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Lecture 11

Bus 393 - Lecture 11

Business Administration
Course Code
BUS 393
Colin Hawes

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BUS 393
Lecture 12
November 26, 2010
Priority of Creditors
Colin Hawes
Property (608)
Loans (609)
Creating a
Priority of
Creditors (613)
Rights and
Remedies Upon
Default (614)
Personal Property Security Act: Deals with using personal property as security
Secured Creditor: A creditor who has priority over other creditors when debtor defaults
Must register secured claim
Personal Property: Chattels and Choses in Action
Chattels: Tangible, movable things
Choses in Action: Intangible rights with legally enforceable claims
Pledge: An item that a creditor takes hold of until debtor repays loan, if he defaults then creditor can
sell pledge
Conditional Sale: Seller retains title of item until last payment by buyer
Is protected by the sale of goods act
Chattel Mortgage: Bank lends to debtor, and debtor puts up personal property as collateral, bank
has title of this property until the last payment is made but property is in debtor’s hands
Assignment of Accounts Receivable: Businesses have money owed to them by services, they can
use the owed money (accounts receivable) as security, if business defaults bank can intercept funds
Lease: A secured arrangement whereby possession of goods goes to the lessee, while the title to the
goods remains with the lessor
Operating Lease: Goods are rented to lessee then returned to the lessor
Lease to Purchase: Title of good does to lessee at the end of lease period
1. Parties must enter into the contractual agreement
a. Must be under the PPSA terms
2. The secured interest must attach to the collateral that has been identified to provide security
a. The collateral only attaches when the other party fulfills his part (ie.: bank lending money
must have money for debtor in order to attach debtor’s collateral)
Attachment: An object is attached meaning that if debtor defaults, creditor can claim object
3. The secured interest must be perfected
a. Can be done through registration but must be specific in many information (Usually for
goods that the debtor still needs to use)
b. Perfection by possession, creditor takes the physical good, must be originals not photocopies
(Usually for goods that the debtor does not need in daily life)
Perfection: Protection of a secured creditor’s claim, either by registering the secured
obligation or by taking possession of the collateral
First party to perfect usually prevails
Exception: Purchase Money Security Interest: A security interest which will prevail over a general
security agreement covering all of a merchant’s assets, if it is registered within the specified time
Innocent buyer in normal course of business are not bound by perfection terms
Upon default, creditor can take possession and sell collateral
Creditor hires a bailiff who seizes goods but must not use force when seizing property
Can apply for court order if access to premises is denied
Creditor must take reasonable care of goods in possession
Before a sale of the collateral can take place, a right to redeem must be notified to the other party
Any deficiencies after the sale of collateral, the creditor loses because he chose to seize goods
Only when consumer goods are involved
Debtor is entitled to surplus if any from the sale
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