SUPREME COURT OF PRINCE EDWARD ISLAND. E.R.I. Engine Rebuilders Incorporated. Steven W. MacEachern and J. Walter MacKinnon Limited

Transcription

1 SUPREME COURT OF PRINCE EDWARD ISLAND Citation: ERI v MacEachern 2010 PESC 02 Date: Docket: S1 GS Registry: Charlottetown Between: And: E.R.I. Engine Rebuilders Incorporated Steven W. MacEachern and J. Walter MacKinnon Limited Before: The Honourable Justice Kenneth R. MacDonald Applicant Respondents Appearances Kenneth L. Godfrey, for the applicant T. Daniel Tweel, for the respondent Place and Date of Hearing Place and Date of Hearing Charlottetown, Prince Edward Island September 23, 2009 Charlottetown, Prince Edward Island January 11, 2010

2 Citation: 2010 PESC ERI v MacEachern 02 Date: Docket: S1 GS Registry: Charlottetown Between: And: E.R.I. Engine Rebuilders Incorporated Steven W. MacEachern and J. Walter MacKinnon Limited Applicant Respondents Supreme Court of Prince Edward Island MacDonald J. Date of Hearing: September 23, 2009 Date of Judgment: January 11, 2010 (6 pages) Bankruptcy - proving claims - contingent claim - effect of discharge - effect of revesting order failure to inform creditor Cases Referred to: Gaston v Burton, (1998), 172 N.S.R. (2d) 342; 172 D.L.R. (4 th ) 730 (N.S.C.A.); Beattie v Ladouceur (1995), 23 O.R. (3d) 225 Statutes Referred to: Bankruptcy and Insolvency Act R.S.C. 1985, c. C-27, s. 121; Vendors and Purchasers Act, R.S.P.E.I. 1992, Cap. 71. Section 3; Judgment and Execution Act, R.S.P.E.I. 1988, Cap J-2, s. 1(2) and 1(3) Rules Referred to: Rules of Civil Procedure, Prince Edward Island, Rule Texts Referred to: The 2009 Annotated Bankruptcy and Insolvency Act, Houlden, Morawetz and Sarra (Thomson-Carswell) Kenneth L. Godfrey, for the applicant T. Daniel Tweel for the respondents

3 MacDonald J.: Facts: [1] The applicant seeks various forms of relief against both respondents: [2] The events giving rise to the application are: (1) On October 17, 2003, Stevenson & MacEachern Ltd., entered into Articles of Agreement with the applicant to purchase products from the applicant. (2) Contained within the Articles of Agreement was a provision that the respondent, Steven MacEachern ( MacEachern ), give a personal guarantee of the liabilities of Stevenson & MacEachern. This was done. (3) On June 22, 2004, MacEachern filed for bankruptcy. (4) On March 3, 2005, MacEachern was given a conditional discharge. (5) On February 17, 2006, the Trustee in Bankruptcy, the respondent Walter MacKinnon Limited, ( the trustee ) gave a quit claim deed of MacEachern s property back to MacEachern. (6) On March 15, 2006, Steven MacEachern received his absolute discharge in bankruptcy. (7) Prior to receiving his absolute discharge from bankruptcy the applicant never received notice that MacEachern had filed for bankruptcy. (8) July 10, 2006, Stevenson and MacEachern, Ltd. filed an assignment in bankruptcy. (9) On July 12, 2006, the applicant made a formal demand upon Stevenson and MacEachern Ltd. for payment of the money owing to it. (10) On August 21, 2006, the applicant served MacEachern with a statement of claim claiming the sum of $41, (11) Default judgment was entered on September 12, 2006, against MacEachern in the amount of $42, (12) On September 27, 2006, the trustee obtained a court order declaring null and void the Quit Claim deed of February 17, 2006 and that the

4 Page: 2 Notice of Assignment against the property filed on January 26, 2005 remain in full force and effect. (13) The applicant received no notice of the application to have the Quit Claim deed declared null and void. Issues: [3] The relief sought by the applicant is for: (a) (b) a (c) (d) an Order declaring that the Judgment issued in favour of E.R.I Engine Rebuilders Incorporated against the Respondent Steven MacEachern on September 12, 2006 (the Judgment ) is in full force and effect; an Order declaring that the vested rights of the Applicant to execute on certain property (the Property ) under the Judgment are not affected by the subsequent order of this Honourable Court issued on September 27, 2006 in S1 GS and the Applicant is free to proceed to execute its Judgment against the Property; an Order declaring that any purported lien on the Property of the Respondent J. Walter MacKinnon Limited was lost on his conveyance of the Property to Steven MacEachern on February 17, 2006; in the alternative, an Order that any purported lien of the Respondent J. Walter MacKinnon Limited, if it exists, is limited to $9, and is subordinate to the Judgment;... [4] The Bankruptcy and Insolvency Act R.S.C. 1985, c. C-27 ( the Act ) s. 121 reads: 121.(1) Claims provable All debts and liabilities, present or future, to which the bankrupt is subject on the day on which the bankrupt becomes bankrupt or to which the bankrupt may become subject before the bankrupt s discharge by reason of any obligation incurred before the day on which the bankrupt becomes bankrupt shall be deemed to be claims provable in proceedings under this Act. (2) Contingent and unliquidated claims The determinations whether a contingent or unliquidated claim is a provable claim and the valuation of such a claim shall be made in accordance with section 135. (3) Debts payable at a future time A creditor may prove a debt not

