue: what is date of D’s possn? Start of trial period OR end of trial period?
o Held: End of trial period: D’s possn during trial period was only bailment, not “as a debtor”
o if D signs SA subject to SP approval, date of possn is date of approval, not date of signature.
4) Two-Debtor Problem: “PMSI > SI given by same D”
Situation: SP1 takes + reg SI in D’s ovenD sells oven to B, unauthorized + non-ordinary saleSP2
takes PMSI in oven b/c it gave B purchase money loanSP1 (SI) vs. SP2 (PMSI)
SP1 D1 GSA, reg’d Sale SP2 B SP3
PMSI, reg’d GSA, reg’d
SP1> SP2 under s.35(9) (b/c s.34 priority rule doesn’t apply to the PMSI b/c given by another D)
SP2 >SP3 under s.34
c) Competition between PMSI vs. T/B & PMSI vs. B
Rule: PMSI in non-intangible collateral > T/B if perfected w/in 15 days of D obtaining possns.22(1)(a)
o Cf. Unperfected SI < T/Bs.20
o S.22 provides ltd exception by giving unperfected PMSI priority so long as reg w/in 15 days
Rule: Unperfected (PM)SI < B who gives value + no knowledges.20
Ex. SP takes PMSI----------D takes possn-------------------T/B-----------------SP reg w/in 15 days
o SP > T/B
Ex2. SP takes PMSI---------D takes possn-------------------B-------------------SP reg w/in 15 days
o SP < B: rationale: B should be able to rely on registrypromote commerce
d) Priority Competitions between 2+ PMSIs
1) 2 PMSI lenders in same collateral
Rule: PMSI lender vs. PMSI lenderapply s.35
Ex. SP1 & SP2 each loan $10K to DD gets possn Dec 5SP1 reg Dec 10SP2 reg Dec 15
o SP1 > SP2 applying s.35 first in time rule (assuming both complied w/ s.34(2)
2) PMSI Seller vs. PMSI Lender in same collateral
Rule: PMSI seller > PMSI lender if seller complies w/ s.34(2), 34(3) procedural stepss.34(5)
o Rationale: lender has choice of what collateral to take; seller doesn’t
Ex. seller extends credit to Dbank loans to DD possn = Mar2bank reg Mar8seller reg Mar12
o Seller > lender
Ex2. seller credits to Dbank loans to DD possn = Feb 15bank reg Mar8seller reg Mar12
o Seller doesn’t comply w/ s.34(2) procedural reqmt: registers too late for PMSI
o Apply s.35: bank > seller b/c first in time registration
3) PMSI lender in original collateral vs. PMSI lender in proceeds (p.355 text)
Ex. SP1 finances car acquisitionreg May1D buys truck fr SP2, trades in carSP2 reg Aug5
o SP1 has PMSI in car + proceeds of car (truck)SP1 has PMSI in truck
o Issue: SP1 vs. SP2 wrt truck? Held: SP2 > SP1
Rule: non-proceeds PMSI > PMSI in same collateral as proceeds if meets procedural reqmtss.34(7)
o Inventory – perfected at date D takes possns.34(7)(a)
o Non-inventory collateral – perfected w/in 15 days after D takes possns.34(7)(b)
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SP1’s remedies (if sale to SP2 didn’t cut off SP1’s SI):
o SP1 can recover car from SP2 OR sue for conversion if SP2 has disposed of it
Note: Rule applies only in Western Cda
Ont/Atlantic Provinces: no explicit provision (likely SP1 > SP2 b/c first to register)
e) Maintaining PMSI Status
1) Effect of Cross-collateralization
Typical situation: SA creates 1:1 r/ship between PMSI & collateral acquired
o Ex. SP takes PMSI in 1 car acquired by D
Cross-collateralization occurs when SA secures PMSI + non-PMSI for same or additional obligations
Issue: does cross-collateralization destroy the PMSI?
o Arg1: (previously-dominant): transformation rule: SP loses PMSI status once combined
PMSI must be kept in separate SA
o Arg2: dual-status approach: SI divided into PM & non-PM
Adopted in Clark Equipment v. BMO
Ex. SP makes PM loan to D to acquire new fork liftSA says SP takes SI in APAA ppty
o PMSI: fork lift; non-PM SI in APAAP
Ex2. Lender loans to D to buy truckSA: SP takes SI in truck + all obligations clause
o Further loans from SPD are secured by SI in the truck; but these don’t have PMSI status
Ex3. Seller sells 50 cattle to D for $25K under secured installment purchase agmtseller later sells
another 100 cattle for $50K under similar SAboth SA say that SI secures all goods sold by seller
o SA1 secures $25K (PMSI) + $50K (non-PMSI); SA2 secures the same, vice versa
o SP gets PMSI for $25K from SA1; PMSI for $50K from SA2; non-PM SI for loan2 of each SA
Ex4. Q: How will the $60K be distributed? $25K $50K
PMSI + reg PMSI + reg Defaults: cattle sold: $20K for 1
st lot; $40K for 2
nd GSA: + all obligtns clause + all oblgtns clause D owes $15K for 1
st batch of cattle
reg 50 cattle 100 cattle D owes $45K for 2nd
batch SP1 SP2 SP2 D
SP2 cannot simply take the $60K and apply it to the $60K owed to it
1st lot: SP2 > SP1 b/c PMSI status: to extent of amount still owing ($15K)
o SP1 >SP2 wrt $5K remainder b/c earlier reg
2nd
lot: SP2 > SP1 b/c PMSI to extent of amount owing $45KSP2 gets entire $40K
o Courts got this wrong in Chrysler v. RBC
Clark Equipment v. BMO (1984 MBQB 171) – SA can cover PMSI + non-PMSI obligations
Facts – D (Maneco), SP1 (lender: BMO), SP2 (seller: Clark)
