Part 1 Security Interests in Personal Property: The PPSA Section III Enforcement.

Part 1Part 1 Security Interests in Security Interests in Personal Property: Personal Property:

The PPSAThe PPSA Section III Section III

Enforcement Enforcement

OutlineOutline

SP rightsSP rights Rights against collateralRights against collateral

Enforcement options set out in Part V of Enforcement options set out in Part V of PPSAPPSA

Rights on the debtRights on the debt Deficiency actionDeficiency action Same rights as any Same rights as any unsecuredunsecured creditor if SP creditor if SP

so choosesso chooses

OutlineOutline

Debtor rights Debtor rights Right of redemptionRight of redemption Right of reinstatementRight of reinstatement Right to surplusRight to surplus ExemptionsExemptions

Introduction – S.55Introduction – S.55

55(1) This Part does not apply to55(1) This Part does not apply to (a) a transaction referred to in (a) a transaction referred to in

subsection 3(2), orsubsection 3(2), or Deemed security interests – treated as Deemed security interests – treated as

security interests only for priority security interests only for priority purposespurposes


55(1) This Part does not apply to55(1) This Part does not apply to (b) a transaction between a pledgor and (b) a transaction between a pledgor and

a pawnbroker.a pawnbroker. Regulated by common lawRegulated by common law Less stringent requirements than PPSALess stringent requirements than PPSA Less regulation thought to facilitate law Less regulation thought to facilitate law

value credit transactionsvalue credit transactions More ‘consumer protection’ drives up cost More ‘consumer protection’ drives up cost

of debt proportionately more in low value of debt proportionately more in low value loansloans


55(3) The rights and remedies in this 55(3) The rights and remedies in this Part are cumulative.Part are cumulative. Exercising one right does not exclude Exercising one right does not exclude

the othersthe others


55(8) A security interest does not 55(8) A security interest does not merge merely because a secured merge merely because a secured party has reduced the claim to party has reduced the claim to judgment.judgment. A secured creditor has both a debt claim A secured creditor has both a debt claim

and a security interestand a security interest The SP may sue on the debt, as if it were The SP may sue on the debt, as if it were

an unsecured creditor, and doing so does an unsecured creditor, and doing so does not extinguish its security interestnot extinguish its security interest

Secured Party Rights– Secured Party Rights– s.56s.56

56(2) Subject to subsection (4), if the debtor is in default 56(2) Subject to subsection (4), if the debtor is in default under a security agreement, the secured party has against the under a security agreement, the secured party has against the debtor debtor onlyonly

(a) the rights and remedies provided in the security (a) the rights and remedies provided in the security agreement,agreement,

(b) the rights and remedies provided in this Part and (b) the rights and remedies provided in this Part and sections 36, 37 and 38 [fixtures, crops and accessions], andsections 36, 37 and 38 [fixtures, crops and accessions], and

(c) when in possession of the collateral, the rights and (c) when in possession of the collateral, the rights and remedies provided in section 17 [rights of SP in remedies provided in section 17 [rights of SP in possession].possession].

No common law remediesNo common law remedies Only contract (2)(a) and statutory (2)(b),(c) Only contract (2)(a) and statutory (2)(b),(c)

remediesremedies

Debtor Rights – S.56Debtor Rights – S.56 56(3) Subject to subsection (4), if the debtor is in default under 56(3) Subject to subsection (4), if the debtor is in default under

a security agreement, the debtor has against the secured partya security agreement, the debtor has against the secured party (a) the rights and remedies provided in the security (a) the rights and remedies provided in the security

agreement,agreement, (b) the rights and remedies provided by any other Act or rule (b) the rights and remedies provided by any other Act or rule

of law not inconsistent with this Act, andof law not inconsistent with this Act, and (c) the rights and remedies provided in this Part and in (c) the rights and remedies provided in this Part and in

section 17.section 17.

Contract & statutory rightsContract & statutory rights PlusPlus rights given under any other Act rights given under any other Act

unless inconsistent with PPSAunless inconsistent with PPSA Main example – extended notice period prior Main example – extended notice period prior

to enforcement under the BIAto enforcement under the BIA

Waiver of Debtor RightsWaiver of Debtor Rights

56(4) 56(4) Except as providedExcept as provided in sections 17, in sections 17, 59, 60 and 62, 59, 60 and 62, no provisionno provision of section of section 17 or sections 57 to 66, to the extent 17 or sections 57 to 66, to the extent that the provision gives rights and that the provision gives rights and remedies to the debtor or imposes remedies to the debtor or imposes obligations on the secured party, obligations on the secured party, can be can be waivedwaived or varied by agreement or or varied by agreement or otherwise.otherwise.

