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Secured Transactions – Winter 2014

Chapter One - Introduction...............................................................................................................................5

Evolution of Canadian Personal Property Security Law.................................................................................5
Creditors' Remedies: An Overview................................................................................................................5
Unsecured Credit......................................................................................................................................5

Secured Credit..........................................................................................................................................6

Pre-PPSA Forms of Secured Transactions......................................................................................................6

Chattel Mortgage......................................................................................................................................7

Pledge.......................................................................................................................................................7

The Charge................................................................................................................................................7

The Conditional Sale Agreement...............................................................................................................8

Hire-Purchase and Lease Agreement........................................................................................................8

Accounts Receivable Financing.................................................................................................................8

Security Interests in Circulating Assets......................................................................................................9

The Ontario PPSA........................................................................................................................................10

Structure and Terminology.....................................................................................................................10

The Personal Property Registry...............................................................................................................10

Classification of Collateral.......................................................................................................................10

Chapter Two - The Scope of the Act................................................................................................................11

In Substance Security Interests...................................................................................................................11
Trusts......................................................................................................................................................11

Fales v Canada Permanent Trust Company.............................................................................................11

Re: Skybridge Holidays Inc......................................................................................................................11

Re: Hounsome (1991) - Ont SC................................................................................................................12

What is "Personal Property"? The License Issue.........................................................................................12

Sugarman v Duca Community Credit Union Ltd (1998)...........................................................................12

Royal Bank of Canada v Saulnier (2008) - SCC.........................................................................................13

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Post-Saulnier...........................................................................................................................................13

Deemed Security Interests..........................................................................................................................14

Leases.....................................................................................................................................................14

Crop and Soil Service Inc v Oxford Leaseway Ltd....................................................................................15

Commercial Leasing....................................................................................................................................16
Finance Lease..........................................................................................................................................16

Operating Lease......................................................................................................................................16

Adelaide Capital Corp v Integrated Transportation Finance Inc..............................................................16

Exclusions from the Scope of the Act..........................................................................................................17

Liens Given by Statute or Rule of Law: Section 4(1)(a)............................................................................17

Commercial Credit Corp Ltd v Harry Shields Ltd......................................................................................17

Insurance: Section 4(1)(c).......................................................................................................................17

Re Stelco Inc............................................................................................................................................18

GE Canada Equipment Financing GP v ING Insurance Company of Canada............................................18

Interests in Real Property: Section 4(1)(e)..............................................................................................19

Re: Urman...............................................................................................................................................19

Chapter Three - Validity and Enforceability of the Security Interest...............................................................21

Validity of the Security Agreement.............................................................................................................21
Ellingsen (Trustee of) v Hallmark Ford Sales Ltd......................................................................................21

994814 Ontario Inc v RSL Canada Inc and En-Plas Inc.............................................................................22

356447 British Columbia Ltd v Canadian Imperial Bank of Commerce...................................................22

"Statute of Frauds" Requirements..............................................................................................................23

MacEwen Agricentre Inc v Beriault et Al.................................................................................................23

Atlas Industries v Federal Business Development Bank: SKTN Farm and Truck Equipment Ld (Debtor)
................................................................................................................................................................24

Re: Ayerst and Ayerst..............................................................................................................................25

Chapter Four - Attachment.............................................................................................................................25

Security Agreement....................................................................................................................................25
Value...........................................................................................................................................................25
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Rights in the Collateral................................................................................................................................26

i Trade Finance Inc v Bank of Montreal...................................................................................................26

After-Acquired Property..........................................................................................................................26

The Floating Charge................................................................................................................................26

Access Advertising Management Inc v Servex Computer Inc..................................................................27

Credit Suisse Canada v Yonge Street Holdings........................................................................................28

Credit Suisse Canada v 1133 Yonge Street Holdings Ltd..........................................................................28

Bank of Nova Scotia v IPS Invoice Payment System Corporation.............................................................29

Royal Bank of Canada v Sparrow Electric Corp........................................................................................29

Chapter Five - Perfection................................................................................................................................30

Perfection by Possession.............................................................................................................................30
Re Raymond Darzinskas..........................................................................................................................30

Sperry Inc v Canadian Imperial Bank of Commerce................................................................................31

Perfection by Registration...........................................................................................................................31
Perfection by Control..................................................................................................................................31
Temporary Perfection.................................................................................................................................32
Continuity of Perfection..............................................................................................................................32
Consequences of Non-Perfection...............................................................................................................32
Subordination to Perfected Security Interests........................................................................................32

Subordination to Trustee in Bankruptcy..................................................................................................32

Creditor Representatives........................................................................................................................33

Time From Which Status of Representative Takes Effect.........................................................................33

Re Giffen.................................................................................................................................................33

1231640 Ontario Inc (Re)........................................................................................................................34

Transferee of Collateral...........................................................................................................................35

Re: Perimeter Transportation Ltd............................................................................................................35

Chapter Six - Registration................................................................................................................................36

The Function of Registration.......................................................................................................................36
Exact Match and Close Match Retrieval Systems........................................................................................36
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Fairbanx Corp. v Royal Bank of Canada...................................................................................................36

Errors and Omissions in Registration Data..................................................................................................37

Re Lambert..............................................................................................................................................37

Errors in Serial Numbers.............................................................................................................................37

Coates v General Motors Acceptance Corp.............................................................................................37

Adelaide Capital Corp v Integrated Transportation Finance Inc..............................................................38

Amendments to Registration......................................................................................................................39
Heidelberg Canada Graphic Equipment Ltd v Arthur Anderson Inc........................................................39

Lisec America Inc v Barber Suffolk Ltd.....................................................................................................39

Chapter Seven - Basic Priority Rules...............................................................................................................40

Introduction................................................................................................................................................40
The Irrelevance of Knowledge.....................................................................................................................40
The Robert Simpson Company Ltd. v. Shadlock and Duggan (1981), 31 OR (2d) 612 (SC).......................40

Prior Lender's Competitive Advantage........................................................................................................41

James Talcott Inc. v. Franklin National Bank of Minneapolis 194 NW 2d 775 (S. Ct. Minn. 1972)...........41

Transferees in the Ordinary Course of Business - s.28................................................................................41

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CHAPTER ONE - INTRODUCTION

Evolution of Canadian Personal Property Security Law

Personal Property Security Act - Ontario code is always getting tweaked, and re-edited, and changed
again.

Must have:

1. Valid Security Agreement

2. Meet Statute of Frauds Requirements (signed & in writing)

3. Attach to Property (security must related to something)

4. Perfected (either registered or in possession)

The more of these steps you have completed, the higher priority you have against other creditors.

Creditors' Remedies: An Overview

This class deals with financing purchases. Allows people to borrow money or finance things. Essentially
amortizing the debt.

When you borrow money, you're usually asked to pay a form of 'rent' to the lender for the use of their
money. In finance, this is known as interest. Makes it worthwhile for the lender to give money, and also
protects the lender for the risk of default.

Length of proposed financing is often a function of the price of the particular good being purchased.
Lower priced goods/serviced are financed over shorter terms; expensive capital equipment over longer
terms.

Interest does not protect all of a lenders risks. Therefore, they want to protect themselves in case
borrower defaults. This class looks at these protections.

UNSECURED CREDIT
When money is lent without reference to a time for repayment, it creates a present debt, that is
repayable at once, without demand. When a loan is repayable upon demand, the debt doesn't become
due until lender demands the money.

You can also make a contractual agreement for the date upon which payment is due.

So say a borrower stops paying the lender. To get remedy, Lender must prove the borrower intends to
repudiate the terms of the contract. Must prove borrower intended to dishonour the contract as a
whole.

If borrower only misses one payment, the lender can't just bring an action to end the contract. Must first
bring action for the missed installment. Could also just serve the borrower with notice asking for the
missed installment. If the borrower ignores such a notice, then the lender could argue the contract has
been repudiated.
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However, if in the initial contract, time has been made an essential stipulation, the lender may be able to
argue that non-payment is a repudiary breach because time is of the essence. The borrower will then be
able to dispense with the demand for payment and notice for missed payment, and can just bring an
action to end the contract.

Regardless of how the lender gets to the action, remedies are limited to a personal judgement against
the borrower. They can't immediately look to any of the borrower's property to satisfy the judgement.
Would have to obtain execution against D's property or goods generally, garnish their wages, push them
into receivorship etc. All very costly and time consuming and still does not guarantee the lender the
payment of the entire amount that is owed. If there are multiple creditors, provincial law says proceeds
from a borrower's property must be shared between them.

SECURED CREDIT
Advantage of secured credit is that borrower pledges a specific asset, which lender can look to in the
event of a default. Means you can skip the whole part about competing with other creditors and just
take shit to satisfy the loan. Can sell property to satisfy amount owing, interest, and damage. If there's
anything leftover, has to go back to the borrower.

In many provinces, lender is free to seize and dispose of property without having to go to court first.
Therefore, much cheaper than dealing with unsecured credit.

Having secured credit also removes that asset from the pool of assets the unsecured creditors are going
after. If you're an unsecured creditor, and the borrower has lots of secured creditors against them, you
may be fighting for scraps.

Borrowers can also benefit from secured interests; may be able to negotiate lower interest rates because
of added security of collateral reduces the lenders risk.

Pre-PPSA Forms of Secured Transactions

Property can be seized and sold by creditors, to satisfy a debt.

So, we know about debtors and we know about creditors. But what about the rest of the world they
interact with? We have a registry system, because you must provide notice to the world. So, an innocent
third party, who may be giving credit to a debtor, may want to look up what is leveraged against that
debtor. The property they may be putting up for security may already be pledged to another person. The
registry allows you to see if a piece of property is already encumbered, and a creditor may see where
they are on the totem pole.

Say there's a piece of property worth $200M. You have 3 leverages against it, but each are for only
$10,000. A fourth creditor is likely to allow you to leverage against this property, because they know, as
fourth in line, they will be able to still recover their money.

The registry system also allows creditor to decide if they want to charge a higher interest rate, if a certain
person has a lot of leverages against them. It helps creditors not go in blind.
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CHATTEL MORTGAGE
Similar to real property mortgage, except it deals in interest in personal property, instead of real
property. Law of secured transactions exclude real mortgages as long as they concern the land. The debt
is considered under the PPSA, however.

Legal title in the property is separated from the equitable title. Lender gets legal title; borrower retains
equitable title. Therefore, borrower retains possession. Borrower agrees to make payments to the
lender, and lender agrees to convey the legal title back upon the end of the term. Borrowers equitable
title also gives them "equity of redemption" - borrower has the right, at any time, while the mortgage is
outstanding, to be able to tell the lender "here's all the money I owe you, I force you to convey the legal
title back to me" and the lender cannot refuse the money.

