A recent Ontario Superior Court case has given creditors another reason to provide vehicle identification numbers ("VINs") on PPSA registrations when they take security in motor vehicles. Including the VIN provides a safety net for creditors in case of registration against an incorrect debtor name.
Typically, an error in the debtor name would make the financing statement invalid resulting in an unperfected security interest. This includes minor errors such as using an incorrect corporate modifier; "Lt" instead of "Ltd."
Section 46(4) of the Personal Property Security Act (Ontario) ("PPSA") is a curative provision which provides some relief in case of errors in registrations. It states that a financing statement is not invalid by reason only of an error or omission therein, unless a reasonable person is likely to be misled materially by the error or omission.
Re Lambert (1995), 7 P.P.S.A.C. (2d) 240 ("Lambert") interpreted this curative provision of the PPSA as it relates to motor vehicles in the consumer goods context, where the registration of VINs is mandatory. In Lambert, the Court of Appeal stated that where the property is a motor vehicle, the reasonable person will conduct both a specific debtor name search and a VIN search. This means that although there is an error in the debtor name, a correct VIN would save the registration from being invalidated.
In a recent case, Magna International Inc. v. Formulated Coatings Ltd., Hand Written Endorsement (Ont. S.C.J.) (May 12, 2009: Morawetz, J.) ("Magna") it was confirmed that the Lambert principle applies to commercial transactions, even though the registration of VINs is optional in a commercial context.
In the past, creditors have been motivated to file VINs to protect themselves from the application of s. 28(5) of the PPSA which deals with the sale of motor vehicles not in the ordinary course of business. This section states that where a motor vehicle is sold, other than in the ordinary course of business of the seller, and the motor vehicle is classified as equipment of the seller, the buyer takes it free from any security interest therein given by the seller even though it is perfected by registration unless the vehicle identification number of the motor vehicle is set out in the designated place on a registered financing statement or financing change statement or unless the buyer knew that the sale constituted a breach of the security agreement.
Magna simply provides another incentive to register your VIN.