Statutory debtor rights cannot be Statutory debtor rights cannot be waivedwaived

Waiver of SP ObligationsWaiver of SP Obligations

66(7) Except as otherwise provided in this 66(7) Except as otherwise provided in this Act, a provision in a security agreement or Act, a provision in a security agreement or any other agreement is void if it purports any other agreement is void if it purports to exclude an obligation or an onus to exclude an obligation or an onus imposed by this Act or purports to limit the imposed by this Act or purports to limit the liability of or the amount of damages liability of or the amount of damages recoverable from a person who has failed recoverable from a person who has failed to discharge an obligation imposed by this to discharge an obligation imposed by this Act.Act.

Statutory SP obligations cannot be Statutory SP obligations cannot be waivedwaived

Rights of the Rights of the Secured Party: Secured Party: EnforcementEnforcement

SP Enforcement OptionsSP Enforcement Options Right to possession of collateralRight to possession of collateral

Preliminary to disposalPreliminary to disposal Right to dispose of collateral and apply proceeds Right to dispose of collateral and apply proceeds

to debtto debt Right to sue on deficiencyRight to sue on deficiency

Right to retain collateral in satisfaction of debtRight to retain collateral in satisfaction of debt Excludes right to sue on deficiencyExcludes right to sue on deficiency Corresponds to traditional remedy of Corresponds to traditional remedy of

foreclosureforeclosure Right to collect on intangiblesRight to collect on intangibles Right appoint a receiverRight appoint a receiver

PossessionPossession

58(2) Subject to [exemptions, notice 58(2) Subject to [exemptions, notice periods and special rules wrt collateral periods and special rules wrt collateral which is difficult to separately possess, which is difficult to separately possess, e.g. fixtures], if the debtor is in default e.g. fixtures], if the debtor is in default under a security agreement,under a security agreement, (a) the secured party has, unless (a) the secured party has, unless

otherwise agreed, the right to take otherwise agreed, the right to take possession of the collateral or possession of the collateral or otherwise enforce the security interest otherwise enforce the security interest by any method permitted by law,by any method permitted by law,

PossessionPossession

Under prior law the right to Under prior law the right to possession depended on the form of possession depended on the form of the security devicethe security device Automatic under a mortgageAutomatic under a mortgage Required express contractual provision Required express contractual provision

under a conditional lawunder a conditional law Substance over form under the PPSASubstance over form under the PPSA

Method of RepossessionMethod of Repossession

““by any method permitted by law”by any method permitted by law” Self-help, but not if it will provoke a Self-help, but not if it will provoke a

breach of the peacebreach of the peace Otherwise, method used for recovery of Otherwise, method used for recovery of

possession of one’s own property (e.g. possession of one’s own property (e.g. Rule 44 in N.B.)Rule 44 in N.B.)

Possession – Notice Possession – Notice ObligationsObligations

58(2) Subject to . . . any other Act or 58(2) Subject to . . . any other Act or rule of law requiring a secured party rule of law requiring a secured party to give prior notice of the intention to give prior notice of the intention to enforce a security interestto enforce a security interest


““...rule of law...”...rule of law...” Possession by SP brings D’s business to a haltPossession by SP brings D’s business to a halt Common law developed a notice obligation Common law developed a notice obligation

See See Ronald Elwyn Lister v Ltd v Dunlop Canada Ronald Elwyn Lister v Ltd v Dunlop Canada [1982] 1 SCR 726[1982] 1 SCR 726

Notice obligation is preserved by s.58(2) “rule Notice obligation is preserved by s.58(2) “rule of law”of law”

SP must give reasonable notice of the SP must give reasonable notice of the intention to take possessionintention to take possession

““Reasonable” depends on circumstancesReasonable” depends on circumstances


““...other Act...”...other Act...” BIA S.244 also imposes notice BIA S.244 also imposes notice

obligationobligation 10 days notice before seizing. . . 10 days notice before seizing. . .

. . .substantially all. . .. . .substantially all. . . . . .inventory, accounts receivable or . . .inventory, accounts receivable or

other propertyother property

ForeclosureForeclosure

Traditional remedy – Traditional remedy – NotNot a remedy a remedy under the PPSAunder the PPSA Under the purely legal form of Under the purely legal form of

mortgage, collateral vests in mortgage, collateral vests in mortgagee automatically on mortgagee automatically on default by Ddefault by D


Modified by equity to protect debtor: D Modified by equity to protect debtor: D has right to “redeem” property even has right to “redeem” property even after defaultafter default ““Equity of redemption”Equity of redemption”

Mortgagee has correlative right to Mortgagee has correlative right to “foreclose” equity of redemption“foreclose” equity of redemption Exercise of right of foreclosure vests Exercise of right of foreclosure vests

collateral in mortgageecollateral in mortgagee ProtractedProtracted Uncertain (can be reopened)Uncertain (can be reopened)


Foreclosure was not satisfactoryForeclosure was not satisfactory Protracted and expensiveProtracted and expensive Uncertain (can be reopened)Uncertain (can be reopened)

Contractual right of sale was Contractual right of sale was implementedimplemented Accepted by the courts and legislaturesAccepted by the courts and legislatures

Disposal - RightDisposal - Right

59(2) After seizing or repossessing 59(2) After seizing or repossessing the collateral, a secured party may the collateral, a secured party may dispose of it in its existing condition dispose of it in its existing condition or after repair, processing or or after repair, processing or preparation for disposition.preparation for disposition.

