Lenders should be aware that when taking security in certain goods with serial numbers in Canada, the rules regarding registration of financing statements vary across provincial jurisdictions; a detail that, if overlooked, could impact the priority of the lender’s security interest.
In Ontario, where the collateral includes motor vehicles (as defined in Ontario’s Personal Property Security Regulation 56/07), including the vehicle identification number will provide the lender with protections against: (i) purchasers or lessors of a motor vehicle that is proceeds and classified as consumer goods, and (ii) purchasers of a motor vehicle classified as equipment sold other than in the ordinary course of business of the seller.
In some other provinces, the rules regarding goods with serial numbers are broader and can include goods other than motor vehicles. These goods are referred to as “serial number goods” as defined in the personal property security regulations of some other Canadian jurisdictions. For example, in Alberta, “serial numbered goods” includes aircraft and boats; two types of goods not covered by Ontario’s definition of motor vehicle. For serial numbered goods that are classified as equipment, if a lender chooses not to register the serial number, the registration is valid; however, the lender will lose the priority of their interests in the equipment to purchasers and any other secured party who has included the serial number. In the case of a serial numbered good classified as a consumer good, the failure to register the serial number means the registration is invalid and leaves the registrant unperfected.
As the applicable rules vary from province to province, lenders should consult the applicable personal property security act when dealing with collateral that is located in several provinces. However, as a general rule, it is prudent to always include the serial number when registering against goods that fall within the definition of “serial numbered goods” or “motor vehicles”.