D grants SI to SP1D subsequently grants PMSI to SP2SP2 is 2nd
to reg but met PMSI reqmts
o SA2 covers APAA products {all equipment + machinery whether or not supplied by SP2}
Issue: Must PMSI agrmt be limited to PM collateral? Held: No; SP2 gets PMSI super priority
Same agreement can cover PMSI & non-PMSI
SP2 gets super priority only to the extent that goods were supplied by them
o Non-PMSI in older machines don’t get priority
Chrysler v. RBC (1986 SaskCA 187) – bad decision: cross-collateralization
Facts – SP1 (RBC), D, SP2 (Chrysler)
SP1 signs GSA w/ DSP2 takes PMSI in inventoryD sells inventory for trade-ins
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o For each sale to individual customers, D remits wholesale price to SP2
Competition: SP1 vs. SP2 over trade-ins
o SP2 has PMSI in proceeds
D’s car lot: 44 vehicles
o 9 of unknown origin
o 35 trade-ins = 31 where wholesale purchase price had been paid + 4 purchase price unpaid
Issue: to what extent can SP2 claim priority over the trade-ins? Held: SP2 has PMSI in all trade-ins
BAD DECISION: purchase price of 31 vehicles had already been repaid
o Court allows cross-collateralization: SP2 essentially gets GSA with super priority (all collateral
becomes subject to the PMSI even if original debt was paid off)
2) Consolidation of Debts and Refinancing
Refinancing: SP makes PM loanSP agrees to refinance (less paymt over longer term)
Consolidation of debts: SP makes PM loan to DSP makes non-PM loan2 to Ddebts consolidated
Issue1: what’s the effect on SP re: PMSI status? (Same issue as for x-collatlzn)
o Arg1 (previously dominant): transformation rule: SP loses PMSI status once combined
o Arg2: dual status approach: separate status continues
Applied in Re Con (US), adopted in Battleford (Cda)
Ex1)
Feb1/00
SP1: GSA + reg
May1/01
SP2: PM loan for truck
(equipmt): reg + possn
Mar1/02
SP2 loans addl $20K
Debt consolidation agrmt:
SP2 takes SI in truck for
both debts
Issue: PMSI (loan for truck) combined w/ non-PMSI ($20K)
o Transformation: SP1 > SP2 over truck b/c consolidation results in loss of PMSI status
o Dual-status: SP2 > SP1 over truck to extent of PM loan; SP1 > SP2 re: $20K loan
Ex2)
Feb1/00
SP1: GSA + reg
Mar1/01
SP2: PMSI (truck)
May1/01
SP2: PMSI (tractor)
June1/01
SP2: consolidatn
SI taken in truck & tractor
Issue: PMSI (truck) combined w/ PMSI (tractor)
o Transformation: SP1 > SP2 for both obligations
o Dual-status: SP2 > SP1 wrt truck & tractor
Issue2: if we adopt the dual-status approach, what happens when D makes paymt or collateral is sold?
Ex1) (covered in class)
SP0: GSA SP1: PMSI (tractor)
for $50K loan
SP1: PMSI (combine)
for $100K loan
Consolidation
($150K): GSA
Default: Sale proceeds:
Tractor - $30K
Combine - $120K
SP1 > SP2 wrt $30K for tractor
SP1 > SP2 wrt $100K for combine
o SP2 > SP1 wrt $20K remainderSP1 can’t take $20K to cover remaining debt for tractor
Ex2) (Covered in class)
SP0: GSA SP1: PMSI (tractor)
for $50K
SP1: PMSI (combine)
for $100K
Consolidation
($150K): GSA
D pays $60K towards
consolidated loan before
default
Arg1: 1st in, 1
st out: $50K goes to satisfy SP1’s loan1; $10K goes to satisfy loan2
o PMSI in tractor is fully paid out: SP1’s PMSI in tractor disappears as against SP0
Arg2: pro rata allocation: $20K satisfies loan1, $40K satisfies loan2
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o Wood: both are possible options; best to specify allocation of payments in SA
Ex3) PMSI consolidated w/ non-PMSI
SP: PMSI (cmpt) SP: non-PMSI (car) Consolidation: SI in car & cmpt
Amt owing: Cmpt - $2500; Car - $5000
D pays $3000
pre-default
If loan agrmt specifies repayment allocationfollow K
1st in, 1
st out: $2500 goes to PM loan$500 goes to non-PM loan
Pro rata: $1000 to PM loan$2000 to non-PM loan: SP retains PMSI in cmpt to extent of $1500
Ex4) (Covered in class)
SP0: GSA SP1: PMSI (tractor)
for $50K
SP1: PMSI (combine)
for $100K
Consolidation
($300K): GSA
D pays $140K before
default
If loan agrmt specified pay out $150K further advance 1stSP keeps PMSI in tractor & combine
1st in time: SP1>SP0 wrt tractor + combine: $50K to PM loan1, $100K to PM loan2
o SP0 > SP1 wrt $10K
Ex5)
Feb1/98
SP1: GSA + reg
Mar1/99
SP2: PMSI (truck)
June1/01
SP2: PMSI (car)
Sept1/02 Consolidatn:
SI in truck + car
Amt owing:
car-$1K; truck-$30K
Sale proceeds:
Car - $10K
Truck - $20K
Wood (text): SP2 > SP1 wrt $1000 for car debt
o SP1 > SP2 wrt $9000 remainder (car proceeds)
o SP2 > SP1 wrt $20K for truck debt
Battleford: allow cross-collateralization so SP2 gets entire $30KWRONG
o SP2 should not get more than if the debt hadn’t been consolidated
KEY POINT: consolidation should maintain existing priorities
3) Paying out PMSI Held by 3P
Situation: SP2 makes loan to allow D to pay out PMSP1
o Ex. SP1 takes GSA + regSP2 gets PMSI (car)SP3 loans so D can pay out SP2: SI in car
Issue: does SP2 get PMSP1’s PMSI status?
