Possible Changes to the Canadian Personal Property Security Acts 2000

Section 3 – Scope of Application of the PPSA

3.(1) Subject to section 4, this Act applies:

(a) to every contractual transaction that in substance creates or provides for a security interest without regard to its form and without regard to the person who has title to the collateral; and

(b) without limiting the generality of clause (a), to a chattel mortgage, conditional sale, floating charge, fixed charge, pledge, trust indenture, trust receipt, or to an assignment, consignment, lease, trust, transfer of an account, or transfer of chattel paper that secures payment or performance of an obligation, and to an agreement to sell referred to in section [ ] of the Sale of Goods Act if transfer of property in the goods is subject to payment or performance of an obligation.

COMMENT

1. The proposed addition of the words “contractual” and “provided for” in clause 3(1)(a) is intended to confirm explicitly that the application of the PPSA is confined to security interests created or provided for in voluntary contractual transactions.

1. Clause 3(1)(b) currently contains an “or” to distinguish transactions which are overtly secured in form (chattel mortgage, conditional sale, floating charge, pledge, trust indenture, trust receipt), from transactions which are absolute in form but which are sometimes used for a security purpose (assignment, consignment, lease, trust or transfer of chattel paper). The insertion of the “or” between the two sets of transactions means that the first set is automatically subject to the Act whereas the second set is subject to the Act only if the transaction satisfies the concluding qualification, i.e. when it “secures payment or performance of an obligation”. The proposed change would eliminate the “or” with the result that all of the listed forms of transactions – both those which are secured in form and those which are absolute in form – would be subject to the concluding qualification “where they secure payment or performance of an obligation.” Since this qualification tracks the wording of clause (i) of the definition of security interest in section 2, it would be more consistent to have it apply to all of the listed transactions, especially in light of potential ambiguities in the meaning to be attached to some of the transactional forms listed in the first set. This change already has been effected in the Atlantic PPSAs.

1. The proposed reformulation would also replace the current reference to “conditional sale “ with a reference to “an agreement to sell referred to in the Sale of Goods Act when transfer of property in the goods is subject to payment or performance of an obligation.” “Conditional sale” is not a legal term of art; it is a somewhat ambiguous commercial term. The proposed change would more explicitly confirm that all title retention arrangements in credit sales are to be treated as security agreements for the purposes of the PPSA.

1. The addition in clause (b) of the term “fixed charge” and the replacement of the term “assignment” with “transfer of an account” [transfer of chattel paper is already listed] is proposed in the interests of completeness, and also to make it clear that s. 3(1) refers to all transactions which provide for an interest in accounts or chattel paper as security for an obligation, whether the transaction is formally structured as an outright transfer or as an agreement to charge the accounts or chattel paper.

Next Annual Meeting

2017 Conference

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August 13 - 17, 2017
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