Secured Transactions – Winter 2013 Professor: Yael Emerich Summary
COMMON LAW (PPSA) Introduction
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- Definitions
- Summary: Categories of Collateral
- PPSAs and the Common Law/Equity
COMMON LAW (PPSA)PPSAs do not adopt the principle of nemo dat quod non habet (no one can give that which he does not have). The Bank Act security apparently does. History and Purpose of PPSAsThe functionalist approach of the PPSAs is inspired by article 9 of the Uniform Commercial Code of the United States, the relevant part of which reads: § 9-102. Policy and Subject Matter of Article. (1) Except as otherwise provided in Section 9-104 on excluded transactions, this Article applies (a) to any transaction (regardless of its form) which is intended to create a security interest in personal property or fixtures including goods, documents, instruments, general intangibles, chattel paper or accounts; and also (b) to any sale of accounts or chattel paper. (2) This Article applies to security interests created by contract including pledge, assignment, chattel mortgage, chattel trust, trust deed, factor's lien, equipment trust, conditional sale, trust receipt, other lien or title retention contract and lease or consignment intended as security. This Article does not apply to statutory liens except as provided in Section 9-310. [Note: At [81] there is a definition of “security” from the UCC, but this is from the wrong part! It’s from article 8, which deals with securities in the sense of “shares in a corporation.” The correct definition is above - Mike] DefinitionsChattel Mortgage [82]: A pre-PPSA security device under which the debtor (mortgagor) conveyed ownership of the property to the secured party (mortgagee) until the obligation was performed. If the chattel mortgage conveyed a legal title, it was a legal chattel mortgage; if it conveyed an equitable title, it was an equitable chattel mortgage. Equitable chattel mortgages were more flexible, in that they could be taken on after-acquired property, but was inferior to legal chattel mortgages in terms of priority competitions [and like all equitable interests, it would have been extinguished by a sale to a good faith purchaser without notice - Mike]. Attempting to create a chattel mortgage these days will create a security interest subject to the PPSAs. Chattel Paper: This is a category of property created by the PPSAs to reflect commercial practice. Chattel paper arises when a secured party gives a security interest in or sells his security interest. The PPSA treats the seller/borrower of the security interest as the debtor. There are special priority rules for chattel paper to reflect its unique status: NBPPSA 31(6), OPPSA 28(3). Collateral [178]: Collateral is the general term adopted by the Act to designate “personal property that is subject to a security interest.” OPPSA s 1(1), NBPPSA s 1. Collateral is divided into many subcategories: goods, documents of tile, chattel paper, securities, instruments, money, and intangibles. The category of intangible is a residual one, so any personal property that does not fit elsewhere is classified as an intangible. Consumer goods [179]: “Goods that are used or acquired for use primarily for personal, family or household purposes.” This is different from the concept as used in consumer protection legislation. It depends on the actual use to which the buyer will put them. A wholesaler buying toiletpaper in bulk is inventory, but when consumers purchase the toilet paper from him, they buy a consumer good. But another merchant buying from the wholesaler is also buying inventory. If goods are used for both business and personal purposes, the primary purpose determines their classification. Debtor [197]: In both PPSAs, the debtor is a person who owes obligations under the security agreement, and the person who owns rights in the collateral. Where these are the same person, there are no interpretative difficulties, since all meanings of “debtor” point to the same person. Where these are different people, the definition of debtor explains which sense the word is used in, but specifies that “where context permits” it should be read as referring to both. Document of Title: A written document that allows the bearer to obtain possession of personal property by presenting the document to the bailee of that property. Example: a warehouse receipt, a bill of lading. Equipment [179]: “Means goods that are held by a debtor other than as inventory or consumer goods.” Note that this is a residual category within goods, since anything that is not consumer goods or inventory belongs here, even if it isn’t what we would normally think of as “equipment.” Instrument: This includes negotiable instruments, bills of exchange, and debt instruments that have to be physically handed over before the debt will be paid. Intangible: “means personal property that is not goods, a document of title, chattel paper, investment property, an instrument or money.” The OPPSA states that it includes choses in action; that is probably implicit in the NBPPSA. Inventory [179]: “means goods that are: (a) held by a person for sale or lease, or that have been leased by that person as lessor; (b) to be furnished or that have been furnished under a contract of service; (c) raw materials or work in progress, or (d) materials used or consumed in a business or profession.” Here the word “used or consumed” means “used up” in the process of conducting the business. Investment Property: “means a security, whether certificated or uncertificated, security entitlement, securities account, futures contract or futures account.” All of the listed terms which have the word “security” in them refer to the province’s Securities Transfer Act for definitions. Futures accounts and futures contracts are defined in the PPSA itself. Goods [179]: This is the general category for “tangible personal property.” The statutory definition adds fixtures, growing crops, and unborn animals. The NBPPSA states that it excludes minerals and hydrocarbons prior to their extraction, while the OPPSA explicitly includes “minerals and hydrocarbons to be extracted” in its definition of goods. Goods are divided into consumer goods, equipment, and inventory (both inventory and equipment must be used in business). Equipment is a residual category within goods. Money: Means any official unit of exchange, either as adopted by Parliament or by the government of a foreign country. Mortgage [82]: A transfer of ownership to a creditor upon an express or implied condition that the debtor will recover the asset once the obligation has been performed. Pledge [82]: The oldest known security device, by which a debtor gives property to the creditor as security for a debt. These transactions are subject to the PPSAs, and create security interests perfected by possession. Secured Party [199]: The secured party is the holder of the security interest. This person may hold the security interest for their own benefit (bank holding a security interest to secure a car loan), or the secured party may represent the interests of other creditors (syndicated loan structured via trust indenture). The definition of secured party often extends to receivers in the enforcement provisions. Security: Both PPSAs refer to the provincial Securities Transfer Act, which has a very complicated definition. Basically it means stocks in companies, units of an income trust, etc. Security Agreement [201]: The OPPSA and NBPPSA adopt the same definition: “an agreement that creates or provides for a security interest and includes a document evidencing a security interest.” Section 9(1) of the OPPSA declares that security agreements are effective against third parties, although it’s not clear what that really means. Value [204]: “any consideration sufficient to support a simple contract and includes a [past] debt or liability.” This means you can secure existing debts without the lender needing to provide fresh consideration! Summary: Categories of CollateralCollateral Goods [all tangible items] Consumer goods Equipment [residual within goods - if it’s a tangible (physical) item and not inventory/consumer goods, it goes here] Inventory Documents of Title Chattel Papers Instruments Securities Money
Intangibles [residual overall - anything that doesn’t fit in any other category goes here] PPSAs and the Common Law/EquityThe rules of common law and equity are explicitly preserved to the extent that they don’t conflict with the PPSAs (NBPPSA 65(1); OPPSA 72). So this means for the purpose of determining what is real/personal property, or whether a contract is invalid because of duress, you would use the common law or equity. Note that the PPSAs modify common-law and equitable rules in subtle ways: consideration (called “value” in the PPSAs) is still required for contracts, but existed indebtedness can serve as “value” - which means that past consideration is sufficient. That contradicts the common law position that a new agreement requires fresh (new) consideration (NBPPSA 1(1) “value”; OPPSA 1(1) “value”). Directory: pubdocs -> files files -> International maritime conventions files -> Chapter 1: Property as rights, not thing files -> Insurance Law – May 4 files -> Contractual Obligations – Prof. Helge Dedek Introduction 1 files -> Constitutional Limits on Criminal Law 1 files -> Antonio Iacovelli Winter 2005 Advanced Criminal Law files -> Private International Law – Prof. Walsh Summer 2005 files -> Part I: conceptualizing and justifying ip space 3 files -> Part I – general 5 The Sources of Int’l Air Law 5 Q? How does customary law relate to int’l law? Download 0.72 Mb. Share with your friends:
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