Scope of the Act
1. /

Is it a Secured Interest?

/ s.1 (def’n) / Substance over form – it is any transaction where an interest in personal property is taken to secure payment or performance of an obligation, i.e. they do not have ownership, but a charge to the property as a fall back position. Term is defined generally to keep with purpose of the Act, it is hypothecary in nature.

True Security Interest:

/ s.2(1)(a) / Act applies to every transaction that creates a Security Interest. Who has title is not relevant.
s.2(1)(b) / Non exclusive list of pre-PPSA devices where it is deemed to be a Security Interest (chattel mtg, conditional sale, floating charge, pledge, trust, indenture, trust receipt, an assignment, a consignment, a lease, a trust, transfer of chattel paper)

Deemed Security Interest,

/ s.3 / Leases over a year, commercial consignments and transfers of account or chattel paper are within scope of Act, even if they do not secure payment.
2. /

Is it a true trust or a Security Interest?

/ s. 2 / If it is a true trust, the PPSA will not apply. Even though they may fit definition, if they do not look like creditors, will not force them into Act – must uphold practicality and commercial reality – holding money in trust for creditor may not be a Security Interest (Sybridge).
3. /

Is it a True Lease, or a Security Interest dressed up like a lease?

/ s.3(c) / If it is a true lease, PPSA will not apply, so no need to register, unless it is for term more than one year – Act has chosen to include even non security leases, if they are more than one year
s.1(def’n) / “lease for term of more than 1 yr” – inclusive definition -- lease of (a) indefinite term, but is determinable after one year (b) initially 1 yr or less, but extended (c) has term of 1 yr or less, but automatically renews. But, it does not include a lease if not “regularly engaged” in business of leasing goods or a lease of furniture as part of a household
1(3) / an extended lease does not become a lease for more than 1 year until possession extends past 1 year.
s.55(2) / If it is a lease, but for term of more than one year so it fits 3(c), Part 5 remedies will not apply
4. /

Is it a Consignment or a Conditional Sale?

/ s. 3(b) / Consignment would not ordinarily be a Security Agreement, but If it is a “commercial consignment”, PPSA will apply, so need to register.
Purpose of inclusion is that creditors could be mislead into believing property is debtors and that it provides security.
s.1 (def’n) / Exhaustive Definition  goods are delivered for sale, lease or other disposition to a consignee who “in the ordinary course of business” deals in goods of the description and reserves an interest in the goods after delivery. Does not include delivery to auctioneer or if it is “generally known that they are in business of selling or leasing goods” (i.e their name is Joe’s Consignment)
s.12(2) / A borrower will be considered to have rights in leased or consigned goods upon obtaining possession for the purpose of 12(1)(b)
s.55(2) / If it is a commercial assignment under 3(b), Part 5 remedies will not apply
5. / Is it a Transfer of Account or Chattel Paper? / s. 3(a) / A transfer of account ($ obligation not evidence by chattel paper) or chattel paper (Security Interest in specific goods) is under scope of PPSA – if assignee does not register their interest after the transfer, then they will not be a secured creditor.
s.55(2) / If it is a transfer of account or chattel paper under 3(a), Part 5 remedies will not apply
Attachment and Perfection
Attachment arises pursuant to the agreement (contract) between debtor & creditor, whereby he gets an interest in the property (In rem interest). To protect rating amongst other creditors, must perfect via registering their interest
1. / Has there been Attachment?
Is there a Security Agreement? / s. 1 (def’n) / An agreement that provides for a Security Interest
s, 9 / SA is effective according to its terms, i.e. there is freedom of contract, but only subject to the PPSA (i.e cannot contract out of PPSA).
s. 10 / An agreement is only enforceable against third parties if it is in writing. If there is a delay in executing an agreement, may lose priority.
s.11 / Secured party must give copy of Security Agreement to the debtor within 10 days
s.14 / Contract does not have to provide term that future advances are covered by it – automatic tacking.
s.16 / Acceleration clause may be included to allow Secured Party to seize for full outstanding debt, not just amount in default.
Is the Collateral Properly Described? / s.10(1)(b) / Description of collateral must contain description of collateral by
  1. item or kind (with reference to goods, securities, instruments, documents of title, chattel paper, intangibles, money),
  2. ALLPAAP, or
  3. ALLPAAP with exceptions

Re: ALLPAAP
/ In terms of whether collateral was meant to include after acquired property (e.g. if it just says “all personal property”) it will be a matter of construction and intent – rules of interpretation and can be established by parol evidence.
s.13(2) / Security Interest in ALLPAAP does not extend to:
  1. future crops …
  2. After acquired consumer goods unless the goods replace other collateral in the SA (which is destroyed or worn out) or are purchased under a PMSI (this facilitates ability to still get consumer loans) or they are accessions.

