What is a Secured Creditor?
A creditor that looks to particular assets of the debtor to be collateral for the payment of the debt
Less risk
What is a Pawn?
If the debtor puts something of value as collateral, they can borrow a certain percentage of the property’s market value
Failure to pay back the loan means the creditor can sell the property to recover the money
Chattel Mortgage
A mortgage in which the title to a chattel owned by the debtor is transferred to the creditor
* Debt secured to personal property
Historically the debtor would transfer possession and not the title
Obligations of the Debtor in a Chattel Mortgage
What happens if the don’t meet them? Creditor remedies?
- The debtor’s obligations are to pay debt and insure the chattel
- If they fail to pay the debt then the mortgagee has the right to take possession of the goods, sell them, or proceed with foreclosure
- When sold, any surplus value goes to the mortgagor, if there is a deficiency then the mortgagor pays
Registration of a Chattel Mortgage
Why? What is the effect of registration?
- Mortgaged goods must be publicly registered to protect other creditors and interested parties
- If the mortgage isn’t registered then the mortgagee has no priority over a bona fide purchaser of the goods
- No registration makes it so that the chattel cannot be used for security
Conditional Sales Agreement
- An agreement for the sale of a chattel in which the seller grants possession of the goods, but withholds the title unitl the payment for the goods is made in full
- Security interest arises out of a sale rather than a normal debt transaction
- Agreement must be in writing and signed by parties
Difference between conditional sale agreement and a hire - purchase
- In a hire - purchase (rent to own) the seller retains title, buyer takes possession
- buyer has option at end of term to purchase goods, no transfer of title unless option to purchase is exercised
- In a conditional sale agreement there is no option to purchase, all the money is applied towards the purchase price from the beginning
Registration of a Conditional Sale Agreement (retailer manufacturer?)
- must register a short time after the sale
- Registration between a retailer and a manufacturer isn’t effective against the ultimate consumer
- Because retailer ultimatley buys for purpose of resale
Rule of good title and its application to used goods
The rule of good title:
* implied condition of sale that the goods are free from encumberances
Application to used goods:
* Retailer takes item as trade in, subject to any existing registered conditional sales agreement between purchaser and former retailer
* First sale of item from retailer to consumer is an “end sale”, not for purpose of resale.
Conditional Sales Agreement: Assignment
- Conditional seller can assign title and debt to 3rd party
- All normal laws re assignment apply
- Assignee takes agreement as it stands, subject to encumbrances, defences, etc.
- Assignee registers agreements, gives notice to the purchaser, etc.
Conditional Sales Agreement: Buyer’s Remedies
- Legislation is designed to give buyers relief from sellers who put onerous terms in the agreement
- Seller has ability to recover possession, (already has title), and sell
- Buyer in default must be given time to redeem
What is a Bill Of Sale?
And its registration + rules
- A contract in which the title of goods passes to the buyer before the buyer takes possession from the seller
- Buyer must register the bill of sale with their province quickly after the sale
- Requires an affadavit by purchaser to protect the interests of the buyer and notify creditors of the seller
Assignement of Book Debts
When a creditor of a merchant takes an assignment of the merchants Accounts Receivable and collects what the merchant owes from customers
* requires notice to debtors of the business
Personal Property and Security Act (PPSA)
What is it and what’s its purpose
- Goal is to simplify debt transactions, and to provide simple system for registration of all personal property security interests
- Covers all security interests, eg., chattel mortgage, as well as conditional sales agreement
- Ontario registrations are searchable by anyone
PPSA - Attachment
Attachement deals with the relationship between debtor and creditor
* Only occurs when:
* Value is given
* Creditor has rights in collateral
* Debtor has signed a security agreement identifying the collateral
PPSA - Perfection
- Perfection deals with the security intererst and public at large
- Registration perfects interest
What happens when you fail to register under the PPSA?
- Failure to register means bona fide purchaser for value without notice can acquire the security interest
- This creates a foot race to the Registry Office
- Failure to register means you lose priority,
- You still have ability to recover the debt, just not first in line.
- Perfected security allows creditor to seize and sell asset etc.
Credit Cards
What are they? Who is under contract? Secured or unsecured?
- Not Security interests, but they do secure payment to merchants
- Contract between the bank and the merchant (bank agree to accept card as payment)
- Contract between the bank and the cardholder
- Credit is unsecured from the cardholder’s perspective
Mechanics Lien and Construction Lien
What are they? What are each for?
Right of a worker to claim security interest in property to secure payment for labour and / or materials applied to land or a chattel
* mechanics lien is for chattels
* Construction Lien is for property
Mechanics Lien
- Lien on chattels
- A creature of statute
- Allows the person who repairs something to retain possession (or obtain possession)
- if they don’t receive payment they can give notice to the “owner” and sell their item
Construction Lien
- For land based projects
- If the general contractor becomes insolvent, no privity of contract between subcontractor and owner
- Subcontractor is granted a security interest in the property
- To prevent person entitled to interest in property to obtain benefit of labour and/ or materials without compensating builder
Rules about claiming a Contruction Lien
Right to claim lien arises when work is first performed, or when supplier delivers first supplies, may then claim lien any time during performance
- Failure to register claim within 45 days lose right to lien
- Failure to perfect within next 45 days, lose right to claim lien
- Owner avoids liability by providing a “hold-back”
What is a Lien Hold Back
The retention of a part of the contract price by the owner as required under contruction lien legislation to ensure payment of subcontractors and suppliers of materials
- allows owner to avoid liablilty
3 Purposes of Bankruptcy
- Provide honest but unfortunate debtors with release from their debts, if debtors deliver all assets to creditors as required under Act
- Eliminate preferences, provide fair and predictable distribution of assets
- Expose and punish debtors who defraud