If borrower can't meet obligations, certain things can happen:

1. Foreclosure - must apply to the court to initiate foreclosure proceedings, which extinguishes
borrowers equity of redemption, and gives legal and equitable title to the lender. Lender takes
the collateral as full satisfaction of the debt.

2. Contractual Power of Sale - allows lender to go out and sell the property in satisfaction of the
debt. Borrower is then personally liable for any deficiencies or entitled to any surplus from the
sale. Power of sale could arise from operation of contract, by court order, or by statute. Most
common way of enforcing mortgages since it is the most cost efficient for lenders

P LEDGE
Very similar to a mortgage but with some differences. Borrower transfers possession of collateral to
lender along with the rights to sell it in event of default. Three notable differences between pledge and
mortgage:

1. Transfer of possession - mortgage transfer legal title only; pledge transfer possession but not the
legal title; goods are still the legal property of the borrower until they default. This is therefore a
possessory security interest.

2. Power of sale - mortgage includes both power of sale and right of foreclosure; pledge only
contains power of sale.

3. Power of sale not inherent - power of sale is derived from express or implied term in the pledge
agreement; not inherent because lender does not have legal title

THE CHARGE
Also known as a lien. This is a non-possessory security interest. Title is not transferred by possession but
rather on paper.

Can be created by agreement between the parties, court order or statute.

Not as clean as some of the other securities. Interest can be defeated by a bona-fide purchaser of the
collateral for value without notice.

THE CONDITIONAL SALE AGREEMENT

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Very common in financing of purchases for consumer goods, although does have some commercial use.

Purchaser of goods agrees to pay seller through installments. Seller retains title in the goods until they
are completely paid for. If buyer defaults, seller is free to assert its right of retained ownership and claim
back the collateral.

Different from mortgages because it depends on title retention while mortgage depends on title transfer.
Different from charge because charge is non-possessory, and conditional sale relies upon title retention.

HIRE-P URCHASE AND L EASE A GREEMENT

Purchasers and sellers may agree to enter into agreement where purchaser agrees to lease goods from
seller for stipulated period of time, with contract determining what happens to goods at the end.
Number of ways this could happen:

1. Legal obligation in the document that requires you to buy the goods at the end of the lease. Not
a conditional sale, per se, but a defacto conditional sale.

2. Agreement may give purchaser option to purchase at the end, with financial penalties if they do
not. May also have an option with no penalties. Not a conditional sale because option does not
have to be exercised.

3. No express option to buy, but agreement may be structured on understanding that purchaser
will purchase goods fro predetermined price (residual value) at the end of the lease period. This
is a "finance lease" most commonly used in vehicle financing. Advantages in income tax for
commercial purposes, because rentals can be claimed as tax deductions (if goods are used for
production of assessable income)

4. Agreement may simply provide for purchaser to return goods at the end of the period.

Should be noted Ontario PPSA only applies to 1-3; only applies to 4 if lease is for a period of over a year.

A CCOUNTS RECEIVABLE FINANCING

There are certain companies that specialize in buying accounts receivable, for companies that need the
money from a certain account owing now. Business is essentially assigning the right to collect on the
debt to a third party in exchange for an upfront payment. Can do this in two ways:

1. Can sell the debt outright to a third party. There will usually be a discount to make it worth it for
the purchaser (ie. sell $100 debt for $90). Can be done in a one-time arrangement, or can be
done on a recurring basis.

2. Can borrow money, and grant lender a security interest in borrower's receivables. (ie. borrow
$90 and give $100 interest in receivables). If borrower defaults, lender can look to receivables as
a source of payment.

Each way has different risks. If, in scenario one, the company owing refuses to pay the purchaser, the
purchaser has no recourse against the seller, because they have legally bought the risk associated with
the initial debt. If, in scenario two, the company owing refuses to pay the lender, the lender can still look
to the borrower to fulfill the debt, relying on borrower's personal obligation under the loan contract.
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Each way can also be modified by contract. If purchaser doesn't want to bear the risk associated with
scenario one, they may write into the contract a clause that allows them to look to the seller in the event
of a default.

Depending on the nature of the security agreement, the company originally owing the debt may or may
not be notified. If no notice is given, they pay the original debt in due course, and then the money is
transferred. It notice it given, they will pay whoever holds interest in the debt directly.

Notice was very important pre-PPSA, because if there were two or more assignees of the same chose in
action, then priority turned in part on which assignee was the first to notify company of its interest.

SECURITY INTERESTS IN CIRCULATING A SSETS

Circulating assets are those assets that are not of a fixed (capital) nature, that a business relies upon in
order to conduct themselves. Could be stock in trade (inventory) or accounts receivable.

Pre-PPSA, these types of security interests brought with them two inherent difficulties.

1. After-Acquired Property Problem - If company grants interest in inventory, it followers that at any
given time, there will be a significant turnover of assets, from the time the interest is granted
and future events. Obviously a business needs to use its inventory. Issue is that, under common
law, you can't grant rights to something you don't possess. Under equity it was possible. PPSA
has since eliminated this problem.

2. Right of Disposal Problem - If company grants a third party interest in their inventory, the
security agreement must implicitly or explicitly give the company right to dispose of the
collateral in the ordinary course of their business. If third party's interest can prevent the
company from selling their inventory, then the inventory will cease to be a circulating asset,
which will then prevent the company from conducting their regular business. English courts
developed the concept of "floating charge" which means the creditor can take charge over the
inventory and accounts of the debtor. Charge is a form of hypothetication, so creditor has right
to claim payment out of a particular fund or asset that belongs to the debtor. Floating charge is
unique because it doesn't attach to a particular object until D defaults. Essentially "floats" over
the shifting assets, allowing company to deal with assets as it needs. When default happens,
charge "crystallizes" and becomes fixed over whatever collateral company happens to own at
this point, depriving them of freedom to deal with it. Third party normally appoints a receiver,
who takes control of business, collects and liquidates the collateral, and pays over the sale
proceeds in full or partial satisfaction of D's debt.

In most PPSA jurisdictions, the Act will, to some extent, mimic floating charge outcomes with a view to
facilitate security interests in circulating assets. However, the English style is considered 'dead' in these
jurisdictions

The Ontario PPSA

Enacted in 1967, not fully proclaimed until 1976. Other provinces followed soon after, using the Ontario
Act as a template.
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PPSA is a legal regime that has been put in place, that modifies common law concepts of creditor/debtor
relationship. Puts in a certain number of priority rules that supercede the common law. Central feature is
the protection of third parties who may deal with a debtor under the mistaken belief that the personal
property in the possession or control of the debtor is unencumbered by security interests. Act
establishes a registry system whose purpose it is to require public disclosure of the existence or potential
existence of security interest, as a prerequisite to recognition of the priority of these interests.

Trustee in bankruptcy is appointed, and it's their job to get as much as they can for the creditors. Must
comply with the regulations of the PPSA strictly, to protect creditors.

STRUCTURE AND TERMINOLOGY

Rights in Rem - if you have rights in rem, and you obtain a judgement in rem, then it's a judgement that
binds the world. Sometimes called 'choses in possession'

Rights in Personam - rights that are enforced only against a specific individual. Sometimes called 'choses
in action' and includes rights which are conferred by contract or by covenant. Intangible personal
property right that is recognized and protected by law. Does not confer present possession of a tangible
object.

Nemo Dat Quad Non Habit - commonly referred to as a the 'nemo dat rule' whcih means you cannot give
what you don't have; you cannot sell something you don't have title to.

THE PERSONAL P ROPERTY REGISTRY

Don't have to limit yourself to one particular asset. Can describe your collateral as a specific type of
security. Can even have what's known as a general security agreement (GSA).

Must register early to protect yourself. First to register is the first in line. Not the first to perfect. Doesn't
matter when you attached or when you protected. What matters is when you registered.

CLASSIFICATION OF COLLATERAL
All about chattels, not real property.

See p. 29 for collateral classifications of Ontario PPSA

Note that the type of collateral that a good is classified under is dependent on actual use. Registration
requirements make this type of classification important in order to comply with PPSA.

Collateral can be classified by way in which debtor has acquired rights in the collateral. Personal property
or a fixture in any form acquired by the debtor as a result of any dealing with the (original) collateral is
described as 'proceeds' in s.1(1). Can also include proceeds of proceeds. S.25 of PPSA permits a security
interest to extend beyond original collateral to personal property received in place of the original
collateral, or in part payment of its price.

In some situations, property that would otherwise fall within two categories is limited to one (ie. an
instrument taken as part of a secured instalment contract - defined under s.1(1) as 'chattel paper' - is not
an instrument for the purposes of the Act.
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CHAPTER TWO - THE SCOPE OF THE ACT

See s 2 - states that the Act applies to 'every transaction' that 'in substance creates' an interest in
personal property (security interest) that secures payment or performance of an obligation. This section
does away with the common law rule that in order to create a security interest, a transfer of the legal or
equitable title to the secured party is required.

In Substance Security Interests

TRUSTS
Trust exists when the legal title is held by one person (the trustee) and the equitable title is held by
another (the beneficiary). Throughout the duration of the trust, the management of the property (by the
trustee) is separated from the enjoyment of the property (by the beneficiary).

A beneficiary's interest can be divided into shares, can be subject to conditions(contingent), can be
postponed in time to other interests (future), or can be dependent on the discretion of the trustee
(discretionary).

Trust is not created unless and until some property is vested in the trustee. Signing a trust agreement
does not create a trust. Trust can also be created by the operation of the law, whereby funds or property
are deemed by law to be held by an individual/entity for the benefit of another individual and are not
allowed to treat the property as their own.

If you are a trustee, you can be held to a high standard of conduct in your management of trust property.
If you fail to exercise reasonable skill and care, the beneficiaries can sue you for a breach of trust. In
order to protect yourself, you can apply to the Court for direction in those cases where you are unsure
how to proceed.

FALES V CANADA PERMANENT TRUST COMPANY

SCC, at the time, said all trustees were subject to an objective standard.

Courts have taken a very pragmatic approach; they're not so worried about what you call it, but what
they do.

RE: SKYBRIDGE HOLIDAYS INC

Travel service that went bankrupt, no money in corporate account. Sitting on trust fund of $$ people
paid for vacations. BC Travel Agents Act provides for statutory trust; $$ held in trust until tickets
purchased/delivered. Some funds, however, under separate trust, which creditors are trying to go after.
Claim trust not registered by customers under PPSA.

Issue: Can the asset of a trust be considered an enforceable security interest?

Decision: No; there was no intention to create a security interest.

Central issue was substance of transaction. Customers did not intend to become lenders, and became
creditors only unintentionally.

Substance: look at purpose of transaction, role and relationship of parties, practicality/commercial

reality, and intention of parties.
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RE: HOUNSOME (1991) - O NT SC

Ontario PPSA s.2 makes no mention of a trust constituting a security interest in the same manner as
some of the other provincial PPSA's do.

