Secured Transactions in Personal Property Law 3033 Professor by sofiaie


									Secured Transactions, Prof. Siebrasse                               Introduction

          Secured Transactions in Personal Property
                         Law 3033
                    Professor Siebrasse

1. Course Coverage
  a. Personal Property Security Act
    i. Consensual debt secured by personal property
    ii. Some discussion of interaction with non-consensual and/or
         land interests
    iii. Bank Act security
  b. These slides available at

2. Course Materials
  a. Materials
    i. Prof. Rod Wood, “Personal Property Security Law” (in
    ii. Statutory Supplement, NB PPSA (in house)
  b. Reference
    i. Cuming, Walsh & Wood, Personal Property Security Law
    ii. BC, Alta, Sask, Man, Ont PPSA Handbooks (library)

3. Administrative Issues
  a. 100 % Final Examination “Open Book” Format

4. Secured Transactions

5. Types of Secured Creditor
  a. Consensual secured creditor - “secured party”
    i. Mortgages, Chattel mortgages, Conditional Sales
        Agreement, Financing lease
      (1) Personal Property – Personal Property Security Act
      (2) Land – Land Titles Act / Registry Act
  b. Non-consensual secured creditor - “lien holder”
    i. A security interest which arises by operation of law
      (1) Mechanic‟s Lien Act (builders)
      (2) Liens on Goods and Chattels (mechanics)
      (3) Government liens

6. Law of Debt

7. What is Secured Debt?
  a. Security gives creditor „real‟ rights in a specific asset
    i. Cf unsecured debt
  b. Advantages of security
Secured Transactions, Prof. Siebrasse                                      Introduction

       (1) Priority
         (a)     Right to preference in payment (to the value of the
         (b)     Right to follow the collateral into the hands of third
           (i) “right of pursuit‟
       (2) Enforcement
         (a)     Right to enforce against the collateral in the event of
    ii. Disadvantages of security
       (1) Cost
         (a)     Formalities

8. Enforcement
  a. All creditors ultimately have recourse against the assets of the
  b. Unsecured creditor
    i. Must obtain judgment
    ii. Enforcement via public officer (sheriff)
    iii. Enforcement via bankruptcy
  c. Secured creditor
    i. No need to obtain judgment
    ii. Self-help (except in Alta)
       (1) Order for possession enforced by sheriff necessary if
           debtor does not cooperate

9. Enforcement
  a. Enforcement differences are not as fundamental
    i. SP may require aid of court if D refuses to give up
         possession voluntarily
    ii. In Alta SP enforces through public enforcement agent in
         same manner as JC
    iii. Obtaining default judgment may be quite easy

10. Enforcement – Policy
  a. Security interest is not ownership
    i. It is a right to the collateral only
       (1) On default
       (2) To the extent of the debt
    ii. Difference between ownership and security is reflected in
         enforcement provisions

11. Priorities
  a. When there is more than one creditor and insufficient assets,
      how are the assets divided?
  b. Secured credit
Secured Transactions, Prof. Siebrasse                                  Introduction

    i. Lexical priority as between SP
      (1) Higher ranking creditor (SP1) paid out first
      (2) If anything left, SP2 is paid out in full, then SP3 etc
  c. Unsecured credit
    i. Pro rata sharing
      (1) Each creditor receives e.g. 25 cents on the dollar of debt
      (2) Both in and outside of bankruptcy

12. Priorities
  a. All (perfected) SP paid out before any unsecured creditors
    i. Unless JC has intervening registered notice of judgment
    ii. As a practical matter, an unsecured creditor gets almost
        nothing (~5%) in bankruptcy

13. Policy
  a. The overarching goal of commercial law is to reduce the cost
     of debt
  b. Reducing the cost of debt benefits the borrower
  c. Distinguish ex post from ex ante perspective

14. Policy
  a. Cost of debt is sum of
    i. Return to capital
    ii. Default risk
    iii. Transaction costs
  b. Commercial law is concerned with
    i. Reducing transaction costs
       (1) Priority rules
       (2) Enforcement rules
    ii. Reducin default risk
       (1) Enforcement rules

15. Policy
  a. Is secured lending good for the economy?
    i. Not clear
    ii. We will assume it is good
  b. Given that secured lending exists, it should be
    i. Cheap
       (1) Low transaction costs
    ii. Certain

16. Policy
  a. Need to balance
       (1) Security for SP
    ii. Against
       (1) Impediments to commerce
Secured Transactions, Prof. Siebrasse                                   Introduction

    iii. And protection of third parties
       (1) Publicity requirements
       (2) Priority rules