Basic right to sell collateral to satisfy Basic right to sell collateral to satisfy debt. . .debt. . .

Disposal – ProceedsDisposal – Proceeds

59(3) The proceeds of the disposition of 59(3) The proceeds of the disposition of collateral shall be applied consecutively tocollateral shall be applied consecutively to

(a) the (a) the reasonable expenses of seizingreasonable expenses of seizing, , repossessing, holding, repairing, processing or repossessing, holding, repairing, processing or preparing for disposition and disposing of the preparing for disposition and disposing of the collateral and any other reasonable expenses collateral and any other reasonable expenses incurred by the secured party, andincurred by the secured party, and

(b) (b) the satisfaction of the obligationsthe satisfaction of the obligations secured secured by the security interest of the party making by the security interest of the party making the disposition.the disposition.

. . .and apply proceeds to debt. . .and apply proceeds to debt

Disposal – SurplusDisposal – Surplus 60(2) If . . . the secured party has . . .disposed of 60(2) If . . . the secured party has . . .disposed of

[the collateral], the secured party shall. . . pay any [the collateral], the secured party shall. . . pay any surplus in the following order to surplus in the following order to (a) [subordinate SPs with perfected security (a) [subordinate SPs with perfected security

interest]interest] (b) [JC with registered notice of judgment](b) [JC with registered notice of judgment] (c) [parties who have given written notice of their (c) [parties who have given written notice of their

interest]interest] (d) [the debtor](d) [the debtor]

““...in the following order...” is poor drafting...in the following order...” is poor drafting Should read “...in order of their priority...”Should read “...in order of their priority...”

Disposal – Disposal – Surplus/DeficiencySurplus/Deficiency

Sale price/method of sale is very Sale price/method of sale is very important to debtor and other important to debtor and other subordinate interest holderssubordinate interest holders 60(6) Unless otherwise agreed, or 60(6) Unless otherwise agreed, or

unless otherwise provided in this or any unless otherwise provided in this or any other Act, the debtor is liable to pay any other Act, the debtor is liable to pay any deficiency to the secured party.deficiency to the secured party.

Disposal – Method: Disposal – Method: NoticeNotice

59(8) Not less than 59(8) Not less than twenty days before dispositiontwenty days before disposition of of the collateral, the secured party shall give a the collateral, the secured party shall give a noticenotice to to

(a) the debtor and any other person who is known by (a) the debtor and any other person who is known by the secured party to be an owner of the collateral,the secured party to be an owner of the collateral,

(b) [(b) [subordinate subordinate SPs with SPs with perfectedperfected security interest] security interest] (c) [JC with registered notice of judgment](c) [JC with registered notice of judgment] (d) [parties who have given written notice of their (d) [parties who have given written notice of their

interest]interest]

Must give notice to known parties whose Must give notice to known parties whose interests are affected: why?interests are affected: why? Recall – Possession prior to disposal, notice Recall – Possession prior to disposal, notice

prior to possessionprior to possession

Disposal – Method: Disposal – Method: NoticeNotice

Notice allows subordinate parties to monitor Notice allows subordinate parties to monitor salesale 66(5) In an action for a deficiency, the debtor may raise 66(5) In an action for a deficiency, the debtor may raise

as a defence the failure of the secured party to comply as a defence the failure of the secured party to comply with obligations in section 17, 18, 59 or 60, but non-with obligations in section 17, 18, 59 or 60, but non-compliance shall limit the right to the deficiency only to compliance shall limit the right to the deficiency only to the extent that it has affected the debtor's ability to the extent that it has affected the debtor's ability to protect the debtor's interest in the collateral or has protect the debtor's interest in the collateral or has made the accurate determination of the deficiency made the accurate determination of the deficiency impracticable.impracticable.

Allowing for the exercise of the right of Allowing for the exercise of the right of redemption is, as a practical matter, redemption is, as a practical matter, secondarysecondary

Disposal – MethodDisposal – Method 59(5) Collateral may be disposed of59(5) Collateral may be disposed of

(a) by private sale, (a) by private sale, (b) by public sale, including public auction or closed (b) by public sale, including public auction or closed

tender,tender, (c) as a whole or in commercial units or parts, or(c) as a whole or in commercial units or parts, or (d) if the security agreement so provides, by lease.(d) if the security agreement so provides, by lease.

