On appeal from the decision of the Registrar of the Court of Queen s Bench dated October 13, 2017 Date: 20180411 Docket: BK 16-01-04099 (Winnipeg Centre) Indexed as: Toyota Credit Canada Inc. v. MNP Ltd. Cited as: 2018 MBQB 57 COURT OF QUEEN S BENCH OF MANITOBA IN THE MATTER OF THE BANKRUPTCY OF ROSA ARGENTINA GONZALEZ BETWEEN: ) APPEARANCES: ) TOYOTA CREDIT CANADA INC., ) J. Michael J. Dow and ) Genevieve Eliuk Mushaluk Applicant, ) for the applicant - and - ) ) A.J. Stacey MNP LTD., TRUSTEE OF THE ESTATE IN ) for the respondent BANKRPUTCY OF ROSA ARGENTINA ) GONZALEZ, ) ) Judgment delivered: Respondent. ) April 11, 2018 TOEWS J. Introduction [1] This is an appeal of Toyota Credit Canada Inc. (the applicant) of an order of the Registrar in Bankruptcy (the registrar) upholding the disallowance by the Trustee in Bankruptcy (the respondent) of the applicant s claim to a 2013 Toyota Corolla automobile (the automobile). The applicant seeks an order that its claim to the automobile is a valid secured interest and enforceable in priority to the respondent.
Page: 2 [2] The registrar held in his decision, Toyota Credit Canada Inc. v. Gonzalez (Trustee of), 2017 MBQB 178, [2017] M.J. No. 286 (QL), that the applicant erred by registering its interest in the automobile pursuant to The Personal Property Security Act, C.C.S.M. c. P35 (the PPSA) by using the name R Argentina Gonzalez on the financing statement. The debtor s legal name on her certificate of Canadian citizenship is Rosa Argentina Gonzalez (the debtor) and according to s. 14(2) of the Personal Property Registry Regulation (the regulations), this is the name to be used for this particular debtor on a financing statement. However, the applicant did use the correct serial number of the automobile on the financing statement as required by the regulations. [3] The debtor made an assignment in bankruptcy with the respondent as trustee on May 3, 2016. The debtor advised the trustee of the existence of applicant s interest in the automobile in the course of preparing the documentation for the assignment into bankruptcy, and a search by the trustee at the Personal Property Registry (the PPR), using the serial number, located the financing statement. [4] On May 11, 2016, the applicant filed a proof of claim with the trustee, claiming a secured interest in the automobile for the outstanding debt of $17,624.61. [5] The parties are in agreement that a search conducted of the PPR using the name on the debtor s certificate of Canadian citizenship did not disclose the financing statement registered by the applicant. Although the PPR is programmed so that a similar match result will be produced when a debtor s name in the PPR system is similar to the name
Page: 3 searched, a similar match result was not produced by the PPR in response to the debtor s name. [6] The respondent advised the applicant that its secured claim was disallowed, as the search of the PPR by way of the debtor s name as shown on the certificate of Canadian citizenship did not disclose the registration of the applicant s financing statement. The respondent s position was that the applicant s security interest was not validly perfected and effective as against the respondent; however, its claim was admitted as an unsecured claim. [7] The registrar upheld the position of the respondent. In his decision the registrar held that since the search of the correct name of Rosa Argentina Gonzalez did not disclose an exact or similar match, the result was seriously misleading and the registration is invalidated as a result of the operation of s. 43(8) of the PPSA. Further, the registrar held that if a search of the Manitoba PPR of a debtor s correct name does not reveal a match, there is no requirement that the searcher then perform a serial number search. The registrar held that requiring such a search would be in conflict with s. 43(8) since the wording of the section deems a registration to be invalid when there is a seriously misleading error in the name or the serial number. The Issues I. Does the failure of the applicant to have used the full name of the debtor in the financing statement as prescribed by the regulations constitute a defect that is seriously misleading and therefore invalidate its registration; and
Page: 4 II. Is the applicant s claim to a secured claim saved by it having registered against the correct serial number of the automobile? The Relevant Legislative and Regulatory Provisions The Legislation Perfection of security interest 19 A security interest is perfected when it attaches and every other step required for perfection under this Act is completed, regardless of the order of occurrence. Subordination of unperfected security interest 20 A security interest (a) in collateral is subordinate to the interest of (i) a person who causes the collateral to be seized under legal process to enforce a judgment, including execution, attachment or garnishment, or who has obtained a charging order or equitable execution affecting or relating to the collateral, (ii) a