By its functional approach, the Act states that all transactions that, in substance, create an interest in personal property to secure payment or the performance of an obligation are security interests. Under the functional approach, the form of the transaction and the location of title are irrelevant.
This definition effectively captures most traditional security transactions involving personal property including:
- Fixed and floating charges; and
- Legal and equitable mortgages.
But it also includes title based securities such as:
- Retention of title/romalpa clauses; and
- Hire-purchase/conditional sale agreements.
Deemed Security Interests
Additionally, the Act deems that certain transactions are security interests whether or not they secure payment or the performance of an obligation. These interests include:
- the interests of a transferee under a transfer of an account or chattel paper;
- the interest of a consignor who delivers goods to a consignee under a commercial consignment;
- the interest of a lessor or bailor of goods under a PPS lease.