Flexibility in method of disposal Flexibility in method of disposal But subject to requirement of commercial But subject to requirement of commercial

reasonableness: s.65reasonableness: s.65 The statutory notice requirement does not The statutory notice requirement does not

exhaust SP’s responsibilityexhaust SP’s responsibility

Disposal – MethodDisposal – Method

Supplementary law and duties of good Supplementary law and duties of good faith and commercial reasonablenessfaith and commercial reasonableness 65(2) All rights and obligations arising 65(2) All rights and obligations arising

under a security agreement, under this Act under a security agreement, under this Act or under any other applicable law shall be or under any other applicable law shall be exercised and discharged in good faith and exercised and discharged in good faith and in a commercially reasonable mannerin a commercially reasonable manner

Action for damages for breach of this duty: Action for damages for breach of this duty: s.66(2)s.66(2)


Net effect – SP has duty to take Net effect – SP has duty to take reasonable steps to secure fair reasonable steps to secure fair market pricemarket price Method of disposal must be appropriate Method of disposal must be appropriate

to the goods and the marketto the goods and the market


Failure to comply with the duty of Failure to comply with the duty of commercial reasonableness gives rise to commercial reasonableness gives rise to an action for damagesan action for damages

66(2) If a person fails, without reasonable 66(2) If a person fails, without reasonable excuse, to discharge any obligations excuse, to discharge any obligations imposed on the person by this Act, the imposed on the person by this Act, the person to whom the obligation is owed person to whom the obligation is owed has a right to recover loss or damage that has a right to recover loss or damage that was reasonably foreseeable as liable to was reasonably foreseeable as liable to result from the failure.result from the failure.


Failure to comply with the notice Failure to comply with the notice does does notnot disentitle the SP from disentitle the SP from seeking a deficiencyseeking a deficiency

Does Does notnot give any proprietary give any proprietary remedy against the propertyremedy against the property


The harm from failure to give notice The harm from failure to give notice may include inability to assess the may include inability to assess the value of the collateral or monitor the value of the collateral or monitor the salesale

But the deficiency action is still not But the deficiency action is still not prohibitedprohibited


66(5) In an action for a deficiency, the 66(5) In an action for a deficiency, the debtor may raise as a defence the failure debtor may raise as a defence the failure of the secured party to comply with of the secured party to comply with obligations in section 17, 18, 59 or 60, obligations in section 17, 18, 59 or 60, but but non-compliance shall limit the right non-compliance shall limit the right to the deficiency only to the extent that it to the deficiency only to the extent that it has affected the debtor's ability to protect has affected the debtor's ability to protect the debtor's interest in the collateral or the debtor's interest in the collateral or has made the accurate determination of has made the accurate determination of the deficiency impracticable.the deficiency impracticable.


In the case of consumer goods, deemed In the case of consumer goods, deemed damages applydamages apply

66(3) If a secured party fails, without 66(3) If a secured party fails, without reasonable excuse, to comply with obligationsreasonable excuse, to comply with obligations (b) in section 17, 18, 59, 60 or 61 and the (b) in section 17, 18, 59, 60 or 61 and the

collateral is consumer goods,collateral is consumer goods, the debtor . . .shall be deemed to have suffered the debtor . . .shall be deemed to have suffered

damages not less than the amount prescribed.damages not less than the amount prescribed. But the SP can still pursue a deficiencyBut the SP can still pursue a deficiency


Compare the PPSA with New Brunswick Compare the PPSA with New Brunswick land law land law

In NB land law the statutory notice In NB land law the statutory notice requirement does exhaust the seller’s requirement does exhaust the seller’s responsibilityresponsibility There is no duty (except on banks) to There is no duty (except on banks) to

exercise reasonable care to secure a fair exercise reasonable care to secure a fair market pricemarket price

Is there any justification for the NB land Is there any justification for the NB land law rule?law rule?


59(14) The secured party may 59(14) The secured party may purchase the collateral or any part purchase the collateral or any part of it but only at public sale, including of it but only at public sale, including public auction or closed tender, and public auction or closed tender, and only for a price that bears a only for a price that bears a reasonable relationship to the reasonable relationship to the market value of the collateral.market value of the collateral.


In real estate law in most In real estate law in most jurisdictions, SP is prohibited at jurisdictions, SP is prohibited at common law from buying in for their common law from buying in for their own benefitown benefit Why?Why?

Why should personal property be Why should personal property be different?different?

Disposal – EffectDisposal – Effect 59(15) If a secured party disposes of collateral to a 59(15) If a secured party disposes of collateral to a

purchaser for value and in good faith who takes possession purchaser for value and in good faith who takes possession of it, of it, the purchaser acquires the collateralthe purchaser acquires the collateral, whether or not , whether or not the requirements of this section have been complied with by the requirements of this section have been complied with by the secured party, the secured party, free fromfree from (a) the (a) the interest of the debtorinterest of the debtor,, (b) an interest (b) an interest subordinatesubordinate to that of the debtor, to that of the debtor, (c) an interest (c) an interest subordinate to that of the secured partysubordinate to that of the secured party,,

and all obligations secured by the subordinate interests and all obligations secured by the subordinate interests shall be deemed to be performed for the purposes of shall be deemed to be performed for the purposes of sections 49 and 50.sections 49 and 50.

