PPSA – Seriously Misleading Registration & Defective Financing Statement

The Purchaser bought two trucks from a motor dealer under a financing agreement from the Bank.

First Truck
Insofar as the first truck is concerned, the Bank registered a financing statement in respect of the security interest it said it held. However the name of the Purchaser was not entered correctly on the financing statement by the Bank. Instead of The Purchaser (Civil) Pty Ltd being entered as the name of the grantor of the security interest, The Purchaser (Commercial) Pty Ltd was entered as the name of the grantor. The VIN was correctly recorded in the financing statement and in all other respects the details on the financing statement were correct.

Second Truck
In registering a financing statement over the Second Truck the Bank failed to describe the Second Truck relevantly as a “truck”, despite including reference to its make, model and serial number.

The Purchaser / Grantor subsequently went into receivership.
The Bank filed a claim for the vehicles with the Trustee in the estate of the Purchaser / Grantor.

PPSR Searches
The Trustee conducted a name search of the Personal Property Securities Register (“PPSR”) in respect of the First Truck, which did not reveal the financing statement of the Bank as an exact match for the First Truck.

The Trustee conducted a name search of the PPSR in respect of the Second Truck and noticed that the vehicle was not described as a “truck”, but rather as a motor vehicle.

The Trustee rejected the claim of the Bank in respect of both vehicles.

The Contentions
In respect of both trucks the Trustee contended:

• The financing statement was seriously misleading (See ss 164 & 165 of the PPSA);
• The purported registration was invalid; and
• The interest of the Bank was that of an unperfected security interest.

The Bank contended that its security interest was perfected in respect of both trucks.

Discussion

s.164 of the PPSA
(1)     A registration with respect to a security interest that describes particular collateral is ineffective because of a defect in the register if, and only if, there exists:
(a)     a seriously misleading defect in any data relating to the registration,
other than a defect of a kind prescribed by the regulations; or
(b)     a defect mentioned in section 165.

(2)     In order to establish that a defect is seriously misleading, it is not necessary to prove that any person was actually misled by it.

(3)     A registration that describes particular collateral is not ineffective only because the registration is ineffective with respect to other collateral described in the registration.

s.165 of the PPSA
For the purposes of paragraph 164(1)(b), a defect in a registration that describes particular collateral exists at a particular time if any of the following circumstances exist:
(a)     in a case in which the collateral is required by the regulations to be described by serial number in the register –
no search of the register by reference to that time,
and by reference only to the serial number of the collateral,
is capable of disclosing the registration;

First Truck

• There is no requirement to conduct both a name and a VIN search for collateral that may or must be described by serial number.
• “In cases where inclusion of a serial number is mandatory, a wrong name cannot save a right number; and
• conversely, a wrong number cannot be saved by a right name” [60].
• The PPSA uses a notice-filing system which is effective only if all of the required information is correctly entered (or at least, not seriously misleading) [27]–[28].

(See Stevenson v GMAC Leaseco Ltd (2003) FPPSR ¶700-120; Other citations: 2003 NBCA 26; 4 PPSAC (3d) 211; 227 DLR (4th) 154; 42 CBR (4th) 43; 257 NBR (2d) 141
per Robertson JA with Turnbull and Deschênes JJA (concurring).

• The search of the PPSR by the Trustee revealed the incorrect name of the grantor of the security interest claimed by the Bank.
• The description of the collateral (the First Truck) on the financing statement of the Bank was seriously misleading.
• The financing statement of the Bank in respect of the First Truck was defective.
• The purported registration of the security interest of the Bank in relation to the First Truck was ineffective. (See s.164 of the PPSA)
• The Bank did not hold a perfected security interest at the time of the bankruptcy.
• The Trustee took priority as against the Bank.

Second Truck

• The omission of the Bank in failing to describe the collateral (the Second Truck) as a “truck” was not seriously misleading as to make the registration ineffective.
• Therefore the Bank held a perfected security interest at the time of bankruptcy; and
• The Bank took priority as against the Trustee.

(See International Harvester Credit Corporation of Canada Limited v Touche Ross Limited, Trustee of the Estate of Bell’s Dairy Limited per Hall, Tallis and Cameron JJA.
(1986) FPPSR ¶700-101; (1986) 6 PPSAC 138; 30 DLR (4th) 387; [1986] 6 WWR 161; 34 BLR 76; 61 CBR (NS) 193; 50 Sask R 177)