A recent Canadian case serves as an important reminder that title‑retention or reservation‑of‑title clauses – commonly found in conditional sales contracts – constitute security interests that must be registered under the applicable Personal Property Security Act (PPSA). Failure to register and perfect such a security interest exposes a financier to the risk that the financed goods will be subject to the claims of the purchaser’s prior secured creditors.
Case Overview & Court’s Decision
In the recent decision of the Court of King’s Bench for Saskatchewan in Royal Bank of Canada v KF Kambeitz Farms Inc., 2026 SKKB 50, Purely Canada Foods Corp. (Purely) entered into a grain purchase agreement (the Purchase Agreement) with KF Kambeitz Farms Inc. (KF), under which KF agreed to sell durum grain (the Durum) to Purely on the basis that ownership would remain with KF until payment. KF did not register a financing statement pursuant to the Saskatchewan PPSA (the SK PPSA). By contrast, RBC held a valid security interest in all of Purely’s present and after‑acquired property, which was properly registered pursuant to the SK PPSA.
KF took the position that it was not required to register a financing statement under the SK PPSA because it did not consider the Purchase Agreement to be a conditional sale agreement and therefore did not give rise to a security interest in the Durum. The Court rejected this position after reviewing the Purchase Agreement and concluding that it constituted a conditional sales agreement to which the SK PPSA applies.
In reaching this conclusion, the Court noted that the language of the Purchase Agreement was consistent with a purchase and sale of grain, including references to “purchase” throughout the agreement, along with statutory declarations required under the Canada Grain Act for the sale of grain to and from licensees. The Court also observed that the Purchase Agreement contained a title‑retention clause providing that the Durum “shall remain with the Seller until such time as the Buyer has paid to the Seller the full Purchase Price.” Thus, the Court held that this clause created a conditional sale, thereby bringing the Purchase Agreement within the scope of the SK PPSA. As a result, the Purchase Agreement was treated as a security agreement pursuant to which Purely granted KF a security interest in the Durum – and KF was required to register a financing statement under the SK PPSA to maintain its priority or perfect said priority via possession. While perfection by possession is available under the SK PPSA, such possession must occur prior to the registration of the financing statement.
When KF later sold the Durum after Purely became insolvent, the Court granted RBC a declaration of priority over the Durum on the basis that the Purchase Agreement constituted a conditional sales contract to which the SK PPSA applies. As an unperfected secured creditor, KF’s interest ranked behind RBC’s perfected security interest. The Court further confirmed that KF may be liable for damages for selling the Durum without notice, with the quantum of damages to be determined at a later date.
Key Takeaway
This decision reinforces that title-retention clauses will be treated as security interests under the SK PPSA, and those who fail to register such security interests do so at the risk of being subordinated to properly registered, prior secured creditors. Ultimately, it is the registration and perfection of a security interest – rather than possession or title – that determines priority.
We note that the same analysis applies in other common‑law provinces across Canada, including Ontario. Accordingly, a perfected general security interest that is properly registered under the applicable provincial PPSA will always take priority over an unperfected security interest, including an unperfected conditional seller. While a conditional seller may perfect its security interest by possession, priority will depend on the timing of possession relative to the registration of competing security interests. In this case, RBC’s registration occurred prior to KF’s possession, and RBC therefore held priority. This decision serves as a clear warning to goods and equipment financiers that a failure to register, and to provide any required statutory notice prior to disposition, can result in a loss of priority and potential liability for damages.
If you have any questions regarding this decision or about registering and perfecting your security interests, please do not hesitate to contact the authors or any member of our Banking & Specialty Finance Group.