Purchaser take clear of all Purchaser take clear of all subordinatesubordinate interestsinterests

Disposal – EffectDisposal – Effect

59(15). . .whether or not the 59(15). . .whether or not the requirements of this section have requirements of this section have been complied with by the secured been complied with by the secured party. . .party. . .

Purchaser take clear of all Purchaser take clear of all subordinate interests subordinate interests even if sale even if sale was improperwas improper Why?Why?

Retain in SatisfactionRetain in Satisfaction

Right to retain collateral in satisfaction of debtRight to retain collateral in satisfaction of debt 61(1) After default, the secured party may propose 61(1) After default, the secured party may propose

to take the collateral in satisfaction of the to take the collateral in satisfaction of the obligation secured by it and shall give notice of the obligation secured by it and shall give notice of the proposal to [the debtor and known subordinate proposal to [the debtor and known subordinate interest holders]interest holders]

Person who is given notice may object (to SP): Person who is given notice may object (to SP): s.61(2),(3)s.61(2),(3) In which case SP must sell collateralIn which case SP must sell collateral Except that SP may object to objection (to court): Except that SP may object to objection (to court):

s.61(7), to deter frivolous objectionss.61(7), to deter frivolous objections

Retain in SatisfactionRetain in Satisfaction ““...in satisfaction of the debt...”...in satisfaction of the debt...” 61(4) If no notice of objection is given under 61(4) If no notice of objection is given under

subsection (2), the secured party subsection (2), the secured party (a) shall be deemed, on the expiry of the fifteen day (a) shall be deemed, on the expiry of the fifteen day

period or periods referred to in subsection (2), to period or periods referred to in subsection (2), to have irrevocably elected to take the collateral in have irrevocably elected to take the collateral in satisfaction of the obligation secured by it, and satisfaction of the obligation secured by it, and

[can then sell the collateral free of all subordinate [can then sell the collateral free of all subordinate interests]interests]

NoNo right to sue for any deficiency right to sue for any deficiency Why not?Why not?

Right to Collect on Right to Collect on IntangiblesIntangibles

57(2) If the debtor is in default under a 57(2) If the debtor is in default under a security agreement, the secured party is security agreement, the secured party is entitledentitled (a) to notify a debtor on an intangible or (a) to notify a debtor on an intangible or

chattel paper or an obligor on an instrument chattel paper or an obligor on an instrument or security to make payment to the secured or security to make payment to the secured party whether or not the assignor was making party whether or not the assignor was making collections on the collateral before the collections on the collateral before the notification,notification,

(b) [and apply the money to the debt]...(b) [and apply the money to the debt]... Enforcement by notificationEnforcement by notification

Right to Collect on Right to Collect on Intangibles -NoticeIntangibles -Notice

57(3) A secured party who enforces 57(3) A secured party who enforces a security by giving notice in a security by giving notice in accordance with paragraph (2)(a) accordance with paragraph (2)(a) shall notify the debtor within fifteen shall notify the debtor within fifteen days after doing so.days after doing so.

Right to Collect on Right to Collect on Intangibles -NoticeIntangibles -Notice

41(7) If collateral which is either an intangible 41(7) If collateral which is either an intangible or chattel paper is assigned, the account or chattel paper is assigned, the account debtor may make payments to the assignor debtor may make payments to the assignor (a) before the account debtor receives (a) before the account debtor receives

notice of the assignment in accordance with notice of the assignment in accordance with subsection (8), orsubsection (8), or

(b) after the account debtor receives notice (b) after the account debtor receives notice of the assignment if the account debtor of the assignment if the account debtor requests the assignee to furnish proof of the requests the assignee to furnish proof of the assignment and the assignee fails to furnish assignment and the assignee fails to furnish proof within fifteen days after the request.proof within fifteen days after the request.

Right to Collect on Right to Collect on IntangiblesIntangibles

41(9) Payment by an account debtor 41(9) Payment by an account debtor to an assignee after the account to an assignee after the account debtor receives notice of the debtor receives notice of the assignment in accordance with assignment in accordance with subsection (8) discharges the subsection (8) discharges the obligation of the account debtor to obligation of the account debtor to the extent of the payment.the extent of the payment.

