Send the demand under the section written for exactly that gap — PPSA s.56(2), not the more familiar s.56(1) — because s.56(1) only works where a real security agreement’s obligations have been performed.
Short answer
A PPSA search that turns up a registration with no matching loan, no security agreement and no balance in the debt schedule is common, and the standard closing-checklist demand often fails on it. That is because Ontario’s Personal Property Security Act gives two different discharge routes for two different facts.
Section 56(1) applies where “all the obligations under a security agreement to which it relates have been performed” — a real security interest that has since been paid out. A registrant that never took security correctly has nothing to discharge under that section, because there were no obligations to perform in the first place. Section 56(2), headed Discharge where no security interest acquired, is the one written for this fact pattern: where “the person named in the financing statement or notice as the secured party has not acquired a security interest in the property to which the financing statement or notice relates, any person having an interest in the property may deliver a written notice to the person named as the secured party demanding registration of a financing change statement…or a certificate of discharge…and the person named as the secured party shall register.” A registration proves only that someone registered — s.46(5) says it “does not constitute constructive notice or knowledge to or by third parties of the existence of the financing statement or financing change statement or of the contents thereof” and creates no presumption the Act even applies to the underlying transaction. Ask the registrant for the security agreement, not just for a discharge, before assuming which section applies.
a registration for a security interest that never existed is the direct example: an eleven-year-old trade-supplier registration with nothing behind it, correctly declined under s.56(1), then discharged in eight days once the demand was reissued under s.56(2). A different registration problem — a lapsed registration after the collateral itself moved — runs on its own fifteen-day clock; see the fifteen-day clock after the collateral moved.
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