Possible Changes to the Canadian Personal Property Security Acts 2000

Section 24 – Perfection by Possession

24(3) For the purposes of subsection (1) a secured party has possession of chattel paper, including electronic chattel paper, if the chattel paper is specifically inscribed with the name of the secured party as purchaser.

1. Proposed new subsection 24(3) would recognize and legitimate the practice of ‘marking’ chattel paper to identify the secured party as the assignee or purchaser of the chattel paper as an alternative to taking physical possession. The proposed change would also allow “electronic chattel paper” to be perfected by possession since inscription is feasible for both tangible and intangible paper whereas physical possession is feasible only for tangible paper.

2. See further the proposed definition of “electronic chattel paper” in section 2 and the proposed amendments to section 31 on priority below.

Section 28 – Effect of Disposition of the Collateral and Security Interests in Proceeds

28(1) Subject to this Act, where collateral is dealt with or otherwise gives rise to proceeds, the security interest:

(a) continues in the collateral unless the secured party expressly or impliedly authorizes the dealing free of the security interest; and

(b) extends to the proceeds; . . .

28.(2) A security interest in proceeds is a continuously perfected security interest if the interest in the original collateral is perfected by registration of a financing statement that:

(a) contains a description of the proceeds that would be sufficient to perfect a security interest in original collateral of the same kind;

(b) covers the original collateral, if the proceeds are of a kind that are within the description of the original collateral; or

(c) covers the original collateral, if the proceeds consist of money, cheques or deposit accounts in banks or similar institutions.

28.(3) Where the security interest in the original collateral is perfected but the requirements of subsection (2) have not been met, in a manner other than a manner described in subsection (2), the security interest in the proceeds is a continuously perfected security interest, but becomes unperfected on the expiration of 15 days after the security interest in the original collateral attaches to the proceeds unless the security interest in the proceeds is otherwise perfected by any of the methods and under the circumstances specified in this Act for original collateral of the same kind.

COMMENT

1. The proposed addition to section 28(1) explicitly confirms what is already understood, i.e. that a security interest continues in collateral disposed of by the debtor unless the secured party authorized the dealing “free of the security interest.” The proposed change does not, and cannot, resolve the fact-dependent question of whether this was the parties’ intention in a particular case.

1. The proposed minor change to section 28(3) is designed to eliminate the suggestion that the subsection does applies only when the security interest in the original collateral is perfected by a method other than registration.

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