sheriff who seizes the collateral under The Executions Act, (iii) a judgment creditor entitled by law to participate in the distribution of property seized under legal process, or its proceeds, as provided in The Executions Act, and (iv) a representative of creditors, but only for the purpose of enforcing the rights of persons referred to in subclause (i), if that security interest is unperfected at the time (v) the interest of the persons mentioned in subclause (i), (ii), or (iv) arises, or (vi) the judgment creditor referred to in subclause (iii) causes the collateral to be seized under The Executions Act; (b) in collateral is not effective against (i) a trustee in bankruptcy if the security interest is unperfected at the date of bankruptcy, or (ii) a liquidator appointed under the Winding-up Act (Canada) if the security interest is unperfected at the date that the winding-up order is made; (c) in goods, chattel paper, a document of title, an instrument or an intangible or money is subordinate to the interest of a transferee who (i) acquires the interest under a transaction that is not a security agreement,
Page: 5 (ii) gives value, and (iii) acquires the interest without knowledge of the security interest before the security interest is perfected. Perfection by registration..... 25 Subject to section 19, registration of a financing statement perfects a security interest in collateral. Effect of defects and errors..... 43(6) The validity of the registration of a financing statement is not affected by a defect, irregularity, omission or error in the financing statement or in the registration of it unless the defect, irregularity, omission or error is seriously misleading. Effect of error in name of debtor 43(7) An error in the spelling of any part of the name of a debtor set forth in a financing statement or other document required or authorized to be registered in the Registry invalidates the registration and destroys the effect of the registration if a search of the Registry under the correct name of the debtor would not reveal the registration. Registration invalidated by error 43(8) Subject to subsection (10), where one or more debtors are required to be disclosed in a financing statement, or where collateral consists of consumer goods prescribed as serial numbered goods, and a seriously misleading defect, irregularity, omission or error appears in (a) the disclosure of the name of any of the debtors, other than a debtor who does not own or have rights in the collateral; or (b) the serial number of the collateral; the registration is invalid. Proof of misleading error 43(9) Nothing in subsection (6) or (8) requires as a condition to a finding that a defect, irregularity, omission or error is seriously misleading, proof that anyone was misled by it. The Regulations Personal Property Registry Regulation - 80/2000:
Page: 6 Individual debtor's name and birth date 14(1) If the debtor is an individual, the financing statement shall set out (a) in the field designated for the debtor's surname, the debtor's surname or, if the debtor's name does not include both a surname and a first given name, the debtor's full name; (b) in the field designated for it, the debtor's first given name, if any; (c) in the field designated for it, the debtor's second given name, if any; and (d) in the fields designated for the debtor's birth date, the four digits representing the year of birth, followed by the two digits representing month of birth, followed by the two digits representing the day of birth. Determining name of individual debtor 14(2) For the purpose of subsection (1), the name of the debtor shall be determined, as of the date of the event or transaction to which the financing statement relates, by the following rules: (a) if the debtor was born in Canada and his or her birth is registered in Canada with a government agency responsible for the registration of births, the debtor's name is the name stated in the debtor's birth certificate or equivalent document issued by the agency; (b) if the debtor was born in Canada but his or her birth is not registered in Canada with a government agency responsible for the registration of births, the debtor's name is (i) if the debtor has a current passport issued to the debtor by the Government of Canada, the name as stated in the passport, (ii) if the debtor does not have a current passport but has a social insurance card issued to the debtor by the Government of Canada, the name as in the social insurance card, and (iii) if the debtor does not have a current passport or a social insurance card issued by the Government of Canada, but has a current passport issued to the debtor by another jurisdiction where the debtor habitually resides, the name as stated in that passport; (c) if the debtor was not born in Canada, but is a Canadian citizen, the debtor's name is his or her name as stated on his or her certificate of citizenship; (d) if the debtor was not born in Canada and is not a Canadian citizen, the debtor's name is (i) if the debtor has a current visa issued to him or her by the Government of Canada, the name on the visa, (ii) if the debtor does not have a current visa issued to him or her by the Government of Canada but has a current passport issued to the debtor by another jurisdiction where the debtor habitually resides, the name as stated in that passport, (iii) if the debtor does not have a visa or passport referred to in subclause (ii), the name as stated in the birth certificate or equivalent document issued to the debtor by the government agency responsible for the registration of births at the place where the debtor was born; and marriage or in accordance with legislation
