Possible Changes to the Canadian Personal Property Security Acts 2000

Section 21 - Deemed Damages Recoverable by Lessors, Consignors, and Transferors of Chattel Paper and Accounts

21 (1) Where the interest of a lessor for a term of more than one year or of a consignor pursuant to a commercial consignment referred to in subsection (3)(1) is not effective against a judgment creditor pursuant to subsection 20(1) or a trustee or liquidator pursuant to subsection 20(2), the lessor or consignor is deemed, as against the lessee or consignee, as the case may be, to have suffered, immediately before the seizure of the leased or consigned goods or the date of the bankruptcy or winding-up order, damages in an amount equal to:

(a) the value of the leased or consigned goods at the date of the seizure, bankruptcy or winding-up order; and

(b) the amount of loss, other than that mentioned in clause (a), resulting from the termination of the lease or consignment.

(2) Where the interest of a transferee or an account or chattel paper referred to in section 3(2) is not effective against a judgment creditor pursuant to subsection 20(1) or a trustee or liquidator pursuant to subsection 20(2), the transferee is deemed, as against the transferor, to have suffered, immediately before garnishment or seizure of the account or chattel paper or the date of the bankruptcy or winding-up order, damages in an amount equal to the value of the accounts or chattel paper at the date of the garnishment, bankruptcy or winding-up.

COMMENT

The current Act does not address the position of a buyer of an account or chattel paper where the account or chattel paper is lost to a execution creditor or a trustee in bankruptcy due to lack of perfection. The buyer should retain an unsecured claim against the transferor or transferor’s estate to the value of the account or chattel paper lost. The result is the same as if the transferor had a right of recourse against the transferee. The proposed new subsection (2) would remedy the failure of the current Act to confirm this point.

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