- 21.1 The Extinguishment Rules – Introduction
- 21.2 Table Summarising the Extinguishment Rules by Class of Collateral
- 21.3 The Extinguishment Rules - Commentary
- 21.4 Buyer or lessee of personal property subject to unperfected security interests – section 43
- 21.5 Sales or leases of serial-numbered property – motor vehicles, watercraft, aircraft/engines and intellectual property (patents, trade marks, designs and plant breeder’s rights) – section 44
- 21.6 Private sales or leases of motor vehicles – sections 45(1) - (2)
- 21.7 Buying motor vehicles from licensed dealers – sections 45(3) - (4)
- 21.8 Buying or leasing from a seller/lessor in the ordinary course of business – section 46
- 21.9 Low value (below $5,000) consumer property (except serial numbered property) – section 47
- 21.10 Currency – section 48
- 21.11 Prescribed financial markets – investment instruments and intermediated securities – section 49
- 21.12 Investment instruments – section 50
- 21.13 Intermediated securities – section 51
- 21.14 Temporarily perfected security interests – section 52
- 21.15 Returned goods following sale or lease
- 21.16 Subrogation by extinguished secured parties to rights in relation to collateral sold or leased
There are further extinguishment rules for motor vehicles that divide between sales or leases by licensed motor vehicle dealers on the one hand, and private sales and leases on the other hand.
In a private sale or lease of a motor vehicle, the buyer/lessee takes the motor vehicle free from security interests granted by the seller/lessor1 if the buyer or lessee:
(a) buys or leases for new value;
(b) searches the register against the serial number of the motor vehicle (see below for what serial number and motor vehicle mean) either on the day before buying/leasing, or on the actual day of buying/leasing (the permissible search window being a maximum of 48 hours if all hours of the day are included) and the register reveals no security interest against the serial number;
(c) the seller or lessor of the motor vehicle is the person who granted the security interest being extinguished, or has the right to be in possession the motor vehicle. It is unclear what “right to be in possession” means, and whether this includes lessees or consignees who purport to sell motor vehicles – see the discussion below at paragraphs 21.6.3 to 21.6.5;
(d) the buyer/lessee themselves do not hold the motor vehicle bought or leased as inventory in their own business; and
(e) the buyer or lessee has no actual or constructive knowledge that a security interest exists over the motor vehicle2.
In the case of the condition noted in paragraph (c) above, it is not clear whether this extinguishment rule means that someone who does not own a motor vehicle but has the right to be in possession of it under a lease or consignment (for example), can purport to sell it and extinguish a security interest for the benefit of a purchaser (although query the validity of the sale, given that a lessee has no title).
One possible interpretation of section 45 is that it provides, in relation to private sales of motor vehicles, that lessees or consignees (non-owners) can purport to sell motor vehicles, and extinguish security interests for the benefit of buyers because they have a right to be in possession. Following this through, if that is correct, then persons in possession of stolen or “borrowed” motor vehicles could not purport to sell and extinguish security interests because the owner has not lost the right to possession.
Note that the extent to which the nemo dat principle continues to apply to a purported sale of a motor vehicle by a lessee or consignee (non-owner) is relevant here – see the discussion commencing at paragraph 21.1.12 above).
What is a motor vehicle?
The term “motor vehicle” for PPSA purposes has a wide meaning. A motor vehicle includes any vehicle that satisfies each of the following conditions3:
(a) it is built to be propelled by a motor, mainly on land. This includes items towed by motor vehicles, including caravans and trailers4;
(b) it can do speeds of over 10km/h or has at least one motor sized 200W or over;
(c) it has an identification number, being either a vehicle identification number (VIN), a chassis number or a manufacturer’s number. This is critical to ensure that registration searches can be carried out by reference to this number; and
(d) it does not run on a fixed path such as rails or tramlines. This excludes locomotives and rolling stock from being motor vehicles. Locomotives and rolling stock should still be personal property and subject to the PPSA, but not as motor vehicles and so not serial numbered property for PPSA purposes.
Clearly, some pretty small vehicles are included as motor vehicles. Conceivably, motorbikes, go-carts, mini-bikes, trail bikes and the like would be motor vehicles for PPSA purposes5.
What is the serial number of a motor vehicle against which secured parties must register, and a purchaser or lessee must search the PPS Register?
The serial number of a motor vehicle will usually be its vehicle identification number or VIN6. Only if there is no VIN, the serial number to be used is the chassis number. Again, only if there is no chassis number, the serial number to be used is the manufacturer’s number. There is a hierarchy of serial numbers. The VIN is paramount and must be used if a VIN exists.
Notes:
1 PPSA section 45(1)(c) (link)
2 Note that the knowledge requirement here is not knowledge that the sale or lease breaches the terms of a security agreement. Instead, it is that there be knowledge of the existence of a security interest. This favours the secured party over buyers or lessees, because it is easier to know that a security interest exists, rather than know the sale or lease breaches the terms of the security agreement.
3 PPS Regulations, regulation 1.7(2). (link)
4 PPS Regulations, regulation 1.7(3). (link)
5 PPS Regulations, regulation 1.7(2). (link)
6 PPSA section 153(1), item 4 in the table, read with PPS Regulations, paragraph 2.2(3) of Part 2 of Schedule 1.