17. Publicity
  a. In order to protect third parties dealing with the collateral in
       the hands of D, security interests must be publicized to be
       effective against TP
  b. Issues
    i. Hidden prior liens
    ii. Problem of „ostensible ownership‟
  c. Publicity may be by
    i. Possession – (more traditional), or
    ii. Registration – modern

18. Pre-Reform Law
  a. Myriad forms of security interest
      (1) Chattel mortgage
      (2) Conditional sales agreement
      (3) Financing lease
      (4) Consignment
      (5) Assignment of book debts
      (6) Corporate securities
  b. Why?
    i. Largely historical accident
      (1) Registration regimes were developed for specific types of
          property as these became commercially valuable

19. Pre-Reform Law
  a. Substantive law depended on form
  b. Registration requirements depended on form
  c. Consequence – Complex and costly
    i. Need to search more than one venue to secure business
    ii. Uncertainty as to which venue was correct for a particular

20. Reform
  a. Substance over form
    i. Law no longer depends on the form of the transaction
    ii. All transactions are “security interests”
    iii. “I hereby grant a security interest in X collateral to

21. U.S. Personal Property Law Reform
  a. The Uniform Commercial Code is model legislation
Secured Transactions, Prof. Siebrasse                                  Introduction

       proposed by the U.S. National Conference of Commissioners
       on Uniform State Laws
  b. Article 9 of the UCC deals with secured lending in personal
    i. Drafted in the 1950s by Professors Grant Gilmore &
         Allison Dunham
    ii. The most successful Article of the UCC

22. Canadian Law Reform on the US model
  a. Ontario PPSA based on UCC Article 9
    i. Enacted in 1967
  b. All other Canadian common law jurisdictions have since
    i. Atlantic provinces most recently – 1993 - 1998
  c. Overall structure & concepts of Article 9 and the PPSAs is
       very similar
    i. But there are significant substantive differences
  d. Two models for the PPSA in Canada
    i. Ontario
    ii. The CCPPSL Model Act used by all other provinces

23. PPSA & Unsecured creditors
  a. In a separate reform, registration in the Personal Property
      Registry (PPR) is also used to publicize an interest in assets
      taken by an unsecured creditor, and is a pre-requisite to
      further enforcement
    i. (Not in Nfld & Lab which uses JEA registry)
  b. Consider to what extent the PPSA model can be applied to
      unsecured debt enforcement

24. Unification is Not Complete
  a. Different types of property have different registration systems
    i. Personal Property Security Act/Registry
    ii. Land Titles Act/Registry
    iii. Other „types‟ of property with separate registration
       (1) Bank Act
       (2) Intellectual Property
       (3) Ships (Canada Shipping Act)

25. Further Reform
  a. Why have different regimes for
    i. Land v Personal Property?
    ii. Personal Property v Intellectual Property?
  b. Are there functional differences, or merely historical
Secured Transactions, Prof. Siebrasse                                  Introduction

26. PPSA Overview
  a. A comprehensive Act governing
    i. Consensual
    ii. Security interests
    iii. In personal property
  b. Also affects
    i. Some non-consensual interests
       (1) Esp. Judgment creditor
    ii. Some consensual non-security interests
       (1) Deemed security interests
    iii. Some land related interest
       (1) Fixtures, growing crops

27. Almost Complete Code
  a. The PPSA is not – quite – a complete code
    i. It does not claim to provide all the answers
    ii. It is comprehensive in a general sense, but it is incomplete
        in many details
  b. Existing legal principles are preserved to fill in the gaps
    i. 65(1) The principles of the common law, equity and the law
        merchant, except insofar as they are inconsistent with the
        provisions of this Act, supplement this Act and continue to

28. Almost Complete Code
  a. 65(2) All rights and obligations arising under a security
       agreement, under this Act or under any other applicable law
       shall be exercised and discharged in good faith and in a
       commercially reasonable manner.
    i. Good faith: subjective honesty
    ii. Commercial reasonableness: objective standards
  b. 65(3) A person does not act in bad faith merely because the
       person acts with knowledge of the interest of some other
    i. Important with respect to priorities

29. Outline of the PPSA
  a. Part I – Interpretation and Application
    i. Includes Conflict of Laws
  b. Part II – Validity of Security Agreement and Rights of Parties
    i. Rights between SP and D
  c. Part III – Perfection and Priorities
    i. SP and Third Parties incl other SP
  d. Part IV – Registration
  e. Part V – Default Rights and Remedies
    i. Enforcement

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