December 2003

A recent (April, 2003) New Brunswick Court of Appeal decision (the "Stevenson Case") makes it clear that when a secured party is taking a security interest in serial numbered goods, in order to ensure priority over other competing claims, the secured party must ensure accuracy in its financing statement both with respect to the name of the debtor and with respect to the serial number or numbers of the serial numbered goods.  The provisions of the New Brunswick Personal Property Security Act upon which the Court based its decision are substantially the same as those in the Manitoba Personal Property Security Act.

            In the Stevenson Case, the secured party had included correct particulars of the goods' serial number and related information, but had included an incorrect spelling of the debtor's name.  The secured party argued that anyone interested in acquiring an interest in the goods in question should be obliged to search both the debtor's name and the serial number of the goods, with the result that if there was an error in part of the registration (the name or the serial number particulars), but not in the other part of the registration, the party searching would be put on notice of the secured party's security interest by virtue of the presence of the correct information in the registry.

            The Court pointed out that the legislation makes it clear that a registration is invalidated if there is a seriously misleading error or omission in either the debtor's name or the serial number.  The Court also noted that in considering whether or not a seriously misleading error has been made, it is not appropriate to determine whether or not a third party was actually mislead (a subjective test), because the legislation makes it clear that the test is an objective one.  So even if a third party was not mislead by the error - because, for example, the secured party had searched both the name and the serial number and noted the secured party's security interest - the registration would be invalid.

            Thus it would appear that if you are anticipating inquiring an interest in someone's serial numbered goods, it is not necessary for you to search both the serial number and the person's name.  While this appears to be a logical conclusion from the Stevenson Case, it is the writer's "gut" instinct that a person conducting a search with respect to serial numbered goods should in fact search the owner's name and the serial numbers of the goods.  The costs of making the additional search are not substantial.  Also, the jurisprudence in other provinces also suggest that a person searching with respect to serial numbered goods is obliged to search both the owner's name and the serial numbers, so that an error in one will not invalidate an earlier registration provided that the earlier registration is correct in the other.  Searching both the name and the serial number completely eliminates any possible subsequent argument (which might be based on a change in how the Court's view the legislation) that a correct name overcomes an incorrect serial number or vice versa.