Part 3

Report
Part 3 – Bank Act Security &
Mechanics’ Liens
Bank Act Security
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
Limitations

Lender


Available only to banks governed by the Bank Act
Debtor
Natural resource sector
 Manufacturers
 Farming and acquiculture

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
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

Misc Liens

Unpaid Vendor’s lien



Lien against property of employer for unapid wages



NB Employment Standards Act s. 381
Requires registration
Woodsmen’s Lien



Possessory lien, does not require registraton
s. 37, 38 Sale of Goods Act
Lien on lumber
Registration in court of Queen’s Bench
Etc.

Stable Keepers Act, C.C.S.M. c. S200

Possessory lien for costs of boarding animals
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.
Mechanics’ Liens

Acts may set up two remedies

lien
 trust.
The Act creates a trust in the hands of certain persons



The trust creates a purely personal remedy


E.g builder for moneys received, in respect of amounts owing
to subcontractors: see s.3 NB Act
It is effective against claims in bankruptcy and statutory liens.
Not all jurisdictions have trust fund remedy and it
differs significantly between jurisdictions.
Mechanics’ Liens

Lien is a real right


Enforceable by sale of property
Issues
Creation
 Preservation
 Priorities

Stop Here Fall 2008
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
Preservation

Lien expires


on payment of person claiming lien
on expiry of time set for filing, unless claim of lien is filed:
s.25


90 days from filing of claim, unless action is commenced: s.27


Time varies 30-60 days: s.24. Also varies between jurisdictions.
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?
Preservation and Holdback

Lien extinguished by good faith payment to contractor


Only up to holdback amount



Unless notice given to owner by subcontractor
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
Preservation and Holdback


Owner who does not hold back is exposed
Is this good policy?

Who is more vulnerable, owner or subcontractor?
Priorities

Lien has priority over unregistered interests

S. 9
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
Priorities – Registered Mortgages

Future advances
M’ee prior to other m’ee in respect of future
advances unless actual notice is given
 M’ee subordinated to lien holder even without notice



Why the difference in policy?
Should m’ee search for liens?
Lien on Goods and Chattels


Personal property
Possessory lien only

S. 6

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