Perfection

• Author: Ronald C.C. Cuming/Catherine Walsh/Roderick J. Wood
• Profession: University of Saskatchewan, College of Law/McGill University, Faculty of Law/University of Alberta, Faculty of Law
• Pages: 200-224

CHAP TER 5

PER F ECT ION

A. THE CONCEPT: ITS SOURCE AND

MEANINGS

The concept of perfection plays a central role in the operation of the

PPSA system. The drafters of the PPSA adopted, perhaps unfortun ately,

the terms “perfected” and “perfect ion” from Article 9 of the Uniform

Commerc ial Cod e, which in turn copied t hem from § 60 of the United

States Bankruptcy Code, as it existed at the t ime Article 9 was drafted.1

In the context of United States bankruptcy law, the term “perfection”

means that a security interest ha s a status giving it invulnerabilit y to

defeat by the debtor’s trustee in bankruptcy or judgment creditors.

2

However, it is not particularly helpful in the context of the PPSA to seek

the meaning of the ter m in its origin s. The scope of the concept can be

determined only by reference to its use in t he PPSA itself.

The principal use of the term perfection in the PPSA is to describe

a priority status acquired by a securit y interest. The Act3 provide s that

a security interest i s perfected when it has attached (that is, has come

1 Now see 11 USC § 547.

2 11 USC § 547(e)(1)(B) provides t hat a transfer of person al property or a f‌ixture

is perfected whe n a creditor on a simple contract can not acquired a judicial lien

that is super ior to the interest of the tra nsferee.

3 PPSA (A, BC, M, NB, NWT, Nu, O, PEI, S) s. 19; (NL, NS) s. 20; Y s. 18.

200

Perfec tion 201

into existence)4 and all steps required for perfection have been complet-

ed, regardless or the order of occurrence. In other words, an extant se-

curity interest acquires the status of being perfected when a prescribed

step has been taken or the status is conferred (temporarily or perm a-

nently) by the Act.5

The starting point in t he analysis of the concept of perfection is

recognition that a secur ity interest is a propert y interest in the col-

lateral. Proprietary rights generally confer priority status in the sense

of being effective against thi rd parties under common l aw principles.

Perfection is the status that must be achieved if the property rights ac-

quired under the hypothec ation are to be protected against competing

rights in or claim s to the hypothecated collateral. The Act inferentially

def‌ines perfection, not by stating what it is, but by specifying the in-

terests that ca n defeat (subordinate or cut off) a securit y interest that

is not perfected.6 These interests include judgment creditors (under

prescribed circumstances),7 the debtor’s trustee in bankruptcy,8 other

secured creditors,9 and buyers of the collateral.10

However, the priority status of a perfected security interest is not

exclusive. There can be several perfected security interest s in the same

collateral. Further more, it is relative, not absolute. Perfection is not in-

vulnerability. The priority status a perfected security interest has de-

pends upon the nature and st atus of the interest or interests with which

it is in competition. The relativeness of the status of perfection results

from the various priorit y rules contained in the Act and in related legi s-

lation. A perfected securit y interest can be defeated by other interests in

the collateral, including those of unsecured judgment cred itors, other

secured creditors, and tr ansferees of the collateral. Consequently, the

only generalized description of the concept of perfection that is pos-

sible is th at it is a st atus t hat normally must b e attai ned in order for a

4 PPSA (A, BC, M, NB, NWT, Nu, PEI, S) s. 12; (NL, NS) s. 13; (O, Y) s. 11.

5 As noted below, perfect ion does not always require t he taking of a “perfect ion

step.” There are circumsta nces in which the Act confers the st atus automatically.

6 Lack of perfect ion does not result in a securit y interest being “void.” It is still

enforceable again st the debtor and a donee of the collatera l.

7 PPSA (NB, NWT, Nu, O, S) s. 20(1); (BC, M) s. 20(a); A s. 20(b); NL s. 21(2);

NS s. 21(1); PEI s. 20(2); Y s. 19(1).

8 PPSA (NWT, Nu, O, PEI) s. 20(1); (BC, M) s. 20(b); (NB, S) s. 20(2); A s. 20(a);

NL s. 21(1); NS s. 21(2); Y s. 19(1).

9 PPSA (A, BC, M, NB, NWT, Nu; PEI, S) s. 35(1); (NL , NS) s. 36(1); O s. 30(1);

Y s. 34(1).

10 PPSA (NWT, Nu, O) s. 20(1); (BC, M) s. 20(c); (NB, S) s. 20(3); A s. 20(b);

NL s. 21(2); NS s. 21(3); PEI s. 20(2).