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Difference between revisions of "Conditional Sales Contracts and Security Agreements (11:VI)"
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Conditional Sales Contracts and Security Agreements (11:VI) (view source)
Revision as of 04:04, 9 August 2021
, 04:04, 9 August 2021→D. Third Party Purchaser’s Rights
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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 | 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 pre-existing security interest. 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 pre-existing security interest. Under s 1(2), “knowledge” is judged '''objectively''' rather than subjectively (i.e. would a reasonable person know?). | ||
:'''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 | :'''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 of the security (collateral) by the debtor (borrower) to the ''bona fide'' purchaser if the original collateral is continuously perfected under s 28(2) or the proceeds are perfected within 15 days under s 28(3), unless the creditor authorized the deal. For more information on perfection and attachment, see s 19 and s 12, respectively. | ||
Security is perfected when the requirements under the ''PPSA'' are met and has attached, meaning that the collateral has come into existence (i.e. if security has not attached, then there is no collateral). Under s 12, a security interest attaches when: | |||
* a) Value is given; | |||
* b) The debtor has rights in the collateral; and | |||
* c) There is an enforceable security interest (see s 10 for writing requirements for security agreements) unless the parties specifically agree to postpone the time of attachment, in which case the security interest attaches at that specified date. | |||
Generally, once security is perfected, the creditor’s interest has priority over the interests of third parties, whereas unperfected security takes a lower priority (s 19). However, as described above, one exception to s 19 is in s 30 where a creditor’s interest in the collateral does not continue because of a ''bona fide'' purchaser’s interest, but the creditor’s interest will continue in the proceeds. | |||
== E. Application of PPSA to Leases == | == E. Application of PPSA to Leases == | ||