Re: Consumer Goods
/ s.10(3) / A description is inadequate if it just says “consumer goods” or “equipment” without further reference (but you can just say “goods”). Description does not help warn 3rd parties since any given collateral may be both equipment and goods.
Re: Inventory
/ s.10(4) / A description of collateral as “inventory” is adequate for the purposes of s.10(1)(b) but only while it is held by the debtor as inventory and being used as inventroy. If use changes, interest will be lost. (contrary to s. 1(4), see below). Also, note that regulations contain further particularization rules that must also be followed.
s.18 / Provides a way for a party to obtain further particulars of the collateral – they can demand particulars from secured party
s.1(4) / The determination of what the goods are (inventory, consumer goods, etc) is made at the time of attachment
Has it attached? / s. 12(1) / A Security Interest attaches when
(a)value is given, -- roughly equivalent to consideration, i.e. if lender committed to granting credit or making loan (If Loan is made, with security given later, this is value – past consideration is value: TD Bank v. Nova)
(b)the debtor has rights in the collateral, i.e. they must own it (Under Kinetics Technology, the definition of “rights in collateral” is very broad. You do not have to have title: Hailbeck. Anyone entitled to use of the goods is sufficient to be an “owner” for the purposes of the Act: GE v. Inland Kenworth. If unclear, can look at Common Law property rights as per s.68), But Nemo Dat still applies, and the Security Interest is in only what the debtor has and
(c)it becomes enforceable under s. 10 (i.e. it is in written form or there is possession of the collateral)
It is unlikely that you can have retroactive attachment, but the Ont CA has suggested that an unenforceable Security Interest can become retroactively enforceable when the agreement is put in writing, as long as it is before enforcement proceedings are taken (Rogerson Lumber, 1970 Ont). However, a retroactive finding may be contrary to the purpose of the statute (to provide corroboration of the claim to third parties)
If it does not comply with s. 10, it does not attach to property except to the extent necessary for remedies under Part 5
s.12(1) / For ALLPAAP attachment does not happen until the debtor acquires the property.
Floating Charges: / s.12(1) / Security Interest includes a floating charge, but issue as to when attachment occurs  at time of agreement re: the floating charge, or at time of default.
Under Huxley, attachment does not occur until default. But, under Credit Suisse, which looked more closely at s. 12 without reading into it, attachment occurs according to (a) to (c) requirements, so it attaches immediately. In Credit Suisse, court said this did not usurp use of floating charges because they imposed an agreement that credit is subordinate until time of default, as is provided for in s. 40.
2. / Is the Collateral proceeds? / s.10(5) / A description of proceeds is not required in the Agreement. A lender cannot predict the form of proceeds and cannot provide a description in the SA.
s. 28(1)(b) / A Security Interest extends to proceeds – if the collateral is dealt with or gives rise to proceeds, the Security Interest continues in the collateral and extends to the proceeds
SEE BELOW FOR PRIORITY RULES ON PROCEEDS
3. / Is the Interest Perfected? / Part III
s,19 / A Security Interest is perfected when it has attached and all steps required for perfection are met, regardless of order of occurrence. I.e., attachment can occur either before or after the other steps of perfection. A financing statement can be registered before a Security Interest has attached, but the Security Interest is not “perfected” until it has attached.
Can perfect by taking possession (s. 24) or by registration (s. 25) or by temporary perfection (s. 26).
s.23 / Is a Security Interest is perfected under act, and then perfected again in some other way without an intermediate period of un-perfection, it is continuously perfected. In other words, a change in the method of perfection does not change priority status (but would have to file a financing change statement under s. 44 to continue original priority date).
Is it perfected by Possession? / s.24(1) / A Security Interest in most categories of collateral may be perfected by the secured party taking possession (does not include intangibles or non-negotiable docs).
s.24(2) / A secured party does not have possession of collateral that is in the actual or apparent possession of the debtor or his agent.
s.26 / If perfected by possession, can give up possession for 15 days and still retain perfection.
s. 10(1) / To perfect by possession, don’t need writing requirement.
Arguably seizure of the property is not perfection by possession. Some Ont courts have said that it is (Gilbert, 1979), but Sask and later Ont courts said it is not (Royal Trust v. No. 7 Honda, 1988).
Superior method when collateral is money, securities, negotiable documents of title or chattel paper.
Appointing a receiver does not constitute possession -- possession must be actual possession by the secured party and not by their agent: Bank of NS and Royal Bank
` / Secured Party has to intend to have possession  debtor just dropping it off does not mean they have possession (Royal Trust v. No. 7 Honda).
Is it perfected by Registration? / s. 25 / A Security Interest in all categories of collateral may be perfected by registering a financing statement
s.35(4) / Perfection of Security Interest in serial numbered goods is not perfected unless a fin stmt containing a description of the goods by a serial number is registered
s.43 / Submission of the financing statement at the registry is perfection. (2) Registration is effected by time assigned by registry –(4) may be registered before the SA is made and before attachment (so as to establish priority). (5) one registration can related to more than one SA
s.44 / Can select length of registration 1- 25 yrs or infinity.
s.47 / Registration does not by itself constitute notice to any person
The purpose of the registered financing statement is to give the user notice to go check the registry to find out what exactly is covered by the SA – so information about collateral in the fin stmt can be general, and only has to be sufficient to put the party on notice to conduct further investigation.
Are there any errors with Registration? / s. 43(6) / The validity of registration is not “affected” by defect, irregularity, omission or error in the financing stmt unless it is seriously misleading.
s. 43(7) / Registration will be invalid if 1 or more debtors are required to be disclosed and collateral is consumer goods as serial numbered goods and there is a seriously misleading defect in the name of the debtor, or serial number.
s.43(8) / It is not necessary to prove that anyone was actually misled by the defect
s.43(9) / Failure to provide a description if the fin stmt in relation to collateral does not affect validity with respect to other collateral in same fin stmt.
What is seriously misleading? / If the program is set up to give “like” names, and the computer will still show the listing if searched under right name, it will not be seriously misleading: Re: Logan
  1. Test of whether registration is seriously misleading is an objective one, independent of whether anyone was misled, or if search was conducted
  2. total accuracy is not necessary
  3. a seriously misleading description will defeat registration
  4. a seriously misleading registration is one that:
(a)would prevent a reasonable search from disclosing registration
(b)would cause a reasonable person to conclude the search was not revealing the same chattel, or same debtor – the obligation is on the searcher to review similar registrations to make this determination
  1. Whether a registry system program is reasonable will not be assessed – just whether a registry search will reveal the incorrect registration