Battlefords Credit Union (1991 SaskCA) – good decision, bad reasons: SP who pays out gets PMSI
Issue: if SP pays out PMSI held by 3P, does SP acquire the PMSI status? Held: Yes
Analysis – good decision; bad reasoning
SP gets PMSI b/c it’s a PMSI by definition: SP allowed D to acquire rights in collateral
o D’s right is now unencumbered
Problem: this means SP gets PMSI even if 3P who was bought out did not have PMSI
o Ex. SP1 reg SISP2 reg SISP3 advances loan to buy out SP2
SP1 > SP2s.35: earlier reg BUT
SP3 > SP1: allows later SI to leap-frog in priorityPPSL would grind to a halt
o Ex2. SP1 reg SISP2 takes PMSI but reg lateSP3 advances loan to buy out SP2
SP1 > SP2 b/c SP2 failed to meet procedural reqmts for super-priority BUT
SP3 > SP1
Better reasoning: subrogation: SP3 paid out SP2gets the rights of SP2gets PMSI if SP2 had PMSI
o SP3 steps into SP2’s shoes: SP3 must ensure SP2 complied w/ procedure + reg hasn’t lapsed
Note
This approach has been adopted in Unisource (OntCA)
In both cases, SP3 acquired SP2’s valid PMSI so result was correct
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o Problem is that the reasoning could lead future cases to incorrect result
NZ Bloodstock (NZ): rejects Sask + OntCA arguments
f) Production Money Security Interests in Crops and Animals
s.34(9) perfected SI given by D over crops/proceeds to enable D to produce crop > another SI in the
same collateral if:
o i) crops are growing crops
o ii) Prod.MSI given w/in 6 months of crops becoming growing crops
covers purchase of inputs or services directly related to production of crops
o does not require that funds be used for purchase of inputs (cf. normal PMSI), therefore no
tracing
if two Prod.MSI, first in time should win no express priority rule
s.34(10) same as s.34(9), but in relation to animals.
X) Proceeds
a) SI in Proceeds
Rule: if collateral gives rise to proceedsSP’s SI continues in collateral + extends to proceedss.28(1)
o SP can recover against one/other/both: esp. important if SI in collateral if lost (ex. inventory)
o SA needn’t cover proceeds
Limit: SP can only recover ≤ FMV of collateral at date of dealing if SP enforces SI against both
o Rationale: proceeds not intended to give windfall
Ex.
SP takes SI in D’s
crane
D sells crane to B for
$50K; SP’s SI not
lost
B pays w/ $20K
cheque + bull-dozer
trade-in
3 years later: D
defaults
Crane FMV = $35K
Bull-dozer FMV =
$25K
SP can recover FMV of collateral at time of dealing = $50K
SP can claim against crane & bull-dozer but can’t recover more than $50K
Ex2.
SP takes SI in truck for
$10K loan
D sells to B for $5K;
Assume SI not lost
Value surviving:
Cash: $3K; Truck = 4K
SP’s value recoverable = 5K
b) Defn of Proceeds – 4 requirements (s.1(1))
Rule (s.1(1) defn): 4 elements of proceeds:
1) “Identifiable or traceable”
2) Personal ppty
3) Derived directly or indirectly from a deal with the original collateral or its proceeds
Incl: multi-generational proceeds
4) in which the D acquires an interest
Incl: right to insurance paymt for loss/damage of collateral
o Ex. collateral is totalledSP can claim against insurance payment
Incl: paymt in discharge or redemption of assets
o Ex. Cheque or other paymt received when account is paid or funds received when redeemable
shares are redeemed by the issuing corporation
1) Multi-Generation Proceeds
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SP takes SI in truckD sells truck to B1 for chequeD uses proceeds to buy car from B2
o Proceeds = cheque (proceeds of truck), car (proceeds of proceeds – 2nd
generation)
o SP can claim against original truck + cheque + car
2) “D must acquire an interest (in the proceeds)”
SP----SA: truck--------------D-----sale: truck for cheque---B1-------sale: truck for cheque--B2
o SP can go after cash proceeds from DB1 sale + truck but NOT cheque from B1B2 sale
D never acquired an interest in the cheque
o Rationale: limit SP’s ability to have extensive claims (pyramid scheme)
3) Identifiable or Traceable Requirement
Identifiable = factually possible to point to the particular ppty resulting from the dealing
o Identity is lost when proceeds are mixed w/ other ppty belonging to D or other 3Ptracing
Traceable = possible to trace which are the proceeds through CL & Equitable tracing principles
Tracing Rules: when D mixes money with that of another:
1) MixtureD presumed to w/draw D’s own money 1st
2) Mixture + acct balance < amt of proceedsSI is adjusted downwards; new additions of non-proceeds
funds do not accrue to the proceeds balancelowest intermediary balance rule (LIB)
o Widely applied in US (likely applied in Cda as well)
Ex. Fill in the blank boxes (end balance & proceeds remaining)
Proceeds
Deposited
Non-Proceeds
Deposited
W/drawls End Balance Proceeds
Remaining
1 --- 50,000 --- 50,000 ---
2 40,000 --- --- 90,000 40,000
3 --- --- 60,000 30,000 30,000
4 --- 70,000 --- 100,000 30,000
5 30,000 --- --- 130,000 60,000
6 --- --- 50,000 80,000 60,000
i) Mixed Proceeds of 2 different SPs (diff collateral)
Ex. D’s acct balance: 100
SP1 proceeds: 100
SP2 proceeds: 300
W/drawl <200> (presume 1st 100 was D’s own money)
------------------------------------
Balance 300
Issue: How does SP1 & SP2 share the $300?
o Engl: 1st in, 1
st out (rule in Clayton’s Case) SP1 gets 0, SP2 gets 200
o Cda (SCC): pro rata depletion: SP1 gets 25%, SP2 gets 75%
Problem: in some cases, this interferes w/ appln of LIB rule
Ex. D 100
SP1 100
W/drawl <200>
SP2 300
------------------------
Balance 300SP1 & SP2 must still share pro rata (OntCA)WRONG!
