PPSA apply?

Is there a completed security agreement?

Ellingsen v Hallmark Ford Sales: motor vehicle purchase agreement; bankrupt and trustee is appointed; held: no security agreement, so PPSA doesn’t apply

• 11(2)(a)(i): the debtor has signed a security agreement that contains a description of the collateral

Does the wording suggest a security interest?

356447 British Columbia v CIBC: syndicate loan; security interest created; no magic wording needed

Caisse Populaire v Canada: term deposit agreement for a line of credit, went insolvent, and Crown claimed to be beneficiary; held: yes, parties intended security interest; look at the cumulative terms of the agreement; rationale: function rather than form; dissent: (Deschamps) too expansive notion of security interest

• s 2(a): every transaction without regard to its form and without regard to the person who has title to the collateral that in substance creates a security interest including…

What is personal property/collateral?

Saulnier v Royal Bank of Canada: fishing licenses; rationale: (traditional) akin to profit a prendre, (regulatory) little discretion to refuse license makes it stable, (commercial realities) too broad in scope; held: yes, intangible property: s 2(a)

Sugarman v. Duca Community Credit Union: nursing home license; rationale: neither transitory or ephemeral  

DaimlerChrysler Services Canada Inc. v. Cameron: motor vehicle lease; true lease or security lease: look at factors in American jurisprudence; held: security lease

Crop & Soil Service Inc. v. Oxford Leaseway Ltd: Ontario and 2(a)(ii) lease; motor vehicle lease with option to purchase, else auction off (open-ended lease)

Is there an exception? 4(1)

Commercial Credit Corp ltd v Harry D Shields: landlord right of distress and arrears of rent; lien given by statute per 4(1)(a); held: distress gives right to hold possession, so no registration required

Case specific:

• lease over one year: 2(c)
• assignment, leases or consignments that secures an obligation: 2(a)(ii)
  • Adelaide Capital Corp v Integrated Transport Finance: test for lease instruments is whether the transaction as a whole in substance creates a security interest
• Present after-acquired property: 12(1)
  • exceptions: crops and consumer goods: 12(2)
  • Holroyd v Marshall: PAAP grants equitable right not legal right
  • Tailby v Official Receiver: applies to accounts receivable
  • Joseph v Lyons: equitable right can be defeated by bona fide purchaser

Attachment?

Test: S 11

• value? 11(2)
• right? 11(2)
• signed security agreement sufficient to be identified? 11(2)(a) OR possession? 11(2)(b)

i Trade Finance Inc v Bank of Montreal: two innocent creditors; victims of security fraud; attachment required to protect against third parties, else third-party wins

Problems with attachment?

Atlas Industries v Federal Business Development Bank: delivery of security agreement per s 10 within 10 days

Kinetics Technology International Corp. v. Fourth National Bank of Tulsa: sent materials to combine into new product; debtor’s right in collateral per s 11(2); no control/authority, then no attachment

R. v. Canadian Imperial Bank of Commerce: debtor fraudster proceeds forfeited to Crown; CIBC attachment questioned; held: customer gave money voluntarily, not a high threshold to meet that the debtor had rights in the collateral

Case specific:

• floating charge: 11(2)
  • Credit Suisse Canada v 1133 Yonge Street Holdings: “It does not contemplate, nor require, any further act of crystallization [of a floating charge].”
• Business Development Bank of Canada v. D’Eon Fisheries Ltd: security agreement and license with fishing quota; description of collateral include quota; held: unperfected, “unreasonable and unrealistic” to expect parties to infer additional collateral of fish quota
• D’Eon Fisheries Ltd. (Re): court of appeal disagrees that the licence and quota are separable and the registration did not capture the quota; quotas are always attached to licences; references fishery regulations instead of commercial practice argument

Perfection?