Right to sue on the Right to sue on the DeficiencyDeficiency

Some jurisdictions (e.g. Alberta, California) Some jurisdictions (e.g. Alberta, California) prohibit deficiency actions against prohibit deficiency actions against individual mortgagors of real propertyindividual mortgagors of real property

Should SP have the right to sue on the Should SP have the right to sue on the deficiency?deficiency? Is there any reason why land and personal Is there any reason why land and personal

property should be treated differently?property should be treated differently? Is there any reason why individual mortgagors Is there any reason why individual mortgagors

of real property should be treated differently of real property should be treated differently from businesses?from businesses?

Right to Appoint a Right to Appoint a ReceiverReceiver

Receiver operates the business as a Receiver operates the business as a going concerngoing concern

Wears “two hats”Wears “two hats” Agent of the debtorAgent of the debtor Agent of the SPAgent of the SP

More detail in Part 3.IIMore detail in Part 3.II

Rights of the Rights of the DebtorDebtor

Right of RedemptionRight of Redemption

Any time before final disposal...Any time before final disposal... any subordinate interest holder...any subordinate interest holder... may redeem...may redeem... unless otherwise agreed after unless otherwise agreed after

default...default... by paying the debt...by paying the debt... plus expenses of seizing and plus expenses of seizing and

preparing for disposition.preparing for disposition.


62(2) At any time before the secured 62(2) At any time before the secured party has disposed of the collateral or party has disposed of the collateral or contracted for its disposition under contracted for its disposition under section 59, or before the secured party is section 59, or before the secured party is deemed to have irrevocably elected to deemed to have irrevocably elected to retain the collateral under section 61,..retain the collateral under section 61,..

The right of redemption is exercised The right of redemption is exercised after after defaultdefault

Notice periods before SP disposal allow Notice periods before SP disposal allow opportunity to redeemopportunity to redeem


62(2) . . .any person entitled to receive a 62(2) . . .any person entitled to receive a notice of disposition under subsection notice of disposition under subsection 59(8) or (11) may redeem the collateral. . .59(8) or (11) may redeem the collateral. . .

Subordinate interest holders may redeemSubordinate interest holders may redeem The same persons whose interests will be The same persons whose interests will be

extinguished by dispositionextinguished by disposition Redemption does not extinguish junior Redemption does not extinguish junior

interestsinterests It merely pays off the senior secured partyIt merely pays off the senior secured party


The party redeeming is subrogated The party redeeming is subrogated to the rights of the party whose to the rights of the party whose interest is redeemedinterest is redeemed The right of subrogation is not express The right of subrogation is not express

in the PPSA, but is due to the in the PPSA, but is due to the preservation of existing consistent law: preservation of existing consistent law: s.65(1)s.65(1)


Under prior law, a subordinate secured Under prior law, a subordinate secured party could redeem a senior security party could redeem a senior security interest only if the debtor was also in interest only if the debtor was also in default under its own security default under its own security agreementagreement This appears to be reversed by s.62(2)This appears to be reversed by s.62(2) But the point is usually moot as subordinate But the point is usually moot as subordinate

security interests almost invariably provide security interests almost invariably provide that a default under the senior interest is a that a default under the senior interest is a default under the junior interestdefault under the junior interest

Right of Redemption - Right of Redemption - ExampleExample

SP1 has first priority for $5,000; SP2 has second SP1 has first priority for $5,000; SP2 has second priority for $20,000; value of collateral is $22,000; priority for $20,000; value of collateral is $22,000; D default on loan from SP1; SP1 seeks to dispose D default on loan from SP1; SP1 seeks to dispose of collateralof collateral To redeem, SP2 must pay $5,000 to SP1To redeem, SP2 must pay $5,000 to SP1

SP2 has right to redeem even if D did not SP2 has right to redeem even if D did not default on loan from SP2default on loan from SP2

SP2 is then subrogated to the rights of SP1SP2 is then subrogated to the rights of SP1 Ie SP2 now has a first security interest for Ie SP2 now has a first security interest for

$5,000 and has the right to sue D for the $5,000 and has the right to sue D for the $5,000 owing; and SP2 has a second security $5,000 owing; and SP2 has a second security interest for $20,000interest for $20,000

Right of RedemptionRight of Redemption Why would SP2 want to redeem in the previous Why would SP2 want to redeem in the previous

example?example? If it does not exercise its right of redemption If it does not exercise its right of redemption

(and neither does D), SP1 will sell the collateral (and neither does D), SP1 will sell the collateral for $22,000, apply $5,000 to its debt, and turn for $22,000, apply $5,000 to its debt, and turn over $17,000 to SP2, for a deficiency of $3,000over $17,000 to SP2, for a deficiency of $3,000

If SP2 redeems, it will have total debt of If SP2 redeems, it will have total debt of $25,000. SP2 then sells the collateral for $25,000. SP2 then sells the collateral for $22,000, for a deficiency of $3,000$22,000, for a deficiency of $3,000

The bottom line is the same in either case, so why The bottom line is the same in either case, so why would SP2 want to redeem?would SP2 want to redeem?


