Creation of a Security Interest Under the Personal Property Security Act

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
1) “Attachment
In general, the PPSA applies only to consensual s ecurity interests — that
is, security intere sts voluntarily created by a debtor in favour of a
creditor pursuant to contract.
The eectiveness of a security agre ement as a matter of contract law
depends on such essential elements as the legal capacity of the debtor,
the authority to act of a representative who enters into the security
agreement on the debtor’s behalf, and the absence of viti ating factors
such as duress, non est factum, illegality, uncertainty, or fraud. These
matters are governed by the general law of contract, t he supplementary
application of which is expressly preser ved by the PPSA.1
If the parties’ agreement as a matter of contract law is eective, the
issue of whether that agreement create s a security interest is determined
by the attachment rules of the PPSA.
Attachment requires the s atisfaction of three conditions.2 First, the
secured party must g ive value. Second, the debtor must have rights
in the collateral or the power to transfer rights in the collateral to t he
secured party. Third, the secur ity agreement must satisfy one of the
1 PPSA (M, NWT, Nu, S) s 65(2); (NB, PEI) s 65(1); (NL, NS) s 66(1); A s 66(3);
BC s 68(1); O s 72; Y s 63(1).
2 PPSA (A, BC, M, NB, PEI, Nu, NWT, S) s 12(1); (NL, NS) s 13(1); O s 11(2); Y s 11(1).
Creation of a Secu rity Interest Under the PPSA 277
three evidentiary requirements recogni zed by the Act.3 Of these three
alternatives, the debtor’s signature on a written security ag reement
that describe s the collateral is the only one universal ly available. The
second alternative — delivery of physical possession of the collatera l to
the secured part y is available only for tangible collateral. The th ird
alternative — “control” — applies to collateral in the form of invest ment
property, and has dierent meanings depending on the type of invest-
ment property. Under the 2019 SPPSA amendments and equivalent
2019 amendments to the Ontario Act, “control” — again with a context-
specific definition — is also available for security interests i n “electronic
chattel paper.
The PPSA requirements for attachment and the exceptional
instances in which the Act recognizes automatic attachment — are the
primar y focus of this chapter. Other issues relevant to the creation of an
eective security intere st are also addressed, including the scope of the
principle of freedom of contract in the context of security agreements
and the type s of obligations that may be secured by a security interest.
2) Inter Partes and Third-Party Attachment
Except for the Ontario Act, the PPSA distinguishes between the condi-
tions for attachment as between the pa rties and as against third p arties.4
For attachment between the secured par ty and the debtor, it is sucient
if value is given, and the debtor has r ights in the collateral. Satisf action
of the evidentiar y requirement is necessar y only for attachment of the
security interest against third part ies.
The concept of a security interest attaching only a s between the
parties may seem puzzling. The principal value of a security interest,
like any other property interest, lies in its presumptive opposability to
third part ies (in contrast to “mere” contractual obligations that bind
3 The structure of th e Ontario Act regarding t he evidentiary requi rement and
its relationsh ip to attachment is somewhat di erent than the other Acts. The
evidentia ry requirement in the Ont ario Act is incorporated i n the provision
on the requirement s for attachment, and that prov ision specifies that t he sec-
urity intere st is not enforceable against th ird parties until a ll the requirements
for attachment have b een satisfied: OPPSA ss 11(1)–(2). In the other Acts, the
evidentia ry requirement is set out in a sta nd-alone provision that state s that a
security i nterest is not enforceable again st third parties un less the requirement
is satisfied : PPSA (A, BC, M, NB, PEI, Nu, NWT, S) s 10(1); (NL, NS) s 11(1);
Ys 8(1). In these other Ac ts, that stand-alone provi sion is then incorporated by
cross-referenc e into the provision on the requir ements for third-party at tach-
ment: PPSA (A, BC, M, NB, PEI, Nu, NW T, S) s 12(1); (NL, NS) s 13(1); Y s 11(1).
4 Ibid.
third part ies only with their consent). However, inte r partes attachment
means that the PPSA r ules governing the reciprocal right s and obli-
gations of the parties in relation to the collateral apply, including the
special default enforcement regime in Part V of t he Act.
The formulation of the attachment concept in the Ontario PPSA
does not expressly dist inguish between inter partes a nd third-party
attachment. That Act instead state s simply that a security interest is not
enforceable against third par ties until all three components of attach-
ment are completed.5
3) Relationship Between Attachment, Perfection, and
For a security interest to be eective against most important categories
of competing claimants, t he security interest must also be perfected.
Perfection is the subject of Chapter 5. This chapter is concerned with
perfection only insofar as attachment is an essenti al component of
achieving perfected status.6
Attachment and priority are a lso separate concepts under the PPSA.
However, the time of attachment may be determinative of prior ity in
the following situations: (1) priority between two unperfected security
intere sts;7 (2) the eectiveness of a security interest that is perfected
by advance registration again st a buyer who acquires an asset before
a security interest t hat would otherwise have attached to t hat asset is
created;8 (3) priority between the holder of a PPSA security interest in
goods that are subsequently a xed to land and a person with an interest
in the land;9 and (4) priority between the holder of an unperfected PPSA
security interest a nd a bank that later take s security under section 427
of the Bank Act with knowledge of that interest.10
5 OPPSA s 11(1)–(2). See above note 3.
6 PPSA (A, BC, M, NB, N WT, Nu, O, PEI, S) s 19; (NL, NS) s 20; Y s 18.
7 See Chapt er 8, Section B(1).
8 As the s ecurity interest gra nted by the seller to the secu red party has not yet
come into existe nce, a buyer will take free of any c laim of the secured par ty.
This is so rega rdless of any prior regist ration by the secured part y or any know-
ledge on the part of t he buyer that a security agr eement may be pending. This
scenario do es not involve a competition between the holder of a n unperfected
security i nterest and a subsequent buyer, but rather a buye r who acquires title
before the secur ity interest that would other wise have attached i s created.
9 See Chapter 11, Section D(2). And see Business Development Bank of Canada v S & S
Mobile Refrigeration (1996), 12 PPSAC (2d) 298 (Ont Ct Gen Div); Cormier v
Federal Business Development Bank (1983), 3 PPSAC 161 (Ont Co Ct).
10 See Chapter 13, Sect ion A(7).

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