Personal Property and Secured Transactions in Canada

Personal Property in Canadian Law

Canadian law divides property into real property (land and interests in land) and personal property. Personal property, in turn, comprises tangible personal property — chattels physically movable (goods, inventory, equipment, consumer goods) — and intangible personal property — choses in action, including debts, shares, intellectual property, and contractual rights. The distinction matters because the creation, perfection, and priority of security interests in personal property are governed by the provincial Personal Property Security Acts (PPSAs) rather than the land registration systems.

The PPSA Regime: Origins and Structure

The Canadian PPSA framework was modelled on Article 9 of the Uniform Commercial Code (UCC) of the United States. Every common law province has enacted a PPSA: Ontario (RSO 1990, c P.10), Alberta (SA 1988, c P-4.05), British Columbia (RSBC 1996, c 359), Saskatchewan (SS 1993, c P-6.2), Manitoba (CCSM c P35), Nova Scotia (RSNS 1989, c 376), New Brunswick (SNB 1993, c P-7.1), Prince Edward Island (RSPEI 1988, c P-3.1), and Newfoundland and Labrador (RSNL 1990, c P-37.1). Quebec’s Civil Code of Quebec governs security on personal property within Quebec through a functionally equivalent but textually distinct regime of hypothecs.

The PPSAs replace a fragmented system of common law and statutory security devices (chattel mortgages, conditional sales, assignments of book accounts, floating charges, trust receipts) with a unitary concept: the security interest. A security interest is defined as an interest in personal property that secures payment or performance of an obligation. The PPSAs apply regardless of the form of the transaction. Substance prevails over form.

Attachment

Attachment is the process by which a security interest becomes enforceable against the debtor. Under s. 11 of the Ontario PPSA, a security interest attaches when (i) value is given, (ii) the debtor has rights in the collateral, and (iii) a security agreement exists that describes the collateral. A security agreement may be oral if the secured party has possession of the collateral, but must be in writing and signed by the debtor (or authenticated in a manner that identifies the debtor) where the collateral is not in the secured party’s possession.

Attachment alone does not protect the secured party against third parties. It establishes rights as between debtor and secured party. To obtain priority over competing claimants — other secured creditors, judgment creditors, trustees in bankruptcy — the secured party must perfect the security interest.

Perfection

A security interest is perfected when it has attached and all steps required by the applicable PPSA have been taken. The three methods of perfection are:

Registration is the most common method. The secured party files a financing statement in the province’s PPSA registry, disclosing the debtor’s name, the secured party’s name, and a description of the collateral. Registration is effective for a specified period (typically 5 or 10 years) and may be renewed by filing a continuation statement. The registry is notice-based: it does not require the underlying security agreement to be filed. Ontario’s registry is the Personal Property Security Registration System (PPSR); BC’s is the Personal Property Registry (PPR). Searches may be conducted by debtor name (exact match), serial number (for consumer goods, motor vehicles, and specified types of collateral), or registration number.

Possession of the collateral by the secured party also constitutes perfection. This is most practical for tangible goods but is unavailable for intangibles and most instruments.

Control applies to specific types of collateral: money, deposit accounts, investment property, and letters of credit. Control over a deposit account requires the secured party to become the bank’s customer or to enter into a control agreement with the debtor and the depositary bank.

Priority Rules

The PPSAs establish a first-to-file-or-perfect priority rule as the general principle (Ontario PPSA, s. 30(1)). The first secured party to register a financing statement or perfect its security interest (whichever occurs first) has priority over those who register or perfect later, regardless of when the security interest attached.

Several important exceptions exist:

Purchase-Money Security Interests (PMSIs) receive super-priority over earlier-registered security interests. A PMSI arises where a seller advances credit for the purchase of specific collateral, or a lender advances funds that enable the debtor to acquire rights in the collateral. To obtain PMSI priority over inventory, the secured party must register before the debtor receives possession of the inventory and must send notice to any competing secured party who has previously registered a security interest in the same type of collateral. For non-inventory collateral (equipment, consumer goods), PMSI priority requires registration within 15 days (or 10 days, depending on the province) after the debtor receives possession.

Consumer goods receive special treatment: a PMSI in consumer goods is automatically perfected upon attachment (no registration required) and has priority over most competing interests, subject to certain exceptions involving motor vehicles.

Proceeds — whatever is received from the sale, exchange, or other disposition of collateral — are automatically covered by the secured party’s security interest for 60 days (or longer if the interest in proceeds is perfected). If the proceeds are of a type that requires registration by serial number (e.g., a motor vehicle), the secured party must register against that serial number to maintain perfection beyond 60 days.

Competing security interests in intangibles — including accounts, intellectual property, and investment property — are resolved by the first-to-file rule, with special rules for the rights of a transferee of a negotiable instrument.

Default and Remedies

Upon default by the debtor, the secured party may take possession of the collateral by judicial process or by self-help if this can be done without breach of the peace (Ontario PPSA, s. 63). The secured party may sell, lease, or otherwise dispose of the collateral in a commercially reasonable manner. Notice of disposition must be given to the debtor and to any other secured party who has registered a security interest in the collateral.

If the disposition yields a surplus (proceeds exceeding the secured obligation and enforcement costs), the surplus is payable to subordinate secured parties and then to the debtor. If a deficiency arises, the debtor remains liable unless otherwise agreed. The debtor has a right of redemption prior to disposition — the right to satisfy the obligation in full and recover the collateral.

Federal-Provincial Interface and Insolvency

The PPSAs are provincial legislation, but their effect intersects profoundly with federal insolvency law: the Bankruptcy and Insolvency Act (BIA, RSC 1985, c B-3) and the Companies’ Creditors Arrangement Act (CCAA, RSC 1985, c C-36). When a debtor becomes bankrupt, the bankruptcy trustee takes possession of the bankrupt’s property, subject to the rights of perfected secured creditors. The BIA creates a statutory deemed trust for certain Crown claims (source deductions, GST, etc.) that effectively prime PPSA security interests, although the SCC has narrowly circumscribed these trusts (see Canada (AG) v. Canada Trustco Mortgage Co. (2005)).

The BIA also provides for the stay of proceedings upon bankruptcy or CCAA protection, which prevents secured parties from enforcing their security interests without court leave. The International Interests in Mobile Equipment Act (SC 2005, c 3) implements the Cape Town Convention on interests in aircraft equipment, railway rolling stock, and space assets, creating an international registry that coexists with domestic PPSA registries.

Conclusion

Canada’s personal property security regime — a provincial patchwork of PPSAs modelled on Article 9 of the UCC — provides a comprehensive system for the creation, perfection, and prioritization of security interests in personal property. The collapse of pre-PPSA security devices into the unitary concept of the security interest, combined with a notice-based registration system, reduces transaction costs and enhances predictability in commercial lending. The interplay with federal insolvency law and international conventions continues to be a dynamic area of practice and scholarship.