Possible Changes to the Canadian Personal Property Security Acts 2000

Section 17 – Rights and Obligations of Secured Party

in Possession of Collateral or Collecting Accounts or Chattel Paper

17.(1) In this section, "secured party":

(a) includes a receiver;

(b) subject to clause (c), does not include a secured party under a transaction referred to in subsection (3)(1);

(c) in subsection (2), includes a transferee of chattel paper or an account if the transferee has the right to charge back uncollected collateral or to any recourse in the event of non-payment or other default of the account debtor.

(2) A secured party shall use reasonable care in the custody and preservation of collateral in the possession of the secured party, or in respect of which the secured party exercises collection rights in the case of chattel paper or an account, and, unless the parties otherwise agree, in the case of an instrument, a security, or chattel paper, or an account, reasonable care includes taking steps to preserve rights against other persons.

COMMENT

1. The clarification of the term “secured party” in proposed clause 17(1)(b) recognizes that it would be inappropriate to impose the obligations and liabilities of a true secured party in possession of collateral on a person who owns the collateral and who is merely deemed to be a secured party under a transaction brought within the Act by subsection 3(2).

1. An exception is recognized in clause (c) for a transferee of accounts or chattel paper who has a right of recourse against the transferor. The transferor’s potential recourse liability is the functional equivalent of a debtor’s potential deficiency liability in the case of a true secured transaction. The transferor should therefore have the benefit of the same duty of reasonable care in relation to the collateral which is imposed on true secured parties by subsection (2). Relatedly, the proposed changes to subsection (2) would confirm that the secured party’s duty to exercise reasonable care in relation to collateral in the form of accounts and chattel paper applies where the secured party is exercising collection rights.

Next Annual Meeting

2018 Conference (Centennial)

Delta Hotel

Québec City, QC

August 12 - 16, 2018