For a lender in the agricultural space, some of the most
valuable assets a lender may be relying on for recovery purposes
are the production quotas held by their borrower. Legislation in
Ontario provides for various types of production quotas, including
for example for the production of tobacco, milk, eggs and poultry,
which control each and every aspect of the production, sale and
marketing of the subject matter of the quota in Ontario.
Lenders should be aware that the Ontario Court of Appeal has
consistently held that production quotas are not property within
the meaning of the Personal Property Security
Act1 (Ontario) (the
"Act"). As a consequence a security
interest cannot be taken in a production quota and the production
quota cannot validly be included as the subject matter of a general
This issue was examined in Re National Trust Co. and
Bouckhuyt2 (1987), where the Ontario Court of
Appeal was asked to determine if a tobacco quota allotted pursuant
to the regulations under the Ontario Farm Products Marketing
Act3 constituted intangible personal property for
the purposes of the Act for which a valid security interest could
be taken in. The Court found that the essence of the authorizing
legislation and regulations thereunder was to control every aspect
of the industry, and control of the industry was based upon control
of the quotas themselves. In this regard, the Court found that as
the "basic production quota" was by its nature subject to
such discretionary control and so "transitory and
ephemeral" that it could not be considered property within the
scope of the Act.4 The position in Bouckhuyt was
followed again by the Ontario Court of Appeal in Bank of
Montreal v. Bale.5
Lenders may be able to get comfortable with their rights of
realization on a production quota, subject to the wording of the
governing legislation, through other means such as an assignment of
the production quota, but should be aware that the Courts in
Ontario will likely find a security interest in a production quota
to be unenforceable.6 It should be noted that most
entities which control the production quotas, such as the Turkey
Farmers of Ontario or the Chicken Farmers of Ontario, will agree to
make a notation on the particular quota that it cannot be assigned
without the consent of the lender.
1. R.S.O. 1990, Chapter P.10.
2. 61 O.R. (2d) 640 (C.A.).
3. R.S.O. 1990, Chapter F.9.
4. Ibid at para 23.
5. 36 ACWS (3d) 1064.
6. See Bank of Montreal v. Bale,  OJ No.
1541, where the Court dismissed on summary judgement the
Plaintiff's security interest in a milk production quota. This
position was upheld on appeal.
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.
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