Dealership in farm machinery. In the master agreement, says if the dealership declares bankruptcy, then
a trust relationship is created. Dealership does no longer hold the equipment as their own, but in trust
for John Deere. Essentially dealer is holding onto equipment they haven't paid for in full. Which means
you're a debtor. Which makes John Deere a creditor. Which means John Deere is fucked.

Issue: Was this truly a trust relationship?

Decision: No.

In this case, Court refused to recognize a trust could be used to circumvent the registration requirements
of PPSA. However, where receivable or property is that of the assignor at the time of making the
assignment, then the assignment must be registered under a financing statement under the PPSA.

Court said it's important to protect the public through application of the statutory provisions of the PPSA
regarding registration. Public has to know what security interests are held. If the creating of the trust is
designed to avoid the registration requirements of the PPSA, then a proposed creditor could not act
prudently with knowledge of the true state of affairs of the debtor.

What is "Personal Property"? The License Issue

SUGARMAN V DUCA COMMUNITY CREDIT UNION LTD (1998)

Nursing home granted security in 'all license' to CGT, later assigned to P. Separate creditor takes interest
in 'all statutory licenses.' Nursing home is giant fuck up, defaults. Creditor sells nursing home's assets to
buy, Ministry of Health issues 'replacement' license to new owner.

Issue: Can the license be pledged as collateral for debt?

Decision: Sort of.

Think of 'property' balance; how far are we willing to extend the notion of property to allow people to be
able to get credit?

Court takes 'substantive' approach to property. Don't care what it's called, look at commercial reality.
Some licenses are valuable, others are not. Gov't has the power to say "hey, you can't be the license
holder" when license is transferred.

If a license is subject to fettered discretion, license will get more 'property-like' treatment for PPSA. If the
discretion is unfettered (not narrow grounds regarding the statute, where gov't can just say "naw, fuck
this guy, he doesn't get one), then the license will be considered less "property-like"

ROYAL B ANK OF CANADA V SAULNIER (2008) - SCC

D finances fishing business through loans from RBC. Has General Security Agreement (GSA) that grants
RBC security over all personal property. D defaults on loan (because, fuck it, they all do). P appoints
receiver, tries to sell D's property to satisfy debt. D won't sign off on license transfer. P goes to court to
compel D to sell it; D says no property in license because it's under Ministry control.
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Issue: Did trial judge err in his analysis of license as property?

Decision: Yes, but came to the right conclusion

Basically, a license is an access to business. Fishers also have greatly fluctuating businesses, and need to
be able to offer up as much collateral as they can to be able to obtain equipment each season.

Fishing license is more than a driver's license. More than just an ability to do something that would
otherwise be illegal. It is also coupled with proprietary interest in the harvest from the fish. Basically tied
to economic gain.

Issue with trial judge's approach is that many things that have commercial value do not constitute
property. Have to look at property as defined under PPSA, and as a bundle of rights.

Trying to advance access to credit. Don't want narrowly defined concepts. Need to get money into the
hands of the people.

P OST -SAULNIER
So what else could be 'personal property' under PPSA security interest?

Copyright - yes; has commercial value; can flow freely from one person to another; can be
bought/sold in same way you can buy/sell other property.

License held by Patentee - yes; license to make something given to you by patentee

Debt Owing to a Person - yes! This one comes up a lot from businesses; assigning their A/R to
someone to get instant cash instead of waiting on payment

Post Saulnier the Province of Saskatchewan made amendments to their PPSA, defining intangibles to
include a license. Ontario has not yet followed suit.
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Deemed Security Interests

L EASES
Leases that are less than one year are exempt from PPSA, unless they are caught under s.2.

S.2 of PPSA essentially imposes a "substance test" for determining whether a transaction falls within the
scope of the Act. Focus is on substance of transaction, not it's form or the locus of title. We also
reference case law that has developed and refined the test. No singular formula that can be used.

Type of Leases That Could Be Subject to PPSA Yes No Consequences for Failure
to Register

Lease for Longer than One Year - even if it does not secure
payment or performance of a debt or obligation

Bona Fide Leases in this category are exempt from
registration requirements and priority rules

Unperfected interest,
therefore s.20 states
unsecured creditors can
now look to leased
property to satisfy their
claims.

Security Lease - even if it's for less than a year  s.20(1)(c) says third party
who acquires property for
value and without notice
can take title in property
and extinguish lessor's
title (this is statutory
exception to nemo dat
principle)

Bailment - physical possession of piece of property

transferred but not the title. Bailee is not entitled to use

the property, and bailor has the right to demand the return
of the property within reasonable time, without notice

Conditional Sale - lease with a 'buy out' option at the end;

at the end of the contract you have the option to buy.
Essentially, de facto, you're paying for the full value of the 
goods. There isn't any residual value left.

Bona Fide Lease - does not serve to secure payment or  Lessor is free to reclaim
performance of a debt or obligation lease property. Nemo dat
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rule can also be relied up

on to assert property
interest against third
party that take possession
of goods

But why do we care? Because the characterization of the terms of the lease affect the rights between
lessor and lessee. If you own goods that you lease to someone, and you find out your stuff is subject to
PPSA, basically you lose your shit.

Leases work because you pay to deal with the use, possible damage, and depreciation of the goods.

CROP AND SOIL SERVICE INC V O XFORD LEASEWAY LTD

D wants to challenge priority interest of P in 2 vehicles. Leases were designed with buyback option after
3 years (value of buyback would be affected by variety of factors). D argues this was a true lease, and
therefore there was no security interest and should not be required to register to have priority.

Trial judge said substance test showed agreement was to secure payment, and therefore wasn't true
lease. Said option wasn't a true option, because it wasn't just for fair market value.

Issue: Was this a true lease, and therefore D did not have to register their interest?

Decision: No.

Even though contract was 'lease' and gave possession for a term in exchange for payment, didn't operate
like true lease; transaction was driven by cost of ownership of property (as shown by fluctuating residual
value) instead of cost of use.

Substance test - purpose behind clauses is to compel payment of purchase price.

Security interest created when property has predetermined fixed value at end of the lease, and lessee
entitled to profits/responsible for deficiency upon sale of property.

Courts still looking to preserve freedom of contract; there are no 'standard form leases' under PPSA. Up
to the court to determine if PPSA applies based on the substance test. Just because lease doesn't have
the usual features, doesn't mean it shouldn't fall under PPSA. If we shift to that focus, then we'd have a
form test instead of a substance test.

How do you get away from all this shit? REGISTER.

 16

Commercial Leasing

Commercial leases on goods and equip can take a slightly different form based on the type of lease
envisaged. Often, leases can serve as an investment vehicle for companies that wish to finance
acquisition of these types of goods. Two main types: finance and operating leases. Both involve lessee,
lessor and/or finance company.

FINANCE L EASE
Lessee selects an asset then purchased by lessor. Lessee gets use of asset over term of the lease in
exchange for rental payments. During term of lease, the lessor will recover most of cost of asset, plus
interest, earned out of rental payments. At the end, usually an option for lessee to buy asset for nominal
amount.

Under this agreement lessor is the legal owner of the asset, but lessee has control, thereby providing
them with the economic benefits and risks. Advantage for lessee is they can finance purchase, while
lessor is secured they have legal title in 'security' at all times.

O PERATING LEASE
This type of lease has relatively short term for the useful life of asset. Lessee leases the goods from
lessor in exchange for rent. Since it's a short lease, lessor has substantial investment in residual value.
Lessor now takes economic benefits and risks of ownership.

These types of leases are useful for lessors when they have a good idea of residual value of asset. Can
earn income on short term lease and then sell or re-lease to turn a profit. More expensive for lessee, risk
premium that is priced into monthly payments. Typical with vehicle leases.

A DELAIDE CAPITAL CORP V INTEGRATED TRANSPORTATION FINANCE INC

Someone forgot to register.... oops

P makes leasing agreement with D for 50 trailers, purchase option at fair market value. D was then going
to lease them to end-user. P usually does credit check on end user before approving transaction. Then
takes assignment of lease between D and end user. Appears on books as 'direct finance lease' rather
than 'operating lease.' No registration of these agreements.

Issue: Does the PPSA apply to these leases?

Decision: Yes.

Test is whether the transaction as a whole, in substance, creates a security interest, and in the context of
a lease instrument, whether that lease is one that 'secures payment or performance of an obligation.'

Leases between D and P were mechanism to ensure and secure repayment of money, with profitable
rate of return. Think about the credit check. Do you do a credit check for someone who was just renting
something for the weekend? P treated and referred to the leases as finance leases.

Therefore, leases in question must be perfected in registration to preserve P's priority.

 17

Exclusions from the Scope of the Act

What happens when PPSA conflicts with other acts?

L IENS GIVEN BY STATUTE OR RULE OF LAW: SECTION 4(1)(A)

COMMERCIAL CREDIT CORP LTD V HARRY SHIELDS L TD

Landlord tenant case. Landed entered into commercial lease, seizes (by way of lien) property of tenant,
who was in arrears with rent. Goods that were seized were subject to chattel mortgage that was properly
registered under PPSA. Sells them to settle debt (debtor who had chattel mortgage is pissed because
they were also owed money; apparently this tenant just fucked everyone).

Chattel mortgage - Perfected security interest. Nothing in the facts that say it can be challenged. PPSA
gives priority to the party who did due diligence.

Issue: Who had priority over goods? Was PPSA paramount over Landlord Tenant Act?

Decision: Landlord; interest was lien, PPSA trumps LTA.

Mortgagee argued s.68 of PPSA, which says PPSA is paramount when in conflict with general or specific
act. But landlord argues s.31(2) of Landlord Tenant Act, which says landlord can seize goods of third party
if their title is derived by way of mortgage.

At the end of the day, the landlord wins. Judge found that landlord's interest was a lien within meaning
of s.3(1)(a) of PPSA. Means that landlord didn't need to register with PPSA.

Court also said s.68 didn't apply, and at common law, landlord has right to levy distress on all goods
found on premise. That right is limited by s.31(2) of Landlord Tenant Act.

'Super Priority' - the ultimate trump card

INSURANCE: SECTION 4(1)(C )

In an insurance contract, policy holder pays premiums each month, benefits accrue to beneficiary upon
some specified event. In many cases, corps will buy insurance as part of benefits package for employees.

Can someone take security in an unearned premium (a premium that is paid yet not in effect)?

Ie. Insurance contract's premium period is for one year, and payment is made up front and has been in
effect for 120 days, then 120/365 of premium is said to be earned and 245/365 of premium is said to be
unearned. This is the period of time in which insurance company is exposed to loss from potential
claims.

