Q.B. No. 1051 A.D. 1994 Estate No. 021092 J.C.S. IN THE COURT OF QUEEN'S BENCH JUDICIAL CENTRE OF SASKATOON IN THE MATTER OF THE BANKRUPTCY AND INSOLVENCY ACT BETWEEN: SASKATCHEWAN ECONOMIC DEVELOPMENT CORPORATION and COOPERS LYBRAND LIMITED, TRUSTEES IN BANKRUPTCY RESPONDENT M.M. Tobin for the applicant G.J. Den Brok, manager of the trustee for the respondent JUDGMENT HRABINSKY J. May 2, 1994 This is an application for an order pursuant to s. 135(4) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 and amendments thereto, granting the applicant's appeal of the trustee's decision to disallow the applicant's security. The ground on which this application is broughtis that the applicant\'s security interest was not registereddefectively, according to The Personal Property Security ActRegulations. In the alternative if the applicant\'s securityinterest is found to have been registered defectively, s.66(1) of The Personal Property Security Act, S.S. 1979-80, c.P-6.1, should be applied to remedy such defect. FACTS On February 15, 1993 the applicant advanced $5,000.00 to Joan E. Fladseth via the Martensville Small Business Corporation. Joan E. Fladseth executed demand promissory note and security agreement in favour of the Martensville Small Business Corporation which corporation executed an assignment of its interest in the assets of Joan E. Fladseth to the applicant. The demand promissory note and the security agreement were both executed in the following manner: "Mrs. Joan E. Fladseth op. as Joan E. Craft and Supplies". On March 22, 1993 the applicant registered its interest in the assets of Joan Elaine Fladseth and in the assets of the business debtor, Joan E. Craft and Supplies. However, in doing so, the applicant misspelled "Fladseth" as "Eladseth" on the financing statement. On February 15, 1994 Joan E. Fladseth filed an assignment in bankruptcy and in her statement of affairs she named Martensville Small Business Corporation as secured creditor in the sum of $4,000.00. The trustee in bankruptcy disallowed the applicant's secured party claim for $4,105.91 on the ground that the applicant did not properly register its security interest. The applicant appeals that decision pursuant to s. 135 of the Bankruptcy and Insolvency Act. Section 135 reads: 135.(1) The trustee shall examine every proof of claim or proof of security and the grounds therefor and may require further evidence in support of the claim or security. (2)The trustee may disallow, in whole or in part, (a)any claim; (b)any right to priority under the applicable order of priority set out in this Act; or (c)any security. (3) Where, pursuant to subsection (2), the trustee disallows, in whole or in part, any claim, any right to priority or any security, the trustee shall forthwith provide, in the prescribed manner, to the person whose claim, right to priority or security was disallowed, notice in the prescribed form setting out the reasons for the disallowance. (4) disallowance referred to in subsection (2) is final and conclusive unless, within thirty day period after the service of the notice referred to in subsection (3) or such further time as the court may on application made within that period allow, the person to whom the notice was provided appeals from the trustee's decision to the court in accordance with the General Rules. (5) The court may expunge or reduce proof of claim or proof of security on the application of creditor or of the debtor, if the trustee declines to interfere in the ISSUES 1.Did SEDCO register its security interest in the businessassets of the bankrupt, Joan E. Fladseth, in accordance withThe Personal Property Security Act and the Regulationsthereunder? 2.If SEDCO did not register its security interest inaccordance with The Personal Property Security Act and theRegulations thereunder, can s. 66(1) of The Personal PropertySecurity Act be applied to cure the defect? LAW Part IX of the Regulations of The Personal Property Security Act sets out the particulars of content of form. The pertinent portions of Regulation 35 read as 35(1) Where an individual is debtor, the name to be set out in the financing statement or financing change statement in the area designated for "individual debtor" is the surname followed by the first given name and the second given name or initial, if any. (2) Where an artificial body is debtor, the name to be set out in the financial statement or financing change statement in the area designated for "business debtor" is, where the artificial body is: (h) any artificial body, other than one described in clauses (a) to (g): (i) the name of the artificial body; and (ii) the name of each person representing the artificial body in the transaction giving rise to the registration and, where such person is: (A) an individual, the information required under subsection (1); or (B) an artificial body, the information required under this subsection. (4) Where person named as debtor carries on business under name or style other than his own name, this name may also be separately set out on financing statement or on financing change statement in the area of the form designated for business debtor name in accordance with subsection (2). Although the registration against Joan E. Craftand Supplies complied with the Regulations, the registrationagainst Joan E. Fladseth did not. Accordingly, the issue is whether s. 66(1) of The Personal Property Security Act should be applied to cure the defect. Section 66(1) reads: 66.-(1) The validity or effectiveness of document to which this Act applies is not affected by reason of defect, irregularity, omission or error therein or in the execution or registration thereof unless the defect, irregularity, omission or error is seriously misleading. find that the error in this instance was not seriously misleading. The applicant is the only secured party and the trustee had notice of the security interest. The applicant incurred risk by advancing credit and obtained security interest and registered financing statement to protect its interest. The applicant acted within The Personal Property Security Act and Regulations thereunder but in so doing it committed an error by placing an "E" instead of an "F" for the first letter of the debtor's surname. The trustee appeared late on the scene and has never incurred any risk. It never acted on the financing statement containing the error. The trustee has not been misled, has not been prejudiced and has not acted to its detriment. This is a matter where s. 66(1) of The PersonalProperty Security Act should be applied. To hold otherwisewould result in an underserving windfall to unsecuredcreditors who have not been misled. Applying s. 66(1) of The Personal Property Security Act find that the financing statement of the applicant is validly registered. In reaching my conclusion have referred to numerous decisions including International Harvester Credit Corporation of Canada Limited v. Frontier Peterbilt Sales Ltd., 1983 CanLII 2356 (SK QB), [1983] W.W.R. 328; Elmcrest Furniture Manufacturing Ltd. v. Price Waterhouse Ltd. as Receiver and Manager of 216200 Alberta Ltd. (1985), 1985 CanLII 2783 (SK QB), P.P.S.A.C. 22; Royal Bank v. Agricultural Credit Corp. of Sask. (1991), P.P.S.A.C. (2d) 338; Ford Credit Can. Ltd. v. Percival Mercury Sales Ltd. (1986), 1986 CanLII 3248 (SK CA), P.P.S.A.C. 288 (Sask. C.A.) and Peat Marwick Ltd. v. G.M.A.C. of Can. Ltd., [1990] 282. The appeal from the trustee's decision is allowed. The parties are given leave to speak to costs.
Saskatchewan Economic Development Corporation (SEDCO) made a business loan to Fladseth, but misspelled her name in its PPSA registration as Eladseth. It also properly registered against her trade name, 'Joan E. Craft Supplies'. After her assignment in bankruptcy, the trustee disallowed Sedco's security on the basis that its registration was defective. Sedco appealed this decision under section 135 of the Bankruptcy Act. ISSUES: 1)Did Sedco register its interest in accordance with the PPSA Regulations? 2)If not, can the registration be cured under section 66 of the PPSA? HELD: 1)The personal registration did not comply with the PPSA Regulations. The registration against the trade name was proper. 2)This is a matter where section 66 should be applied. To hold otherwise would result in an undeserving windfall to unsecured creditors who have not been mislead.