OntCA: we can just apply diff rules in diff casesSmith: creates uncertainty
o Smith: once ppty is destroyed, it’s lost; shouldn’t force other innocent parties to share the loss
ii) Relevance of Wrongdoing (p.472)
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Situation: SP takes SI in carD sells car for chequeD uses proceeds to buy clock
o SP can go after car + clock (proceeds of proceeds)
Situation: SP takes SI in carD sells car for chequeD blows proceeds on mealthen buys clock
o Live issue: Do we still apply presumption that D w/draws his own money 1st?
Arg1: yes b/c we want to preserve certainty
Arg2 (Equity): wrongdoer rule: since D created the evidentiary difficulty, Equity
resolves it against the wrongdoer
Only applicable if 2 possible resolutions & 1 is worse for the wrongdoer
iii) Tracing Through Payment of a Debt
SP takes PMSI in cattle herdherd sold & proceeds deposited into D’s account
D takes out another loan to acquire Watusi cattleuses proceeds to pay off 2nd
loan
Ex: D deposits proceeds into bank account, where all funds are proceeds D buys car on credit, later
pays $10K from account to cover debt
o Issue: can SI in funds in account be traced into car?
Arg 1: no, b/c D owner of car when money taken out of bank, therefore impossible to
say money used to buy car
Arg 2: backwards tracing rule: possible to trace through payment of a debt (Pettyjohn:
alludes to “tracing by subrogation”)
o Backwards tracing: requires showing that debt extinguished by proceeds was directly related to
acquired asset
For exam: if i) debt incurred to acquire asset + ii) debt paid with proceeds assume backwards
tracing possible
iv) Functional Equivalence Test
PettyJohn (Watusi Cattle case) (1991 SaskCA 212) – f(n)l equivalence
Facts
SP takes PMSI in cattle herdherd sold & proceeds deposited into D’s account
D takes out another loan to acquire Watusi cattleuses proceeds to pay off 2nd
loan
Issue: Can SP trace their PMSI in the original cattle to the Watusi cattle? Held: Yes
Analysis – court creates new tracing principle: functional equivalence rule
F(n)l equivalence: if D replaces collateral w/ another of like f(n)court can treat one as substituting
the other regardless of the specific details (form over substance)
Watusi replaced old cattleSP’s rights in old collateral are transferred to the Watusi
Problems: D hadn’t even sold all the original collateral before acquiring the Watusi
o Rule creates a divide between normal vs. PPSA tracing rules
o Uncertainty: “similar function” invites litigation
o Rule allows SP to extend his SI even if the ppty was depleted (ex. D sells collateral, depletes
proceeds, gets other $ to buy replacement collateralSP maintains SI & priorities)
Note
Unsure how many courts will follow this: 1 BC court has
c) Proceeds and Perfection
Rule: SP must perfect SI in proceeds/new asset to ensure highest priority: 3 methodss.28(2)
1) If SP can predict proceeds likely generatedreg proceeds desc in original financing stmts.28(2)(a)
2) Proceeds fall w/in same collateral descreg original collateral descs.28(2)(b)
o Non-inventory SN goods need not be reg by SN (impossible for SP to know)
3) Proceeds = {money, cheque, deposit in acct}SI automatically perfecteds.28(2)(c)
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Except: SI temporarily perfected for 15 days after proceeds generated
If SP has GSA: no need to reregister
Ex. SP1 takes SI in truckSP2 takes GSAD sells to BSP1 perfects SI in proceeds w/in 15 days
o SP1 > SP2 wrt proceeds
Ex2. SP1 takes SI in carD sells to B, generates proceedsT/B w/in 15 days
o SP1 > T/B b/c temporary perfection
Ex3. SP1 takes SI in carD sells to B, generates proceedsB w/in 15 days
o B > temporarily perfected SP1s.30(5) (limit: value + no knowledge)
1) Proceeds and Priorities
a) SP vs. SP
General: SI in proceeds that’s continuously perfectedsame priority rank as SI in original collateral
Rule: Time of reg of proceeds = time of reg of original collaterals.35(2)
Rule: PMSI priority applies to the collateral or its proceedss.34(2) & 34(3)
Ex. SP1 (GSA)SP2 PMSI in truckboth properly perfect after proceeds acquired
o SP2 PMSI > SP1
b) Accounts Financer vs. Inventory Financer (p.353)
Ex. Bank (GSA, including accounts)inventory financer PMSI in sale inventoryD sells inventory
giving rise to proceeds in the form of accounts (owed by 3P customers to D)
Issue: Inventory financer’s PMSI in proceeds (accounts) vs. bank’s SI in proceeds (accounts)
o Ont: PMSP > Bank
o Atlantic: PMSP > Bank but only if they give notice to bank
o West: Bank > PMSP if bank claims accounts as original collateral (cf. proceeds) & gave new
values.34(6)
Rationale: bank is relying on account as its 1ry business: if they lose the collateral, all
they have is the proceeds (cf. inventory financer: can still go after inventory)??