Corp may choose to finance transaction. Typically, purchaser gives insurance company down payment on
premiums due to the insurer. Purchaser signs financing agreement with financier, saying purchaser will
pay the rest of premiums over time, in exchange for assignment of rights to receive payments of any
amounts due from insurer, such as unearned premiums. This assignment functions as security for the
total amounts that financier pays to the insurance company.

Ontario Insurance Act allows for assignment of unearned premiums under s.138(1). If purchaser
defaults, financier may cancel the policy and claim premium refund.
 18

RE STELCO INC
Stelco and financier CAFO sign two premium installment contracts. CAFO agrees to finance insurance
purchase by Stelco. First agreement concerned insurance with total premium of $8.8M. All payments
were made under this agreement. Second agreement advanced funds to Stelco for insurance policy with
Royal Sun Alliance. Premiums were $1.8M, down payment was $360,000. Balance plus service charge
totalled $1.5M. Stelco then defaults (those fuckers).

CAFO submits insured right to obtain a refund of any unearned premiums coupled with transfer of right
to cancel the insurance policy operate to 'transfer' an 'interest' 'in or under' any policy. Therefore,
exception created by s.4(1)(c) of PPSA applies and exempts CAFO from need to register interest under
PPSA.

Issue: Was security interest transferred? If so, does PPSA and Insurance Act exempt security interest
from registration requirements?

Decision: Yes, and yes.

CAFO says their advance of funds created the property (a fully paid insurance policy). Their security is in
remaining unearned premiums. The insurance policy continues to run and value of unearned premiums
continues to decline, cannot be frozen by quick sale.

Courts look at whether assignment of earned premiums create 'interest' in property. Yes; right to
unearned premiums is contingent on the happening of a future event, but it is an interest.

CAFO had interest in unearned premiums, transferred by virtue of premium insurance contract, and the
security interest was exempt from registration through combination of s.4(1)(c) of PPSA and s.138 of
Insurance Act. (Priority dictated by Bankruptcy and Insolvency Act).

GE C ANADA EQUIPMENT FINANCING GP V ING INSURANCE COMPANY OF CANADA

GE finances purchases of vehicles by rental agency. 2 trucks bought, GE is beneficiary of full replacement
value in insurance policy. GE perfects their interest. Trucks get leased to third party, who each get their
own insurance. Trucks stolen (because these cars are never about people with GOOD luck). As part of
insurance settlement, rental agency lies and says no liens on trucks. Transfers title to insurance company,
collects claim $. Rental agency continues to make payments to GE, defaults on payments and eventually
declares bankruptcy (gee, aren't they swell).

GE only finds about policy when they attempted to exercise remedies on default. ING should have
known GE had some sort of vested interest, if they'd done any sort of PPSA search.

At trial, held ING could take priority over GE as a result of s.4(1) of PPSA and s.6(7) of Insurance Act.

Issue: Does ING's salvage rights have priority over GE's pre-existing perfected interest?

Decision: No.

Purpose of s.4(1)(c) is to avoid unnecessary duplication of notice systems concerning transfers that
create interests or claims in (or under) insurance policies. Notice under PPSA, therefore, not required to
perfect security interest falling under s.4(1)(c). Basically s.4(1)(c) operates to relieve ING of need to
 19

provide notice of their interest, but doesn't relieve requirement to be mindful of PPSA-protected
interests of secured creditors.

This case wasn't about two different security interests. It was one security interest and one ownership.

If you make the claim you don't fall under PPSA, then you also waive rights to "priority" rules under
PPSA. It was combined operation of s.4(1)(c) and statutory condition 6(7) that determined priority.

Concept of priority and salvage are not the same. No statutory support to suggest that s.4(1)(c) intends
to extinguish creditor's pre-existing perfected security interest in a vehicle that becomes subject of total
loss claim. S.6(7) also represents statutory codification of common law right of subrogation. Derivative
right that rests on principle of indemnification. Insurer can succeed only to exact right otherwise enjoyed
by insured. Insurer becomes placed in position of insured.

So, in this case, Brampton's interest in trucks were always subject to GE's perfected security interests.
Could confer to ING only rights to salvage possess by Brampton prior to ING's payment of actual cash
value of trucks. S.6(7) cannot confer rights that Brampton didn't have.

INTERESTS IN R EAL PROPERTY : SECTION 4(1)( E)

Remember that a mortgage allows the financing of real property. When we acquire an interest in land, it
also implies we're acquiring the buildings on top of it, and building becomes a fixture in the land.

A mortgage splits the title into legal and equitable title (legal stays with lender, equitable goes to
borrower). An equitable title gives you equity of redemption (see notes above). When mortgage is
redeemed, we have fusion of legal and equitable title of land.

In context of PPSA, we look at functional aspect of the mortgage; it could be an interest in land, but
could also be a debt. PPSA doesn't apply to mortgages of real property, but can apply to interests in
intangibles.

As a legal device, debt in the mortgage can be transferred from hand-to-hand; mortgage lender A can
sell mortgage to lender B.

RE: U RMAN
Urman in business of buying/selling mortgages. Has line of credit with CIBC, has floating charge over his
'inventory' of mortgages. Urman runs into problems, tries to salvage business. Borrows money from K,
assigning him 2 mortgages (no financing statement registered). Also advances mortgage via
contributions from clients, signing 'trust agreement' with clients, depositing proceeds from that
mortgage in trust account at bank (again, no financing statement registered).

Urman becomes insolvent, and shit hits the fan.

At trial, held that since mortgage is personal property, PPSA applies both to assignment of mortgage and
to debt secured by real property mortgage. Trial judge held bank waived its rights under assignment of
book debts (but didn't explain why) and K's assignment and trust agreements created security interests
within meaning of PPSA, which - because no finance statements were registered - were unperfected and
therefore subordinate to interest of trustee in bankruptcy.
 20

Issue: Does the PPSA apply to assignment of mortgage?

Decision: Sometimes; when it is not absolute assignment.

Issue: Who has priority?

Decision: K and trust claimants.

Trial judge's decision would mean that anyone who is acquiring interest in real property would be
required to search under both PPSA and Registry Act.

Mortgage - mortgaging land to secure debt - creates only an interest in land, not a security interest
under PPSA. An absolute transfer of mortgagee's interest in mortgage is an absolute assignment, and
therefore is not subject to the PPSA.

Mortgage creates only interest in land; absolute transfer of interest is absolute assignment not subject to
PPSA. K's assignment was not absolute. Mortgage assigned as security for debt. Right to receive
mortgage monies intangible, secured payment/performance of obligation, therefore PPSA applies.
However, using substance test, K's assignment is also an interest in land, and has priority over trustee in
bankruptcy.

Trust claimants had same rights as if it was an absolute assignment of proportionate shares in the
mortgage made to them. PPSA could only apply if trust agreement created an interest in an intangible,
but form and substance of trust agreement was acknowledgment by Urman that he was trustee for trust
beneficiaries of undivided proportionate interests in mortgage. So although it was set up like a debt, the
payments of mortgage were deposited into special trust account and Urman sent special tax forms to
indicate payments to them were payments under mortgage, not repayment of loan. Agreement was not
a trust receipt, therefore PPSA doesn't apply. Trust beneficiaries take priority over trustee in bankruptcy.

Both had priority over bank; bank had a floating charge, which would only attach when it came into
being. Bank had perfected security in each mortgage debt as it came into existence (except the
agreement treated mortgage like inventory, which meant Urman was allowed to dispose of mortgages in
ordinary course of business). Bank's interest crystallized upon declaration of bankruptcy.

This decision would seem to go against s.4(1)(e) of PPSA. But section could be read to conclude that
assignment of mortgage, charge or lease does not convey or transfer assignor's interest in real property.
See also s.36(1) and 54(1)(b); when taken together, these sections suggest registration of specific
assignment in proper land registry office will put assignee ahead of secured party who subsequently
registers their PPSA security interest in land registry office.
 21

CHAPTER THREE - VALIDITY AND E NFORCEABILITY OF THE SECURITY INTEREST

Validity of the Security Agreement

S.9(1) of Ontario PPSA

Has been interpreted to embrace freedom of contract. However, contractual freedom limited by contrary
provisions that may be in this act or others. There's a group of limitations that apply only to consumer
transactions or consumer goods (s.12(2)(b), 14(2), 45(2), 56, 65(1), 66(2) and 73). But equity also plays a
part in remedies for injustice.

Court may find that there has been a constructive trust created. Imposed an equitable remedy. Often
imposed on property held by one party, whom court has found has acted improperly to another.
Sometimes in clear violation of intentions of the parties. Typically imposed in a variety of situations:

 where fiduciary has gained benefit from their position

 where stranger receives trust property otherwise than as a bona fide purchaser for value of legal
estate without notice.

 Where stranger intermeddles with trust property

 where owner of property enters into specifically enforceable contract for sale

 where labour of one spouse contributes to acquisition of assets in the name of the other spouse

 under general principle of unjust enrichment or good conscience

E LLINGSEN (TRUSTEE OF) V HALLMARK FORD SALES L TD

P gets into accident, wants to buy a new truck and trade in the old one after repair. Old truck has debt
still due to Bank of NS. Needs a loan to pay off old car, and balance on new car. P told dealership if their
financier wouldn't cover the debt, his bank would. Comes back 3 hours later and is all "Why the fuck
can't I have it yet?" because he apparently waited until the day he had to leave to go up North to
complete a job to do this fucking purchase.

Dealership allows 'purchase' at the time; conditional sale agreements made for all three financing
companies, because one of them MUST come through. P signs transfer of old truck to dealership.
Dealership fails to register security interest under PPSA.

P declares bankruptcy; NS seizes old truck, and trustee says dealership has no claim to new truck, since
they didn't register. Dealership argues they have constructive trust.

Trial judge finds the transaction was as sale. Unpaid sales price gave rise to security interest, which could
have been registered, and had it been would have protected dealership from bankruptcy issues. Trial
judge said the only reason the agreement said "if you don't pay, we take it back" was to compel
payment. Which is hallmark of a security agreement. Not a condition precedent in a contract.
 22

Issue: Was this a sale or did the dealership have a constructive trust?

Decision: Not a sale.

Basically, it could have been a sale, but this whole mess with the non-signing of financing meant it
couldn't fall under that umbrella. Financing was a condition precedent to sale, and that never happened.
Therefore, the transfer of title, while facilitating the acquisition of insurance, could not be considered a
sale.

Trustee argues that because the purchase agreement had a clause that stated non-payment would result
in repossession of the vehicle, the dealership had an interest that should have been registered under
PPSA. However, this argument is premised on a concluded contract, which this wasn't, and therefore
Dealer's remedy lies outside document, and instead in the hands of the court.

Court imposed a constructive trust, and said this was not a security agreement. Therefore, dealer didn't
have to register.

