Differences in PPSA in Ontario and Quebec

Jenna (2010).

Differences in PPSA in Ontario and Quebec

The purpose of the Personal Property Security Act (PPSA) is to establish a framework to govern the right of a creditor to take possession of a debtor’s personal property in the event of insolvency of a loan (Abbott, 2005). Yates, Bereznicki-Korol and Clarke (2008), state that although the PPSA provides “a unified approach toward the use of personal property as security” (p. 343), in which, “formal requirements and procedures” (p. 343) for different types of securities are treated the same, legislation varies across provincial jurisdiction. Two provinces that differ significantly in PPSA legislation are Ontario and Quebec.

Quebec law is unique in Canada. The province of Quebec preserved its civil law after the Confederation initiated the reform of common law throughout the rest of Canada. Civil law originated in France where the French borrowed from the civil code of Roman law (Stewart, 2005). Quebec now uses what is called the Civil Code of Quebec and it has been revised to integrate some concepts of common law (Gervais, 1999).
The Ontario PPSA is similar to the personal property security system described by Article 9 of the U.S Uniform Commercial Code (UCC). Legislation in Quebec parallels the PPSA’s central features (Clark, 2003) however has several differences from Ontario’s personal property security system. One of the most recognized differences between Quebec and Ontario’s PPSA law is the interpretation of the concept of chattel mortgages. In fact, Quebec only added this section to its PPSA in 1994 when the new Quebec Civil Code was introduced. The provincial government decided to call them “hypothecs”. The code states that all “property which would be considered as personal under the PPSA as moveables” (Clark, 2003, Para 14). There is consistency in the Quebec code of hypothecs with the Ontario code of chattels as they both cover all property except real property, or immoveables in Quebec. Furthermore, the code provides provisions for the right to secure debt obligations. One of the differences between the two provisions is how they deal with security transactions.

In the civil law, security is generally understood only as a creditor's conditional right: (i) to extract the value of secured property actually falling within his or her debtor's patrimony (or property); (ii) at a judicial sale or in some other realization; and (iii) to get paid by preference. In principle, security comprises neither a right to take possession nor a right of foreclosure! Leases and title retention sales contracts remain separate and are subject to regimes that prescribe different legal relationships between the parties than those applicable to transactions that create hypothecs (Clark, 2003, n.p).

Although there are many differences between Quebec and Ontario legislation, there are also many similarities. For example, hypothecs can charge on future property and extends new property acquired by debtors to replace charged property that was sold in regular course of business. Also similar to Ontario’s PPSA, Quebec’s hypothec rule allows first registration and publishing priority over an asset. It is important to note however, that the unlike the Ontario PPSA, it does not allow pre-agreement fillings. Furthermore, in registering a debtor in the province of Quebec is quite different from in Ontario and other provinces. There are requirements for French contracts, and the province uses regulations that also limit a creditor to either seize an asset or collect monies, but not both (Carroll, n.d).
Although there are some differences in the interpretations of PPSA law in the different provinces, a common theme is the issue of perfection and priority. Craig and McPherson (2001) state:

Perfection is a concept fundamental to the operation of the PPSA. Once a security interest is perfected, the secured party acquires certain rights in the collateral under the PPSA. Perfection is different from priority. Perfection occurs when a creditor has taken all the necessary steps set out in the PPSA to protect its position as between itself and its debtor. By definition, it is possible for a number of creditors to have taken all those steps and therefore have a perfected security interest in the same collateral. Priority reconciles the competing claims of those creditors who have perfected security interests. Only one party can have priority (Para 6).

Because only one party can have priority over an asset, it is important that perfection in order to establish priority be a legal requirement. If exceptions were permitted, it would be difficult to ensure the title an individual is searching is in fact the same title they wish to register. Eliminating ambiguity in registrations ensures the credibility of the system.

In essence, it is important for any creditor to cross check, and register priority in the assets they are securing in order to protect themselves from insolvency. Understanding the risks involved also require thorough understanding of the provincial legislation they are dealing with. Furthermore, the best protection upon registration is ensuring the contract is perfected.



References

Carroll (n.d). How to cross the border… avoid getting caught with all the wrong
paper work… doing business in Canada. Leasing Logic. Retrieved February 4,
2010 from http://www.litehaus360lease.com/news-article-20080601.pdf.

Clark, D. (January, 2005). Revised article 9 and the PPSA- a comparison of the

American and Canadian secured property legal regimes. The Secured Lender.
Retrieved on February 5, 2010 from: www.allbusiness.com

Craig, D. & McPherson, D. (2001). The personal property securities act. Bell gully
publication. Retrieved February 7, 2010 from:
http://www.bellgully.com/resources/resource.00035.asp

Gervais, M. (May, 1999). Harmonization and dissonance: language and law in

Canada and Europe. Department of Justice Canada. Retrieved February 5,
2010 from: www.justice.gc.ca

Stewart, W. (1948). The civil code of Quebec. The Encyclopedia of Canada, Vol. II.
Toronto: University Associates of Canada.

Yates, A., Bereznicki-Korol, T. & Clarke, T. (2008). Business law in Canada (8th ed). Canada: Pearson Education Canada