Q: Our borrower was supposed to provide a
general security agreement to secure its loan, and our back office
made an Ontario PPSA1 registration against the borrower
in anticipation of that. The CFO sent us an email that purported to
attach a signed security agreement, but I see now upon viewing the
attachment that the agreement was never actually signed for some
reason. Can we rely upon the email and its unsigned attachment? The
CFO recently left the borrower so I am reluctant to go back and ask
his replacement for this to be done.
A: Pursuant to the Ontario PPSA, a security
interest is not enforceable against a third party unless it has
"attached" to the collateral being charged.
Subsection 11(2) outlines the formal requirements for attachment,
which include the following:
a signed security agreement
the security agreement contains a
description of the collateral sufficient to identify it;
value has been given by the secured
party to the debtor; and
the debtor has rights or the power to
transfer rights in the collateral.
In certain limited circumstances, the courts in Ontario and in
other provinces have held that a legally binding agreement can
exist between parties despite the absence of a signed agreement. In
some cases, email communications have been sufficient evidence of
In Beck2, for example, the court found that
a settlement agreement existed between two parties notwithstanding
the fact that the defendant did not sign the agreement or a
release. By email correspondence, the parties discussed the terms
of settlement and the defendant explicitly stated that she accepted
the terms of the settlement. Consequently, the court was willing to
find and enforce a binding agreement.
In SR Télécom3, the court
considered whether an enforceable security interest existed. It was
argued that a security interest was created through a series of
discussions and email communications. However, a formal security
agreement was not prepared or signed. The case was ultimately
decided on other grounds. The court noted that it was open to doubt
whether the communications were sufficient to establish a security
interest. However, the court did not rule it out considering the
"low threshold" required to be met.4 It is
important to note, however, that SR Télécom
was a decision of the British Columbia Supreme Court and there are
some variations between the Ontario PPSA and the British Columbia
In considering whether certain alleged oral security agreements
were enforceable, the Ontario courts have strictly construed the
Ontario PPSA and held that the lenders in those cases did not have
"signed" security agreements.6 Although having
an email with a clear intention from the debtor to deliver an
attached unsigned agreement represents a step up from the
"oral agreement" position, it is not clear whether the
courts would see it as enough to override the express statutory
requirement for a "signed" document.
In the case at hand, the email sent by the former CFO may be
sufficient evidence of an agreement, as between the borrower and
the bank, to grant a security interest. However, it is unlikely to
be considered as enforceable against third parties. In the absence
of clear judicial authority, a duly executed general security
agreement is the only way to establish the requirement for
attachment and the bank's ability to enforce its interest. Even
if we assume that the former CFO had the authority to execute and
deliver the general security agreement at the time, it would be
best to pursue a replacement fully executed and delivered general
security agreement to complete the bank's security package.
1 Personal Property Security Act, RSO 1990, c
P.10 [Ontario PPSA].
2 Beck v Chmara, 2014 ONSC 4874
3 SR Télécom & Co v Apex –
Micro Manufacturing Corp, 2008 BCSC 1768 [SR
4 SR Télécom at para.
5 Personal Property Security Act, RSBC 1996, c
359 [British Columbia PPSA].
6 Astral Communications Inc. v. 825536 Ontario Inc.
(Trustee of), 1999 CarswellOnt 1568, reversed 2000 CarswellOnt
83; 1253174 Ontario Inc. v. Tarion Warranty Corp., 2010
ONSC 2882; Paribas Bank of Canada v. Premier Salons Canada
Inc., 1998 CarswellOnt 5187.
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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