Secured Transactions Flashcards
Collateral Security
- An interest in property of a debtor that gives a creditor the right to seize and sell it in the event of non-payment of debt
- Parties:
- Creditor
- Debtor
Bailment
- Possession of personal property without a transfer of ownership
- ex. you lend your car to someone, you leave your car with a repair company
- Can create a Right of Lien in some circumstances
- The right to RETAIN possession of property, but NOT the right to repossess or take back property
Secured Transactions
When does a creditor take a security interest?
When does a creditor take a security interest?
- As incentive to a debtor to pay
- When goods will maintain their value
- Long term debt
Business Risk Management
- If credit amounts are small - may be better to “write-off” a small percentage of bad debt
Types of Secured Creditors
- General Creditor: Creditor with no security interest - have to get an execution order or writ to seize the debtors assets
- Judgment Creditor: Can obtain Execution Order to seize property
- Secured Creditor: Does not need a judgment to realize on its security
- Has priority over other unsecured creditors
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Conditional Sales Contracts
- Debtor in possession but ownership with creditor
- Creditor has right to repossession upon default
- Right to sue for balance outstanding after resale of goods
- ex. you lease a car but the ownership is with the dealer - only transfers after you make all the payments
Chattel Mortgage
- equipment in buildings
- after-acquired property
Definition: a mortgage of personal property
- Parties:
- Mortgagor - Debtor
- Mortgagee - Creditor
- Arise in two ways:
- Mortgagor purchases property and vendor “takes back” a mortgage; or
- Mortgagor already owns property and gives mortgagee a mortgage against it to secure a debt
- ownership title is passed on to the person who buys it at the beginning
- ex. when you buy a house, the bank has the mortgage and take it back, but you have the ownership of it
Equipment in buildings:
- Where mortgagee would hold 2 mortgages:
- Traditional mortgage on the land/building, including fixtures
- Chattel mortgage on the equipment in the building
After-Acquired Property:
- Inventory in a business – always changing
- Does not transfer title to specific goods to the creditor – allowing purchasers to obtain good title in ordinary course of business
- Creditors hold a suspended priority over other creditors
Floating Charges
Definition: A form of mortgage on all of the assets of a corporation other than those already specifically charged
- A floating charge nicely complements a mortgage of real property because it provides security over the whole of the assets as a working unit
- debentures are an example
Personal Property Security Act
- any form of secured transactions have PPSA
3 Key Components:
- Creation of the security interest; agreement between parties
- Attachment of a security interest; the moment in time when a debtor’s property becomes subject to a security interest
- Perfection of the security interest; the moment in time when a creditor’s security interest becomes protected
Perfection
Can occur in 2 ways:
- Where secured party takes possession of the assets (e.g. bailment; pledge); or
- Once registration under the PPSA is done
Priority and Competing Interests
Timing of Perfection:
- First to register/perfect gains priority - Special priority for Purchase Money Security Interest (PMSI)
PMSI:
- The interest that arises when goods purchased by a debtor are charged as security for a loan made to enable those actual goods being acquired
Effect of a security interest on purchasers
- Separation of Possession and Ownership
- Effect of Registration (creditor registers and gets priority)
- Exception: Good Faith Purchasers
Intangible Property
Assignment of Book Debt:
- Security interest in debtor's accounts receivable - Differs from Assignment of K Rights
Investment Property:
- Under PPSA financial assets are treated differently - Creditor can perfect by “control”
Conflicting Priorities
- Interprovincial disputes
- Other types of security interests (not governed by PPSA)–
- Federal legislation(e.g. Bank Act) outside the scope of the PPSA