Transamerica v. RBC (1990 SaskCA 222) – appln of s.34(6)
Bank takes GSAinventory financer takes PMSI in inventory supplied to DD sells for proceeds
deposited into bank
o Inventory financer claims bank accounts as proceeds
o Bank claims accounts as original collateral
Issue: priority competition: bank vs. inventory financer over bank accounts Held: Trans > bank
S.34(6) doesn’t apply here:
o S.34(6) situation: bank has SI in accounts owed to D by 3Ps
o Here: bank has SI in its own accounts (D’s bank account with them)
c) Non-Proceeds PMSI vs. PMSI as proceeds – s. 34(7)
Rule: Non-proceeds PMSP > PMSP2 w/ PMSI in proceeds if:
a) Inventory: PMSP reg by time of D’s possn
b) Non-inventory: PMSP reg w/in 15 days post-D’s possns.34(7)
Situation: SP1 takes PMSI in truckD trades truck in for car to SP2 who also takes PMSI in car
o SP1 vs. SP2 in car (SP1 claims priority in the car as proceeds): SP2 > SP1
o SP1 vs. SP2 in truck (SP2 is buyer): SP1 > SP2 unless SP2 can find rule in favour of buyer
XI) Special Priority Rules
Types of special priority rules:
o Negotiable assetss.31
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o Investment Pptys.35.1
o Non-consensual SIs.32
o Fixtures & accessionsss.36-38
o Commingled goodss.39
o Subordination agreementss.40
a) Negotiable Assets (s.31): SP vs. transferee w/ possn
General: perfection by possessn is superior to registration wrt negotiable instruments
Rationale: maintain the negotiable quality of the collateral
o Otherwise, commerce would grind to a halt: subjects every person who receives negotiable
ppty to potential SI
1) Payments to Creditors
Rule: SP (perfected) < transferee w/ possn of negotiable asset wrt:
a) Money iff transferee is a) donee w/out knowledge OR gave value (irregard knowl)s.31(1)
b) Instrument drawn by D & delivered in payment of debts.31(2)
Limit: preference law (D can’t pay preferred creditors over others)
Includes: any D-initiated payment {electronic funds transfer, debit, authorization to deposit}
Ex. D pays 1 creditor by chequecreditor takes free
BUT: doesn’t apply to the account on which the instrument is drawn (text: 384)
Ex. D pays creditor by chequeSP enforces SI on account before instrument is
paidSP > transferee
Ex. SP gets GSA + regD pays A $25 cash for desk saleD pays B $2 cheque for supplies
o SP < A & B
2) Purchasers of Negotiable Collateral
Rule: SP (perfected) < purchaser {SP, B, any voluntary transn} of negotiable collateral wrt:
a) Instrument (usually cheques) iff gave value + no knowledge + possessns.31(3)
b) Document of title iff gave value + no knowledge + possessns.31(4)
c) Chattel paper in ordinary course of business + for new value + no knowledge s.31(6)
Except: SP claiming SI in chattel paper as proceeds of inventoryknowledge irrelevant
Departs from old CL: didn’t see this as negotiable
Rule: registration constructive knowledges.47
Purchaser is broader than sale: encompasses parties to any voluntary trasn: covers subsequent SPs
o Ex. SP1 signs GSA + regSP2 takes SI + perfects by possnSP2 > SP1
Chattel Paper
Purchaser must give “new value”: not cancellation of antecedent debt (see example)
Ex. SP1 takes PMSI in inventorySP2 makes secured loan $50,010(SP1 > SP2)D sells inventory
& generates chattel papersells chattel paper to SP2 for $50K to pay off debt
o If $10 is “new value”SP2 > SP1 wrt chattel paper even though SP1 had PMSI
o Purchaser must give actual “new value”; no portion can be cancellation of prior debt
Two standard situations where competing interests in chattel paper will arise:
o Situation1: D sells SI in chattel paper generated in his business to commercial purchasers of
chattel paperprior SPs can protect themselves by writing abt their SI on the chattel paper
o Situation2: SI in chattel paper as proceeds of inventory
SP takes SI in inventoryD sells inventory, generates chattel paperSP has SI in
proceeds (chattel paper)D transfers chattel paper to purchaser who takes possess in
ordinary course of business + for new valuepurchaser > SP even if he knows of SI
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o Policy: facilitate the use of chattel paper as a financing device
Flexi-Coil (1994 SaskCA 230)
Credit union (unsecured creditor) advances line of credit to D through D’s accountD gives PMSI in
inventory to SP (inventory supplier)D sells inventory for chequesdeposits cheques into account
Competition: credit union vs. SP
Issue: Does the credit union take free? Was SP’s SI in cheques defeated by the cheque’s deposit into acct?
Can SP claim a SI in the account as 2nd
generation proceeds?
