Commercial Law Part 3 Bank Act Security

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Commercial LawPart 3 Bank Act Security
Mechanics LiensBank Act Security
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History

• Bank Act security was introduced nearly 100 years
  ago when provincial secured lending law was
  unreformed
• It was innovative and ahead of its time in
  several respects
• Notice filing
• Notice of Intention filed in Bank of Canada
  Registry
• Allows security in after-acquired property
• Abolished rule in Hopkinson v Rolt
• It is now unnecessary in light of the PPSAs

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Limitations

• Lender
• Available only to banks governed by the Bank Act
• Debtor
• Natural resource sector
• Manufacturers
• Farming and acquiculture

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Interaction btw PPSA Bank Act

• PPSA and BAS are extremely poorly integrated
• Priorities between PPSA security and BAS is
  obscure in almost every respect
• All that is clear is that registered BAS has
  priority over subsequent PPSA security
• It is usual for Bank to take both PPSA and Bank
  Act security and register separately
• Then attempt to rely on which ever is most
  advantageous

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Tax Liens

• Municipal taxes lien and public utility lien
• Super-priority on real property without need for
  registration
• E.g. Ont Municipal Act s. 349, Public Utilities
  Act s. 31
• NB Real Property Tax Act s.11, Municipalities Act
  s. 189(10)
• Local improvement liens (e.g NB Muncipalities
  s,117 ff)
• Income tax, sales tax
• Must be registered, if applicable
• ITA s. 223, real and personal property
• Ont Retails Sales Tax Act s. 23, personal property

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Misc Liens

• Unpaid Vendors lien
• Possessory lien, does not require registraton
• s. 37, 38 Sale of Goods Act
• Lien against property of employer for unapid
  wages
• NB Employment Standards Act s. 381
• Requires registration
• Woodsmens Lien
• Lien on lumber
• Registration in court of Queens Bench
• Etc.
• Stable Keepers Act, C.C.S.M. c. S200
• Possessory lien for costs of boarding animals

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Mechanics Liens

• Lien against land
• S. 4(1)
• Basic idea is to protect subcontractors.
• Much construction takes place with a general
  contractor and subcontractors.
• Subcontractors are not in privity with owner.
• Subcontractors may be small businesses.
• Problem arises when contractor becomes insolvent
  and subcontractor has not been paid.

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Mechanics Liens

• Acts may set up two remedies
• lien
• trust.
• The Act creates a trust in the hands of certain
  persons
• E.g builder for moneys received, in respect of
  amounts owing to subcontractors see s.3 NB Act
• The trust creates a purely personal remedy
• It is effective against claims in bankruptcy and
  statutory liens.
• Not all jurisdictions have trust fund remedy and
  it differs significantly between jurisdictions.

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Mechanics Liens

• Lien is a real right
• Enforceable by sale of property
• Issues
• Creation
• Preservation
• Priorities

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Stop Here Fall 2008
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Creation

• Lien arises in favour of any person doing work or
  furnishing materials s.4
• In many jurisdictions it also arises in favour of
  lessee of equipment.
• Lien arises when work is done or materials are
  furnished s.8

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Preservation

• Lien expires
• on payment of person claiming lien
• on expiry of time set for filing, unless claim of
  lien is filed s.25
• Time varies 30-60 days s.24. Also varies
  between jurisdictions.
• 90 days from filing of claim, unless action is
  commenced s.27
• Or, in NB only, after the expiry of the period of
  credit mentioned in the filed claim of lien.
• If acting for a purchaser or lender, how far back
  should you search for a lien?

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Preservation and Holdback

• Lien extinguished by good faith payment to
  contractor
• Unless notice given to owner by subcontractor
• Only up to holdback amount
• 15-20 in NB s. 15(7)
• Owner who pays full amount to contractor is
  nonetheless liable up to holdback amount to
  subcontractor who was not paid
• Payment of holdback after time for expiry of lien
  extinguishes lien
• Owner should search before paying holdback to
  contractor

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Preservation and Holdback

• Owner who does not hold back is exposed
• Is this good policy?
• Who is more vulnerable, owner or subcontractor?

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Priorities

• Lien has priority over unregistered interests
• S. 9

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Priorities Registered Mortgages

• Generally, lien has super-priority for value
  which is attributable to the improvements made by
  the work secured by the lien
• Much jurisdictional variation in details
• E.g. NB
• Mortgage registered before lien claim is filed
• Has priority for advances made before lien claim
  is filed or actual notice of lien is given
• But only up to the value of the land at the time
  the advance is made
• So, lien which has arisen has priority to the
  extent that it increased the value of the
  property, even if unregistered and no notice

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Priorities Registered Mortgages

• Future advances
• Mee prior to other mee in respect of future
  advances unless actual notice is given
• Mee subordinated to lien holder even without
  notice
• Why the difference in policy?
• Should mee search for liens?

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Lien on Goods and Chattels

• Personal property
• Possessory lien only
• S. 6