January 2005

Under the version of The Personal Property Security Act (Manitoba) in force prior to September 5, 2000, serial-numbered goods were limited to motor vehicles (broadly defined) and aircraft.  Under the current version of the legislation (the "MPPSA"), serial-numbered goods include not only motor vehicles and aircraft, but also trailers (i.e.; whether or not they are self-propelled), boats, outboard motors for boats, tractors and combines.

A question sometimes raised is whether or not a secured party who acquires a security interest in serial-numbered consumer goods or equipment must comply with the MPPSA registration requirements for both a debtor's name and the serial numbers and related information for the goods.  It has been argued that if a secured party registers with the correct name of the debtor but either with no serial numbers or with incorrect serial number information or if a secured party registers with correct serial number information but with an incorrect or incomplete name of the debtor, the secured party's registration should nevertheless be considered valid.  This is based on the view that anyone who is thinking of taking an interest in the debtor's serial-numbered goods (typically, someone who is thinking of extending credit and taking a new security interest in the goods, or who is contemplating purchasing the goods) should, as a prudent person, search in the Personal Property Registry both with respect to the debtor's name and the serial numbers of the goods.

While such a position is logically attractive, it appears that on the basis of Section 43(8) of the MPPSA, this position is not really correct.  Section 43(8) provides, in effect, that where the secured goods are serial-numbered consumer goods, the secured party must indeed include complete and correct information for both the debtor's name and the serial numbers and related information for the goods.  If it fails to fulfill both of these requirements, then the secured party's registration is completely invalid and unenforceable against any third party.  However, Section 43(8) does not mention serial-numbered goods which are equipment - it only refers to serial-numbered consumer goods.  Thus if the serial-numbered goods are equipment, the secured party's registration will not be completely invalid if the serial information is omitted or is incorrect, provided that the information pertaining to the name of the debtor (and all other registration information required by the MPPSA) is properly completed in the secured party's financing statement.

Nevertheless, based on a combined reading of Sections 43(8), 30(6) and 35(4) of the MPPSA, it appears that if a secured party with a security interest in equipment which is serial-numbered goods does not include proper serial-numbered goods information in its registered financing statement, then such secured party:

(a)        will not hold priority over the interests of an "ordinary course of business" purchaser or lessee of the goods from the debtor who is unaware of the secured party's security interest;

(b)        will not hold priority over the interests of other competing secured parties who hold security interests in the goods (and who properly perfect their security interests before the first-named secured party properly perfects - if indeed it ever does - its security interest);

(c)        will not be able to obtain what amounts to retroactive priority where the secured party has inadvertently discharged its security interest or allowed it to lapse but re-registers within thirty days following the inadvertent discharge or lapse;

(d)        will not have the benefit of the rule in the MPPSA which provides that the secured party's security interest will continue to enjoy its priority in the goods where the goods are transferred by the debtor to someone else and the secured party makes a supplementary registration against the transferee within a limited period of time; and

(e)        will not enjoy the retroactive priority given to a secured party whose security interest constitutes a purchase money security interest in relation to certain pre-existing security interests, provided that the secured party perfects within a limited period of time after when the debtor acquires possession of the goods.

The secured party's security interest in the debtor's equipment will only be validly enforceable against execution creditors and the bankruptcy trustee of the debtor.  Thus, for all practical purposes, a secured party taking a security interest in serial-numbered equipment should - just like a secured party taking a security interest in consumer goods - include both complete and correct information as to the debtor's name and as to the serial-numbered goods in its financing statement.

Given that the MPPSA does not provide for any adverse priority consequences for a secured party whose registered security interest is in serial-numbered goods which are "inventory", one might ask why the MPPSA even provides for the possibility of registering serial numbers in financing statements covering inventory.  Inventory usually comes and goes into and out of a merchant's hands fairly quickly, and having to keep serial number particulars of inventory correct in the Personal Property Registry would, in most cases, be a time-consuming and expensive task.  Why not treat inventory the same as non-serial-numbered goods?  The writer suggests that there may be situations - probably few and far between - where it is to the secured party's advantage to place the maximum amount of information pertaining to inventory goods in the secured party's financing statement, simply for the salutary purpose it will or may have on third parties who choose to search against both a debtor's name and against the serial numbers.  Consider the example of an aircraft manufacturer who sells a $100,000,000.00 aircraft on credit to someone who, in effect, acts as an intermediary (a "retailer") between the manufacturer and the ultimate user of the aircraft (typically an airline or a government, and sometimes a private business).  Even if the intermediary intended to hold the aircraft for a relatively short period of time before reselling it, given the substantial amount of the credit probably extended by the manufacturer to the intermediary on the security of the aircraft, it would probably be a wise investment of time and money (and not much of either would be required) for the manufacturer to include the correct serial-numbered goods (as well as correct debtor name) information for the aircraft in its financing statement.

Even where equipment being financed by a secured party for a debtor has serial numbers but is not prescribed as "serial-numbered goods" under the MPPSA, the secured party may wish to include particulars of the serial numbers and related information such as make, model, year of manufacture, etc.  The secured party would include such information in its financing statement simply to better identify the goods so that they could be more easily ascertained amongst the debtor's possessions to the exclusion of other goods not being financed by the secured party - in particular, in anticipation of realizing its security.  However, in this situation, it would not be proper for the secured party to include such information in the serial-numbered goods portion of the financing statement.  Rather, such information should be included in the general description of collateral portion of the financing statement.

