Section 93 – Supervening inaccuracies: protection of third parties
381.This section protects a person who for value, in good faith and exercising reasonable care acquires encumbered property, or a right in encumbered property, in circumstances where there was previously an effective registration under which the pledge was created but, at the time of acquisition:
the entry has been incorrectly removed from the record,
in a case where the acquired property does not have an identifying number which must be used, the entry has become seriously misleading in respect of the acquired property, or
in a case where the acquired property does have an identifying number which must be used, a search of the record for that number would not produce the entry.
382.This provision could therefore cover register malfunctions under which entries were incorrectly removed or search results were not producing the correct results. It could also apply where, for example, the provider marries after the pledge is registered and changes their name.
383.The effect of this section is that the pledge will be extinguished as regards the acquired property.
Example
In year 1, Rachel Smith grants a statutory pledge to Mark over her piano. Mark registers the pledge and the piano becomes encumbered property. In year 2, Rachel marries and changes her name to Rachel Jones. In year 3, Rachel sells the piano to Luke without obtaining Mark’s permission under section 51. However, Luke is in good faith, and does not know that Rachel Jones was once known as Rachel Smith. A search against Rachel Jones will not reveal the pledge, and so he will acquire the piano unencumbered by the pledge.
In contrast, if Rachel had chosen not to change her name upon marrying, a search against her would continue to reveal the pledge. There would be no supervening inaccuracy so this section would not be relevant because there would be no error to mislead Luke. However, if Luke did not search the register, he might still benefit from protection under section 53 (if Rachel is a sole trader whose business is selling musical instruments) or section 54 (if he is buying the piano in good faith for personal purposes and the value is below any cap introduced under that section).
384.The protection offered by section 93 makes different provision in respect of encumbered property that is required by RSP Rules to be identified by an identifying number, such as a vehicle identity number (VIN). Any person intending to acquire such an asset could readily obtain information about the pledge by searching the statutory pledges record against the VIN. The expectation is that where the use of such numbers is mandated, they should be the primary means of searching as they ought to be the most reliable. As such a number would not change, it would not be the subject of a supervening inaccuracy unless the register malfunctioned (and any initial inaccuracy would be seriously misleading under section 94, meaning that no pledge was created over it).
385.There are a number of things a person could do to satisfy the section’s requirements to be in good faith and to take reasonable care. However, if they have failed to carry out a search of the register in respect of their purchase then they will not meet this test. The inaccuracy will have been irrelevant to their decision to purchase if they did not consult the register. This does not mean, though, that consulting the register will always be enough on its own. If the person has reason to be suspicious of the information on the register, they might be expected to make further enquiries.