Coates v. GMAC

An error in the middle name is probably not seriously misleading (Munro). Just because it is only partially wrong does not mean it is not misleading (GE Capital v. Inland Kenworth).
Priority
1. /

ADVANCES:

Have advances been made? Is there Tacking?

/ s.35(5) / A Security Interest under s. 35(1) applies to all advances, even future advances --
s.1 (def’n) / “future advances” broad definition to include advance whether or not they are contractually bound to make payment. Encompasses payments that are made for protection or repair of collateral.
s. 35(6) / Note that there is an exception to the Section 35(5) rule -- where an unperfected party has seized property under s. 20(a), there may a limit to the tacking. Perfected Security Interest has priority only to extent of advances made before the interest of the s.20(a) person arose and the Perfected party had notice of the s. 20(a) person. This section is necessary because a judgment creditor may otherwise be prevented from enforcing judgment by the lender making future advances.

If Lapse in registration:

/ s. 35(7) / When registration of a Security Interest has lapsed or has been discharged fraudulently or in error, it may be re-registered. If it is re-registered within 30 days after the lapse, the lender retains priority position, except when new Security Interest has registered before and new advances are made by an existing lender.
2. / UNPERFECTED V. PERFECTED / An unperfected Security Interest is enforceable against the debtor – s. 20 applies to competitions between unperfected parties and third party claimants
s.20 / Provides incentive for secured parties to perfect their interest in order to have priority.
Has there been Court seizure?
/ s.20(a) / Unperfected secured party is subordinate to unsecured parties who have taken actions to satisfy their debts, ie.
(i)a person who has had collateral seized
(ii)a sheriff who has seized property
(iii)a judgment creditor who had property seized
(iv)a rep of creditors who delivers writ of execution
s. 35(6) / A perfected Security Interest has priority over interests of persons in s. 20(a) only to the extent of
(a)advances made before the interest of the person arises or sheriff seizes collateral
(b)advances made before the secured party acquires knowledge of the interest or seizure of the collateral
(c)advances made under statutes or binding obligation
(d)reasonable costs and expenses incurred by secured party
(e)taxes paid by the secured party under Manuf. Home Act.
Has there been bankruptcy or liquidation?
/ s.20(b) / Your secured interest is unenforceable and essentially non-existent if bankruptcy or liquidation under Winding Up Act occurs without you perfecting.
s.20(b) in terms of trustee in bankruptcy is not unconstitutional (Re: Giffen).
s.20(b) / Issue as to whether s. 20(b) applies only to bankruptcy of debtor, or also to transferee so that if transferee declares bankruptcy all unperfected interests in the collateral are ineffective.
s.1(def’n) / “Debtor” – a person who owes payment or performance
3. /