Test: s 19

• Attachment
• Possession (s 22) OR registration (s 23)

Problems with possession? [see s 22(1) limits]

RE Darzinskas: manufacturing equipment too big to remove, let debtor use it; chattel mortgage improperly registered, so question of perfection by possession; no constructive possession; holding: no physical possession, so no perfection

Sperry Inc v Canada Imperial Bank of Commerce: competing claim for farm equipment; “reasonable, clear, and actual possession”

Problems with registration? [S 46(4); amendments in 46.1]

Re Lambert: wrong name but right VIN; reasonable person would check both; objective test of reasonableness: likely to materially mislead

GMAC Leaseco Ltd. v. Moncton Motor Home & Sales Inc: non-Ontario, disagrees with Re Lambert; truck serial number was accurate, but wrong name; question of seriously misleading; held: yes; close match may give rise to an obligation to search further

Fairbanx Corp v Royal Bank of Canada: incorrect spelling in name left security interest unperfected; objective test of reasonable person; other party got the spelling right, so not materially misled

Coates v General Motors Acceptance Corp: incorrect VIN; misleading, but reasonable person should discern same model year and manufacturer; test: cause reasonable person to conclude search not revealing same chattel

Case specific:

• Unperfected security interests: s 20
  • Looses out to insolvency trustees
  • Loses to innocent third parties
• Registration specifications: 42.1
• Bank of Nova Scotia v Clinton’s Flower: error made by registrar does not invalidate registration; 1 million assurance fund: 44(20)
• RE Haasen, CIBC v Melnitzer: debtor’s name in search; birth certificate, passport, etc.
• Financing statement: 45(1)
  • Collateral classification: 46(2.1)
• Registration is not notice: 46(5)(a)
• Multiple security agreements: 45(4)
  • Adelaide Capital Corp v Integrated Transportation Finance Inc: holding revised 45(4)(a)
• Keep info current: 48
• Deemed knowledge/notice: 69

Priority?

Test: s 30(1)

• Between registered: first to register: 30(1)1
  • Regardless of order of perfection
• Between registered and other perfected: registered 30(1)2
• Between other perfect: first to perfect30(1)3
• Between unperfected: first to attach 30(1)4

James Talcott Inc v Franklin National Bank of Minneapolis: dump truck lease to acquire $1; first to file rule s 30(1)1

The Robert Simpson Company v Shadlock and Duggan: doctrine of actual notice; irrelevance of knowledge and notice; objective criteria leads to less cost and more certainty

In the matter of Bruce A Smith: race to filing; irrelevance of good faith

PMSI? Test: s 33

• Definition: (a) secure payment, (b) allow debtor to acquire rights), (c) lease of more than a year
• Inventory? 33(1)
  • [a] perfection at the time of possession AND [b] notice with description to other SP before registration and possession
• Non-inventory? 33(2)
  • Tangible: [a] perfected within 15 days of [debtor’s] possession
  • Intangible: [b] perfected within 15 days of attachment

North Platte State Bank v Production Credit: US case; claimed PMSI, but did not fit definition; not for the purpose of acquiring rights

Agricultural Credit Corp of Saskatchewan v Pettyjohn: cattle security agreement, breached term by selling cattle and buying new cattle; PMSI test: lender takes security interest in property; lender gives value for the purpose of debtor acquiring rights to property; value used to acquire those rights

Unisource Canada Inc v Laurentian Bank of Canada: sale leaseback printing press; PMSI because debt financing enabled them to acquire further rights that debtor previously did not have

Clark Equipment of Canada v Bank of Montreal: mixes PMSI and non-PMSI; security interest can cover more than PMSI collateral

Brodie Hotel Supply Inc v US: USA restaurant equipment; possession of collateral as a debtor

Case specific:

• PMSI attaches at the same time? Equity rule of first in time and first in right applies: s 72
• Conflicting PMSI: s 33(3)
  • Vendor has priority over lender

Priority exceptions?

Fixture?

