… CHECK THAT VIN

If you are a mechanic or storer that uses the Repair and Storage Liens Act (RSLA) or a dealer that is directly involved in in-house financing, and secure your interest using the Personal Property Security Act (PPSA), then you will know the basics about liens. However, you should know that recording the information correctly on the lien is just as important as registering the lien itself. In fact, if you get enough information incorrect, then your lien may not be valid to begin with.

This is because half of the purpose of registering a lien is to give those interested in purchasing, performing work on, or lending money against the property that is subject to the lien, notice of your lien interest. Just as you can register a lien, these interested parties can do lien searches on property. You can do a lien search by VIN or by searching the names of previous owners. If the lien is not properly registered, they will have no way of being able to do their ‘homework’. Ontario case law shows the importance of this process through the “likely to be misled materially” test.

Not as Forgivable

Errors made with registrations for property, such as equipment, which may lack searchable identifiers, like vehicle identification numbers (“VINs”), are not as forgivable as those made with respect to traditional motor vehicles. In such cases, the only information that any interested party, performing due diligence, has to go by is the name of the owner/ debtor. In other words, in some cases, a simple typo or omission of the middle name or middle initial is enough for a lien to be invalid because someone performing a lien search using a full name may not see the lien.

Where there is a VIN, a simple typo with the name, is less likely to invalidate a lien because a lien search by VIN would reveal the lien. The Lambert (Re) (In Bankruptcy), 1994 Court of Appeal decision makes this clear.

Lambert involved a motor vehicle purchased by Mr. Lambert under a conditional sale contract (secured by a PPSA lien). The lien was eventually ‘assigned’ by the original lienholder to another party, but the issue was that the lien was against “Gilles J. Lambert” (as per the sales contract), but Mr. Lambert’s legal name was actually “Joseph Phillips Gilles Lambert”.

All other details on the lien, including his date of birth, the VIN and the type of goods “consumer goods” were accurate. Mr. Lambert

then went bankrupt. The lienholder filed a claim as a secured creditor. The trustee in bankruptcy did several different types of name searches, which failed to reveal the lien due to the discrepancy between the name used to register the lien and Mr. Lambert’s legal name. The trustee in bankruptcy failed to perform a lien search by VIN. The trustee in bankruptcy moved to have the lienholder’s interest declared as invalid. At the trial level, the trustee was successful.

Successful Appeal

The lienholder appealed and was successful at the Court of Appeal. The Court of Appeal ruled that the trustee in bankruptcy failed to do its due diligence. If the trustee did a lien search by VIN, the PPSA lien would have been clear. Therefore, the error with the name registration would not cause a reasonable person to “likely be misled materially”.

There are two key lessons from this case. The first is that the RSLA and PPSA can be more forgiving when it comes to typos with a name, as long as there is also a VIN present. The second key takeaway is that you should always double-check the information you are submitting for lien registration. Although the lienholder was successful in Lambert, it was after significant time, effort, and legal fees. A little due diligence would have saved them a lot of trouble.

As a final note, keep in mind that it is illegal to sell a vehicle without a VIN on the dash. You should not be in any hurry to buy such a vehicle either, because it could be a stolen vehicle or have liens on it that are not easily identifiable.

Good News

The good news is that there is a process to address that. Dealers looking have their vehicle inspected for legitimacy or to obtain a replacement VIN can do so by emailing notifications@equiteco.ca or calling 416- 252-3441.

To ensure your lien searches and registrations are done correctly, make sure to provide the UCDA’s Lien Search and Registration Department all the details either online or by contacting them at 1-800-268-2598.

Members interested in reading the full Lambert decision can do so by following this link: https://canlii.ca/t/6jw7