PPSA in Ontario
The general intent of the PPSA is to allow lenders and sellers to register their interest in the personal property of a debtor to secure payment of the debt and to establish a priority position in the collateral. Garage keepers might want to register liens under the PPSA to ensure that they receive payment on repair bills. Taxing authorities might want to register a lien under the PPSA and against the personal property of a tax debtor. All these security interests are registered in a public and searchable registry. Registration serves as a public notice that the interest exists against the collateral.
Personal property is different from real property. Generally, real property security interests, such as mortgages, are registered in land title offices, not in personal property security registries. The PPSA does not even define “personal property.” Instead, it uses the word “collateral” and says that this even includes intangibles, licenses, crops, accounts receivables or inventory.
The next basic concept of the PPSA is a security interest which includes just about any interest in personal property which secures payment. The secured party is the one who holds the security interest (eg. the lender) and the person who owes the money is called the debtor. As you can see, the PPSA does not care about who owns the property, who has title (eg. the PPSA allows the registration of a financing statement even before the debtor owns the personal property).
Which brings us to the next concept, that of attachment. Attachment is when the security interest is “born”; from which point it is enforceable between the parties and gives rise to the priorities and remedies under the PPSA. Attachment only occurs, according to the PPSA, when value has been given by the secured party (i.e. a loan or a promise to lend money) and the debtor has some kind of right in the collateral that is being offered as security (typically, this would be as owner of the personal property). These criteria create some problems for personal property such as crops (only available for attachment once they’re growing), animals (only available for attachment once they’re conceived) and trees (only available for attachment once they’re cut).
Security interests are certified by a process known as perfection. In most cases, this occurs by registration, using the government form, in the personal property registry. Once registered, the security interest is enforceable against third parties. Generally speaking (see below), the date of registration determines the rank and order of priorities.
Registrations are indexed by the name of the debtor so you can do a search under a person’s name to see if they have any security interests registered against their personal property. This is obviously helpful to lenders to make sure that the personal property being offered as security for a loan is free and clear of any encumbrances. Even buyers of personal property can search the registry to, again, ensure that the item they are buying is not the subject of a registration.
The registration must be based on some underlying contract (the PPSA calls this the security agreement) which is signed by the debtor, and in which the debtor gives the creditor the security interest in the property.
The creditor completes the registration form. The debtor does not have to sign the statement. The completed form is known as a financing statement. The security agreement does not have to be registered (it normally would be retained by the creditor); just the financing statement. This is an important feature of the legislation. The registry is not a place where all the formal documents created the security; just notice of the sceirty in the form of the financing statement which will specifically identify the collateral. If a vehicle, mobile home or aircraft is given as collateral, the identification would be achieved by transcribing the serial number.