Part 1Part 1Security Interests in Security Interests in Personal Property: Personal Property:

The PPSAThe PPSASection ISection I

IntroductionIntroduction

OutlineOutline History of PPSAHistory of PPSA Basic ConceptsBasic Concepts EnforcementEnforcement PrioritiesPriorities

Potted History of Mortgage Potted History of Mortgage LawLawLandLand

Transfer of the fee simple with a Transfer of the fee simple with a covenant for reconveyance on condition covenant for reconveyance on condition (or defeasible on condition subsequent(or defeasible on condition subsequent The lender held legal titleThe lender held legal title

Strict interpretationStrict interpretation Condition is not satisfied if a payment is Condition is not satisfied if a payment is

missedmissed Debt remains owing, with no obligation to Debt remains owing, with no obligation to

reconvey landreconvey land

Potted History of Mortgage Potted History of Mortgage LawLawLandLand

Consumer protection rules Consumer protection rules developeddeveloped Eg the “right of redemption”Eg the “right of redemption” As a result, the mortgage was more As a result, the mortgage was more

than a transfer of the fee simplethan a transfer of the fee simple

Potted History of Mortgage Potted History of Mortgage LawLaw

Personal PropertyPersonal Property Myriad Myriad forms forms of security interestof security interest

Chattel mortgageChattel mortgage Conditional sales agreementConditional sales agreement Financing leaseFinancing lease ConsignmentConsignment Assignment of book debtsAssignment of book debts Corporate securitiesCorporate securities

Potted History of Mortgage Potted History of Mortgage LawLaw

Personal PropertyPersonal Property Substantive law depended on formSubstantive law depended on form Registration requirements depended Registration requirements depended

on formon form Multiple filing venuesMultiple filing venues

US Personal Property US Personal Property Law ReformLaw Reform

The Uniform Commercial Code is The Uniform Commercial Code is model legislation proposed by the US model legislation proposed by the US National Conference of National Conference of Commissioners on Uniform State Laws Commissioners on Uniform State Laws

Article 9 of the UCC deals with Article 9 of the UCC deals with secured lending in personal propertysecured lending in personal property Drafted in the 1950s by Professors Grant Drafted in the 1950s by Professors Grant

Gilmore & Allison DunhamGilmore & Allison Dunham The most successful Article of the UCCThe most successful Article of the UCC

Canadian Law Reform on Canadian Law Reform on the US modelthe US model

Ontario PPSA based on UCC Article 9Ontario PPSA based on UCC Article 9 Enacted in 1967Enacted in 1967

All other Canadian common law All other Canadian common law jurisdictions have since followedjurisdictions have since followed

Atlantic provinces most recently – 1993 - 1998Atlantic provinces most recently – 1993 - 1998 Overall structure of Article 9 and the Overall structure of Article 9 and the

PPSAs is the samePPSAs is the same But there are significant substantive But there are significant substantive

differencesdifferences

Canadian Law Reform on Canadian Law Reform on the US modelthe US model

Two models for the PPSA in CanadaTwo models for the PPSA in Canada OntarioOntario The “Model Act” or “Western model” The “Model Act” or “Western model”

used by all other provincesused by all other provinces

Features of the PPSAFeatures of the PPSA Substance over formSubstance over form

Law no longer depends on the form of Law no longer depends on the form of the transactionthe transaction

All transactions are “security interests”All transactions are “security interests” ““I hereby grant a security interest in X I hereby grant a security interest in X

collateral to secure”collateral to secure” Facilitation of secured financingFacilitation of secured financing Notice financingNotice financing

Outline of the PPSAOutline of the PPSA Part I – Interpretation and Part I – Interpretation and

Application (& ConflictsApplication (& Conflicts Part II – Validity of Security Part II – Validity of Security

Agreement and Rights of Parties Agreement and Rights of Parties Part III – Perfection and Priorities Part III – Perfection and Priorities Part IV – Registration Part IV – Registration Part V – Default Rights and Part V – Default Rights and