Held: Credit union > SP; SP can claim 2nd
generation proceeds if acct had pos+ balance
Analysis – credit union arguments
1) Bona fide purchaser for value gets priority in PPSA
Court: we only apply PPSA tracing rules; not Equity tracing rules
2) Instrument purchased for value + w/out knowledge of SP’s SI
Court: bank may take 2 roles vis-à-vis cheque:
o 1) Deposit cheque to bank as agentmoney available when cheque clears
o 2) Bank buys cheque from depositercheque immediately depositable
If so, bank is purchaser: purchaser > SP if value + no knowledge
o Here, the credit union allowed w/drawl immediatelygets priority
Flexi-coil can claim the account as 2nd
generation proceeds if it generated positive acct balance
o But here, D had negative overdraftcheque deposit only decreased D’s indebtedness
b) Investment Ppty (s.35.1)
Rule: SP w/ control of investment ppty > SP w/out controls.35.1(2)
(Certificated): SP who holds the certificated security > other SP
(Uncertificated: security entitlement): tri-partite control agrmt: SP w/ right to instruct issuer wins
o If multiple SPs perfected by entering into control agrmts1st to take control wins
Control agrmts are vulnerable:
o SP w/ control agrmt < SP w/ physical controlSecurities Transfer Act
o SP w/ control agrmt < SP who’s registered as the ownerSecurities Transfer Act
SP > T/B b/c SP perfected
SP < 3P SP w/ control
SP < 3P B who gives value + no knowledge + takes controls.30(9)
Case Law
It’s generally rare for parties to use investment ppty as collateral
Most case law comes from US
c) Non-Consensual SI (s.32)
Non-consensual SI’s are created by law
o Include = {liens, rights of distress, statutory deemed trust, statutory SI}
Liens (CL/statute/Equity):
o All CL liens are possessory
Ex. Repairs liens (repairman repairscan w/hold ppty + sell unless D pays)
o Statute: Garage keeper’s lien: can claim lien after giving up possessn (limit: must reg in time)
Right of distress: allows landlords to go on leased ppty + cease ppty located on the premise to pay off
rent
Deemed trust (normally in favour of R, some for e/ees): deemed trust usually related to a revenue
generating statute (ex. ITA)
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o Deemed trust b/c situation doesn’t give rise to trust in law/Equity: can’t ID ppty
Statutory SI (aka statutory charge): generally in favour of R
Statutory Demand (ITA): allows CRA to go after accounts receivable owing to D
Priority Rule under S.32
Rule: SP (perfected or not) < lien iff lien given to person who furnishes materials or services + on goods
+ ordinary course of their businesss.32
o Recall: “ordinary course of business” = ordinary for your business, even if it’s a small part
Except: lien is created by statute + statute specifies different priority
Appln: Possessory, non-possessory, CL & Statutory liens
Garage Keeper’s Lien Act, s.4
Rule: GK can get non-possessory lien iff lien is registered w/in 21 days after GK gives up possessns.3
o Secures money owing for storage, repair or maintenance of motor/farm vehicle
o Financing stmt must describe the vehicle by SN; SM errorreg invalid
o Lien usually lasts 6 months unless court order extension
Rule: Lien on motor vehicle or farm vehicle < SP in good faith + no notice + SI arose before GK
regs.4, Garage Keeper’s Lien Act
Interpretation: “Before GK reg” = SI arose after GK gave up possession + before GK registered
o Rationale: protect SP in the period when they can’t get notice (max 20 day window)
Ex. SP takes SIGK takes possn for repairsGK gives up possesnGK reg w/in 21 days
o GK > SPS.4 doesn’t give every prior SP priority
GK’s possession is notice to SP of the SI
S.4 wants to protect SI that arise when SP can’t get notice of the SI
Problem: circular priority
Ex. SP1 takes SIGK takes possnGK gives up possnSP2 takes SIGK reg w/in 21 days
o SP1 < GK < SP2s.4 GKLA
o SP1 > SP2s.35 PPSA
o The 21 day window reduces the likelihood of this problem
Analysis for Priority Competitions: SP vs. non-consensual SP
1) Does s.32 apply? If yes or no…
o Yes if lien + meets conditions; No if SI isn’t a lien
2) Does non-PPSA priority rule exist? (Check statute creating the SI) If not…
3) Determine priorities according to order of attachment (ppty law)
o Rationale: that’s when the ppty right arises
RBC v. Sparrow Electric (1997 SCC 244) – CRA loses priority
Competition between SP & CRA
ITA created deemed trust but was silent on priority
o CRA arg: “implied authority”: SP allowed D to deal w/ inventory & proceedsthis meant that
they authorized competing SIs
Held: SP wins
Court rejects the “implied authority” argument
Authority to deal w/ inventory & proceeds authorizing competing Sis
We apply PPSA s.12 terminology for attachment, not floating charge (postponed attachmt)
Note
Courts have tended to give strict interpretation against R legislation: protect citizens’ ppty rights
Post-decision, CRA amended ITA: “we have priority over any SP”
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Law: if SI is lease or conditional saleITA doesn’t apply; elseCRA wins
d) Fixtures, Accessions and Commingled Goods
1) Loss of Identity of Goods
CL: person w/ interest in goods can lose that interest if the goods:
o Become part of land (fixture)
o Are joined to another chattel (accession): ex. Car part put into engine
o Made into a new thing (specification): ex. Leather into shoes
Mixtures: mixing rules allow owners to claim a share of the mixture
Under PPSA: not so easy to lose a SI
General: SP can assert SI in fixture, growing crop, accession, mixture or new product
2) Fixtures (s.36): Goods attached to (enhance the value of) land
3 scenarios (s.36 only applies to #3)
1) Building materials incorporated into a buildinggoods become part of landnot fixturesCL
o S.36 doesn’t apply
o “building material” = anything that functions as part of the building
Excludes: escalator, air conditioner
2) Materials that aren’t fixtures under the CL testgoods keep separate IDuse normal priority rules
3) Fixtures + NOT “building materials”apply s.36
o Situation: D owns landM takes mortgageSP takes SI in equipment affixed to land
Competition: M (claims goods b/c interest in land) vs. SP
