Every now and again, a mistake is made and a PPSA financing
statement is discharged in error. The law is quite clear that a
discharged financing statement can be re-perfected and, that
provided there have been no intervening registrations or advances
under loans, the priority remains. However, in all PPSA provinces,
other than Ontario, the re-registration must take place within
thirty days in order to maintain priority (Ontario does not have a
thirty day rule). The recent case in the Supreme Court of British
Columbia between KBA Canada, Inc. ("KBA") and 3S
Printers, Inc. ("3S"), CIT Financial Ltd.
("CIT") et al., applied equitable principles in order to
save a lapsed registration of over thirty days. As will be
discussed below, the use of equity is a double edged sword as it
may lead to uncertainty and undesirable results.
The lessor had a lease with 3S which was a duly registered PMSI.
Subsequent to the lessor's PMSI registration, each of CIT and
Supreme Graphics Ltd. ("Supreme Graphics") entered into
secured transactions with 3S, both of which were duly registered
under the PPSA. 3S defaulted in its obligations under the lease to
the lessor and the lessor assigned the lease to KBA. At that time,
lessor caused the registration perfecting its security interest to
be amended to show KBA as the secured party. Lessor later
accidently discharged the KBA registration without KBA's
approval or knowledge. The court took specific notice of the fact
that verification statements of the discharge was sent by ordinary
mail and as such, there was no certainty that KBA had or could have
had knowledge of the discharge. KBA learned of the discharge on
July 15, 2010 and lessor immediately re-registered.
In order to maintain priority, sub-section 35(7) of the B.C.
PPSA requires that re-registration occur within thirty days of the
discharge. Any party who registers or advances funds during the
lapse period would have priority over the lapsed registration.
Ontario law has the same result except re-registration may occur at
any time as there is no thirty day requirement to re-register.
As the registration was not re-registered within thirty days,
both KBA would lose its priority and CIT and Supreme Graphics would
have the benefit of the KBA collateral.
The court referred to this result as a 'windfall' for
the other creditors, including CIT and Supreme Graphics.
However, given that clear wording of Section 35(7) of the B.C.
PPSA, what jurisdiction did the court have to not follow the strict
reading to the Act?
KBA argued that Section 68(1) and Section 70 of the Act allowed
the court to use its equitable power to rectify the situation. The
court noted that the use of equity in the context of a strict code
such as the PPSA is not to be utilized lightly as there are
significant benefits to the finance community at large to have the
certainty set out in the code. Notwithstanding this importance of
certainty, the court held that in the very specific circumstances
at hand, being that a third party discharged the registration and
that there was no certain delivery system of the verification
statement, it would be unjust not to apply equity and provide KBA
with a first priority in the collateral.
While the result in the case strikes an Ontario lawyer as
correct (as there is no thirty day requirement under Ontario), it
is a dangerous precedent that may be utilized in other less clear
circumstances. By way of example, Ontario has very strict rules for
perfecting a PMSI, including the requirement to register within
fifteen days of the date of delivery of the equipment. Often the
secured party misses this fifteen day period providing a general
secured creditor with a 'windfall'. Using the tests as set
out in the KBA case, there could be an equitable reason not to
accept the strict reading of the Act. While the current case can be
distinguished as unique due to the third party discharge and the
non-delivery of the verification statement, it leaves the door open
for parties to generalize the result. This could lead to increased
litigation and uncertainty. Perhaps this is a dangerous slippery
slope. While forgiveness may be divine, it may have many unintended
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
It is not uncommon for parents to provide monetary gifts to their adult children. Parents may wish to help their child with a down payment on a property, or help pay out their child's existing mortgage.
On March 31, 2014, BC's new Wills, Estates and Succession Act1 ("WESA") will come into force. WESA introduces new protections for beneficiaries of estates that are in danger of being disputed or deemed ineffective by a court.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).