Remedies Remedies

PPSA is IncompletePPSA is Incomplete The PPSA is not a complete codeThe PPSA is not a complete code It is comprehensive in a general sense, It is comprehensive in a general sense,

but it is incomplete in many detailsbut it is incomplete in many details Existing legal principles are preserved Existing legal principles are preserved

to fill in the gapsto fill in the gaps 65(1)The principles of the common law, 65(1)The principles of the common law,

equity and the law merchant, except insofar equity and the law merchant, except insofar as they are inconsistent with the provisions as they are inconsistent with the provisions of this Act, supplement this Act and of this Act, supplement this Act and continue to applycontinue to apply

PPSA & Unsecured PPSA & Unsecured CreditorsCreditors

In a separate reform, registration in In a separate reform, registration in the Personal Property Registry (PPR) the Personal Property Registry (PPR) is also used to publicize an interest is also used to publicize an interest in assets taken by an in assets taken by an unsecuredunsecured creditor who has obtained a creditor who has obtained a judgment (”judgment creditor”)judgment (”judgment creditor”) Registration by a judgment creditor is a Registration by a judgment creditor is a

pre-requisite to further enforcementpre-requisite to further enforcement

Basic ConceptsBasic Concepts Scope of the PPSAScope of the PPSA Attachment & PerfectionAttachment & Perfection

Scope: Substance over Scope: Substance over FormForm

3(1) Subject to section 4, this Act 3(1) Subject to section 4, this Act appliesapplies (a) (a) to every transaction that in substance to every transaction that in substance

creates a security interest, without creates a security interest, without regard to its form and without regard to regard to its form and without regard to the person who has title to the collateralthe person who has title to the collateral, , andand

(b) without limiting the generality of (b) without limiting the generality of paragraph (a), to [all old forms of paragraph (a), to [all old forms of security interest]security interest]

Scope – Substance over Scope – Substance over FormForm

Corresponds to para (a) of definition Corresponds to para (a) of definition of “security interest”of “security interest” "security interest" means"security interest" means (a) an interest in personal property that (a) an interest in personal property that

secures payment or performance of an secures payment or performance of an obligationobligation

Deemed Security Deemed Security InterestsInterests

3(2) Subject to sections 4 and 55, this Act 3(2) Subject to sections 4 and 55, this Act appliesapplies (a) to a commercial consignment, (a) to a commercial consignment, (b) to a lease for a term of more than one year, (b) to a lease for a term of more than one year, (c) to a transfer of an account or chattel paper, (c) to a transfer of an account or chattel paper,

and and (d) to a sale of goods without a change of (d) to a sale of goods without a change of

possession, possession, that do not secure paymentthat do not secure payment or or

performance of an obligation performance of an obligation

Deemed Security Deemed Security InterestsInterests

Are Are NOTNOT true security interest true security interest Addresses ostensible ownership problemAddresses ostensible ownership problem

When person in possession and control does When person in possession and control does not have title to goodsnot have title to goods

Publicity needed to protect third partiesPublicity needed to protect third parties Registration and priority scheme of Registration and priority scheme of

PPSA appliesPPSA applies Enforcement provisions do Enforcement provisions do notnot apply – apply –

s55(1)(a)s55(1)(a)

Deemed Security Deemed Security InterestsInterests

Avoids some borderline cases Avoids some borderline cases problemproblem Eg true lease or financing leaseEg true lease or financing lease (b) to a lease for a term of more than (b) to a lease for a term of more than

one year,one year, Creates othersCreates others

Because enforcement provisions do not Because enforcement provisions do not applyapply

Sale of GoodsSale of Goods 3(2)(d) sale of goods without change of 3(2)(d) sale of goods without change of

possessionpossession [outside ordinary course of [outside ordinary course of business]business] See def’n of “sale of goods without a change See def’n of “sale of goods without a change

of possession”of possession” Unique to Atlantic provinces in PPSAUnique to Atlantic provinces in PPSA Addresses ostensible ownership problemAddresses ostensible ownership problem Ordinary course requirementOrdinary course requirement

)If sale without change of possession is in ordinary )If sale without change of possession is in ordinary course, third parties have implicit knowledgecourse, third parties have implicit knowledge

Exclusions – S4Exclusions – S4 4 Except as otherwise provided in this 4 Except as otherwise provided in this

Act, this Act does not apply to the Act, this Act does not apply to the following:following:

(a) a lien, charge or other interest (a) a lien, charge or other interest given by rule of law or statute given by rule of law or statute unless the statute provides that unless the statute provides that this Act applies;this Act applies;