August 2013

Most readers will be familiar with the concept that certain land interests, although duly registered against the title to the affected land, will lose their registration priority where ownership of the land changes by reason of:

1. a municipal property tax sale;
2. a prior registered mortgagee's sale; or
3. an acquisition of title from a prior registered mortgagee in a foreclosure proceeding.

It has been long accepted that, on a policy basis, it is appropriate for a prior registered monetary interest, when realized, to extinguish subsequently registered monetary interests ("first come, first served").  Thus the purchaser at a property tax sale, the purchaser from a selling mortgagee and a foreclosing mortgagee will acquire title "free and clear" of subordinately registered mortgages and judgments.  Again, as a matter of policy, perhaps not universally accepted, but certainly acquiesced in, the purchaser at a property tax sale acquires title free and clear of previously registered mortgages and judgments, notwithstanding that the default in payment of property taxes arose only after the prior registered monetary interest was obtained for value and recorded against the property's title.

As a general rule, the same result will occur where a property tax sale purchaser, a foreclosing mortgagee or a purchaser from a selling mortgagee acquires ownership of the property subject to a pre-existing pre-registered non-monetary real estate interest.  However, the Legislature has recognized that there are certain types of land interests which, even if created and registered subsequent to the registration and acquisition of a monetary interest, should not be extinguished upon the occurrence of a property tax sale, mortgage sale or mortgage foreclosure.  These interests are listed in Section 45(5) of The Real Property Act (Manitoba) (the "MRPA").  Such interests survive sale and foreclosure ("Surviving Interests") usually, although not always, because their continuing/ongoing existence, will, to a greater or lesser degree, benefit the land affected.  Even if they do not benefit the land affected (and merely "burden" such land), the Legislature has concluded that the "greater public good" is best served by permitting Surviving Interests to continue to exist, notwithstanding that the occurrence of the aforementioned non-consensual - as well as fully consensual - property ownership changes.

Clearly, a Surviving Interest must be duly registered against the title to the affected land.  But is there a difference - or should there be a difference - between where a Surviving Interest is registered:

(a)          by way of the recording of the agreement or instrument which itself creates the Surviving Interest ("Direct Registration"); and

(b)          by way of the recording of a caveat (or notice) against the title to the affected land, giving notice of the Caveator's rights and interests which constitute and comprise the Surviving Interest ("Caveat Registration")?

It appears that certain Surviving Interests will only survive mortgage realization or tax sale if the Surviving Interest is recorded by Direct Registration, not Caveat Registration.  These are:

(i)            easement agreements, including party wall agreements right-of-way agreements;

(ii)           statutory easements;

(iii)          rights analogous to easements as defined and referred to in The Real Property Act Sections 111.2(1) and 111.2(5);

(iv)          building restrictions covenants;

(v)           unilateral declarations under The Real Property Act Section 76(2); and

(vi)          development schemes. 

In each of these cases, it appears that if the Surviving Interest is recorded by Caveat registration - which is clearly permissible - such registration will not survive mortgage realization or tax sale.  However if these interests are recorded by Direct Registration, they will so survive.

On the other hand, other types of Surviving Interests will survive mortgage realization and tax sale even though they are recorded "merely" by way of Caveat Registration.  These are:

(i)            caveats relating to zoning or subdivision matters;

(ii)           caveats relating to development agreements made under The Planning Act or The City of Winnipeg Charter;

(iii)          caveats relating to an expropriation;

(iv)          a notice (which is obviously like a caveat) registered under Section 12 of The Energy Savings Act;

(v)           notices filed under Section 7(1) or liens described in Section 36(4) of The Contaminated Sites Remediation Act; and

(vi)          notices under Sections 4(4), 5.4(3) or 5.10(2) of The Condominium Act.

Why can't all Surviving Interests be capable of surviving mortgage realization or tax sale when recorded against title by Caveat Registration?

In part, the answer appears to be based on the requirements (set out in Sections 76(1), 76(2) and 76.2(1) of The Real Property Act).  When a Surviving Interest of the types described above which will survive if recorded by Direct Registration, (excepting for statutory easements, rights analogous to easements and building restriction covenants) is registered, no such Direct Registration is permitted by the Land Titles Office unless all persons holding pre-existing registered interests against the affected title provide their written consents to the Direct Registration.  If a pre-existing registered mortgagee or holder of a judgment lien consents to the subsequent registration of a Surviving Interest by Direct Registration, then such consent is taken to be the equivalent of a subordination by the pre-existing registered interest holder.  This is understandable.  But what isn't understandable is the fact that no such consent (from pre-existing registered interest holders) is required to effect the Direct Registration of statutory easements, rights analogous to easements and building restriction covenants.  It also doesn't explain why caveats and notices of the types described above as surviving, even though recorded "merely" by Caveat Registration, gain this survival advantage without the need for the party on whose behalf the caveat or notice is being filed having to get the consents of all pre-existing registered interest holders.

Whether or not the above "regime" seems reasonable, the important thing for practitioners (and their clients) to remember is that the above-noted differences in the ability of certain land interests to survive - or not to survive - mortgage realization and tax sale must be kept in mind when acting for persons taking, granting and otherwise dealing with interests in real property.