Now suppose D tries to exercise its Now suppose D tries to exercise its right of redemptionright of redemption

62(3) If more than one person elects 62(3) If more than one person elects to redeem under subsection (2), the to redeem under subsection (2), the priority of their rights to redeem is priority of their rights to redeem is the same as the priority of their the same as the priority of their respective interests.respective interests.


If SP1 faces conflicting requests, SP2 has first If SP1 faces conflicting requests, SP2 has first right to redeemright to redeem But what if D gets there first and redeems?But what if D gets there first and redeems?

The formal answer is not clearThe formal answer is not clear (Under prior law, you could only (Under prior law, you could only

redeem the party immediately above redeem the party immediately above you in priority, so the problem did not you in priority, so the problem did not arise)arise)

But as a practical matter, D gets no But as a practical matter, D gets no advantage, as SP2's interest is not advantage, as SP2's interest is not extinguishedextinguished


62(2) . . .unless that person has 62(2) . . .unless that person has otherwise agreed in writing after default. otherwise agreed in writing after default. . .. .

Right of redemption Right of redemption cannotcannot be waived be waived beforebefore default: see s.56(4) default: see s.56(4) In particular, it cannot be waived in the In particular, it cannot be waived in the

security agreement itselfsecurity agreement itself Right of redemption Right of redemption cancan be waived be waived afterafter

defaultdefault Why?Why?


62(2) . . . by tendering fulfillment of the 62(2) . . . by tendering fulfillment of the obligations secured by the security obligations secured by the security interest, together with a sum equal to interest, together with a sum equal to the reasonable expenses referred to in the reasonable expenses referred to in paragraph 59(3)(a) to the extent that paragraph 59(3)(a) to the extent that such expenses have actually been such expenses have actually been incurred by the secured party.incurred by the secured party.

Redeem by payment of debt plus Redeem by payment of debt plus reasonable expenses of realizing on reasonable expenses of realizing on collateral actually incurredcollateral actually incurred

AccelerationAcceleration

Security agreements which provide for Security agreements which provide for repayment by periodic installments repayment by periodic installments (e.g. a standard house mortgage) (e.g. a standard house mortgage) inevitably provide that if any payment inevitably provide that if any payment is missed (or if there is any other is missed (or if there is any other default under the agreement, e.g. default under the agreement, e.g. failure to keep the collateral insured) failure to keep the collateral insured) the entire debt immediately becomes the entire debt immediately becomes due.due. This is known as an “acceleration clause”This is known as an “acceleration clause”

ReinstatementReinstatement

A right of reinstatement provides A right of reinstatement provides from relief againstfrom relief against acceleration acceleration


62(4) At any time before the secured party 62(4) At any time before the secured party has disposed of the collateral . . . , or has disposed of the collateral . . . , or before the secured party is deemed to have before the secured party is deemed to have irrevocably elected to retain the collateral irrevocably elected to retain the collateral under section 61, the debtor. . .may under section 61, the debtor. . .may reinstate the security agreement. . .by reinstate the security agreement. . .by (a) paying the sum actually in arrears, (a) paying the sum actually in arrears,

exclusive of the operation of an exclusive of the operation of an acceleration clauseacceleration clause in the security in the security agreement, . . .agreement, . . .


AndAnd (b) curing any other default by reason (b) curing any other default by reason

of which the secured party intends to of which the secured party intends to dispose of the collateral, anddispose of the collateral, and

(c) paying a sum equal to the (c) paying a sum equal to the reasonable expenses referred to in reasonable expenses referred to in paragraph 59(3)(a) to the extent that paragraph 59(3)(a) to the extent that such expenses have actually been such expenses have actually been incurred by the secured party.incurred by the secured party.


““Redemption” and “reinstatement” both Redemption” and “reinstatement” both start with “re” but they are completely start with “re” but they are completely separate rightsseparate rights The right of reinstatement applies only The right of reinstatement applies only

to relieve againt an acceleration clauseto relieve againt an acceleration clause The right of reinstatement is The right of reinstatement is

meaningless if there is no acceleration meaningless if there is no acceleration clause in the security agreementclause in the security agreement


The right of The right of redemptionredemption is a universal is a universal feature of secured lending lawfeature of secured lending law

The right of The right of reinstatementreinstatement is not is not Generally aGenerally a right of reinstatement right of reinstatement

isis a feature of the PPSA a feature of the PPSA is is notnot found in land law found in land law was not found in prior personal was not found in prior personal

property lawproperty law


Except, Ontario (& most U.S. states)Except, Ontario (& most U.S. states) Ontario Ontario doesdoes have a right of have a right of

reinstatement in land lawreinstatement in land law In the Ontario PPSA the right of In the Ontario PPSA the right of

reinstatement applies reinstatement applies onlyonly to to consumer goodsconsumer goods


