Possible Changes to the Canadian Personal Property Security Acts 2000

Section 30 – Priority of Buyers and Lessees of Goods and Transferees of Licenses

30(2.1) A transferee of a non-exclusive license transferred in the ordinary course of business of the licensor takes free of a perfected or unperfected security interest in the licence created by the licensor whether or not the buyer or lessee knows of it, unless the licensee also knows that the sale or lease constitutes a breach of the security agreement pursuant to which the security interest was created.

30.(6) Where goods are sold or leased, the buyer or lessee takes free from any security interest in the goods that is perfected pursuant to section 25 if:

(a) the buyer or lessee bought or leased the goods without knowledge of a security interest; and

(b) the goods were not described by serial number in the registration relating to the security interest.

30.(7) Subsection (6) applies only to goods that are equipment or consumer goods and are of a kind prescribed as serial numbered goods.

COMMENT

1. The proposed new section 30(2.1) would provide the same protection to an ordinary course of business transferee of a licence that section 30(2) currently gives to ordinary course buyers and lessees of goods. The proposed section should be read in the light of the definitions of “intangible” and “licence” proposed above.

1. The proposed addition of a reference to “consumer goods” in section 30(7) is part of a proposal to change the priority repercussions of a failure to include a specific serial number description in a financing statement covering serial numbered goods, as defined in the PPSA Regulations adopted in each jurisdiction, where the goods are held by the debtor as consumer goods.

1. As presently drafted, the Model Act assumes that the Regulations which govern PPSA registrations in jurisdictions which adopt the Act require a specific serial number description in the financing statement if the serial numbered goods are consumer goods, but that if they are held by the debtor as equipment, the secured party has the option to describe the goods either in general terms or specifically by serial number. In other words, under the scheme of the Model Act, failure to include a specific serial numbered description is fatal to the perfected status of the security interest in serial numbered consumer goods, whereas the priority repercussions of using only a generic description are less drastic in the case of serial numbered equipment. In the latter case, the secured party is subordinated to a buyer for value without notice under section 30(7), and the security interest is treated under 35(4) as unperfected for the purposes of a competition between competing security interests. However, a generic description will be sufficient to give the secured party priority over a judgement creditor or a trustee in bankruptcy, whereas, in the case of consumer goods, the security interest would be treated as unperfected and therefore subordinated to these classes of third parties pursuant to section 20 of the Act.

1. In the view of the authors of this Report, the existing distinction between consumer goods and equipment on this point lacks a sufficient policy rationale and introduces an unnecessary level of complexity into the priority structure of the Act. Serial number registration is primarily intended to ensure that prospective transferees of an interest in the specific goods in question are able to rely with confidence on a serial number search of the Registry. Consequently, a specific serial number description should be necessary only where their interests might otherwise be prejudiced. It is therefore proposed to change the scheme of the Model Act to authorize the optional use of a generic description for all serial numbered goods, subject to the risk of subordination, in the case of consumer goods or equipment, to buyers under section 30(7) and to competing secured parties who have registered by serial number under section 35(4). In addition to adding a reference to consumer goods in these sections, implementation of this policy change would require the amendment of the relevant parts of each jurisdiction’s PPSA Regulations to authorize optional generic descriptions for all serial numbered goods, regardless of whether they are held by the debtor as consumer goods, equipment, or inventory.

Next Annual Meeting

2018 Conference (Centennial)

Delta Hotel

Québec City, QC

August 12 - 16, 2018