TD Auto Finance (Canada) Inc v Yan, 2015 ABCA 114

BY Bobby Randhawa

 

Background

This action stems from a conditional sales contract between TD Auto Finance (Canada) Inc. (“TD Auto”) and Ahmed Salman for the purchase of a vehicle. TD Auto also registered a security interest on the vehicle in the personal property registry.

A few months after entering into the contract, Mr. Salman defaulted on his loan payments to TD Auto. Weeks after Mr. Salman default on the loan, the vehicle identification number (“VIN”) on the vehicle was fraudulently altered. The result was that anyone doing a search of the personal property registry for the fraudulent VIN would not get notice of TD Auto’s security interest.

After the vehicle’s VIN was altered it was sold to Mr. Yan. Neither TD Auto nor Mr. Yan had any knowledge about the fraudulent activity surrounding the vehicle’s VIN. Mr. Yan, an especially cautious buyer, was not aware of TD Auto’s security interest.

TD Auto eventually received notice of the transfer in possession of the vehicle through the course of a police investigation. After discovering the vehicle had been purchased by Mr. Yan, TD Auto applied to the court to enforce its security interest in the vehicle.

TD Auto’s application was dismissed after the chambers justice found TD Auto impliedly consented to the transfer of the vehicle free of any security interest. The justice’s finding of implied consent was on the basis that TD Auto failed to act in a timely manner to enforce its security interest after Mr. Salman defaulted on the loan. TD Auto appealed the decision.

 

Decision of the Court of Appeal

The unique circumstances of this case put the interpretation of s. 28(1)(a) of the Personal Property Security Act, RSA 2000, c P-7 (“PPSA”) and implied consent to dealings of secured collateral, squarely in front of the Court of Appeal. Given the minimal amount of case law on this issue, this decision will have significance in Alberta and other jurisdictions with similarly worded personal property legislation.

Section 28 of the PPSA codifies the long standing principle that a purchaser cannot get possession of property from a vendor that does not own the property. It also carves out exceptions to the rule that allow title in secured collateral to pass without a security interest attached. These exceptions are designed to efficiently facilitate the buying and selling of goods that may be subject to security interests.

The situation giving rise to this case may have also identified a legislative hole in the PPSA. There are no provisions in the PPSA specifically dealing with tampered serial numbered goods. Typically, the expectation from doing a search in the registry for a serial numbered good is that the result will identify any attached security interests. When that search cannot be relied on, due to a counterfeit serial number, the PPSA leaves no recourse to purchasers relying on these incorrect search results.

The Respondent was the very definition of a good faith purchaser for value. He went beyond what most purchasers would have in performing due diligence. It was a situation where the Respondent would never have been able to learn of the Appellant’s security interest by running a search on the viewable VIN. The Court of Appeal made it clear that based on the PPSA, the risk of loss in this situation will be borne by the purchaser. The secured creditor will always be able to follow the collateral into the hands of subsequent purchasers, absent express or implied consent to the transaction.

The Court of Appeal clearly outlined that implied consent must mean informed consent. A secured creditor having no knowledge of a transfer in secured collateral will not be found to have given implied consent to the transfer.

This decision gives secured creditors additional certainty regarding the enforceability of security interests in collateral. Buyers such as the Respondent will likely need to look at taking extra precautions to protect themselves from inadvertently purchasing a serial numbered good subject to a security interest.