Introduction to Security under the PPSA

Personal Property Registration
The Personal Property Security Act, R.S.O. 1990 c. P.10 (the “PPSA”), governs security
interests in personal property and provides for a system of registration of personal property
security interests in Ontario.
A. The PPSA System
The PPSA creates a centralized personal property registry system where registrations of security
interests governed by the PPSA may be recorded. Secured parties who wish to register their
security interest in the registry system do not file the actual security agreement. Secured parties
file a simple notice, known as a financing statement, which contains basic information about the
security agreement. 5 Once a secured party has registered a financing statement, the secured party
has 30 days within which to deliver a copy of the financing statement to the debtor pursuant to
section 46(6) of the PPSA. With the exception of security interests relating to consumer goods,
a secured party may register a financing statement either before or after the security agreement is
executed by the debtor. 6
Originally, the registration system was entirely paper-based. However, in all provinces,
including Ontario, the register is now computerized and accessed electronically. 7 Amendments
Anthony 1. Duggan & Jacob S. Ziegel, Secured Transactions in Personal Property 5th ed. (Toronto: Edmond
Montgomery Publications Limited, 2009) at 210.
D.J. Donahue, P.D. Quinn & D.C. Grandilli, Real Estate Practice in Ontario 6th ed. (Markham: LexisNexis
Canada Inc., 2003) at 186.
Anthony J. Duggan & Jacob S. Ziegel, Secured Transactions in Personal Property 5th ed. (Toronto: Edmond
Montgomery Publications Limited, 2009) at 211.
1 – 4to the Ontario legislation in 2006 eliminated the paper option and now all financing statements
are required to be in the electronic format approved by the registrar. 8
The financing statement sets out the names and addresses of the debtor and the secured party, a
description of the collateral, and the duration of the registration. 9 Registrants, however, must be
careful to follow the registration requirements contained within the PPSA and its regulations, as
any error may lead to the registration being invalid and ineffective. 10
Security interests are registered and searched against the debtor’s name, or, for motor vehicles,
security interests may also be registered and searched against the motor vehicle’s Vehicle
Identification Number (“VIN”). If the motor vehicle is a consumer good, then the financing
statement must set out the VIN; however, if the motor vehicle is equipment or inventory,
including the VIN is optional. As a result of the decisions in Lambert (Re) (In Bankruptcy),
1995 CanLII 3500 (ON C.A.), and Magna International Inc. v. Formulated Coatings Ltd., 2009
CanLII 29907 (ON S.C.), including the correct VIN in a PPSA registration with respect to a
motor vehicle is advisable. The current law in Ontario is that a correct VIN cures the error ofthe
incorrect debtor name in the financing statement. Further searching by VIN should be
undertaken where security is taken over motor vehicles.
Unlike searches relating to ownership of real property, there is no search that can be done under
the PPSA to confinn whether the person selling or charging interest in personal property is the
legal owner.
Anthony J. Duggan & Jacob S. Ziegel, Secured Transactions in Personal Property 5th ed. (Toronto: Edmond
Montgomery Publications Limited, 2009) at 212.
R.R.O. 1990, Reg. 912
10 The test for consideration of whether an error in a registration invalidates it is whether “a reasonable person is
likely to be misled materially by the error or omission” pursuant to section 46(4) ofthe PPSA.
1 – 5To have a valid security interest against collateral in favour of the secured creditor, the secured
creditor must establish each ofthe following:
(a) Security Agreement. A security agreement between the creditor and the debtor
with respect to the collateral at issue must be established.
(b) Attachment. The creditor needs to establish that it gave value, the debtor has
rights in the collateral and the evidentiary requirements of the PPSA (a security
agreement signed by the debtor in favour ofthe secured party which describes the
(c) Perfection. The creditor needs to perfect its security interest. Part III of the
PPSA governs perfection and the required steps depend on the nature of the
collateral. Perfection is generally effected by registration of a financing
statemellt, possession ofthe collateral or cOl1trol ofthe collateral.
(d) Outstanding Obligation. The creditor needs to establish that there IS an
outstanding obligation owed by the debtor to it.
B. The basic priority rules
The basic priority rules are set out in section 30 of the PPSA. While a number of matters may
affect priority, the basic rule is that for security interests perfected by registration, priority shall
be determined by the order ofregistration regardless ofthe order of perfection. The effect ofthe
basic priority rule is that it is important to register the secured creditor’s financing statement as
soon as you can, so that a post registration certified search can be obtained before advancing
funds. While there are exceptions, generally if future advances are made while a security interest
is perfected, the security interest has the same priority with respect to each future advance as it
has with respect to the first advance.