Commercial LawCommercial LawPart 3 – Bank Act Security Part 3 – Bank Act Security

& Mechanics’ Liens& Mechanics’ LiensBank Act SecurityBank Act Security

HistoryHistory

Bank Act security was introduced nearly Bank Act security was introduced nearly 100 years ago when provincial secured 100 years ago when provincial secured lending law was unreformedlending law was unreformed

It was innovative and ahead of its time in It was innovative and ahead of its time in several respectsseveral respects Notice filingNotice filing

““Notice of Intention” filed in Bank of Canada RegistryNotice of Intention” filed in Bank of Canada Registry Allows security in after-acquired propertyAllows security in after-acquired property Abolished rule in Hopkinson v RoltAbolished rule in Hopkinson v Rolt

It is now unnecessary in light of the PPSAsIt is now unnecessary in light of the PPSAs

LimitationsLimitations

LenderLender Available only to banks governed by the Available only to banks governed by the

Bank ActBank Act DebtorDebtor

Natural resource sectorNatural resource sector ManufacturersManufacturers Farming and acquicultureFarming and acquiculture

Interaction btw PPSA & Interaction btw PPSA & Bank ActBank Act

PPSA and BAS are extremely poorly PPSA and BAS are extremely poorly integratedintegrated

Priorities between PPSA security and BAS Priorities between PPSA security and BAS is obscure in almost every respectis obscure in almost every respect All that is clear is that registered BAS has All that is clear is that registered BAS has

priority over subsequent PPSA securitypriority over subsequent PPSA security It is usual for Bank to take both PPSA and It is usual for Bank to take both PPSA and

Bank Act security and register separatelyBank Act security and register separately Then attempt to rely on which ever is most Then attempt to rely on which ever is most

advantageousadvantageous

Tax LiensTax Liens

Municipal taxes lien and public utility lienMunicipal taxes lien and public utility lien Super-priority on real property without need for Super-priority on real property without need for

registrationregistration E.g. Ont Municipal Act s. 349, Public Utilities Act s. 31E.g. Ont Municipal Act s. 349, Public Utilities Act s. 31 NB Real Property Tax Act s.11, Municipalities Act s. NB Real Property Tax Act s.11, Municipalities Act s.

189(10)189(10) Local improvement liens (e.g NB Muncipalities s,117 Local improvement liens (e.g NB Muncipalities s,117

ff)ff)

Income tax, sales taxIncome tax, sales tax Must be registered, if applicableMust be registered, if applicable

ITA s. 223, real and personal propertyITA s. 223, real and personal property Ont Retails Sales Tax Act s. 23, personal propertyOnt Retails Sales Tax Act s. 23, personal property

Misc LiensMisc Liens Unpaid Vendor’s lienUnpaid Vendor’s lien

Possessory lien, does not require registratonPossessory lien, does not require registraton s. 37, 38 Sale of Goods Acts. 37, 38 Sale of Goods Act

Lien against property of employer for unapid Lien against property of employer for unapid wageswages NB Employment Standards Act s. 381NB Employment Standards Act s. 381 Requires registrationRequires registration

Woodsmen’s LienWoodsmen’s Lien Lien on lumberLien on lumber Registration in court of Queen’s BenchRegistration in court of Queen’s Bench

Etc.Etc. Stable Keepers Act, C.C.S.M. c. S200 Stable Keepers Act, C.C.S.M. c. S200

Possessory lien for costs of boarding animalsPossessory lien for costs of boarding animals

Mechanics’ LiensMechanics’ Liens

Lien against landLien against land S. 4(1)S. 4(1)

Basic idea is to protect subcontractors. Basic idea is to protect subcontractors. Much construction takes place with a Much construction takes place with a

general contractor and subcontractors. general contractor and subcontractors. Subcontractors are not in privity with owner. Subcontractors are not in privity with owner. Subcontractors may be small businesses. Subcontractors may be small businesses.

Problem arises when contractor becomes Problem arises when contractor becomes insolvent and subcontractor has not been insolvent and subcontractor has not been paid.paid.

Mechanics’ LiensMechanics’ Liens

Acts may set up two remediesActs may set up two remedies lien lien trust.trust.