Page: 7 respecting name changes, the name of the debtor is the name adopted after marriage, if that name is recognized under the law of the jurisdiction where the debtor habitually resides, or as stated in the debtor's change of name certificate or similar document, as the case may be; (f) if the law of the jurisdiction where the debtor habitually resides allows a person to use both the name adopted after marriage and the name that the person had before marriage and the debtor uses both names, the financing statement shall set out, as separate individual debtors, the debtor's name determined under clauses (a) to (d) and the name adopted by the debtor after marriage; (g) in any case where the debtor's name cannot be determined under clauses (a) to (f), the debtor's name is the name as stated in any two of the following documents issued to the debtor by the Government of Canada or by a province or territory of Canada: (i) a current motor vehicle operator's licence, (ii) a current vehicle registration, (iii) a current medical insurance card...... Collateral serial numbered goods 21(1) For collateral that is to be described under this section, the financing statement shall set out for each item, under the heading "Serial Numbered Goods", (a) the serial number; (b) the applicable category from the list of categories included in the definition "serial numbered goods" in section 1; (c) the model year; and (d) a general description of the item. Determination of serial number 21(2) For the purpose of subsection (1), the serial number of a serial numbered good is (a) for a motor vehicle other than a combine or tractor, the vehicle identification number marked on, or attached to, the body frame by the manufacturer; (b) for a combine, tractor, mobile home or trailer, the serial number marked on, or attached to, the chassis by the manufacturer; (c) for a boat that can be registered, recorded or licensed under the Canada Shipping Act (Canada), the registration, recording or licence number assigned to the boat under that Act; (d) for a boat not referred to in clause (c), the serial number marked on, or attached to, the boat by the manufacturer; (e) for an outboard motor for a boat, the serial number marked on, or attached to, the outboard motor by the manufacturer; (f) for an aircraft that must be registered under the Aeronautics Act (Canada) or regulations made under that Act in order to be operated in Canada, the registration marks assigned to the airframe by the Department of Transport (Canada); (g) for an aircraft that must be registered under the law of a state, other than Canada, that is a party to the Convention on International Civil Aviation 1944 (Chicago), the registration marks assigned to the airframe by the relevant licensing authority; and
Page: 8 (h) for an aircraft not referred to in clause (f) or (g), the serial number marked on, or attached to, the airframe by the manufacturer. The Arguments of the Parties [8] The applicant s position is that by virtue of s. 43(8) of the PPSA, in order for a creditor to properly register against a serial numbered consumer good (as is the case here), the creditor must register against both the name and the serial number. In order to facilitate this, two separate searching mechanisms are set up under the PPSA. The applicant argues that since this section requires the registration of a security interest be done by the serial number as well as the name it is reasonable to expect that a person would do searches of both fields. In fact, as the applicant points out, the respondent did conduct a search by serial number that disclosed the applicant s security interest. Accordingly, the applicant concludes, there is no seriously misleading error invalidating the registration. [9] In reply, the respondent states that s. 43(8) makes it clear that if either the name of the debtor or the serial number of the goods required to be recorded contain a seriously misleading error, the registration is invalid with the result that the security interest is unperfected and therefore subordinate to the interests of the trustee. [10] The respondent states that the seriously misleading error is evident here as the name search did not disclose a similar match. Had the name search done so, then the applicant would be in a position to rely on the curative provisions in order to perfect its security interest.
