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Chapter 30 Textbook Notes from 12th Ed... Covers every heading and subheading, as well as things he throws in during class (which as you know is a lot!)

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Wilfrid Laurier University
Charles Davidson

Chapter 30: Secured Transactions Meaning of “Security” Types of Security - Consensual security interests give creditors collateral security (a right to take specified assets in satisfaction of the debt) - Some security interests just arise from normal transactions, these are non-consensual security interests Security Practices - Don’t need collateral security when extending credit to normal customers; unsecured transactions are simpler and cheaper to record, may not be good to offend customer by demanding security; losing a couple sales to defaults is better than incurring more costs for requiring security for each sale - Security establishes creditor’s priority relative to other creditors - Security is most often used just as an incentive to pay the money owing Rights of a Secured Creditor - Unsecured creditors may ultimately acquire security interest through court action to collect overdue debt (seizing assets) - Secured creditor doesn’t need judgement, can proceed on their own to enforce rights over the security (like a self-help remedy)  moreover, unsecured creditors generally can’t touch assets already subject to a security of another creditor (they have priority) - Key: whether or not you are secured or unsecured Methods of Securing Credit Credit Devices Previously Considered (other credit devices) - Mortgages (real property vs. this chapter which is personal property), Leases (a security device on its own, while personal property is acquired on credit), Consignments (indirect type of secured credit), Other Credit Devices Conditional Sales - Very similar to leases o Both lessee and conditional buyer are bailees of the good - Lets secured party right to look to goods to satisfy debtor’s obligation, and a priority in the goods over the interests of 3 parties (ie. Other creditors) - Creditor can sue for unpaid balance of debt, but can also retake possession on default Def’n: redeem – reclaim the goods and continue with the conditional sale Def’n: Acceleration clause – the full outstanding amount of a debt becomes immediately payable if the debtor defaults in making any instalment payment - Many merchants sell/assign their conditional sale agreements to finance companies that collect the instalments and administer the contracts Chattel Mortgages - Intangibles are not chattels; - 2 basic cases: first case, vendor of an article of property “takes back” a mortgage on the property sndd  effect is similar to conditional sale o 2 case, owner of property mortgages it as security for a loan - Borrower retains possession of the property, and lender’s security interest is in the title to specific goods o By contrast, a pledge is a form of bailment - Under a chattel mortgage, the purchaser borrows funds for the purchase of movable personal property (the chattel) from the lender. The lender then secures the loan with a mortgage over the chattel. Legal ownership of the chattel is transferred to the purchaser at the time of purchase, and the mortgage is removed once the loan has been repaid. o Similar to conditional sale, but in CS the actual goods being purchased are the collateral, whereas in chattel mortgage it can be any kind of personal property o Can even be after-acquired property (property acquired after the chattel mortgage has been executed) - Similar remedies to conditional seller Floating Charges - Bonds are evidence of an interest in a trust deed (a document evidencing a mortgage on the property of a corporation) o Additional security given through a floating charge  Floating charge is a mortgage on all the assets of a corporation that haven’t been mortgaged yet - Floating charge provides security over the whole of the assets as a working unit (can more easily put the whole thing in someone else’s hands) - A debenture is a bond with only a floating charge by itself (without a mortgage of specific assets) - All provinces require mortgages and floating charges to be registered…as with conditional sales and chattel mortgages, failure to register makes the trust deed void - Anytime the firm acquires any assets, the floating charge attaches to it o ie. If I’m a bank in a GSA, I would probably want a security interest on the inventory (through a floating charge), on the equipment and machinery, the accounts receivables, against the IP, vehicles, etc Personal Property Security Legislation Jurisdiction and Application - Each province has a Personal Property Security Act (PPSA) in mostly the same form Purpose of PPSA Legislation Defines a secured party’s remedies against a defaulting debtor Creates a system of registration to record all secured interests Defines priorities between secured party on one hand, and 3 party purchasers, subsequent secured parties, and general creditors on the other - Considers all security interests security agreements (ie. Leases, consignment, chattel mortgages, etc… applies to commercial consignments and leases for terms over 1 year) - When collateral property is disposed of by the debtor (borrower), the security interest attaches to the proceeds Key Components of the Personal Property Security Act (PPSA) 3 key components: Creation of a security interest Attachment of the security interest Perfection of the security interest - Security interest created when 2 people enter into some form of security agreement - Attachment occurs upon performance of the security agreement…interest cannot attach to an asset until the debtor has acquired an ownership interest in it - Perfection protects and establishes priority of the security interest and
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