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Difference between revisions of "Security Agreements"
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→Priority of security interests
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=== Priority of security interests=== | === Priority of security interests=== | ||
Setting '''priorities''' for competing security interests is an important, and complicated, part of the ''[http://canlii.ca/t/8495 Personal Property Security Act]''. The following is a simple example of a priority issue, written using the terminology of the Act: | Setting '''priorities''' for competing security interests is an important, and complicated, part of the ''[http://canlii.ca/t/8495 Personal Property Security Act]''. The following is a simple example of a priority issue, written using the terminology of the Act: | ||
“Bank A and Bank B take security over the same collateral, a truck, from a debtor company called Mike’s Movers Ltd. Both banks have perfected their security by properly registering a financing statement. Mike’s Movers Ltd. defaults on both payment obligations. Who gets priority in taking the truck?” | :“Bank A and Bank B take security over the same collateral, a truck, from a debtor company called Mike’s Movers Ltd. Both banks have perfected their security by properly registering a financing statement. Mike’s Movers Ltd. defaults on both payment obligations. Who gets priority in taking the truck?” | ||
The answer is fairly predictable: the secured party that was first to “perfect” takes priority. Assume Bank A was the first. It gets to have the full amount of its obligation paid before Bank B gets anything — there is no pro rata sharing. It is important to remember that secured parties generally take priority over any unsecured creditor. A creditor who has a judgment and who wants the court bailiff to seize the truck to pay a judgment only gets paid after both banks are paid in full. | The answer is fairly predictable: the secured party that was first to “perfect” takes priority. Assume Bank A was the first. It gets to have the full amount of its obligation paid before Bank B gets anything — there is no pro rata sharing. It is important to remember that secured parties generally take priority over any unsecured creditor. A creditor who has a judgment and who wants the court bailiff to seize the truck to pay a judgment only gets paid after both banks are paid in full. | ||
