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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)
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{{REVIEWED LSLAP | date= August | {{REVIEWED LSLAP | date= August 1, 2023}} | ||
{{LSLAP Manual TOC|expanded = consumer}} | {{LSLAP Manual TOC|expanded = consumer}} | ||
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A party with a security interest in consumer goods may avoid the “seize or sue” restriction where: | A party with a security interest in consumer goods may avoid the “seize or sue” restriction where: | ||
:(a) The debtor (borrower) is a company, a partnership of corporations, or a joint venture of corporations (s 55(4)(a)); | |||
:(b) 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 | |||
ss 67(1) – (7); or | :(c) 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 ss 38 and 1(1) for more information about accessions. | :'''NOTE:''' Accession means goods that are installed in or affixed to other goods. For example, a shovel attached to a truck. See ss 38 and 1(1) for more information about accessions. | ||
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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: | 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. | 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. | ||
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== F. Bills of Exchange Act == | == F. Bills of Exchange Act == | ||
Under Part V of the ''Bills of Exchange Act'' [''BEA''], a bill of exchange or promissory note given for a consumer purchase must be clearly marked “Consumer Purchase” (s 190(1)), and where it is marked, the rights of an assignee of the bill or note are subject to any defence the | Under Part V of the ''Bills of Exchange Act'' [''BEA''], a bill of exchange or a promissory note (i.e. an “I owe you”) given for a consumer purchase must be clearly marked “Consumer Purchase” (s 190(1)), and where it is marked, the rights of an assignee of the bill or note are subject to any defence the purchaser would have against the vendor (s 191). Where it is not marked, it is void except in the hands of a holder in due course without notice (s 190(2)). The purpose of Part V is to codify the rule in [https://www.canlii.org/en/on/onca/doc/1962/1962canlii124/1962canlii124.html?resultIndex=1 ''Federal Discount Corp v St Pierre'' (1962), 32 DLR (2d) 86.] | ||
Part V does not cover private sales (where the seller is not engaged in the business of selling the goods in question), or sales to small businesses or | Part V does not cover private sales (where the seller is not engaged in the business of selling the goods in question), or sales to small businesses or corporations of items to be used in their business. Nor does it cover a purchaser’s loan (i.e. a loan from a lender to a person to enable that person to buy goods and/or services from a seller), subject to s 189(3) below. | ||
A consumer bill is defined in s 189(1), and a consumer note is defined in s 189(2). A '''consumer bill''' or note is conclusively presumed if (s 189(3)): | |||
# | # The consideration for its issue was the lending of money, etc. by a person other than a seller, to enable the purchaser to make a consumer purchase; and | ||
# | # The seller and the person who lent the money, etc. were, at the time the bill or note was issued, not dealing with each other at arm’s length within the meaning of the ''Income Tax Act''. | ||
If an instrument meets the definition of a consumer note, any defence that consumer would have for an action against them by the seller would also be available | If an instrument meets the definition of a consumer note, any defence that the consumer would have for an action against them by the seller would also be available against subsequent noteholders (the seller sells a good to the consumer and, in exchange, receives a note from the consumer, which is like an “I owe you” or a promise to be paid back). Therefore, if the consumer does not get what they have paid for, the consumer may not be required to pay the loan back when pressed for payment by the lender’s assignee. Also, if the seller does not fulfil obligations under a warranty, the consumer will be able to resist payment (''Canadian Imperial Bank of Commerce v Geldart'', [1985] BCJ No 1973 and ''Canadian Imperial Bank of Commerce v Kabatoff'', [1986] BCJ No 942). | ||
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