Older Uniform Acts
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PERFECTION AND PRIORITY OF LIEN
(1) Possession of goods by a lien claimant or by a person acting on behalf of a lien claimant perfects a lien on the goods.
(2) For the purposes of subsection (1), a lien claimant or a person acting on behalf of a lien claimant does not have possession of goods if
the goods are in the actual or apparent possession or control of the person requesting the services or that person's agent; or
the goods are being held as a result of a seizure or repossession.
Commentary: This Act relies on PPSA terminology, which uses the concept of perfection to distinguish the validity of the lien from the notification steps needed to protect a lien against third parties. A lien may be perfected by possession, but in order to fulfil the function of providing notice, which is a necessary component of perfection, the lien claimant's possession must be visible and apparent. Hence, the necessity to disallow perfection where possession is effected by seizure or the goods are in the possession of the person who requested the services.
"(3) Registration of a financing statement in the Personal Property Registry perfects a lien when:
in the case of serial numbered goods, the goods are described in the financing statement by their serial number; or
in the case of goods that are not serial numbered goods, both the owner of the goods and the person requesting the services, if that person is not the owner, are identified as debtors in the financing statement; and
(b) all other requirements of the regulations made pursuant to the Uniform Personal Property Security Act [or other applicable regulations of the enacting jurisdiction] have been met.
"(3.1) For the purposes of subsection (3):
'owner' includes a buyer, a lessee or a consignee under a transaction to which the Uniform Personal Property Security Act applies;
'serial numbered goods' means serial numbered goods as defined in the regulations made pursuant to the Uniform Personal Property Security Act [or other applicable regulations of the enacting jurisdiction]".
(4) Part IV of the Uniform Personal Property Security Act applies, with any necessary modification, to financing statements registered pursuant to subsection (3).
Commentary: A lien may also be perfected by registration. Registration may occur at any time, and, as will be seen, if the lien claimant is not registered it will be defeated by certain interests. In order for the Uniform Liens Act to dovetail with this system and for priority rules to interact in a priority regime with security interests, lien registrations should be made against the owner's name as well as the name of the person requesting the services in any case where the goods are not serial numbered goods and where the nature of the security agreement is one to which the Personal Property Security Acts would apply. "Owner" for these purposes would mean a person who has granted a security interest securing all or part of the purchase price, i.e., the buyer under what used to be called the "conditional sales contract" or the lessee or consignee under an instrument which secures all or part of the purchase price. These latter interests would be considered disguised sales contracts. It also would include true leases for a term greater than one year and true consignments. In addition to addressing serial numbered goods, these subsections provide that registration of a financing statement against the name of the owner of the goods and the person requesting the services perfects a lien on the goods. It should be acknowledged that this could result in the subordination of a lien in circumstances beyond the control of the lien claimant. As between the lien claimant and a subsequent buyer or secured party who relies on the registry, however, it is the lien claimant who is in the best position to prevent the problem from arising. He or she can demand proof of ownership of goods with respect to which services are being requested. A buyer or searching party has no way, other than through information in the registry, to determine whether goods offered for sale or as security are subject to a lien. The owner may not be aware of the existence of the lien or may be prepared to act dishonestly in not disclosing the fact that services provided in connection with the goods were contracted for by someone else. Hence, the policy choice reflected in this section. (Note that "owner" is defined in this section as it does not appear elsewhere in the Act.)
(5) Where the perfection of a lien is not continuous, the date of perfection to be considered in determining the priority of the lien is its most recent date of perfection.
"(6) With respect to a lien mentioned in subsection 2(2), registration of the lien pursuant to the personal property security legislation of another jurisdiction does not constitute perfection of the lien for the purposes of this Act, but the lien may be perfected by any of the methods set out in this section".
Commentary: This provision is intended to clarify that registration in another province does not equate to perfection through registration in the jurisdiction of proposed enforcement. The lien claimant is simply entitled to pursue perfection in the jurisdiction of enforcement in accordance with the terms of this Act.