994814 O NTARIO INC V RSL CANADA INC AND EN-PLAS INC

P holds GSA over all assets/undertakings of D, perfected by registering financing statement. D2 (En-Plas)
has conditional sale agreement with D for 3 machines. D2 has full title until fully paid. Modifications
needed to be made to 2 before installation. Only 2 of 3 had been delivered when D went into
receivership (receivership usually first step towards bankruptcy). D2 says P has no right to machines.

Issue: Has a security interest attached to the machines?

Decision: No.

GSA had been registered and security interest in that machine had been perfected as required by PPSA.
To obtain priority under PPSA, D2 would have had to perfect its security interest in machine through
registration. However, because debt was never created because the sale was never completed, D never
got possession, and no security interest was created. Title was never passed, and PPSA never came into
play.

356447 B RITISH COLUMBIA L TD V CANADIAN IMPERIAL B ANK OF COMMERCE

What we're talking about is a purchase money security interest (PMSI) and are giving them money to buy
something specific. You can register a PMSI in that thing they are buying, so if there's a blanket security
interest that person has with another lender, you don't have to worry about another lender taking your
property, because you have a 'Super-Security' interest in the item that beats a perfected security
interest.

CIBC and controlling shareholder, N, advance funds to P (and controlling shareholder Z). Part of
agreement stipulates proceeds from joint venture would go towards paying down debt. N and P file
financing statement against Z. Z becomes unable to pay, and CIBC obtains writ of seizure for their shares.
Also applies for discharge of P's interest under PPSA, in reliance of s.50(3) of PPSA. Everyone goes to
court; want interests re-registered.
 23

Issue: Is it possible to grant security interest in assignment of proceeds derived in the future?

Decision: Yes.

Issue: Does such interest have to be registered under PPSA?

Decision: Yes.

Agreement created a security interest, which was possible to be properly registered under the act. Judge
declined to make note of whether the assignment itself was valid and enforceable.

Prior to the PPSA, notice of assignment of joint venture should have been given, but with the PPSA in
effect, requirement of perfection by registration of financing statement against debtor has the same
effect.

Judge notes s.68(1) of PPSA purports to preserve equity principles

"Statute of Frauds" Requirements

Statute of Frauds details the sort of legal things that need to be in writing. Applies to contracts for sale of
land or other high value options. Similar requirements exist in the PPSA (as Statute of Frauds does not
explicitly apply to security interests).

In order to have a security interest 'attached' to a particular asset, care must be taken to describe the
property in question (aside from floating charge).

See s.11/12 of PPSA. Note that this is very open-ended. Property must be 'sufficiently' identified, value
must be given, and debtor must have rights in collateral.

MAC EWEN AGRICENTRE INC V BERIAULT ET AL

Farmer ends up in arrears to supplier (P). Agrees to sign promissory note as security, payable upon
demand. Lawyer asked to draw up security agreement; details provided through information on loan
application form for different loan application. Loan had page devoted to outlining 'location of secured
crops.' Bunch of issues with the application (different one was eventually received by P). Farmer stops
paying, and financing statement registered under PPSA.

Around the same time, farmer dealing with D, soybean purchaser. Owes crops from deficit of last year,
and new order made for this year. D hasn't paid for either of these.

P asserts he has security in crops, and directs D to pay him. Bunch of weird shit happens with cheque
writing. Some money gets placed in D's lawyer's trust account pending resolution of issues.

D asserts P didn't have security interest, and it was only a verbal agreement. Says it can't be enforced
because it hadn't attached. D also said he had sale agreement for those crops.

Issue: Is security agreement valid? Who gets priority?

Decision: Yes. Plaintiff.

PPSA says security agreement can be in writing or oral. Can be more than one document forming written
part of security agreement. Security agreement can include document evidencing security interest. So
 24

any document that corroborates existence of security interest, even though it doesn't include all terms
of security agreement, would still be valid.

Security agreement created when farmer met with P and they discussed farmer providing him with
security. The understanding was that there was no security interest ahead of P. At the time, farmer had
nothing but unsecured debtors. The agreement he had with D was a normal course of business.
Understanding was the proceeds from this transaction would be paid to P.

Security agreement was part oral, part written. Important component was document entitled 'location of
secured crops' which set out a bunch of detailed shit about the crops. Did not explicitly refer to a
'security interest' however.

Because of the rules of attachment, P's security interest would only attach when farmer signed a security
agreement that contained description of collateral sufficient to enable it to be identified. Issue is
whether the combination of two documents satisfy this. Documents lack identification of both parties,
and an explicit reference to security interest.

In reference to agreement's with D, there was nothing in the agreements to state which crop the
soybeans had to come from. Therefore, farmer retained property ownership of his crops on the date
which he pledged them to P.

ATLAS INDUSTRIES V FEDERAL BUSINESS DEVELOPMENT BANK: SKTN F ARM AND TRUCK EQUIPMENT LD (DEBTOR )
D commissions P to produce equipment for them. No financing statement, or security agreement. Atlas
gets order, makes it, and delivers it. On back of each invoice is: "Title to property described on this
invoice retained by vendor until payment in full. Vendor has right of repossession on default. Power to
forcibly retake. This is a security agreement." This is basically a conditional sale.

D borrows $ from the bank, secured by registered debentures, functioning as a floating charge over all
'chattels' of the company. D falls into financial difficulty, and bank appoints a receiver. Upon hearing this,
Atlas attempts to recover its shit. Applies to court, says under PPSA it has security interest in the parts
sold to D by virtue of the work orders/invoices and it should have priority.

Issue: Do the work orders/invoices represent a security agreement under PPSA?

Decision: No; do not comply with s.10.

P argues that work orders and invoices can be read together to fall within definition of security
agreement. Have signatures on invoices, and the work orders specify certain pieces of equipment.

Court says doc's don't comply with s.10, because they are not signed by the debtor, as the person signing
invoices may not have authority to be signing a security agreement.

Agreement represented more of an open account. If P was so concerned beforehand, they could have
done a PPSA search and seen the bank's floating charge. Atlas is also trying to enforce a conditional sale,
after the fact, to cover its ass. Because it doesn't want to be an unsecured creditor.

RE: A YERST AND AYERST

 25

Court held it would take liberal interpretation of the provisions of the act in cases where items had been
omitted by mutual error. Allowed for inventory of chattel goods to be included as collateral for chattel
security, despite not being adequately described.

Court relied on the Act, and also notes that no one's interest had been affected or was misled by the
omission or error; the curative provisions in the legislation should be given large and liberal
interpretation in order to avoid the hardships that result from highly technical and mechanical
application of previous legislation and; there was no legislative reason why the respondent should suffer
the loss of her moneys honestly owed.

CHAPTER FOUR - A TTACHMENT

Before you can perfect, you must first attach. Defined under s.11(2) of PPSA. Attachment marks the point
when secured party's security interest materializes (perfection relates to publication of security interest).

But priority does not fall on first to perfect, but first to register. If both have registered at the same time,
then it falls to first to perfect.

So you can actually get around this by registering first, before you attach.

To attach, there must be:

1. A security agreement which satisfies the Statute of Frauds requirement

2. Secured party must give value

3. Debtor must have rights in the collateral or the power to transfer rights in the collateral to a
secured party.

Unless otherwise agreed on by the parties, all factors must be satisfied. Non-compliance tends to lead
courts to find that no security interest existed at all.

Security Agreement
Needs to be a security agreement, as per s.11(2)(a). Attachment rules presuppose there is consensual
security interest, as opposed to security interest that arises as operation of law (lien, constructive trust,
etc).

No consensual security interest without contract.

Value
S.1 defines value to mean "any consideration sufficient to support a simple contract."

So, if a security provider makes a loan to D, the loan is a value. If security provider promise to make a
loan to D, the promise itself can be value.

Value is a requirement because it functions as the consideration in the contract.

Rights in the Collateral

 26

As per nemo dat rule, debtor must have 'rights in the collateral' to be able to transfer property to
secured party in the event of a default.

S.12 of PPSA provides security interest may cover after-acquired subject to exceptions for
crops/consumer goods. To be able to utilize this mechanism, just have to put into the agreement a
provision that specifies that the collateral may include after-acquired property.

I TRADE F INANCE I NC V
BANK OF MONTREAL
P induced to offering financing on based of W's false representations. President of W, R, uses this
financing to buy shares in BMO investment account with his wife, C. R/C get MC increase by pledging
shares in investment account as security.

Fraud discovered, P wants money back. Says D could not get security interest in shares, since pledges
had no right in collateral (nemo dat rule). P's interest not subject to PPSA, but equity. D argues they are
bona fide purchaser for value of the shares.

Issue: Does the fact that BMO takes an interest in the shares by virtue of the pledge make it a bona
fide purchaser for value without notice?

Decision: Yes.

Clear the transaction was intended to create a security interest. Was for the purpose of securing
payment. Must therefore look to see if D complied with PPSA.

There was attachment (security agreement signed that identified the collateral) and there was value
(further credit extended on MC).

When P discovered fraud, it was entitled to revoke its consent to agreements, avoid any further
obligations under that agreement, and seek remedies. This is not required, and they could have sought
other forms of recourse. P had voluntarily passed title to the monies, and had to bear a risk of loss.

Contract tainted by fraud is not void, but voidable upon election by innocent party.

D fits definition of purchaser under PPSA, because it acquired interest in shares credited to investment
account. Cannot, therefore, assert interest against BMO.

AFTER -ACQUIRED PROPERTY

S.12(2) of PPSA prohibits certain types of after-acquired property interest being granted in agricultural
and consumer transactions. No after acquired property interests can be granted in agricultural products
more than one year after security agreement has been executed.

S. 12(2)(b) prohibits attachment in after acquired property in relation to consumer goods. Lots of policy
reasons for this. Consumer can still pledge her future rights under RRSP, trust or will.

THE FLOATING CHARGE

During the time the floating charge is created, it's said to 'hover' over the assets. Doesn't attach to one
until 'crystallization.'
 27

Floating charge allows business to remain viable as a going concern. As necessited a move away from
'implied license' that debtor could dispose of their inventory as a normal course of business. Floating
charge allows for secured debentures that cover all the debtor's assets.

Floating security is not a future security. It's a present security. But also not a specific security.

Not necessary for funds to be open-ended to establish floating charge.

Very important, in equity, to make a distinction between the two. Fixed charges are binding on debtors
and third parties (subject to doctrine of purchase for value without notice). Floating charges, however,
allow debtor to carry on business as before, subject to only negative covenants that are contained in
agreement; allow debtor to create further security interest over same collateral, both without
preference and with priority, unless otherwise provided - even if the agreement prohibits this, a
subsequent secured party will not be bound by such restrictions unless it knows or is deemed to know of
them - and; allows third parties to seize collateral by operation of law, free of floating charge, to satisfy
their claims.

Because of all this, the floating charge is a valuable security interest.

