Difference between revisions of "Conditional Sales Contracts and Security Agreements (11:VI)"
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Under s 2, the ''PPSA'' governs every transaction that creates a security interest. A “security interest” is defined in s 1 as an interest in goods that secures payment or the performance of an obligation. | Under s 2, the ''PPSA'' governs every transaction that creates a security interest. A “security interest” is defined in s 1 as an interest in goods that secures payment or the performance of an obligation. | ||
Note: For the purposes of this section, goods is used to define security interests. However, the actual definition is broader than that. For more information, see ss 1(a) and ss 1(b) “security interest”. | |||
[[Introduction to Creditors%27 Remedies (10:I) | Chapter 10: Creditors’ Remedies and Debtors’ Assistance]] has a discussion on the protection offered to a consumer by the ''PPSA'', including the requirements of enforceable security. The ''PPSA'' has some special considerations applicable if the goods in which the collateral was taken were consumer goods. Consumer goods are defined in s 1 as goods that are acquired primarily for personal, family, or household purposes. | [[Introduction to Creditors%27 Remedies (10:I) | Chapter 10: Creditors’ Remedies and Debtors’ Assistance]] has a discussion on the protection offered to a consumer by the ''PPSA'', including the requirements of enforceable security. The ''PPSA'' has some special considerations applicable if the goods in which the collateral was taken were consumer goods. Consumer goods are defined in s 1 as goods that are acquired primarily for personal, family, or household purposes. | ||
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== A. Creditor’s Remedies Against the Debtor == | == A. Creditor’s Remedies Against the Debtor == | ||
=== 1. | === 1. Control by the Creditor === | ||
Section 58 provides that where the debtor defaults on a security agreement, the creditor can | Section 58 provides that where the debtor defaults on a security agreement, the creditor can take control of the collateral item through any method authorised by law with a few select exceptions (s 56). Where, however, the collateral is a consumer good and the debtor has paid two-thirds of the total amount secured, the creditor may not seize the goods without an application to the court (s 58(3)). | ||
=== 2. Action by the Creditor === | === 2. Action by the Creditor === | ||
A creditor can sue the debtor for breach of contract and seek repayment of the monies owed. Unless the security interest has been taken in consumer goods, the secured party can seize '''and''' sue for any deficiency. When consumer goods form all or merely a portion of the collateral, the secured party must elect to '''seize or sue''', subject to s 58(3). | A creditor can sue the debtor for breach of contract and seek repayment of the monies owed. Unless the security interest has been taken in consumer goods, the secured party can seize '''and''' sue for any deficiency. When consumer goods form all or merely a portion of the collateral, the secured party must elect to '''seize or sue''', subject to s 58(3). | ||
=== 3. Acceleration Clauses === | |||
A security agreement provides that a creditor may accelerate payment (or performance) by the debtor if the creditor, in good faith, believes and has commercially reasonable grounds to believe that the prospect of payment or performance is about to be impaired or that the collateral is or is about to be placed in jeopardy (s 16). | |||
== B. Restrictions on the Creditor’s Right to Dispose == | == B. Restrictions on the Creditor’s Right to Dispose == | ||
Section 59 provides that a creditor cannot sell the seized goods before the expiration of the 20 day notice period | Section 59 provides that a creditor cannot sell the seized goods before the expiration of the 20-day notice period as every party entitled to notice under ss 59(6) or ss 59(10) via approved method outlined in s 72 may redeem the collateral by fulfilling the obligations secured in the security agreement (s 62). Where the collateral is a consumer good, the redeeming party need only pay the amount in arrears (s 62(1)(b)), plus reasonable seizure fees. This is known as the right of re-instatement. It cannot be used more than twice in a 12-month period (s 62(2)). | ||
== C. Disqualification from “Seize or Sue” Provisions == | == C. Disqualification from “Seize or Sue” Provisions == | ||
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*a) the debtor has engaged in wilful or reckless acts or neglect which have caused substantial damage or deterioration to the goods, and the secured party may seek a court order pursuant to s 67(9) disqualifying the debtor from the rights and remedies ordinarily available under ss 67(1) - (7); or | *a) the debtor has engaged in wilful or reckless acts or neglect which have caused substantial damage or deterioration to the goods, and the secured party may seek a court order pursuant to s 67(9) disqualifying the debtor from the rights and remedies ordinarily available under ss 67(1) - (7); or | ||
*b) the secured party discovers after seizure that an accession that was collateral has been removed and not replaced by other goods of equivalent value and free from prior security interests; a claim may be advanced against the debtor for the value of the accession (s 67(8)). | *b) the secured party discovers after seizure that an accession that was collateral has been removed and not replaced by other goods of equivalent value and free from prior security interests; a claim may be advanced against the debtor for the value of the accession (s 67(8)). | ||
Note: Accession means goods that are installed in or affixed to other goods. For example, a shovel attached to a truck. See s 38 and ss 1(1) for more information about accessions. | |||
The seizure of consumer goods generally extinguishes the debt in relation to the security agreement. However, there are exceptions under s 67: | The seizure of consumer goods generally extinguishes the debt in relation to the security agreement. However, there are exceptions under s 67: | ||
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== D. Third Party Purchaser’s Rights == | == D. Third Party Purchaser’s Rights == | ||
Under ss 30(3) and 30(4), where a third party purchases collateral in the form of consumer goods worth less than $1,000, and the third party does not have knowledge of the security agreement between the vendor and the creditor, the third party takes the item free of the creditor’s interest, even if registered. This is known as the “garage sale” defence. | Under ss 30(3) and 30(4), where a third party purchases collateral in the form of consumer goods worth less than $1,000, and the third party does not have knowledge of the security agreement between the vendor and the creditor, the third party takes the item free of the creditor’s interest, even if registered. This is known as the “garage sale” defence. The purchaser is known more commonly as a ''bona fide'' purchaser for value without notice. | ||
The third party’s priority over the creditor ends if there is knowledge of the security agreement itself rather than knowledge that the sale constitutes a breach. Under s 1(2), “knowledge” is judged objectively rather than subjectively (i.e. would a reasonable person know?). | The third party’s priority over the creditor ends if there is knowledge of the security agreement itself rather than knowledge that the sale constitutes a breach. Under s 1(2), “knowledge” is judged objectively rather than subjectively (i.e. would a reasonable person know?). | ||
:'''NOTE:''' | :'''NOTE:''' If the creditor’s interest in the collateral does not continue because the third-party purchaser takes title free of that interest, the creditor’s interest will continue in the proceeds of the sale by the debtor to the purchaser if it is continuously perfected under ss 28(2) or perfected within 15 days under ss 28(3). | ||
== E. Application of PPSA to Leases == | == E. Application of PPSA to Leases == | ||
Many consumers lease cars instead of buying on credit under a financing agreement. | Many consumers lease cars instead of buying on credit under a financing agreement. A lease can qualify as a security agreement: see ''DaimlerChrsyler Services Canada Inc. v Cameron'', 2007 BCCA 144 for factors and ''Re Bronson'' (1995), 34 CBR (3d) 255 (BCSC). Therefore, if they default and the car is repossessed, the “seize or sue” restriction may apply, but the situation is not always clear-cut. LSLAP clients should be referred to a lawyer. | ||
== F. Bills of Exchange Act == | == F. Bills of Exchange Act == | ||