Grace period for registration
(1) Where a lien is perfected by possession, returning the goods to the control of the person requesting the services does not affect the perfection of the lien if the lien claimant registers a financing statement with respect to the goods within the first 15 days after returning control of the goods to that person.
(2) Where a lien claimant does not have possession of goods when a lien attaches to the goods and the lien claimant registers a financing statement with respect to the goods within the first 15 days after completion of the services, the lien is deemed to be perfected during that 15?day period.
Commentary: This Act provides for two methods of perfection: possession and registration. If the lien claimant has possession of the goods and the goods are then returned to the person requesting the services, the lien claimant has a 15?day grace period in which to register to continue the perfected status. If the lien claimant never has possession (as a result of providing the services on site), the only method of perfection provided in this Act is registration. In this case, subsection (2) gives the lien claimant a 15?day grace period to register.
Priority of liens over other interests
10. (1) Except as provided in this Act or any other Act, a perfected lien has priority over an interest that is created after the lien attaches.
Commentary: Including this section reflects a policy choice to state the priority rule between lienholders and others, including secured parties, in the Act. It establishes the residual rule and repeats the common law for possessory liens and the existing statutory law for non?possessory liens.
At common law, a possessory lien for the improvement of chattels defeated the interests of all third parties. This was also the case for common carriers.
A lien for the improvement of chattels in a PPSA jurisdiction (outside of Ontario) derives its priority from a section in the PPSA like section 30 of the Uniform PPSA:
Where a person in the ordinary course of business furnishes materials or services with respect to goods that are subject to a security interest, any lien that he has in respect of those materials or services has priority over a perfected security interest unless an Act in force in the enacting jurisdiction provides that the lien does not have priority.
For those jurisdictions with garagekeepers' legislation, the rule is that the lien takes priority over prior secured parties and subsequent secured parties who acquire their interest after the lien is registered. As soon as possession is relinquished, the lienor has 21 days to register. The lienholder's interest is subordinate to the interest of anyone whose interest arises after possession is given up but before the lienholder's interest is registered. The lienholder may obtain an extension of time to register late and the priority of the lienholder continues throughout this extended time. The rule in the Ontario Repairers' and Storers' Act is similar to that in the Garagekeepers' Acts.
For storers, as long as the warehousekeeper gave notice to the owner of the goods, which includes a conditional seller, a chattel mortgagee and a grantee under a bill of sale, the warehousekeeper would take priority over all such interests regardless of when such interests may have arisen.
(2) Notwithstanding subsections 33(2) and (3) of the Uniform Personal Property Security Act, a lien, whether perfected or unperfected, has priority over
a security interest that attaches before the lien attaches, and
a writ of execution that is issued or a charging order that is granted before the lien attaches.
Commentary: This subsection grants priority as against a prior secured party or execution creditor to the unregistered lien claimant. It is consistent with the common law and existing statutory liens.
A departure from the PPSA structure should be noted. Under subsection 33(2) of the PPSA, a perfected security interest securing future advances will defeat the interests of secured creditors who seize the collateral and the interests of their representatives. Subsection 33(3) of the PPSA provides that if future advances are made while a security interest is perfected, the security interest has the same priority with respect to the future advance as it had with respect to the first advance. No such special rule exists between the prior secured party making a future advance and the lien claimant.
The special status to be conferred on lienholders by the proposed Uniform Liens Act justifies changing the priority given to future advance financiers by the PPSA. The lienholder is not an ordinary creditor. The lienholder enhances the value of the article. Moreover, future advance financing is not a factor in relation to collateral that would normally be subject to a lien. It plays a role with respect to inventory or accounts financing, but is rare with respect to a single item of collateral.
A secured party making future advances in relation to inventory is not likely to be severely prejudiced by a lien that encumbers one of many items of collateral.