Crystallization can happen by operation of law (ie when debtor voluntary ceases to carry on business or
becomes bankrupt) or pursuant to terms of agreement. Typical agreement will contain many crystallizing
event provisions.

S. 2(a)(i) shows PPSA applies to floating charge. The courts are typically involved in determining when
security interest attached. Important because courts must be mindful of allowing floating charges to
crystallize before unsecured creditors have had the opportunity to enforce their claims.

ACCESS ADVERTISING MANAGEMENT INC V SERVEX COMPUTER INC

Everex Systems Canada guarantees the indebtedness, liabilities and obligations of D (US company) to the
CIT Group/Canada Finance Inc. Everex Canada is asked to execute security agreement, pledging all its
present and after acquired personal property "together with... with all deposit accounts." One week
later, financing statement registered under PPSA.

Six months later, D voluntarily files bankruptcy petition in US. D and CIT had entered into security
agreement 2 years prior, saying bankruptcy proceedings would be deemed to be default. Guarantee
agreement specifies that upon default, obligations become immediately due and payable. Security
agreement also says collateral becomes enforceable at option of CIT upon any event of default.

CIT tells Everex Canada of US company's default, terminating the right of Everex Canada to receive
proceeds and directing Everex Canada that all property hereinafter received by it would be held in trust
for benefit of CIT. CIT goes to court, appoints receiver.

P is a creditor of Everex Canada, and obtains judgement against them for ~$50,000. Issues notice of
garnishment against Bank of Nova Scotia, directing Bank to debit Everex's account by amount of
judgement, and remit funds to Sheriff. Funds are subsequently paid into court pending resolution of the
matter.

Receiver claims the money in court belongs to CIT as a result of their floating charge on assets of Everex.
 28

Issue: Does the floating charge attach to the funds owed to Access Advertising that is currently paid
into court?

Decision: Yes; security had attached and was perfected. Had priority over subsequent garnishment of
Access.

Normally, floating charge doesn't attach until invoked. But security agreement provided otherwise;
charge on deposit accounts is described as 'floating charge.' Security agreement provides security
interest created by it attach to collateral when Everest has rights in the collateral.

Security agreement signed, value was given, and Everex had right to deposit accounts of Bank. When all
three happened, security interest in collateral attached. Perfected by registration of the financing
statement. Security interest attached, at least, under crystallization. Registration had already been done;
charge was perfected no later than the time of crystallization.

Effect of this perfection meant the floating charge was not subordinate to interests of P. CIT does not
attain priority over Access as result of perfection.

Some sort of intervention is required for crystallization. In this case, sending notice pursuant to BIA was
sufficient intervention to crystallize the charge. Not necessary to actually enforce the security, by
appointing receiver, in order to effect crystallization.

CREDIT SUISSE CANADA V YONGE STREET HOLDINGS

Reversed Access.

Held that the concept of crystallization of floating charge as condition to establish a perfected interest
taking priority over others was outdated, with no application to PPSA context.

PPSA only requires attachment and perfection to establish priority for floating charge; does not need to
be crystallization.

S. 2 and 11(2) of PPSA have served to restore concept of security interest in inventory and accounts
receivable as fixed interest with an implied license to debtor to carry on business until default.

CREDIT SUISSE CANADA V 1133 Y ONGE STREET HOLDINGS LTD

P holds security interest in net rental proceeds paid to D. P had loaned $7M to finance building. As part
of security for loan, D granted P assignment of leases and rents in building. P prevented from exercising
power/rights until default occurred. GIC was invested in by owners, registered in D's name. Trial judge
imposed constructive trust in GIC, saying it was being held for benefit of P.

Issue: Can P claim proceeds from funds left in account for its benefit?

Decision: No.

PPSA preserves principle of freedom of contract. The agreement between the parties entitles D to deal
with the security prior to default, and also entitles D to the security prior to default.

Security discharged, however, only with respect to amounts that are paid over prior to default. Because
P had attached perfected security interest in rents years before, the security interest extended to the
 29

proceeds of those proceeds, by virtue of s.25(1)(b) of PPSA. Lender was entitled to claim the funds which
consumed the surplus, provided the funds were identifiable or traceable as proceeds of rent.

But in terms of the bank account, the security interest was attached, but s.25(1) was not engaged.

BANK OF NOVA SCOTIA V IPS INVOICE PAYMENT SYSTEM CORPORATION

P signs GSA with BR corp. GSA grants P security over BR's property/assets including A/R. P registers
financing statement. GSA says all amounts from A/R held in trust for bank. BR signs factoring agreement
with D, assigning invoice to D, with no right of redemption. D was aware of P's interest. P finds out,
wants to recover amounts collected by D from customers, to full amount of outstanding indebtedness of
company.

D takes position that, as purchaser of accounts, s.25 says proceeds from sale of collateral were amounts
that ended up being paid to bank. Bank would therefore get double recovery if it was also able to get
interest in proceeds of sale of collateral.

Issue: Can there be more than one set of proceeds as defined by s.25 of PPSA?

Decision: Yes; but recovery under s.25 limited to value of collateral on date of dealing.

Bank did not expressly or impliedly authorize the factoring agreement, and thus the dealing with the
collateral by the company. GSA said company was to defend title and keep collateral free and clear of
encumbrances. Default is defined to occur when any collateral is or is about to be in danger of being
place in jeopardy. S.39 does not authorize the transfer of collateral.

Collateral can give rise to more than one set of proceeds. Definition of 'proceeds' in PPSA is sufficiently
broad, covers both monies paid by factor to debtor for absolute assignment of receivables, and monies
collected from customer pursuant to those receivables. Purpose of s.25 is to maintain security over both
collateral and proceeds, where secured party does not directly or indirectly authorize factoring.

Important to note the purchase of A/R would have seen them be discounted, and it would be unfair to
limit to the Bank to limit recovery to proceeds under factoring agreement. More difficult issue is whether
recovery of proceeds pursuant to s.25 is limited only by full amount of outstanding indebtedness
secured by GSA, or whether it's limited to the value of collateral.

After consideration, judge ruled it should be limited to value of collateral on date of dealing. D knew of
Bank's interest, but did nothing. Therefore, any risk associated with collateral should be borne by them.

ROYAL BANK OF CANADA V SPARROW ELECTRIC CORP

P secures loan made to D, with GSA covering present and after-acquired property. Also some Bank Act
shit. D experiences financial difficulties (duh) and receiver appointed. Receiver discovers D failed to remit
deductions to gov't, and sells assets to satisfy debt. Amount held in trust until resolution of dispute.

Bank claims priority because of security agreement. Fed gov't claims priority in reliance of deemed trust
provisions in Income Tax Act.
 30

Court was divided on the issue of whether GSA authorizing D to continue to carry on business conferred
an express or implied license on D to use proceeds from sale of its inventory to meet operating
expenses, including payment of wages (which would have been where missing deductions came from).

Issue: Can proceeds from inventory be used to meet D's statutory obligated deductions, as a result of
implied license to use inventory 'in the ordinary course of business'?

Decision: No.

Basically could be a flood gates that throws priority out the window. Theoretically, all debtors could claim
they were meant to be paid in the normal course of business.

This is why we have security interests/perfection.

CHAPTER FIVE - PERFECTION

Perfection provisions of PPSA are s.19, 20, 21, 22, 23, 25, 30.

Definition of perfection is rather circular; defined partly in terms of itself. Has both a procedural
component - steps have to be complied with that are designed to give public notice of existing future
security interest - and a status description of the security that has attached under s.11 and meets
procedural requirements. Procedural requirements are usually registering a financing statement, or by
secured party taking possession of collateral.

This is all regulated by s.22 of PPSA. Only tangible thing, including specific documentary expressions of
rights (chattel papers, instruments, securities, letter of credit, negotiable documents of title etc) can be
perfected by possession.

S.23 of PPSA provides that registration perfects security interest in any type of collateral. But PPSA does
not always require immediate registration or possession in order to perfect an interest. Number of
situations where secured party is given grace period (usually about 10 days) within which to perfect (or
reperfect) an unperfected interest. Outlined in 20(3), 24(4), 48(2) and (3), 6(2) and (5), 7(2).

Not always practicable or possible for secured party to perfect immediately.

Perfection by Possession
Regulated by s.22

Only tangible things such as 'specific documentary expressions of rights' (see above) can be perfected by
possession

RE RAYMOND DARZINSKAS
D mortgages manufacturing equipt to J, via chattel mortgage. D defaults, and J goes to seize equipt.
Because of size of equipt, it was not removed from premises, nor were any operative parts removed. D
claims he just needs 'a few days' and J lets him keep using equipt. Five days later, D becomes bankrupt
(probably thinking 'ha ha sucker'), and trustee in bankruptcy assets priority, saying J didn't perfect his
interest.

Issue: Was J's interest perfected?

 31

Decision: No.

Issue is really whether this seizure was effective possession under s.24 (not 22) of PPSA. Court said
intention of Act is to provide notice to persons dealing with the property or with owner the secured
party claims an interest in the goods.

J had constructive possession by reason of his seizure, despite not having actual possession. Left the
equipment in full working order. S.24 requires actual possession of the goods to perfect the security
interest, in order to give notice to all parties. Even more important when interest not perfected by
registration.

SPERRY INC V CANADIAN IMPERIAL BANK OF COMMERCE

P is farm equipment manufacturer. Entered into dealership agreement with a farm equipment company
(A). As a term of agreement, A grants P security interest in all present and after acquired property.
Following year, A enters into general security agreement with CIBC. A grants CIBC an interest in all
present and after acquired property.

Each interest subsequently perfected by registration, but both lapse in 1979. In 1980, CIBC appoints
receiver who takes possession of dealership, and all property, equipment and undertakings, including
inventory supplied by P. P wants to remove the inventory in dispute; request denied by receiver. Receiver
says none of the equipment will be removed or sold until security agreements reviewed by CIBC's
lawyers. Receiver operates business on day-to-day basis.

P files a renewal of its financing statement, aiming to perfect. Commences action against CIBC and
receiver, claiming entitlement and delivery of goods, free from claims of CIBC and the receiver.

Issue: Who is entitled to priority?

Decision: Sperry Inc.

Bank is relying on perfection by possession, and P is relying on attached security interest.

Court says bank never perfected security interest in P supplied inventory. Had also not decided what
they were going to do inventory. Even if they'd decided to sell, they had not yet given notice to P, as per
s.59(5) of Act.

Perfection by Registration
Under s.23"Registration perfects a security interest in any type of collateral"

Perfection by Control
s.22(1) *non examinable*

Section mainly pertains to security interests in investment property.

Temporary Perfection
Exists when a security interest is protected even though no financing statement has been registered, and
secured party is not in possession of the collateral.

Continuity of Perfection
 32

S.21(1) allows one to change their method of perfection, provided there's no intermediate period where
interest is unperfected.