Rule: SI taken in goods before they’re attached/become fixtures > 3P who claims goods b/c of their
interest in lands.36(2)
Except:
1) SP who hasn’t registered a fixtures notice < 3P who acquires land interest + for value + after
goods become fixturess.36(3)
2) SP who doesn’t register fixtures notice < prior mortgagee who makes subsequent advance after
goods are affixeds.36(3)
Examples
1) D owns land w/ factoryM takes mortgageSP supplies equipment to D under SAequipmt affixed
o Assume it meets CL test for fixture
o SP > M
o Rationale: M hasn’t relied on the equipment being part of the land
2) SP takes SI in heating system installed to landM takes mortgage on July 2
o If SP reg July1: SP > M
o If SP reg July3: SP < M
3) SP1 supplies equipment to D under SASP2 takes SI in same collateralequipment affixed to land
o Resolve by normal PPSA priority rules: both have the right of removal
National Trust
M takes real ppty mortgageSP takes SI in cabinets (fails to reg fixtures notice)M2 takes real ppty
mortgage
Circular priority issue:
o M1 > M2real ppty law
o M2 > SPs.36(3); SP > M1s.36(2)
Issue: Who should bear the loss? Held: M1
M1 seized first: When M1 began seizing on the ppty, they converted SP’s right
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o M1 must pay out SP: this subrogates them to SP’s rights but as against M2, they’re valueless
Note – problematic decision
Decision creates incentive on parties not to seize first: 1st to seize loses
Loss should be on SP b/c they failed to reg their right
3) Growing Crops (s.37)
Rule: SP w/ SI in growing crops > 3P who claims interest in lands.37(2)
Defn (growing crops) = doesn’t include trees unless trees used for non-lumber/wood purpose
Except: SP who hasn’t registered < 3P who acquires interest in land while crops are growing
4) Accessions (s.38): Goods attached to Other Goods
PPSA test is simpler than CL (must distinguish between dominant & subordinate goods)
Accession = goods installed/fixed to other goods
Rule: SI in goods before attached pre-accession > 3P w/ interest in the entire goods.38(2)
Except:
1) SP who hasn’t registered < 3P who acquires entire good + for value + after accessions.38(3)
2) SP who hasn’t reg < prior 3P who makes future advance after accessions.38(3)
o Registration: only need to provide collateral description of accession goods (not the other
goods into which they’re installed)
Ex. SP1 takes SI in truck w/out engineSP2 takes SI in engineSP3 takes SI in entire truck
o SP3 > SP2 unless SP2 registered their SI
o SP2 > SP1: irregardless of whether SP2 registered (unless SP1 makes future advances to D)
5) Processed or Commingled Goods
Defn (commingled goods) = {mixture, raw product manufactured into final product}
Rule: SI in manufactured/mixed goods carries over even if goods become unidentifiables.39(1)
o Cf. ppty law: ppty right is lost
Perfection: SI in product/mass is continuously perfected (no additional perfection step needed)s.39(2)
i) Competing SI in the Separate Components
Rule: 2 perfected SPs w/ competing SI in product/mass share pro ratas.39(4)
Limit: SP shares to the extent of the FMV of what they supplieds.39(5)
Ex. SP1 supplies steel ($10K)SP2 supplies plastic ($20K)product worth $15K
o Both SPs maintain SI: share pro rata (SP1 gets 5K, SP2 gets 10K)s.39(5)
Ex2. SP1 supplies steel worth $3K but SI covers $5KSP shares to the extent of $3K
ii) Competing SI in a Component & a Product
Ex. SP1 supplies steel + reg SISP2 takes SI in finished product + reg
o Apply s.35 priority rule: 1st to reg wins
o SP1 > SP2 (to the extent of the value of what he supplied?)
iii) PMSI
Rule: PMSI > SP w/ claim in the product/masss.39(6)
Ex. SP1 supplies a steelSP2 takes PMSI plastic
o PMSI > SP1
Ex2. PMSP supplies steelPMSP2 supplies plastic
o PMSI share pro rata
Ex3. PMSP supplies steelSP takes SI in product
o PMSP > SP (to extent of value of what he supplied)
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e) Subordination Agreements – SP surrenders priority
Situation: SP1 has GSA for $500K loanwon’t give anymore loans to DD needs more financing
o Problem: no other lenders will want to lend if their claim is subordinate to SP1
o Soln: subordination agreement
SP who has priority can give up some/all of their priority by entering subordination agreement
2 types of subordination agreements:
1) K between 2 SPs: 1 SP agrees to subordinate or postpone its SI
Ex. SP2 > SP1 wrt specific collateral OR SP2 > SP1 wrt amounts over $X
2) SA w/ subordination provision: SP agrees to subordinate SI to 3P
Issue: privity: 3P not privy to rights derived from K between SP & D
Rule: SP2 can enforce K between SP1 & D if SP2 is w/in the class of persons mentioned in
the subordination agrmts.40
Apparent Circular Priority
Situation: SP1 takes SI + regSP2 takes SI + regSP3 takes SI, enters subordination K w/ SP1
Issue: does this create circular priority?
o SP1 > SP2 > SP3(1st to reg) BUT SP3 > SP1
Held: No circular priority
1) Determine priorities under s.35: set aside amounts for SP1, SP2, SP3
2) Pay SP2
3) Remaining goes to SP3 1st, then SP1 if there’s any remaining (SP2 isn’t affected)
Ex. 2.5M assetsSP1: 1.5M, SP2: 1.75M, SP3: 1M
o SP1 gets 1.5 but is subordinate to SP3: SP3 takes 1M, SP1 gets 0.5M (remainder)
o SP2 gets 1M
Chiips (1994 ABCA 266) – bad decision: subordination doesn’t require clear language re priorities
SA: “D shall not create any other SI other than PMSI” + “D permitted to give PMSI”
SP1 takes SI + regSP2 takes PMSI but fails to take necessary steps to get superpriority
o SP2 arg: SA contained subordination language
Issue: Is this a subordination provision? Held: Yes
Since SP1 essentially authorizes the D’s PMSI transactionit’s a subordination provision
Dissent (better)
Language only gives D permission to enter transaction (no clear language about priorities)
o Cf. Euroclean language: “interest shall rank in priority”
W/out the terms, if D grants SI to SP2, it’s considered a default (SP1 can seize)
o The terms merely provide that PMSI doesn’t trigger seizure or event of default
Note – case unlikely to be followed elsewhere
XII) Enforcement (Part V)
SP has 2 types of rights:
o 1) Rights against ppty (Part V PPSA): preferred method if collateral still exists
o 2) Rights against D or 3P (tort/conversion): SP can sue D for the debt or 3P for conversion
Disadv: if D or 3P is bankruptmust share in bankruptcy as unsecured creditor
a) Application of Part 5
Part 5 remedies only apply to true SI
Remedial scheme is mandatory: parties can’t K out w/ minor exceptionss.56
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b) Enforcement Steps
1) Default: D must default before SP can enforce
Defn: failure to pay obligation or any event where SI becomes enforceable under the SAs.1(1)(m)
Ex. SP can accelerate payment or performance anytime SP feels insecure
Limit: based on good faith/objective groundss.16
Parties can set out a list of events of default (often extensive)
Rule: If SP enforces when there’s no defaultD has remedies (damages in K or tort)s.67(1)
2) Seizure: SP takes Possession
Rest of Cda: SP can repossess (self-help remedy)
AB: seizure must be carried out by Civil Enforcement agencyPart 2: Civil Enforcement Act
o CEA mostly covers judgment enforcement; Part 2 applies to writ, distress, lease, PPSA seizure
Seizure Under Part 2 of CEA
SP has immediate right to seizes.58(1)
CL: Lister v. Dunlop (SCC): SP must give reasonable time for D to pay
o SP makes demandmust give D reasonable time to paydefault after time passes
o “Reasonable time to pay”
UK/Australia: time to effect the transfer
SCC: look at factors (r/ship between parties) but ≤ 1 monthunpredictable
o Note: decision intended for demand loans only but has now been distorted
SP must now give notice even if there’s a clear defaultno juridical reason
Bankruptcy Insolvency Act: SP must give 10-day notice of intention to enforce on all or substantially
all assetss.244
o Rule curbs litigation on most cases; else, sue for appln of Lister
3a) Sale
Old law: SP to sell through public actionProblem: low proceeds
Rule: SP can dispose of collateral in any commercially reasonable manners.60(2)
Limit: SP must give 20 day notice prior to sales.60(4)
o Ex. SP has $150K secured obligationcollateral worth $200Kcan’t just sell to 1st seller
willing to pay $150K to satisfy their own debt: 3P can sue for unreasonable realization
Rule: SP can collect on accounts (owed to D)s.57
Surplus/deficiency
Rule: If sale generates surplusSP must return it to a subordinate SP, claimant or Ds.61(1)
Rule: DeficiencySP can sue as unsecured creditors.61(4)
Default: s.1(1)(m)
Seizure: s.58, Part2 CEA
Distribution: s.61
Foreclosure: s.62 Sale: s.60
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Limit: SP can seize or sue (but not both) wrt PMSI in consumer goods by sellers.53 Law of Ppty Act
o Ex. D gives d/ship financer PMSId/ship can’t sue + seize if collateral is consumer good
Cf. D gives PMSI to lenderlender can sue + seize
o Rationale: seller knows the product: in better posn to avoid deficient collateralization
o Appln: s.53 only applicable in Western Cda
3b) Foreclosure – SP takes collateral in satisfaction of the obligation
Rule: SP can propose foreclosure by giving notice to D + other interested partiess.62(1)
Rule: If D or 3P objects SP must:
a) Sell OR b) apply to court to override the objection (if vexatious)s.62(2)
4) Receivership – permitted only if in SA
Rule: SA may allow SP to appoint receiver to take control + manage business in event of defaults.65(1)
Limit: Must give 20 days notice if receiver sells anything out of ordinary business (ex. equipmt or the bus)
c) Redemption
Rule: D or 3P may redeem the collateral by paying the obligation secureds.63(1)(a)
o Subordinate SP w/ higher obligation may want to pay out D’s obligation to secure collateral
o Ex. SP1 > SP2SP1 owed $100K, SP2 owed $500Kcollateral FMV = $300K
d) Reinstatement
Rule: D can reinstate SA by paying off amount in arrears or curing the defaults.63(1)(b)
o Ex. SA says default = entire debt duereinstatement overrides this
e) Supervisory Power of Court
Court has power to supervise the exercise of the Part 5 remediess.64
o CL: court narrowly interpret this: won’t vary statutory or K rights
XIII) Bank Act Security
BAS (s.427 Bank Act) is a hidden trap
Some SI not revealed on registrymay be found in federal reg
o Banks can opt to reg on federal PPSA system (tip: must search to ensure top priority)
a) Scope
Limit on SP: BAS can only be given to banks
Limit on D & collateral: only specific classes of D can grant BAS + specific categories of goods
o Excludes equipment
PPSA doesn’t apply to BASs.4(b) PPSA (except: Ontario)
b) Nature of the Security
Bank (SP) gets same rights as if it had acquired a bill of lading or w/house receipts.427(2)
o Same rights as D
Attachment occurs when document delivered to the banks.427(2)
o Automatic attachment for after-acquired ppty
c) Obligation Secured
BAS can’t secure past advancess.429(1)
Bank can tack future advancess.429(1)(b)
d) Registration System
Reg in provincial office when D’s principal place is locateds.427(4)-(5)
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Notice filing system: file notice of intention (little detail required: D/bank name + addr)
e) Priorities
BA doesn’t contain a complete set of priority rules
Priorities are not determined by 1st to reg rule
Rule1: unregistered BAS < subsequent SI w/out knowledges.427(4)(a)
Rule2: BAS > subsequently created rights in the pptys.428(1) (limit: subject to Rule1)
Examples
1) BAS-------------PPSA SI
Answer: BAS > PPSA SIs.428(1)
2) PPSA SI--------BAS
Answer: PPSA SI > BASppty law
o PPSA doesn’t apply + no BAS priority rule
o Ppty law: BAS subject to preexisting ppty right (“can’t give what you don’t have”)
o Note: doesn’t matter if PPSA SI wasn’t registered (s.35 does NOT apply)
3) PPSA SI in APAAP------------------BAS in APAAP---------------D acquires new asset
Answer: PPSA SI > BASBMO v. Pulsar
o Both SI attached to the asset simultaneouslyfirst to enter SA wins
4) BAS--------------------------PMSI (title reserved by seller)
Answer: PMSI > BASppty law (bank takes subject to reservation of title)
5) BAS--------------------------PMSI (lender: title not reserved by seller)
Answer: BAS > PMSIRBC v. Moosomin Credit Union (1st in time wins)