62(4) “. . .unless the debtor has 62(4) “. . .unless the debtor has otherwise agreed in writing after otherwise agreed in writing after default. . .”default. . .” Like the right or redemption, the right Like the right or redemption, the right

of reinstatement can be waived after of reinstatement can be waived after default, but not beforedefault, but not before

ReinstatementReinstatement 62(1) In subsection (2) [but not subsection (4)]62(1) In subsection (2) [but not subsection (4)]

"secured party" includes a receiver."secured party" includes a receiver. 62(4) At any time before the secured party has 62(4) At any time before the secured party has

disposed of the collateral or contracted for its disposed of the collateral or contracted for its disposition under section 59, or before the disposition under section 59, or before the secured party is deemed to have irrevocably secured party is deemed to have irrevocably elected to retain the collateral under section elected to retain the collateral under section 61...61...

The right of reinstatement cannot be exercised The right of reinstatement cannot be exercised after the appointment of a receiver.after the appointment of a receiver.


62(5) Unless otherwise agreed, the debtor is 62(5) Unless otherwise agreed, the debtor is not entitled to reinstate a security agreementnot entitled to reinstate a security agreement (a) more than twice, [if agreement is <1 (a) more than twice, [if agreement is <1

year], oryear], or (b) more than twice each year, if the (b) more than twice each year, if the

security agreement provides for payment by security agreement provides for payment by the debtor during a period of time of more the debtor during a period of time of more than one year after value was given by the than one year after value was given by the secured party.secured party.

Protections against the abuse of the right of Protections against the abuse of the right of reinstatementreinstatement


Is the right of reinstatement a good Is the right of reinstatement a good idea from the debtor’s perspective?idea from the debtor’s perspective?

Conversely, is an acceleration clause Conversely, is an acceleration clause a bad idea, from the debtor’s a bad idea, from the debtor’s perspectiveperspective

Ask the question Ask the question at the time the at the time the security agreement is entered intosecurity agreement is entered into ““Ex ante” as opposed to “ex post”Ex ante” as opposed to “ex post”

ExemptionsExemptions

58(3) Subject to subsection (7), a 58(3) Subject to subsection (7), a debtor may claim the following items debtor may claim the following items of collateral to be exempt from of collateral to be exempt from seizure by a secured party:seizure by a secured party: (a) furniture, household furnishings and (a) furniture, household furnishings and

appliances used by the debtor or a appliances used by the debtor or a dependent to a realizable value of five dependent to a realizable value of five thousand dollars or to any greater thousand dollars or to any greater amount that may be prescribed;amount that may be prescribed;


(b) one motor vehicle having a realizable (b) one motor vehicle having a realizable value of not more than six thousand five value of not more than six thousand five hundred dollars at the time the claim for hundred dollars at the time the claim for exemption is made, or not more than any exemption is made, or not more than any greater amount that may be prescribed, if the greater amount that may be prescribed, if the motor vehicle is required by the debtor in the motor vehicle is required by the debtor in the course of or to retain employment or in the course of or to retain employment or in the course of and necessary to the debtor's trade, course of and necessary to the debtor's trade, profession or occupation or for transportation profession or occupation or for transportation to a place of employment where public to a place of employment where public transportation facilities are not reasonably transportation facilities are not reasonably available;available;


(c) medical or health aids necessary to (c) medical or health aids necessary to enable the debtor or a dependent to work enable the debtor or a dependent to work or to sustain health; andor to sustain health; and

(d) consumer goods in the possession and (d) consumer goods in the possession and use of the debtor or a dependent if, on use of the debtor or a dependent if, on application, the Court determines thatapplication, the Court determines that

(i) the loss of the consumer goods would cause (i) the loss of the consumer goods would cause serious hardship to the debtor or dependent, orserious hardship to the debtor or dependent, or

(ii) the costs of seizing and selling the goods (ii) the costs of seizing and selling the goods would be disproportionate to the value that would be disproportionate to the value that would be realized.would be realized.


Exception to the exemptionsException to the exemptions 58(7) Paragraphs (3)(a) to (c) and 58(7) Paragraphs (3)(a) to (c) and

subsections (4), (5) and (6) do not apply subsections (4), (5) and (6) do not apply in relation to goods that are subject to a in relation to goods that are subject to a purchase money security interest held by purchase money security interest held by the secured party against whom the the secured party against whom the claim to exemption is made.claim to exemption is made.

Exemption cannot be claimed when Exemption cannot be claimed when the money lent was used to purchase the money lent was used to purchase the collateral itself.the collateral itself.


Exemptions are unique to Atlantic Exemptions are unique to Atlantic PPSAsPPSAs

Are exemptions a good idea?Are exemptions a good idea?

Part 1 Security Interests in Personal Property: The PPSA Section III Enforcement.

Documents

debt rights

collateral rights

secured party rights

security interests

security agreement

v of ppsa rights

debt claim

enforcement slide