Difference between revisions of "Conditional Sales Contracts and Security Agreements (11:VI)"

{{REVIEWED LSLAP | date= July 29, 2020}}

The ''Personal Property Security Act'', RSBC 1996, c 359 [''PPSA''] governs conditional sales agreements and security contracts. It established a new unified system for the registration, priority, and enforcement of transactions where collateral is given to secure payment or the performance of an obligation. The main purpose of the ''PPSA'' is to offer lenders or creditors a system of priority vis-à-vis other creditors where it is necessary for the lender or seller to take an interest in personal property to ensure the obligations of the borrower or purchaser are met. The legislation effectively creates a system for the registration and enforcement of a security interest against personal property.  

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.  

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)).

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 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).

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)).

A party with a security interest in consumer goods may avoid the “seize or sue” restriction where:  

*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)).  

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:

*If the creditor returns the consumer goods within 20 days after the seizure, that will revive the debt;  

*If the security agreement is a mortgage or an agreement for sale and the consumer goods are part of this security, in the case that the lender exercises their rights under the mortgage or agreement of sale but does not seize the goods, the debt is not extinguished;  

*If the creditor has a purchase money security interest in the seized consumer goods and other consumer goods, the debt is extinguished to the extent identified in the security instrument as relating to the seized consumer goods.