PP#5 Flashcards
What is perfection?
According to the law, a secured interest is “perfected” when:
- It has attached (as agreement is implicated with attachment)
- All steps for perfection required under the PPSA (or the UCC) have been fulfilled regardless of the order of them.
What is the value of perfection?
There is nothing above and beyond perfection. It is the best security interest claim that you can have to property possible.
What are the ways to get perfection?
3 ways to get Perfection
1) Registration
2) Possession
3) Temporary Possession
What are the three steps of a creating a security interest?
3 Steps to security interest
1) Agreement
2) Attachment
3) Perfection
Perfection By Possession Example
When you purchase shares from a company you very clearly have
1) Agreement: The terms and conditions of a standard form share purchase agreement (I accept the T&C’s etc.)
2) Attachment: When you pay for the shares you have attachment as a loan has been administered
3) The collateral, or the asset you have an interest in, is automatically transferred to you at the time of attachment. This is perfection by possession as you do not need to go to a registry system to confirm your ownership of the share. You own it, and nobody can lay rights over it.
Perfection By Temporary Possession Example
Suppose, Three people have an agreement. Person #1 loans Person #2 $100. As collateral Person #2 offers up his Baseball Card Collection. Both parties agree to give the Cards to Person #3 who is the employee of Person #1. In the event that Person #2 cannot pay back the $100, then Person #3 will give the Baseball Cards to Person #1 (If he does then he gets his cards back). This Perfection by Possession as the cards are in possession of someone I am in control of or someone who has the obligation to give it to me.
Can you have an agent that also becomes your Trustee in Bankruptcy?
No. You cannot have this because it creates a conflict of interest for the agent. The agent cannot be impartial and as a result they cannot be expected to objectively handle your finances and make payments on your creditors.
Which Possession has higher priority? Perfection by Registration or Perfection by Possession.
It all boils down to which party was the first to obtain perfection. Whomever obtained perfection first has the strongest legal claim to the asset.
Gladstone Case
A sheriff or a Baliff are able to seize goods away from defaulted debtors without even actually seizing them (he does not even have to lay his hands on the item).
It is sufficient if he enters the land and announces his intentions to seize the goods.
The Registry System Mistakes
If the registry office made a mistake regarding your registration and you lose rights on collateral as a result of that, you can actually sue the registry system for your loss. This is rare in Canada b/c you need the permission of the crown, however it is possible.
Do Subordinate agreements entitle you priority over the creditors that lie between the subordinate and dominate security interest?
Yes they do, but this is only equivalent up to the value of collateral that the dominant interest once possessed. If there is a remainder, then the subordinate tenant assumes their initial priority position for the left over that they are owed.
Purchase Money Security Interest
A PMSI is a security interest or claim that enables a lender who provides financing for the acquisition of new equipment or inventory (This is PMSI Inventory) to obtain priority ranking ahead of other secured creditors
PMSI Substance Test
Did you add to the pool of assets. If you did add to the assets of the debtor then you deserve the priority. In regards to this, think about what ACCS provided to the Petty Johns and what Laurentina Bank provided to the PG that they both did not previously have before. They provided them newly acquired rights in collateral.
Is it possible for Clark to have a GSA and also an add on that gives it a PMSI to additional inventory?
Yes. Contracting parties have a right to contract how they see fit. As long as there is a trail in supplying a debtor with rights in assets that they never had before, you have solid grounds to argue for a PMSI. You can always include cross collateral provisions in contracts.
When you read this, think about the Clark case. They gave a PMSI in inventory which is a unique type of collateral. In that case you want the proceeds from the sale, not the inventory itself. However, if no sale is made, you still have the best rights to the property.
If someone sells your collateral are you still able to get it back?
No. If a sale is made in the ordinary course of business, you lose your security interest in the collateral. The reason is because if you could still go an seize, this would be unfair to the purchaser who is presumed to be innocent. Plus its arguable that with a PMSi, particularly with a PMSI Inventory, you don’t even want the item, you want the proceeds from the item.