Page: 9 [11] The respondent submits that there is no requirement under s. 43 of the PPSA imposing a dual search requirement (of both the name and the serial number). Furthermore, the respondent argues that whether or not the respondent had actual notice of the registration is irrelevant. The respondent submits that any resolution of the issue which arises from the clear statutory language found in s. 43 falls to the legislature, and not the courts, to address. Analysis and Decision [12] Like the registrar did, I start by commenting on the fact that when the debtor attended upon the respondent to make her assignment in bankruptcy, the respondent was made aware of the registration at issue by the debtor. This was confirmed when the trustee performed the serial number search and located the registration. It was only later in the process, when the applicant made its claim for secured creditor status, that the respondent performed the name search. It would appear that on these facts, the respondent was not misled in any way. [13] At first blush, it seems to me rather harsh and unfair, if not contrary to common sense, that a creditor should be deprived of its secured interest in these circumstances. How can it be justifiable that the respondent would be permitted to rely on the statutory wording found in the relevant legislation that he was seriously misled when in fact he was fully aware even before the respondent filed its claim that the respondent had registered a security interest? [14] Notwithstanding the apparent unfairness, harshness or even lack of common sense, the registrar held that in light of s. 43(9) of the PPSA, the test is an objective one
Page: 10 and therefore the subjective fact that the respondent was already aware of the registration cannot be of assistance to the applicant. The registrar followed the decision of GMAC Leaseco Ltd. v. Moncton Motor Home & Sales Inc. (Trustee of), 2003 NBCA 26, 227 D.L.R. (4th) 154, holding that the legislation considered by the court there is substantially identical to the Manitoba legislation. [15] The registrar disagreed with the applicant s position that both the name registration and serial number registration would have to be incorrect in order for the registration to be invalidated. The registrar held in his decision, at para. 38: that conclusion would conflict entirely with the wording of Manitoba s section 43(8), which deems a registration to be invalid when there is a seriously misleading error in the name or the serial number. To decide otherwise would be to replace the or in that section with an and. [16] The registrar declined to follow the decision of the British Columbia Court of Appeal in Gold Key Pontiac Buick (1984) Ltd. v. 464750 B.C. Ltd. (Trustee of), 2000 BCCA 435, 189 D.L.R. (4th) 668 (QL), where a similar fact situation was considered by the court. In that case, the court concluded at para. 31 of that decision that a reasonable person searching the register would have searched by serial number and would have become aware of Gold Key s filings and would not have been seriously misled by the error in the debtor s name. [17] As pointed out by the registrar in his reasons for distinguishing the result in Gold Key, that British Columbia decision did not in any way address the section in the British Columbia legislation equivalent to s. 43(8) in Manitoba s legislation and how its decision is consistent with the requirements of that section.
Page: 11 [18] Despite the fact that the respondent here was actually aware of the financing statement because of the search of the serial number, I agree with the respondent that on the basis of the wording of s. 43(8) the registrar is correct in his conclusion. In other words, because the search of the correct name of Rosa Argentina Gonzalez did not disclose an exact or similar match, this result was seriously misleading and the registration is invalidated as a result of the operation of s. 43(8). [19] Section 43(8) clearly states that the registration is invalid where a seriously misleading defect, irregularity, omission or error appears in either the name of the debtor or the serial number of the collateral. In light of this statutory provision, the knowledge of the respondent concerning the existence of the financing statement in this context is irrelevant and cannot not operate so as to validate the registration. [20] I agree with the registrar s observation that to conclude otherwise would be to replace the or in s. 43(8) with an and. As he notes at para. 38 of his decision, it is up to the legislature, not the courts, to draft the wording of this kind of legislation. [21] Accordingly, and for essentially the same reasons stated by the registrar in his decision, I conclude that the failure of the applicant to have used the full name of the debtor in the financing statement as prescribed by the regulations constitutes a defect that is seriously misleading and therefore invalidates its registration. Furthermore, the applicant s claim to a secured claim is not saved by it having registered against the correct serial number of the automobile. [22] Accordingly, the applicant s motion is dismissed with costs. J.