• Test: s 34(1)
  • (a) security interest attaches before goods become fixtures, then security interest has priority
  • (b) security attaches after, then priority over anybody who subsequently acquire interest but not those who already had interest (unless the previous interest holder agrees in writing to hand it over)
  • Exception: s 34(2) subsequent purchase or advance without knowledge of security interest or fixture notice is registered in land registry office
    • rationale: SP didn’t have any expectation of goods, so removal by other parties still gives SP what they bargained for

Cornier v Federal Business Bank: land owner with installations for business; severable even if part of land; used caselaw for what counts as fixtures; context sensitive

85987 Ontario v Starmark: spray paint booth sold under conditional sales contract; landlord right to distress does not apply to fixtures

Accession?

• Test: s 35
  • Same as fixture

Industrial Acceptance Corp v Firestone Tire: truck tires; utility of the principal chattel would be destroyed

Co-mingled?

• Test: s 37
  • perfected security interest
  • goods a part product
  • manufactured such that identity is lost
  • remedy: each security interest pro rata

Subordination?

• S 38

CIF Furniture Limited (RE): inter-creditor agreement; circularity problem; complete vs partial subordination; Laskin argues complete subordination would give windfall of leapfrogging, so partial subordination is more equitable

Chiips Inc v Skyview Hotel: conditional sales to refurbish hotel floors; “PMSI shall rank in priority” and parties intended subordination to subsequent PMSI; implicit subordination is possible; dissent: purpose and intention was just to allow PMSI without breach; wording should have been clearer

Engel Canada Inc v TCE Capital: adoption of Chiips into Ontario; moulding machines, but didn’t register PMSI in timeframe; subordination can still occur without explicit mention of “rank” or “priority”; look at security agreement then other suggestions of intention

Kubota Canada v Case Credit: PMSI registration lapse but fixed; no wording suggests implicit subordination

Ordinary course of business?

• Test: s 28
  • Buyer vs purchaser: buyers do not have s 28 exception
    • Purchaser must not know of security agreement: s 28(6)
    • Also “goods” not “inventory”
  • Security interest must be “given by seller”
  • Ordinary course of business: advertising, nature and significance of transaction, not resembling a liquidation of assets, reasons for transaction
• Priority of tangible chattel paper: 28(3)
  • Test: 28(4)
  • Motor vehicle: 28(5)

Camco Inc v Olson Realty: kitchen appliances sold in condos and conditional sales agreement; yes ordinary course, they regularaly sold condos with kits; may not be limited to inventory and may apply to some cases of equipment, but not one-off sales

Splittlehouse v Northshore Marine: 90% of purchase price paid for boat but conditional sales contract that stipulated title would not pass until paid in full; moot: s 28(1.1) irrelevant whether title passes

Tanbro Fabrics Corp v Deering Milliken: US case; possession was with SP; court said debtor sometimes sold goods, but infrequent is still ordinary course

Re Perimeter Transportation: leased 3 buses; trustee argued ordinary course extinguished security interest; lease comes first, and leasers should not have to worry about prior security interests 

Agricultural commodity Corp v Schaus feedlots: security interest in crop sold; ordinary course determined by conditions of the sale

Other Rights: proceeds, enforcement, conflict of law

Proceeds and tracing?

• S 25(1): perfection extends to proceeds unless otherwise specified
  • Creditor can follow or trace collateral
  • Same registration date: s 30
  • Non-registration perfection: 10 days and s 25(4)

Flintoft v Royal Bank of Canada: tracing proceeds is not contingent on agreement; includes second generation proceeds overlapping with after acquired property

Agricultural Credit Corp of Saskatchewan v Pettyjohn: old cattle sold to buy new; cannot trace back to debt and re-create debt, but possible fictional subrogation; tracing concerned with fairness between creditors; 50% PMSI; close and substantial connection

Bank of Nova Scotia v. IPS Invoice Payment System Corporations: factoring agreement; security interest recovery limited to amount of debt; rationale: give each party what they bargain for, so no windfalls