Eg Landlord’s right to distrain; Lien Eg Landlord’s right to distrain; Lien on Goods and Chattels; Tax lienson Goods and Chattels; Tax liens

Exclusions – S4Exclusions – S4 Problems with this exclusionProblems with this exclusion

Priority problems with liens and Priority problems with liens and security interests in the same property security interests in the same property (often solved with express provisions)(often solved with express provisions)

Notice/searching problems with liens; Notice/searching problems with liens; particularly with non-possessory liensparticularly with non-possessory liens

Some progress towards integration Some progress towards integration of liens into PPRof liens into PPR Eg Filing of notice of judgment in PPR Eg Filing of notice of judgment in PPR

Exclusions – S4Exclusions – S4 4 Except as otherwise provided in this Act, 4 Except as otherwise provided in this Act,

this Act does not apply to the following:this Act does not apply to the following:(e) the creation or transfer of (e) the creation or transfer of an an interest in landinterest in land including a lease; including a lease;

(f) the creation or transfer of an (f) the creation or transfer of an interest in a right to payment that interest in a right to payment that arises in connection with an interest in arises in connection with an interest in or a lease of land other than an interest or a lease of land other than an interest in a right to payment evidenced by a in a right to payment evidenced by a security or an instrument;security or an instrument;

Exclusions – S4Exclusions – S4 Different registries for land and Different registries for land and

personal propertypersonal property Why? Indexing methodWhy? Indexing method Problems – Boundary issues Problems – Boundary issues

Security interest in a real property Security interest in a real property mortgage 4(f)mortgage 4(f)

FixturesFixtures

Exclusions – S4Exclusions – S4 4 Except as otherwise provided in this Act, this 4 Except as otherwise provided in this Act, this

Act does not apply to the following:Act does not apply to the following: (k) a mortgage registered under the(k) a mortgage registered under the

Canada Shipping ActCanada Shipping Act (Canada); (Canada); (l) a security agreement governed by an (l) a security agreement governed by an

Act of the Parliament of Canada that deals Act of the Parliament of Canada that deals with the rights of parties to the agreement with the rights of parties to the agreement or the rights of third parties affected by a or the rights of third parties affected by a security interest created by the agreement, security interest created by the agreement, including any security agreement governed including any security agreement governed by Part VIII of theby Part VIII of the Bank Act Bank Act (Canada)(Canada)

Exclusions – S4Exclusions – S4 Federal security interests – Why?Federal security interests – Why?

Functional: Shipping – mobility of Functional: Shipping – mobility of collateralcollateral

Historical/political - Bank ActHistorical/political - Bank Act Not all PPSAs exclude Bank Act securityNot all PPSAs exclude Bank Act security

SummarySummary ConsensualConsensual transaction transaction creating creating realreal interest in interest in personalpersonal property property for the for the purpose of securing paymentpurpose of securing payment

or performance of an obligationor performance of an obligation

DebtorDebtor ““Debtor”Debtor”

Definition of “debtor” parallels that of Definition of “debtor” parallels that of security interestsecurity interest True debtorsTrue debtors Deemed debtorsDeemed debtors

Plus guarantorsPlus guarantors

Personal PropertyPersonal Property PPSA creates various categories of PPSA creates various categories of

personal propertypersonal property "personal property" means goods, a "personal property" means goods, a

document of title, chattel paper, a document of title, chattel paper, a security, an instrument, money or an security, an instrument, money or an intangible;intangible;

Categories are functionalCategories are functional Eg Some types of property are incapable of Eg Some types of property are incapable of

being physically possessed => Registration is being physically possessed => Registration is the sole means of perfectionthe sole means of perfection

Functional CategoriesFunctional Categories ““Goods”Goods”

Tangible personal propertyTangible personal property Document of title, chattel paper, Document of title, chattel paper,

security, instrument, moneysecurity, instrument, money Debts capable of being transferred by Debts capable of being transferred by

possessionpossession

Functional CategoriesFunctional Categories ““Accounts”Accounts”

Subcategory of intangiblesSubcategory of intangibles Needed to deal with accounts Needed to deal with accounts

receivable financingreceivable financing Interaction between security interest in Interaction between security interest in

inventory and accounts as proceeds of inventory and accounts as proceeds of sale of inventorysale of inventory

