Competitions Among Secured Parties

AuthorRonald C.C. Cuming/Catherine Walsh/Roderick J. Wood
ProfessionUniversity of Saskatchewan, College of Law/McGill University, Faculty of Law/University of Alberta, Faculty of Law
The PPSA priority rules that govern competitions among competing
secured partie s divide into two categories: (1) the special priority r ules;
and (2) the residual or general priority rule. The special priority rules
provide for particular ty pes of situations, most notably competitions
involving purchase money secur ity interests, posses sory security inter-
ests in negotiable collateral, and sec urity interests in investment prop-
erty. The residual priority rule applies where the Act does not provide
a special rule for determi ning priorities. The collective operation of
these two ty pes of priority rules doe s not resolve all possible varieties
of priorit y competition . The residua l priority rule only cove rs compe-
titions among secured parties with competing PPSA secur ity interests
in the same collateral. It is of no use in resolving competitions where
one of the competing interests is not a secur ity interest that is wit hin
the scope of the PPSA, such as a dispute between a secured party who
holds a PPSA security interest and a cl aimant who has a non-consensual
security interest, such as a landlord’s right of distress. Nor can it be
invoked to resolve a dispute between a secured party and a bank that
holds a Bank Act security, at least in those province s that have excluded
the Bank Act security from the scope of the PPSA. In these c ases, the
PPSA does not provide an answer, and, in the absence of a legislative
priority rule, the di spute is resolved by applying general principles of
pr op er ty law.1
The residual priority rule was primarily de signed to cover a situa-
tion where the competing secured parties hold security interests in the
same collateral given by the same debtor. Where the competing secur ity
interests are gra nted by dierent debtors, additional legislative provi-
sions come into play.
In some cases, the spec ial priority rules contained in t he PPSA relate
exclusively to security interests. For example, the purchase money sec-
urity interest priority is available only to a secured party who obtains
that kind of secur ity interest. No other class of claimant is able to cla im
this priority.
In other cases, the sp ecial priority rule in the PPSA is not restr icted
to secured partie s but may include other classes of clai mants. Nota-
bly, the PPSA contains special priority r ules relating to negotiable and
quasi-negotiable forms of collateral. A purchaser who obta ins posses-
sion of these type s of collateral without knowledge of a prior security
interest will t ypically be entitled to priority. These special priorit y rules
apply not only to absolute transfers (where the debtor transfers the col-
lateral by way of sale), but also to the creation of a possessory security
interest in the collateral.
This chapter exami nes the PPSA priority r ules that apply strictly to
competitions between secured par ties. The priority rules t hat are of a
more general application (such as the priority rules governi ng negoti-
able or quasi-negotiable collateral) are discussed in Chapter 7.
There is also considerable simil arity between the priority rules
governing competing securit y interests in investment property a nd
those that apply to competitions between a secured party and a buyer.
However, there is a sucient dierence between the rules i n the two
contexts to justify separate treatment. Accordingly, while Chapter 7
primari ly addresses competitions relating to investment property that
involve buyers and secured parties, t his chapter primarily addresses
competitions among secured part ies in this ty pe of collateral.
1 See Chapter 9, Section B a nd Chapter 13, Section A.
Competitions Among Secured Parties 467
1) The First-in-Time (Temporal) Rule
The residual priority rule of the PPSA use s a first-in-time (temporal)
approach to resolve priorities among competing secured parties. How-
ever, this temporal rule does not, for the most part, look to the ti me
when the security agreement is executed or the time when the security
interest arise s in determining priorities. Rather, it looks at the time
when the perfecting step or event in relation to the competing security
interests occurred . There is a substanti al dierence in the structure and
wording of the residual priority r ule between the Ontario Act and t he
Acts of the other jurisd ictions. On most issues, this does not produce
any dierence in outcome, but on one important matter the wording
does produce a dierent result.
The residual priority rule in t he Ontario PPSA sets out four dierent
cases organi zed according to the method of perfection of the compet-
ing security intere sts.2 The first involves a competition between two
security interest s, both of which have been perfected by registration.
In this case, priority is awarded to the first to reg ister, regardless of the
order of perfection. The second case involves a competition between a
security interest t hat is perfected by registration and another security
interest that is perfected otherwise th an by registration. Here, priority
is given to the registered s ecurity interest if registrat ion occurred before
the perfection of the other securit y interest. But if the other security
interest was perfected before the regi stration occurred, then the other
security interest w ill have priority over the registered security i nterest.
Thus, priority goes to the first to regi ster or perfect, whichever is earlier.
The third case involves a competition between two security interests,
neither of which is perfected by regist ration. In this case, priority is
given to the first to perfect. The fourth ca se involves a competition
between two unperfected secur ity interests. Here, priority is given to
the first to attach.
The residual priority rule s in the other Acts use a dierent formu-
lation. The provision sets out three dierent rules organized according
to the perfected or unperfected status of the competing security inter-
ests.3 The first rule covers di sputes between two security interests, both
2 OPPSA s 30(1). See Chapter 5 for a more detailed disc ussion of the concept of
3 PPSA (A, BC, M, NB, NWT, Nu, PEI, S) s 35(1); (NS, NL) s 36(1). YPPSA s 34(1)
contains some what dierent wording, although it oper ates in much the same
manner as t he non-Ontario Acts.

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