Two recent cases, one in Alberta (TD Auto Finance (Canada) Inc. v. Yan, 2015 ABCA 114) and one in Ontario (BMW Financial Services Canada v. McLean, 2015 ONCA 342) both at the Court of Appeal level, upheld a secured party's claim in an automobile registered under applicable Personal Property Security Act legislation. While neither case is particularly remarkable or groundbreaking, each is a reminder that courts uphold the rights of a secured party even where the facts are sympathetic to a consumer.
TD Auto Finance (Canada) Inc. v. Yan
TD Auto Finance (Canada) Inc. entered into a conditional sale contract (CSC) with Ahmed Salman to finance the purchase of a vehicle The CSC contained a typical clause stipulating that Mr. Salman could not sell the car without the prior written consent of TD. After Mr. Salman’s first NSF cheque appeared, he made no subsequent payment and TD appears to have written-off the loan as bad debt. Months later, Mr. Yan purchased the vehicle from an intermediary source after completing a thorough check into the background of the car and the legitimacy of his purchase. It was subsequently discovered that the vehicle was “cloned” (or “re-VINed”), which means that the original vehicle identification number (VIN) was removed and replaced with a fraudulent one. After this fact was discovered by the Calgary Police Service, TD applied to recover the vehicle from Mr. Yan in order to recover the collateral for the original defaulted loan.
The Alberta Court of Appeal found that TD still maintained its claim on the collateral as the relevant legislation is intended to protect the security interests of the finance company over other parties’ interests. While Mr. Yan was duped by the same rogue actors as TD, the Court provided him with no recourse for the vehicle.
Of note, in arriving at a decision in favour of TD, the Court emphasized two points in support of protecting the rights of secured parties:
- To defeat the secured party’s claim, the Court highlighted the need for express or implied consent for the sale of collateral that is the subject of a security interest. For there to be implied consent, the Court emphasized the need for a secured party to know about the transaction.
- The Court rejected the suggestion that TD’s internal categorization of the outstanding debt as “bad debt” or a “doubtful” account should have an impact on TD’s ability to recover the collateral securing the debt. Categorizing a debt as such only has accounting ramifications, and does not weaken the secured party’s claim to the collateral.
BMW Financial Services Canada v. McLean
The facts of this case are straightforward and common. Ms. McLean purchased an expensive BMW (over $100,000) which she claimed never functioned properly. Being frustrated with the car, she sold it at an auction for much less than the outstanding balance due to BMW Financial Services Canada under her finance agreement. She claimed that she need not pay the balance as the car did not work as represented.
Ms. McLean’s claims of not having to pay the finance company were based on the "close connection" between the finance company and the dealership. Since the dealership owed her an obligation to have a working vehicle and since the dealership was “connected” with the finance company, Ms. McLean saw no reason to pay the finance company. The Court rejected this argument.
The Court reviewed the 1962 decision of Federal Discount Corporation Ltd. v St-Pierre, 1962, OR 310 (ONCA) which held that if there is a special relationship between the parties, then a court can look through the separate legal entities. In this case, no such special relationship was inferred.
This case is particularly important to the car finance industry because if it had been decided in the reverse, it would have caused a significant disruption in the expectations of captive car finance companies.