IntangiblesIntangibles ““Intangible” is the residual categoryIntangible” is the residual category

Open- ended definitionOpen- ended definition ““intangible" means personal intangible" means personal

property that is not goods, a property that is not goods, a document of title, chattel paper, a document of title, chattel paper, a security, an instrument or money;security, an instrument or money;

IntangiblesIntangibles The usual view among The usual view among

commentators is that “intengible” commentators is that “intengible” encompasses anything of value that encompasses anything of value that is not specifically excluded by s 4is not specifically excluded by s 4 Usually because it is covered under Usually because it is covered under

some other regime: eg landsome other regime: eg land Is there room for other exclusions?Is there room for other exclusions?

Eg are transferable agricultural quotas Eg are transferable agricultural quotas “property” or a mere “licence”?“property” or a mere “licence”?

Basic ConceptsBasic Concepts Freedom of contractFreedom of contract AttachmentAttachment PerfectionPerfection

Freedom of ContractFreedom of Contract S9 – Freedom of ContractS9 – Freedom of Contract

Except as otherwise provided in this or Except as otherwise provided in this or any other Act, a security agreement is any other Act, a security agreement is effective according to its termseffective according to its terms

Does NOT mean complete freedom Does NOT mean complete freedom of contractof contract PPSA creates debtor rights PPSA creates debtor rights DOES mean abolition of common law DOES mean abolition of common law

constraints on lendingconstraints on lending

Freedom of ContractFreedom of Contract Freedom of contract v consumer Freedom of contract v consumer

protectionprotection Is it good for debtors if lending law is Is it good for debtors if lending law is

“pro-debtor”?“pro-debtor”? Eg long notice period, court Eg long notice period, court

supervision, before SP can seize assetssupervision, before SP can seize assets

AttachmentAttachment Attachment Attachment meansmeans creation of a security creation of a security

interestinterest Creditor becomes a secured creditorCreditor becomes a secured creditor Obtains rights against the collateral itselfObtains rights against the collateral itself

Attachment alone is inadequate to secure Attachment alone is inadequate to secure rights good against the worldrights good against the world Attachment without perfection results in rights Attachment without perfection results in rights

which are good against the debtor, but which which are good against the debtor, but which are ineffective or subordinate in priority to are ineffective or subordinate in priority to most competing third party interestsmost competing third party interests

AttachmentAttachment 12(1) A security interest attaches 12(1) A security interest attaches

whenwhen (a) value is given,(a) value is given, . . .. . .

‘‘value’ means any consideration value’ means any consideration sufficient to support a simple sufficient to support a simple contract and includes an antecedent contract and includes an antecedent debt or liability”debt or liability”

AttachmentAttachment 12(1) A security interest attaches when12(1) A security interest attaches when

(b) the debtor has rights in the (b) the debtor has rights in the collateral, andcollateral, and

Can’t use collateral that isn’t yoursCan’t use collateral that isn’t yours But, need not have a full ownership But, need not have a full ownership

interestinterest Any real rights, ie any right to the Any real rights, ie any right to the

property itself, including an equitable property itself, including an equitable rightright

AttachmentAttachment 12(1) A security interest attaches 12(1) A security interest attaches

whenwhen (c) except for the purpose of (c) except for the purpose of

enforcing rights as between the enforcing rights as between the parties to the security agreement, parties to the security agreement, the security interest becomes the security interest becomes enforceable within the meaning of enforceable within the meaning of section 10section 10

AttachmentAttachment 10(1)A security interest is enforceable

against a third party only where (a) the collateral is in the possession of

the secured party or another person on the secured party’s behalf, or

(b) the debtor has signed a security agreement that contains (i) a description of the collateral . . .

