Secured Transactions under Canadian Law

In each common law province of Canada, the law applicable to security interests in personal or movable property is mostly found in a Personal Property Security Act (“PPSA”); the PPSAs are all conceptually similar and achieve substantially the same results on most issues. In the province of Quebec, the law on secured transactions is contained in the Civil Code of Quebec (“CCQ”). There are many similarities between the PPSAs and the CCQ in terms of concepts and results. Therefore, unless otherwise noted, the statements in this article apply to both the PPSAs and the CCQ and references herein to a security interest (the generic term used by the PPSAs to describe a security right) include a “hypothec” (the corresponding generic term used by the CCQ). The term grantor refers to a person who grants a security interest (who may, or not, be the debtor of the obligation secured). The agreement creating a security interest must be evidenced in a writing that identifies the assets being charged (using a generic or specific description, as applicable), except however for a possessory security interest (i.e., if the property is delivered to the creditor or to a third party acting on behalf of the creditor); indeed, for a possessory security interest to exist, the property must be capable of being “delivered”. A security interest must be perfected in order to be effective against third parties (e.g. other secured creditors or a trustee in bankruptcy). There are generally three methods to perfect a security interest, i.e., registration (or filing) transferring possession of the property to the creditor or giving control of the property to the creditor. Secured transactions laws are codified in many common law jurisdictions in Canada. On the other hand, civil law jurisdictions have now been more permissive on self-help. Also, civil law jurisdictions are now more favourable to non-possessory security interests. In addition, law reforms no longer rely on traditional common law or civil law approaches. In law reforms in Canada, unitary approach or regime is adopted for all transactions creating a right or interest in property to secure the performance of an obligation. Also there is significant impact of international conventions or instruments which attempt to use neutral terms or promote new concepts. The laws on secured transaction in Canada are pretty well harmonized between common law provinces and Quebec, the civil law province, by continuous law reforms.