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On September 14, 2017, the Ontario government introduced Bill 154, Cutting Unnecessary Red Tape Act, 2017 (the “Act“). The Act received Royal assent on November 14, 2017. The Act is part of the government’s initiative to “cut unnecessary red tape” in respect of over 100 pieces of Ontario legislation in order to help businesses save time and money.¹

In particular, amendments to the Personal Property Security Act (Ontario) (“PPSA“) and the Repair and Storage Liens Act (Ontario) (“RSLA“) will help resolve priority disputes related to motor vehicle registrations by codifying case law regarding errors and omission in financing statements.²

Take the following scenario: a creditor registers a financing statement under the PPSA against motor vehicle collateral using the correct Vehicle Identification Number (“VIN“) but the debtor’s name is incorrect. Is that registration susceptible to a priority challenge on the basis of the misinformation?

Section 46(4) of the PPSA states:

“A financing statement or financing change statement is not invalidated nor is its effect impaired by reason only of an error or omission therein or in its execution or registration unless a reasonable person is likely to be misled materially by the error or omission.“

Prior to the amendments, the PPSA did not provide specific guidance as to what type of error or omission would materially mislead a reasonable person. Additionally, the Ontario courts have held that the debtor’s name should be the name appearing on his or her Canadian birth certificate and, if not a Canadian citizen, the name that appears on his or her Canadian citizenship card. Since these items are not always easily accessible, secured creditors are often left to input the debtor’s name as it appears on such debtor’s driver’s license or other offered identification which has led to problems. What if the debtor’s name on his or her birth certificate or citizenship card does not match up with the identification provided?

These uncertainties have created significant complications for creditors as an improperly registered financing statement can result in unperfected security, which in turn can lead to a subordinated position amongst secured creditors, receivers or bankruptcy trustees. Thus, a creditor might experience a substantial financial loss as a result of a typo.

Fortunately now for creditors, the amendments to the PPSA effectively resolve these uncertainties. The amendments, which place paramountcy on a correctly inputted VIN, state as follows:

Deemed not likely to be misled by errors or omissions

46.1 (1) For the purposes of subsection 46 (4), in the case of a financing statement or financing change statement in respect of collateral that is or includes a motor vehicle, as defined in the regulations, a reasonable person shall be deemed not likely to be misled materially, insofar as the security interest in the motor vehicle is concerned, by the fact that the statement has one or more errors or omissions described in subsection (2) of this section, if,

• (a) the motor vehicle’s vehicle identification number is set out correctly in the designated place on the statement;
• (b) the statement sets out at least the name of one debtor and, if the debtor is a natural person, his or her date of birth; and
• (c) the statement otherwise substantially complies with the requirements that apply for the purposes of subsection 46 (1). 2017, c. 20, Sched. 9, s. 12.

Errors or omissions to which subs. (1) applies

(2) The following are the errors or omissions to which subsection (1) applies:

1. Regarding any debtor named in the statement, the debtor’s name is set out incorrectly or in a way that does not comply with the requirements that apply for the purposes of subsection 46 (1).

2. Regarding any debtor named in the statement who is a natural person, the date of birth of the debtor is set out incorrectly or in a way that does not comply with the requirements that apply for the purposes of subsection 46 (1). 2017, c. 20, Sched. 9, s. 12.

Deemed likely to be misled by error or omission

46.2 For the purposes of subsection 46 (4), in the case of a financing statement or financing change statement in respect of collateral that is or includes a motor vehicle, as defined in the regulations, a reasonable person shall be deemed likely to be misled materially, insofar as the security interest in the motor vehicle is concerned, by any one or more of the following errors or omissions in the statement: 1. In the case where the motor vehicle is classified as consumer goods on the statement,

1. In the case where the motor vehicle is classified as consumer goods on the statement,

• i. a vehicle identification number for the motor vehicle is not set out on the statement,
• ii. a vehicle identification number for the motor vehicle is set out on the statement but not in the designated place, or
• iii. a vehicle identification number for the motor vehicle is set out on the statement but is incorrect.

2. In the case where the motor vehicle is classified as equipment or inventory on the statement and the statement sets out a vehicle identification number for the motor vehicle even though that information is not required,

• i. the vehicle identification number is not set out in the designated place on the statement, or
• ii. the vehicle identification number that is set out is incorrect. 2017, c. 20, Sched. 9, s. 12.

Similar amendments have been made to Section 9 of the RSLA.

Accordingly, an incorrect debtor name used on a financing statement is deemed not likely to materially mislead a reasonable person if (among other things) the VIN is correct. As a result, creditors taking collateral in motor vehicles no longer need to fear clerical errors in respect of debtor names, so long as they have correctly referenced the applicable VIN. Nonetheless, creditors should still take care in diligently inputting all of the necessary information in order to perfect their motor vehicle registrations.

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¹http://www.ontla.on.ca/web/bills/bills_detail.do?locale=en&BillID=5000&detailPage=bills_detail_the_bill
²Re Lambert (1994), 20 OR (3d) 108, 119 DLR (4th) 93 (Ont. C.A.); leave to S.C.C. refused. 123 DLR (4th) vii.