Attachment – S10Attachment – S10 Evidentiary requirement Evidentiary requirement

Cf. Statute of Frauds – “writing” Cf. Statute of Frauds – “writing” requirementrequirement

Protects third parties by defining the Protects third parties by defining the scope of the actual security interestscope of the actual security interest It is not uncommon that the registered It is not uncommon that the registered

description of the collateral is broader description of the collateral is broader than the actual collateralthan the actual collateral

Attachment – S10Attachment – S10 Two methodsTwo methods

Possession s10(1)(a)Possession s10(1)(a) Writing requirement s10(1)(b)Writing requirement s10(1)(b)

When the requirements of s10 are When the requirements of s10 are met the security interest is effective met the security interest is effective against a third partyagainst a third party This does NOT guarantee This does NOT guarantee prioritypriority

against a third partyagainst a third party

PerfectionPerfection Attachment secures SP rights Attachment secures SP rights

against Dagainst D Perfection secures SP rights against Perfection secures SP rights against

the world (third parties)the world (third parties)

PerfectionPerfection Perfection is a Perfection is a publicitypublicity requirement requirement

How can a third party know whether you How can a third party know whether you own the thing that you possess?own the thing that you possess?

A publicity requirement is needed to avoid A publicity requirement is needed to avoid the problem of secret prior intereststhe problem of secret prior interests

Two methods of publicity / perfectionTwo methods of publicity / perfection Possession – s24Possession – s24 Registration - s25Registration - s25

Possession - S24Possession - S24 Limited to those types of property Limited to those types of property

which are capable of possession: which are capable of possession: s24(1)s24(1)

Actual possession required: s24(2)Actual possession required: s24(2) Not favoured, as D cannot use the Not favoured, as D cannot use the

collateralcollateral

Registration - s25Registration - s25 Security interests in all types of Security interests in all types of

property can be perfected by property can be perfected by registrationregistration 25 Subject to section 19 [attachment 25 Subject to section 19 [attachment

requirement], registration of a requirement], registration of a financing statement perfects a financing statement perfects a security interest in collateral security interest in collateral

The registration system – the “PPR” – is The registration system – the “PPR” – is the key to an efficient financing systemthe key to an efficient financing system

PerfectionPerfection S19 A security interest is perfected whenS19 A security interest is perfected when

(a) it has attached, and(a) it has attached, and (b) all steps required for perfection (b) all steps required for perfection

under this Act have been completed,under this Act have been completed, ““All steps” = Possession / RegistrationAll steps” = Possession / Registration RegardlessRegardless of the order of occurrence of the order of occurrence Pre-registration is effectivePre-registration is effective

PerfectionPerfection Failure to perfect results in loss of Failure to perfect results in loss of

prioritypriority S 35(1)(b) a perfected security S 35(1)(b) a perfected security

interest has priority over an interest has priority over an unperfected security interest;unperfected security interest;

Perfected beats unperfectedPerfected beats unperfected

PerfectionPerfection ““in order to make a security interest in order to make a security interest

effective against third parties, the effective against third parties, the ActAct requires that the secured party "perfect" requires that the secured party "perfect" it by performing some act of public it by performing some act of public notice” Commentary to s19notice” Commentary to s19 Practically correct, but not technically correctPractically correct, but not technically correct If s10 is satisfied, the security interest is If s10 is satisfied, the security interest is

effective against third parties, but if effective against third parties, but if unperfected will almost always be subordinate unperfected will almost always be subordinate in priority to third party interestsin priority to third party interests

After-Acquired Property - After-Acquired Property - S13S13

13(1) Subject to section 12 and 13(1) Subject to section 12 and subsection (2), a security agreement subsection (2), a security agreement that provides for a security interest that provides for a security interest in after-acquired personal property in after-acquired personal property attaches to that property in attaches to that property in accordance with the terms of the accordance with the terms of the agreement without any need for agreement without any need for specific appropriation by the debtorspecific appropriation by the debtor

After-Acquired Property - After-Acquired Property - S13S13

D may grant a security interest in D may grant a security interest in property which she does not ownproperty which she does not own It does not attach until D acquires It does not attach until D acquires

rights (s12), but then attaches rights (s12), but then attaches automaticallyautomatically

General Security Agreement (GSA) – General Security Agreement (GSA) – “All present and after-acquired “All present and after-acquired property”property”

SummarySummary The PPSA - a single unified Act dealing The PPSA - a single unified Act dealing

withwith ConsensualConsensual security interests (security interests (notnot ownership interests) ownership interests) in personal propertyin personal property

)Except property under federal jurisdiction)Except property under federal jurisdiction AttachmentAttachment

Security interest enforceable against the Security interest enforceable against the debtordebtor

PerfectionPerfection