LSUC v TD Bank: misappropriate funds and mixed in trust account; no Grey lowest intermediate balance rule because no trust relationship; pro rata distribution of funds

Graphicshoppe Ltd. (Re): deducted funds from employee held in trust; mixed funds and account fell negative; not trust funds under s 67 of insolvency act; no tracing allowed, but not bound by lowest intermediate balance rule

Boughner v. Greyhawk Equity Partners: defrauded investment scheme; tracing; considered last in, first out rule; applied lowest intermediate balance rule, but said it’s not applicable in some cases

Flexi-coil v Kindersley District Credit Union: farm equipment dealer and drew on cheques; no fiduciary but can trace anyway; bank-customer relationship is debtor-creditor; equity: no tracing if bona fide purchaser for value

Massey-Ferguson Industries v. Bank of Montreal: s 30(5); registration extends to proceeds

Enforcement?

• Part V: s 57.1 onward
  • Remedies can be cumulative: s 58
  • Remedies can be waived or contractually negotiated: s 59(1)

Waldron v Royal Bank: limits on enforcement: notice before enforcement; reasonable time; Lister v Dunlop principle: seizure under security is entitled to receive notice as is reasonable in the circumstances; notice per 63(4)-(7)

R v Doucette: seizure of collateral by force; illegal means not permitted

Angelkovski v Trans-Canada Foods: voluntary foreclosure satisfies debt and waives right to deficiency; right to keep collateral for cancellation of debt: s 65(2); if collateral is worth more, see 65% rule in 65(1); held: foreclosure requires notice

Copp v Medi-dent services: two dentists; disposal of collateral; reasonableness: appraisal and commercial price

Bank of Montreal v Featherstone: deficiency claim: 64(3); difference between debt owing and net amount received

Bank of Montreal v Maple City Ford Sales: Ontario and trucks; enforcement without notice and consenting to receiver is waiver of notice; reasonable notice overcome by bad faith, depreciating assets, or no difference since debtor has no means

Case Specific:

• Redemption: 66(1)
  • Prior to disposition or foreclosure
  • Tendering all obligations and reasonable expenses to SP
  • Satisfaction of security obligation
• Reinstatement: 66(2)
  • Consumer goods can reinstate the security agreement by paying arrears (monies owed)
• Receiver: 60(1)
  • persons put in place to control and manage the collateral
  • Power to receive income and operate the business
  • Ostrander v Niagara Helicopters: unlike court appointed, privately appointed receivers are not fiduciaries
  • Standard Trust co v Turner Crossing Inc: statutory right to receiver; private receiver should be specified in security agreement

Choice of law?

• S 5-8
  • 7(1): Lex situs: apply the law where the collateral is at the time of attachment
    • Exception: mobile goods rule uses debtor location
  • Putative proper law: if no attachment, use the law anyway
  • 6(1) Destination of goods rule: intended for another location
• 5(2) contemplates perfection before relocation
  • Continuation of perfection: registration before goods brought in, 60 after goods brought in, 15 days upon notice, or before expiry (whichever of these three is earliest)
  • Rationale: allocation of risk

GMAC Commercial Credit Corp Canada v TCT Logistics Inc: registered in Alberta but not Ontario; OPPSA does not apply, still use OPPSA conflict rule: yes; s 7(1) applies for choice of law and not confined to Ontario security interest

Cardel Leasing v Maxmenko: Ontario and BC law conflict; parties choice law in contract is not aboluste: cannot avoid laws most closely related to the transaction; contra proferentum rule of contract interpretation

Re Claude A Bedard: functional equivalent of registration will be considered perfected and granted equivalent to PPSA protection; deemed perfection s 8(2)

Miscellaneous

Acceleration provisions: s 16

Care of collateral: s 17

Request for info: s 18

Short term financings for temporary (day 10) perfection: s 24