See s.30(2). If security interest perfect, it's presumed to be perfected in the method it was first
perfected, even if type of perfection changes over time.

See lecture notes for examples.

Consequences of Non-Perfection
S.20 regulates. Basically modern version of pre-PPSA registration statutes that spelled out consequences
of non-registration.

S.20 basically says unperfected interest is subordinate to four classes of competing claimants:

1. Those who have perfected security interest in the same collateral, and expressly given priority
under PPSA or other Act

2. Execution creditors and such

3. Trustee in bankruptcy and other creditors' representative

4. Transferee of the collateral

SUBORDINATION TO PERFECTED SECURITY INTERESTS

S.20(1)(a) has been expanded to include three types of individuals:

1. Those with perfected security interest

2. Those who hold statutory or common law lien

3. Persons who are given priority under any other Act

Reasons for 1 & 3 are pretty self-evident. Purchase money security interests, however, under s. 33(1) and
(2) say these interests take precedence over all other interests given by debtor in same collateral that is
subject of purchase money security interest.

SUBORDINATION TO TRUSTEE IN BANKRUPTCY

s.20(1)(b) states trustee in bankruptcy granted priority over interests of unsecured creditors.

See International Harvest Credit Corp of Canada v Touche Ross Ltd where Sask Court held the phrase 'is
subordinate to' should be given the same meaning as 'is void' under pre-PPSA registration statutes.
Ontario has since changed its own wording to say 'is not effective against.'

There are two ways to go into bankruptcy; voluntarily go into bankruptcy or creditors 'push' you into it

CREDITOR REPRESENTATIVES
Status as receiver does not depend on what person is called; depends on attributes of character. A
receiver is appointed by court, and responsible to the Court.

TIME FROM WHICH STATUS OF REPRESENTATIVE TAKES EFFECT

 33

Governed by s.20(2)(b). Rights of creditors representative 'are to be determined as of the date from
which person's representative status takes effect.'

For the purpose of PPSA, registration of financing statement after filing of petition in bankruptcy, but
before receiving order was made is too late to save security interest from subordination to trustee in
bankruptcy.

But this provision of BIA was repealed. Nothing to prevent perfection of security interest after
bankruptcy proceedings had been commenced, but before bankruptcy order had been made.

RE GIFFEN
Lessor leased a Saturn to BC Tel, who leased the car to it's 'ee G. G and BC Tel were parties to a lease that
lasted more than one year, and gave G option to purchase. Lessor received deposit from G, fixed the
lease rates, and was entitled to receive payment directly from her if BC Tel stopped paying.

Lessor and G were named as owners on registration and insurance documents.

Following year, G made assignment in bankruptcy. Neither the lessor nor BC Tel had registered financing
statements under PPSA with respect to their leases. Failure to register meant lessor's interests had not
been perfected, and was therefore subordinate to trustee in bankruptcy.

Car is sold, proceeds are held in trust pending determination of the issue. At trial, lessor tries to say G
never owned the car, and the trustee cannot have a better claim that G had in the first place. Trustee
says they have entitlement to proceeds under s.(20)(b)(i) of BC PPSA, grants trustee priority over all
unsecured security interests.

Issue: Does s.20 of PPSA render lessor's unperfected security interest in personal property ineffective
against rights acquired in property by a trustee in bankruptcy that derives their authority under BIA?

Decision: Yes.

PPSA says security interest attaches when debtor acquires right in collateral. In context of lease, this
occurs when debtor obtains possession of goods in accordance with the lease.

So, upon delivery of car to G, lessor had valid security interest in the car, which could be asserted against
lessee and against third party claiming right in the car. Lessor's security interest remained vulnerable to
the claims of third parties who obtain interest in the car through the lessee, including trustees in
bankruptcy. In order to protect its interest, lessor must perfect. Lessor did not have possession of car,
and did not register it's security interest. Therefore, lessor held unperfected interest in the car.

S.20 also does not prevent trustee from having greater interest in property than the bankrupt.
 34

1231640 O NTARIO INC (R E)

Bank held first registered GSA over personal property of S, the debtor, and wanted to enforce its security
by appointing interim receiver pursuant to s.47(1) of BIA. Receiver appointed, sold assets of S in three
separate sales. Distributed proceeds of first two sales according to respective priority of creditors at time
of sales. As part of one sale, receiver sells S's business name, triggering application of s.48(3) of PPSA.
Requires interests held in debtor's property be re-perfected following a name change.

Receiver assigns debtor into bankruptcy, and becomes trustee in bankruptcy. Receives income tax refund
of $4,325,000. However, before assignment into bankruptcy, the bank had asserted first priority right to
income tax refund, and some other funds held by trustee by filing proof of claim, which included a
secured claim in amount of $20M.

Receiver brought motion for advice and direction of court, asking if bank's security interest - which was
unperfected because of the name change - remained effective against the trustee.

Bank argued that the appointment of receiver, under s.20(1)(b) and 20(2)(b), has effect of 'stopping the
music' under PPSA, and priority rights of parties are frozen for the purpose of distribution of the estate.
Says interim receiver, appointed under s.47(1) of BIA is a 'person who represents the creditors of the
debtor' under s.20(1)(b) of PPSA. Says unperfection under s.48(3) should have no bearing on priority for
purpose of debtors estate. Said the failure to file financing statement before bankruptcy should not
change its entitlement to be paid from assets of bankrupt estate.

Issue: Is a court appointed receiver analogous to any other type of creditors' representative under
PPSA?

Decision: No.

Issue: If so, does this exempt creditors from re-perfection requirements of PPSA that result from
actions of receiver?

Decision: No.

First, court notes that a receiver and trustee in bankruptcy hold different roles. Receiver functions more
like administrator (continuing to run business and sell off assets). In theory, a debtor could continue to
carry on business, and may incur new debt when receiver has fulfilled their role of paying off creditors.
Trustee in bankruptcy holds the actual proprietary interest in assets on behalf of unsecured creditors.
Trustee, therefore, occupies a priority position for purpose of distribution of proceeds of estate, and
competes with other creditors for rights in collateral.

Giffen said receiver not intended to be 'person who represents the creditors of the debtor' for purpose
of s.20(1)(b) and 20(2)(b) of PPSA.

Following appointment of receiver, a previously perfected creditor (who for some reason is now
unperfected) is allowed to reperfect under s.30(6), ensuring their spot in line. Superior Court has now
put out publication that says 'music is NOT stopped' and nothing prevents the filing of registration to
preserve or perfect a security interest after appointment of receiver.
 35

Therefore, bank should have re-perfected following the name change, and its current security interest is
ineffective against trustee in bankruptcy.

TRANSFEREE OF COLLATERAL
Accounts - s.20(1)(d) applies to all intangibles except accounts. S.20(1)(a)(i) is the governing provision.
First to register financing statement has priority. If no financing statement registered, then whoever
attaches first prevail in competition of unperfected interests.

Chattel Paper - *non examinable*

Knowledge - Knowledge requirement is only in collateral that can be classified as goods. s.20(1)(c)
application; buyer has priority only if they receive delivery of goof without knowledge of the security
interest.

Value - Value is defined as consideration capable of supporting a simple contract. A promise to pay will
sometimes satisfy these requirements under s.20(1)(c)

RE: P ERIMETER TRANSPORTATION LTD

PT leases 3 busses for 8 years. Contained option to purchase. Lessor doesn't file financing statement.
Lessor then gets loan from GE, and grants GE security interest in 3 buses. GE files a financing statement.
PT declares bankruptcy. Lessor files financing statement day after.

Trustee talks to GE, confirms lessor owed GE $$. GE authorizes release of buses to lessor on GE's behalf.
Lessor believes buses released unconditionally, leases them to another party. Trustee then decides GE's
interest isn't valid, on basis of s.30(2). Says GE's interest attached to lease of the buses, and once the
lease ended, GE's interest had nothing to attach to. GE argues entitlement because they perfected
security interest prior to PT's bankruptcy.

Lessor concedes that because financing statement not validly registered before P's bankruptcy, it didn't
have effective security interest against trustee, per s.20(b)(i), but argues s.20 only has effect of
preventing lessor from asserting title against possessory interest of trustee, and because the trustee
voluntarily returned to the buses to lessor, vesting them with title and possession. Therefore s.20 and
rules in Giffen should not apply.

Issue: What is the effect of trustee's release of goods?

Decision: GE is entitled to assert their perfected interest against the trustee.

s.30(2) basically exists so people who buy/lease goods from dealer, in ordinary course of dealer's
business, don't have to do PPSA search. People who buy/lease a car from a dealer, don't generally think
someone else will have an interest of it. Inapplicable to lease granted by PT, but applies to security
interest granted to GE.

Court said nothing in s.30(2) requires trustee acquire title in the buses free of interest in GE.
 36

CHAPTER SIX - REGISTRATION

The Function of Registration

A financing statement will satisfy the 'notice given' function. There is a need to provide enough
information to the public, while still protecting people's privacy. The financing statement is a one page
document.

Collateral can be classified as consumer, inventory, equipment, accounts or other (as long as it's personal
property and intangible, pretty much anything can be put forward as collateral under PPSA). If a motor
vehicle is the collateral, there is a separate section in the financing statement to describe the vehicle,
including the VIN.

Exact Match and Close Match Retrieval Systems

Registry system in Ontario based on 'exact match' retrieval system. This means the system will not
retrieve any entry if there is any deviation from the debtors name as it appears on the financing
statement, and the name the searcher conducts the search against.

Most other provinces use 'close match' systems, which tells the user when other entries bear reasonable
closeness to the search performed, if no exact matches are found.

FAIRBANX CORP. V ROYAL BANK OF CANADA

P enters into factoring agreement with FT (debtor). FTs registered name is spelled differently from the
one it uses to carry on business (on letterheads/invoices). P registers financing statement using this
incorrect spelling.

Debtor approaches D for a loan. D conducts PPSA search under incorrect spelling of name, and discovers
P's registration. Proceeds with loan, and starts working toward obtaining first charge against debtor.
Does another search under correct spelling, finds three other creditors, but not P. Reaches agreement
with these three other creditors, and registers as first charge under PPSA, under correct spelling.

Issue: Is P's registration valid under s.46(4) of PPSA, despite the wrong spelling?

Decision: No.

P argues that because debtor carried on business under the wrong name, a reasonable person would
search under that name and would not be materially misled by P's error in registering under the wrong
name. Bank, in fact, did search under the wrong name, and saw P's registration, and therefore was not
materially misled.

S.46(4) operates to say that a financing statement, registered with error, is still prima facie effective. Only
loses effectiveness is a reasonable person would be materially misled by the error.

