Two recent cases, one in Alberta (TD Auto Finance (Canada)
Inc. v. Yan, 2015 ABCA 114) and one in Ontario (BMW
Financial Services Canada v. McLean, 2015 ONCA 342) both at
the Court of Appeal level, upheld a secured party's claim in an
automobile registered under applicable Personal Property
Security Act legislation. While neither case is particularly
remarkable or groundbreaking, each is a reminder that courts uphold
the rights of a secured party even where the facts are sympathetic
to a consumer.
TD Auto Finance (Canada) Inc. v. Yan
TD Auto Finance (Canada) Inc. entered into a conditional sale
contract (CSC) with Ahmed Salman to finance the purchase of a
vehicle. The CSC contained a typical clause stipulating that Mr.
Salman could not sell the car without the prior written consent of
TD. After Mr. Salman's first NSF cheque appeared, he made no
subsequent payment and TD appears to have written-off the loan as
bad debt. Months later, Mr. Yan purchased the vehicle from an
intermediary source after completing a thorough check into the
background of the car and the legitimacy of his purchase. It was
subsequently discovered that the vehicle was "cloned" (or
"re-VINed"), which means that the original vehicle
identification number (VIN) was removed and replaced with a
fraudulent one. After this fact was discovered by the Calgary
Police Service, TD applied to recover the vehicle from Mr. Yan in
order to recover the collateral for the original defaulted
The Alberta Court of Appeal found that TD still maintained its
claim on the collateral as the relevant legislation is intended to
protect the security interests of the finance company over other
parties' interests. While Mr. Yan was duped by the same rogue
actors as TD, the Court provided him with no recourse for the
Of note, in arriving at a decision in favour of TD, the Court
emphasized two points in support of protecting the rights of
To defeat the secured party's
claim, the Court highlighted the need for express or implied
consent for the sale of collateral that is the subject of a
security interest. For there to be implied consent, the Court
emphasized the need for a secured party to know about the
The Court rejected the suggestion
that TD's internal categorization of the outstanding debt as
"bad debt" or a "doubtful" account should have
an impact on TD's ability to recover the collateral securing
the debt. Categorizing a debt as such only has accounting
ramifications, and does not weaken the secured party's claim to
BMW Financial Services Canada v. McLean
The facts of this case are straightforward and common. Ms.
McLean purchased an expensive BMW (over $100,000) which she claimed
never functioned properly. Being frustrated with the car, she sold
it at an auction for much less than the outstanding balance due to
BMW Financial Services Canada under her finance agreement. She
claimed that she need not pay the balance as the car did not work
Ms. McLean's claims of not having to pay the finance company
were based on the "close connection" between the finance
company and the dealership. Since the dealership owed her an
obligation to have a working vehicle and since the dealership was
"connected" with the finance company, Ms. McLean saw no
reason to pay the finance company. The Court rejected this
The Court reviewed the 1962 decision of Federal Discount
Corporation Ltd. v St-Pierre, 1962, OR 310 (ONCA) which held
that if there is a special relationship between the parties, then a
court can look through the separate legal entities. In this case,
no such special relationship was inferred.
This case is particularly important to the car finance industry
because if it had been decided in the reverse, it would have caused
a significant disruption in the expectations of captive car finance
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The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
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