Nov 18, 2014

Secured party demanded payment and debtor said he couldn’t make it. The secured party immediately appointed a receiver to start seizing the goods. The secured party gave 3 hours notice that they would seize goods. Can the SP enforce their interest? No.

The law in Canada wrt reasonable time for a creditor to demand payment from a debtor was established by the SCC in Lister: a debtor, following a proper demand for payment,, must be allowed a reasonable time to raise the necessary funds to satisfy the demand. What constitutes reasonable time will depend on the circumstances, but will generally be of a very short duration. What is the reasonable time to satisfy a demand in the circumstances? There are situations in which it is reasonable for a lender to demand payment and almost immediately thereafter enforce its security. However, the reasonable time principle considers the factual scenario in which the demand takes place. A creditor may be justified in demanding payment on very short notice where there is justifiable apprehension of dishonesty on the part of the debtor or where giving of more time would be of no avail. However, any very short notice period—certainly one of less than a day—is prima facie unreasonable, and it is up to the creditor to show why, in the particular circumstances, the period allowed was reasonable. If debtor has not chance of paying or is acting dishonestly, then reasonable notice could be extremely short. Consider the following factors: type of collateral (perishable?); level of risk; relationship between parties; etc. In this case, three hours was not reasonable , so the unlawful seizure effected an unlawful conversion of Kavcar's assets.

The common law “reasonable notice requirement” applies in the PPSA context when a debtor trigger a default event and the creditor demands full payment of the debt obligation. What is reasonable will depends on the circumstances (risk; type of collateral; relationship between parties).