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: 334-356

334

CHA PTER 5

PER FEC TIO N

A. THE CONCEPT: ITS SOURCE AND

ME ANINGS

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

PPSA system. The drafters of the PPSA adopted, perhaps unfortunately,

the terms “perfected” and “perfection” from Article 9 of the Uniform

Commercial Code, which in turn were copied from § 60 of the United

States Bankruptcy Code, as it existed at t he time Article 9 was dra fted.

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

means that a security interest has a status giving it invulner ability to

defeat by the debtor’s trustee in bankruptcy or judgment creditors.1

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

the meaning of the ter m in its origins. 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 “per fection” in the PPSA is to descr ibe

a priority status acqui red by a security interest. The Act2 provide s that a

security intere st is perfected when it has attached (that is, has come into

ex isten ce)3 and all steps requi red for perfection have been completed,

1 11 USC § 547(e)(1)(B) provides that a tra nsfer of personal property or a fi xture

is perfected whe n a creditor on a simple contract cannot ac quire a judicial lien

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

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

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

Perfection 335

regardless of the order of occurrence. In other words, an ex tant security

interest acquires the status of being perfected when a prescribed step

has been taken or the status is conferred (temporarily or permanently)

by the Act.4

The starting point in the analysis of the concept of perfection is rec-

ognition that a secur ity interest is a property interest in the collateral.5

Proprietary rights generally confer priority status i n the sense of being

eective against third p arties under common law principles. Perfection

is the status th at must be achieved if the property rights acquired under

a security agreement are to be protected against specified competing

rights in or claim s to the collateral. The Act inferentially defines per-

fection, not by stating what it is, but by specify ing the interests that can

defeat (subordinate or cut o) a security intere st that is not perfected.6

These interests include judgment creditors (under prescribed ci rcum-

st an ce s),7 the debtor’s trustee in bankruptcy,8 other secured creditors,9

and buyers of the collateral.10

There can be several perfected security interests in the same collat-

eral. Perfection is not invulnerability — it is relative, not absolute. The

priority status a per fected security interest has depends upon the natu re

and status of the interest or intere sts with which it is in competition.

The relativeness of the status of per fection results from the various

priority rules conta ined in the Act and in related legislation. A perfected

security interest can be defeated by other interests in the collatera l,

including those of unsecured judgment creditors, other secured credit-

ors, and transferees of t he collateral. Consequently, the only generalized

description of the concept of perfection that is possible is that it is a

status that normally must be attained in order for a security interest to

have priority over other specified proprietary interests in the collateral.

4 As noted below, perfection doe s not always require the ta king of a “perfection

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

5 For a brief descript ion of the nature of a PPSA securit y interest, see Bank of

Montreal v Innovation Credit Union, 2010 SCC 47 at paras 41–43.

6 Lack of perfection does not re sult in a security intere st being “void.” It is still

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

7 See Chapter 9, Section A .

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).