The Act creates a trust in the hands of certain The Act creates a trust in the hands of certain personspersons E.g builder for moneys received, in respect of amounts E.g builder for moneys received, in respect of amounts

owing to subcontractors: see s.3 NB Act owing to subcontractors: see s.3 NB Act The trust creates a purely personal remedyThe trust creates a purely personal remedy

It is effective against claims in bankruptcy and statutory It is effective against claims in bankruptcy and statutory liens.liens.

Not all jurisdictions have trust fund remedy and it Not all jurisdictions have trust fund remedy and it differs significantly between jurisdictions. differs significantly between jurisdictions.

Mechanics’ LiensMechanics’ Liens

Lien is a real rightLien is a real right Enforceable by sale of propertyEnforceable by sale of property

IssuesIssues CreationCreation PreservationPreservation PrioritiesPriorities

Stop Here Fall 2008

CreationCreation

Lien arises in favour of any person Lien arises in favour of any person doing work or furnishing materials: doing work or furnishing materials: s.4s.4

In many jurisdictions it also arises in favour In many jurisdictions it also arises in favour of lessee of equipment.of lessee of equipment.

Lien arises when work is done or Lien arises when work is done or materials are furnished: s.8materials are furnished: s.8

PreservationPreservation

Lien expires Lien expires on payment of person claiming lienon payment of person claiming lien on expiry of time set for filing, unless claim of lien is on expiry of time set for filing, unless claim of lien is

filed: s.25filed: s.25 Time varies 30-60 days: s.24. Also varies between Time varies 30-60 days: s.24. Also varies between

jurisdictions.jurisdictions.

90 days from filing of claim, unless action is 90 days from filing of claim, unless action is commenced: s.27commenced: s.27

Or, in NB only, after the expiry of the period of credit Or, in NB only, after the expiry of the period of credit mentioned in the filed claim of lien.mentioned in the filed claim of lien.

If acting for a purchaser or lender, how far If acting for a purchaser or lender, how far back should you search for a lien?back should you search for a lien?

Preservation and Preservation and HoldbackHoldback

Lien extinguished by good faith payment to Lien extinguished by good faith payment to contractorcontractor Unless notice given to owner by subcontractorUnless notice given to owner by subcontractor

Only up toOnly up to holdback amount holdback amount 15-20% in NB – s. 15(7)15-20% in NB – s. 15(7) Owner who pays full amount to contractor is Owner who pays full amount to contractor is

nonetheless liable up to holdback amount to nonetheless liable up to holdback amount to subcontractor who was not paidsubcontractor who was not paid

Payment of holdback after time for expiry of Payment of holdback after time for expiry of lien extinguishes lienlien extinguishes lien Owner should search before paying holdback to Owner should search before paying holdback to

contractorcontractor

Preservation and Preservation and HoldbackHoldback

Owner who does not hold back is Owner who does not hold back is exposedexposed

Is this good policy?Is this good policy? Who is more vulnerable, owner or Who is more vulnerable, owner or

subcontractor?subcontractor?

PrioritiesPriorities

Lien has priority over unregistered Lien has priority over unregistered interestsinterests S. 9S. 9

Priorities – Registered Priorities – Registered MortgagesMortgages

Generally, lien has super-priority for value Generally, lien has super-priority for value which is attributable to the improvements made which is attributable to the improvements made by the work secured by the lienby the work secured by the lien Much jurisdictional variation in detailsMuch jurisdictional variation in details

E.g. NBE.g. NB Mortgage registered before lien claim is filedMortgage registered before lien claim is filed

Has priority for advances made before lien claim is filed or Has priority for advances made before lien claim is filed or actual notice of lien is givenactual notice of lien is given

But only up to the value of the land at the time the advance But only up to the value of the land at the time the advance is madeis made

So, lien which has arisen has priority to the extent So, lien which has arisen has priority to the extent that it increased the value of the property, even if that it increased the value of the property, even if unregistered and no noticeunregistered and no notice

Priorities – Registered Priorities – Registered MortgagesMortgages

Future advancesFuture advances M’ee prior to other m’ee in respect of M’ee prior to other m’ee in respect of

future advances unless actual notice is future advances unless actual notice is givengiven

M’ee subordinated to lien holder even M’ee subordinated to lien holder even without noticewithout notice

Why the difference in policy?Why the difference in policy? Should m’ee search for liens?Should m’ee search for liens?

Lien on Goods and Lien on Goods and ChattelsChattels

Personal propertyPersonal property Possessory lien onlyPossessory lien only

S. 6S. 6