However, court goes on to say that there is no way D would have known if the incorrect spelling was a
different corporation, or the one they were searching. S.46(4) cannot save this; name of the debtor was
wrong on the financing statement, and therefore was not perfected. P, therefore, has unperfected
security interest, and D wins.
 37

Errors and Omissions in Registration Data

S. 46(4) sets out curative provisions in relation to errors that may relate to a debtor's name, for instance.

Test is set out so the error must not be so grave as to materially mislead a reasonable person who is
conducting a search for the debtors obligations. Unclear how serious the error must be, in order to be
saved by PPSA.

RE LAMBERT
L buys car, under conditional sale contract, which is sold to GMAC. GMAC registers interest, files
financing statement, refers to L as name used when signing conditional sale contract. Different name
from birth certificate. DOB and VIN were both correct. L declares bankruptcy, trustee takes possession of
car. GMAC files proof of claim. Trustee's lawyer runs specific debtor inquiries, and non-specific debtor
inquiry (but no VIN inquiry), and does not see GMACs financing statement. Trustee, therefore, moved
that GMAC's interest was unperfected and ineffective against them.

Issue: When will an error in the contents of a financing statement render the statement invalid, and
the security interest that it represents unperfected against third parties?

Decision: No.

By using reasonable person standard, Legislature intended the test in s.46(4) should be an objective one.
Also does not require evidence that the error actually misled any person.

S.46(4) should be interpreted to assign burden of error in a manner which best promotes the 'overall
integrity of the system.' Reasonable person, in context of s.46(4) is a person using search facilities for
intended purpose (k, who the fuck would use it for other reasons?!)

Reasonable person, having the VIN, would search the VIN number as well as the name.

So then the court asks if a reasonable person would be misled by a financing statement which contained
an error in debtors name. Court said no, as long as the VIN is included in the financing statement, as a
reasonable person would also look that up.

GMAC interests is not invalidated, and therefore perfected against the trustee.

Errors in Serial Numbers

Serial numbers have huge effect on how individuals can access registry system for certain pieces of
property.

COATES V GENERAL MOTORS ACCEPTANCE CORP

Important to know that this is a BC case; functions on an inexact match system.

D registers a financing statement in a Chevy dump truck under PPSA. Listed serial number incorrectly.
Registration shows A&R as debtors under security agreement.

Later, P lends money to A&R, and take a promissory note and blank signed transfer in respect of the
dumb truck. Transfer was to be held until the money was paid. P registers promissory note. Registration
lists A&R as debtors, just like D's.
 38

A&R default on payment, and P seeks to realize his security. Goes to PPSA registry office and asks a clerk
to search registry for any registration listing the dump truck. Printed search shows only registered
promissory note. P then transfers truck into his name, and tries to take possession of the vehicle.

Truck was on GM lot. D presents documents saying he is owner, but dealer refuses to give up truck, citing
D's prior charge. Dealer does a search showing Promissory note was exact match, and D's interest was
inexact match.

Issue: Is registration of wrong serial number 'seriously misleading'?

Decision: No.

Previous Alta case held a defective serial number was fatal to the registration. However, other cases have
taken issue with the idea that a single error will invalidate the registration.

Court says if search using correct criteria does not reveal the registration, the registration has failed. Not
a question of whether the search program catches common mistakes. S.43 may offer some forgiveness
for error, but should only extend as far as capability of the filing, and search program to reveal the
registration, despite the error.

Lists a variety of factors that will apply to registration of serial numbered goods (can be found in lecture
notes).

In this case, type of chattel, manufacturer, and model year were the same under each registration.
Incorrect characters were also visually similar to the actual characters in the correct serial number.
Combination of these factors would have alerted a reasonable person that the GMAC registration was
likely in respect to the same vehicle.

Note that Ontario system is still perfect match, while most provinces have moved to inexact match.

ADELAIDE CAPITAL CORP V INTEGRATED TRANSPORTATION FINANCE INC

Greyvest enters into four leasing agreements re: 87 trailers/vans with D. Financing statements registered
under Ontario PPSA. Financing statement contains option of checking off boxes that describe the type of
collateral being registered. Includes the classification of 'equipment' 'inventory' 'accounts' and 'other.'
Cannot be marked as other if they are consumer goods, inventory, equipment or accounts, unless they
themselves have also been marked.

Greyvest's financing statements described a lot of the trailers as either 'equipment' or 'other.' To be
effective, trailers would have to be described as inventory. Greyvest properly registered later financing
statements, designating the trailers as equipment, inventory, accounts and other (so everything).

Financing statements registered pursuant to leases between D and end users, that were assigned to
Greyvest as security.

D also obtained financing from a company, secured by debenture. Security for the loan was a fixed
charge over various trailers listed. Agreement also granted floating charge over all assets, property, and
undertakings of D. Interest was then assigned to another company.
 39

New company registers a financing statement, for a period of one year and was allowed to expire from
registry if un-renewed. Registration contained description with all 50 serial numbers.

Greyvest argues, despite not marking collateral as inventory, it's common ground that collateral is
inventory in their hands, and should have been classified as such in financing statement; error could be
cured by operation of s.46(4) of PPSA. Bankruptcy happens; parties fight over who has priority.

Issue: Does PPSA save Greyvest's interest in trailers, allowing it to prevail over new company?

Decision: In part.

Nothing in filing notifies a person doing search under PPSA that Greyvest claiming any security interest in
inventory of debtor. Error is likely to mislead. Not curable under s.46(4) of PPSA.

The financing statements that didn't specify inventory, but contained general description of collateral will
prevail; will not mislead materially.

Amendments to Registration
S.49 of PPSA permits amendment of existing financing statements through registration of Financing
Change Statement. Works in conjunction with re-perfection provisions found in s.30(6).

HEIDELBERG CANADA GRAPHIC EQUIPMENT LTD V ARTHUR ANDERSON INC

P sold equipment to K, and had a registered security interest in 'inventory, equipment, accounts, and
other' of K. P assigned interest to Bank, who registered financing statement. K needs more money, gets
loan from T who convinces Bank they should remove their registration on K's accounts. Bank files
financing change statement (FC #1), and then realized they had interest in the accounts and re-registers
(FC #2). K declares bankruptcy. Trustee says FC#1 had effect of unregistering interest, and Bank could
have only perfected again by filing new financing statement, not FC #2.

Issue: What is the effect of the financing change statements?

Decision: Re-perfected bank's interests.

A financing statement may be changed, but FC not intended to affect registration period.

Only where financing statement does not exist that new financing statement required.

Because nothing happened to the collateral between FC #1 & #2, the priority position would not have
been effected.

LISEC AMERICA INC V BARBER SUFFOLK LTD

Issue:

Decision:
 40

CHAPTER SEVEN - BASIC PRIORITY RULES

Introduction
Pre-PPSA, priority rules were a weird mess of common law, equity and statutory rules. Historically,
common law placed emphasis on locus of legal title, and gave priority to the person who held the title,
unless that person was estopped from denying authority of person in possession of the collateral, or had
failed to comply with applicable registration requirement.

Priority of equitable security interests governed by order of their creation, subject to three exceptions:

1. Equitable security interest could be defeated by purchaser for value without notice

2. Floating charges governed by their own priority rules

3. Where there are successive assignments of the same chose in action, priority goes to assignor
who first gave notice of his assignment to debtor.

PPSA codified and unified all these concepts. Main priority rules can be found in ss.30-35.

Authors paraphrase these rules as:

1. Rule of First to Register - If competing security interests have been perfected by registration,
then order of registration determines order of priority (s.30(1)). Time of attachment/perfection
of interest not relevant

2. Rule of First to Register or to Perfect by Other Means - If one security interest perfected by
registration, and other is perfected by other means, then if registration occurs first, that security
interest will take priority (converse rule applies if non-registration perfection precedes
registration) (s.30(1)(2)(i))

3. Rule of First to Perfect- If both security interests perfected without registration, then first to
perfect takes priority (s.30(1)(2)(ii)

4. Rule of First to Attach - If none of competing security interests have been perfected, they rank
according to order of attachment (s.30(1)(4)).

The Irrelevance of Knowledge

THE R OBERT SIMPSON COMPANY LTD. V. SHADLOCK AND DUGGAN (1981), 31 OR (2 D) 612 (SC)
P sold debtor chattels for installation at motel property. Employee of P told D about security interest.
Debtor mortgaged motel to D. D registers their chattel mortgage. P doesn't register its conditional sales
contracts under PPSA until year and a half later. D says s.35 should determine priority, via first to register.
P argues registration was only to give notice to third parties, and when third party received notice, that
was satisfied.

Issue: Is priority determined by first to register?

Decision: Yes.

Nothing in s.35 says anything about lack of knowledge being prerequisite for its operation.
 41

Concept of actual notice was purposely omitted; therefore the court should not read it in.

Prior Lender's Competitive Advantage

JAMES TALCOTT INC. V. FRANKLIN NATIONAL BANK OF MINNEAPOLIS 194 NW 2 D 775 (S. CT. MINN . 1972).
Debtor enters into conditional sale agreement for two dump trucks and other construction equipment.
Seller assigns contract to P. Financing statement filed, naming debtor as secured party and P as assignee
of secured party. Debtor enters into equipment lease with D, for more dump trucks and equipment. Bank
didn't file financing statement. Debtor gets extension on debt from P, gives P security in 'all goods'
(owned now and later). No financing statement filed for this extension.

Debtor defaults on both (duh). Bank files copies of leases as financing statements and repossesses the
equipment. P throws a hissy fit, but D says they never perfected their security interest after the second
security agreement (the extension).

Issue: Which security interest is entitled to priority?

Decision: P, because there was no need to perfect after extension.

Financing statements may be registered before security agreements made. Therefore, amendment to
security agreement does not mean financing statement must be amended. Financing statement is
essentially 'notice to the world.' If financing statement written well, it can be broad enough to
encompass after-acquired property. P was first to perfect. P therefore gets property (sorry Bank)

Transferees in the Ordinary Course of Business - s.28

Section pertains to buyer and any other transferee for value (for certain types of collateral), and when
they can clear title to the collateral, and defeat a prior security interest, even though it is perfected.

With exception of s.28(5), all involve situations where collateral is being sold or otherwise transferred in
course of debtors business, or where collateral is of negotiable or quasi-negotiable character, would not
be practical to require transferee to make a search before consummating the transaction. In these cases,
the needs of the marketplace outweigh the protection of security interests.

In order for a buyer to acquire good title, free from the perfected security interest the transaction must
meet the following requirements:

1. There must be a buyer (s. 28 (1)) or lessee (s. 28 (2))

2. The sale must involve goods (rather than accounts or sales of realty mortgages)
3. The transaction must be for consideration
4. The goods must be acquired from a seller who sells the goods
5. The seller must sell the goods in the ordinary course of business (decided on the facts of each
case).
Notice as well that s. 28 (1) does not condition the buyer’s protection on the buyer having received
delivery of the goods nor does it require that the goods be in the seller’s possession at the time of the
sale