TRANSFER OF COLLATERAL

/ s. 28(1)(a) / If the borrower disposes (e.g. sells) the collateral, the lender acquires a Security Interest in the proceeds of the sale and may retain his rights in the original collateral. Subject to the Act (see 30(2) situation, ordinary course of business etc.) if the borrower sells the collateral without the consent of the lender, the lender can enforce against both proceeds and the original collateral. If the lender authorized the sale, they can only claim against the proceeds (28(1)(a))
Is original holder of Security Interest unperfected? / s. 20(c) / An unperfected Security Interest will be subordinate to transferees if they are bona fide without knowledge of the Security Interest when they acquired. I.e. a buyer of the collateral who buys without entering into a SA, gives value for it, and has no knowledge of the Security Interest, will defeat an unperfected Security Interest.
Is it a sale of inventory?
Does the buyer not know sale breaches SA?
/ s. 30(2) / Security Interest in collateral will not survive the sale if:
(a)It’s in the ordinary course of business of the borrower
(b)it is small value consumer goods
(c)the goods are fixtures or accessions
(d)it is equipment and searching the registry by lender’

Has the debtor sold or transferred the collateral to someone who is a debtor under his own SA?The Two Debtor Problem

/ Weak Argument that s. 35(1) residual priority rule does not apply to 2 debtors – but, it likely does as s. 35(8) addresses it and arguably it should be assumed that s. 35(1) applies.

Applies even If not transferred in ordinary course of business

Applies when lender SI perfected
& buyer’s SI in existence before transfer / s.35(8) / Where a lender has a perfected Security Interest in collateral, and the borrower sells the collateral, the lender has 15 days from learning the details to amend the financing statement to reflect the new borrower. If the amendment is not made within 15 days, the Security Interest granted in the collateral by the new borrower take priority until the amendment is registered.

s. 35(8) Won’t apply to inventory

/ s.35(9) / The rule in 35(8) does not apply if the Security Interest of the borrower selling the collateral has been discharged or the sale is in the ordinary course of business as the seller

Use Any Time, even if transferredin ordinary course of business

Can use where Buyer’s SI
arises after transfer
s.51(1) Lender Consents: / s.51(1) / Where a lender consents to the sale of the collateral by the borrower, the lender must do a financing change stmt with new owner within 15 days of sale, or he will lose priority to:
  1. a person who buys the collateral after 15 day grace period,
  2. a lender who perfects his Security Interest after 15 day grace period
  3. a lender who registers a Fin Stmt during the grace period, if the lender does not update the registry during grace period
Section protects third parties who lend to new owner or buy from new owner, however it gives lender enough time to make changes in the original registration

s.51(2) Lender does not consent buy later learns of transfer

/ s.51(2) / A lender must update the registration within 15 days of discovering of the transfer of collateral or the borrowers name change. If they don’t they will lose priority to:
  1. a person who buys or seizes the collateral after 15 day grace period
  2. a lender who perfects a Security Interest after the grace period but before the financing change statement registered
  3. a lender who registers a financing statement during the grace period if the original lender does not update

s.51(4) / Registry needs to only be updated to reveal current owner, not intervening transfers.
s.51(5) / Only records at PPSA need to be updated, a different system exits under LTA.
4. /

NAME CHANG

/ s.51(2) / A lender must update the registration within 15 days of discovering of the transfer of collateral or the borrowers name change. If they don’t they will lose priority to:
  1. a person who buys or seizes the collateral after 15 day grace period
  2. a lender who perfects a Security Interest after the grace period but before the financing change statement registered
  3. a lender who registers a financing statement during the grace period if the original lender does not update

5. /

PROCEEDS

/ s. 10(5) / A Security Interest in proceeds is enforceable against a Third Party whether or not is contains a description of the proceeds – but this does not say anything about whether it is perfected or about ranking.
s. 1 (def’n) / Proceeds “means” identifiable or traceable personal property, fixtures or crops derived directly or indirectly from any dealing with the collateral or proceeds of the collateral, and in which the debtor acquires an interest
Definition specifically includes proceeds of insurance.
Proceeds of Proceeds are proceeds (CIBC v. Marathon). They do not have to necessarily be “dealt with” by the debtor directly (parent company can deal with them) – if it gives rise to proceeds, then there will be a Security Interest (Royal Bank v. Pizza Bell).

Creditor may have Security Interestin proceeds and collateral