Finally, the legislative choice in favour of lienholders in this situation has already been made in those jurisdictions that have Garagekeepers' Acts and in the Ontario Repairers' and Storers' Liens Act.
Where lien subordinate or unenforceable 11.
(1) In this section, "seized under legal process" includes seizure under a writ of execution and the issue of an equitable execution or charging order affecting the goods subject to the lien.
(2) If a lien is unperfected when the goods are seized under legal process to enforce a judgment, the lien is subordinate to the interest of
a person who causes the goods to be seized;
a creditor entitled by law to participate in the distribution of the seized goods or their proceeds; and
a representative of creditors, but only for the purposes of enforcing the rights of a person mentioned in clause (a).
Commentary: The language of this provision comes from clause 19(1)(b) of the PPSA.
(3) A lien is subordinate to
the interest of a buyer or lessee of the goods who gives value and acquires the interest without knowledge of the lien and before the lien is perfected; and
a security interest that attaches after the lien attaches and that is perfected after the lien attaches and before the lien is perfected.
(4) A lien is not enforceable against
a trustee in bankruptcy, if the lien is unperfected at the date of bankruptcy; or
a liquidator appointed pursuant to the Winding?Up and Restructuring Act (Canada), if the lien is unperfected at the date the winding?up order is made.
Commentary: This priority rule is similar to that contained in s. 19(1) of the PPSA for security interests.
It dates priority for the execution creditor from the date of seizure. It also expands the meaning of "seizure under legal process" as has been done in the modern PPSA's. Note that in order for a transferee to defeat a lien, the transferee need not take delivery of the goods. This is consistent with all the Canadian PPSA's except for Ontario where the transferee must take delivery of the goods in order to defeat a lien. A security interest arising after the lien attaches may only defeat a lien if it is perfected before the lien is perfected.
Exceptions to priority of liens
12. (1) In this section, "consumer goods" means goods that are used or acquired for use primarily for personal, family or household purposes.
(2) A buyer or lessee of goods sold or leased in the ordinary course of business of the seller or lessor takes free of any perfected lien whether or not the buyer or lessee has knowledge of the lien.
(3) A buyer or lessee of goods that are acquired as consumer goods takes free of any lien on the goods if the buyer or lessee
gives value for the interest acquired; and
has no knowledge of the lien.
(4) Subsection (3) does not apply to a lien on goods where the purchase price exceeds $1,000 or, in the case of a lease, where the market value of the goods exceeds $1,000.
(5) A buyer or lessee takes free of a lien described in section 9 if, during the 15?day period mentioned in that section and before the lien is perfected by registration, the buyer or lessee
gives value for the interest acquired; and
has no knowledge of the lien.
Commentary: Again, this is equivalent to the priority positions between secured parties and buyers or lessees under the PPSA. A buyer or lessee of goods will not defeat the lien if the goods are in the possession of the lien claimant. The definition in subsection (1) is included solely for the purposes of subsection (3), which permits a buyer or lessee for value and without knowledge of a lien to take the goods free of that lien.
Priority among liens
13. Priority among two or more liens is to be determined by the reverse order in which the services are provided.
Commentary: A first to register priority rule for lien claimants is unfair to subsequent lien claimants who add value and but for their value the first lien claimant may claim little or nothing. Assume a fact situation where a vehicle has been repaired at a cost of $5,000 and, as a result, is worth $10,000. The vehicle is involved in an accident requiring $6,000 worth of repairs. The repairs are effected. The vehicle is again worth $10,000. But for the intervention of the second repairer, the first repairer would not have been able to satisfy its bill, but with a first in time priority rule the first repairer will be fully paid before the second repairer.
With this scenario in mind, the Act includes a rule that gives priority to the last lien claimant to provide services. This rule reflects the reality that in almost all cases the later lien claimant enhances or preserves the value of the goods and so confers a benefit on the earlier lien claimants. Priority would be for the full amount secured by the claim as provided in section 3.