5 Page: 3 payable at the date of the bankruptcy and may receive dividends equally with the other creditors, deducting only thereout a rebate of interest at the rate of five per cent per annum computed from the declaration of a dividend to the time when the debt would have become payable according to the terms on which it was contracted. [5] Section 135 of the Act provides that the Trustee shall examine every proof of claim, including contingency and unliquidated, and value provable claims. Section 178(6) provides that an order of discharge releases the bankrupt from all claims provable in bankruptcy, except the eight types of claims listed in s. 178(1). [6] The applicant states that its claim is not a provable claim and does not fall under s.121(1) of the Act because MacEachern s personal guarantee did not become effective until the demand was made on July 12, 2006, which was after the discharge in bankruptcy. The applicant states that if the claim was not provable then the judgment will stand. The respondent states that the discharge obtained by Mr. MacEachern extinguished all debts including the applicant s claim. [7] I do not see any point in discussing whether or not the applicant had a provable claim at the time of the bankruptcy of MacEachern because the applicant never filed a claim. There is no provision in the Act permitting the determining of a claim after a bankrupt has been given an absolute discharge. [8] In The 2009 Annotated Bankruptcy and Insolvency Act, Houlden, Morawetz and Sarra (Thomson-Carswell) at p. 614, it is stated: If a creditor has not filed a proof of claim, s. 121(2) has no application. A claim must first be proved in the manner set out in s. 124 showing a contingent or unliquidated claim before the trustee can apply s. 121(2) [9] Through the neglect of MacEachern the trustee was never made aware that the applicant was a creditor. MacEachern states that his failure to disclose is immaterial and because he has been discharged all debts are gone. That argument cannot stand. It ignores the duties of a Trustee as set forth in s. 121 and s. 135 of the Act. MacEachern s failure to disclose the applicant as a creditor resulted in the Trustee being unable to determine the possible validity of the applicant s claim had he filed one. [10] MacEachern states that the purpose of the Act is to permit persons to start afresh discharged from all debts. That is true to the extent that the bankrupt has been honest, forthright and not negligent to the Trustee and all creditors. MacEachern, through his negligence, did not meet that standard. This failure resulted in the applicant being unable to file a claim.

6 Page: 4 [11] I conclude that because the applicant was unable to file a claim that the discharge received by MacEachern does not affect this claim by the applicant. [12] It is next necessary to determine what remedy exists that would allow the applicant to obtain a share of the bankrupt s estate. The bankrupt states that the applicant should not receive a benefit that other creditors did not receive. It is not clear if a dividend had been given, but if there was one the applicant may have been the only creditor not to share in the dividend. At this stage, the applicant cannot go back in time to vary any dividends that have been paid out. [13] The only asset that now appears to be available, which the applicant may look to, is the equity of the debtor in his home. The question in relation to this asset is whether the judgment obtained by the applicant attaches to the equity in the home of the debtor or whether the lien filed by the Trustee in Bankruptcy has priority as a result of the order of the court declaring the notice of assignment continuing to be in effect as well as declaring the quit claim deed null and void. [14] The facts relating to this issue indicate that the debtor had a joint interest with his wife in their matrimonial home. There was some equity in the property and the Trustee filed a lien in the amount of $9,200 against the property. Prior to the debtor s discharge the Royal Bank indicated to the Trustee that it was prepared to refinance the mortgage on the property and pay off the lien. In return, the Trustee was to abandon the lien and give a Quit Claim deed to the debtor. This was done in February, Subsequently, the Royal Bank backed out on the deal leaving the Trustee without whatever equity was in the matrimonial home, because he had given the quit claim deed to MacEachern. [15] The order of September 27, 2006 was signed after the applicant had obtained a judgment against the debtor on September 12, It is also important to note that the applicant did not receive any notice of the Trustee s application to the court despite the fact that there was in existence a registered judgment against the property. [16] The question that now arises is does the order of September 27, 2006, have the effect of giving the Trustee priority over the applicant s judgment of September 12, The parties were unable to find any case law that would be of assistance. [17] While not referred to, Rule would have governed the application made by the Trustee. [18] It is an admitted fact that the applicant while having a registered judgment

7 Page: 5 against the property of the bankrupt was not given notice of the Trustee s application. In Gaston v Burton, (1998), 172 N.S.R. (2d) 342; 172 D.L.R. (4 th ) 730 (N.S.C.A.), Pugsley, J.A. concluded that a person who may be affected by any proceeding should be given notice. At para. 53 he quoted the authors of DeSmith, Woolf & Jewell, Judicial Review of Administrative Actions 5 th ed. (1995) Sweet and Maxwell at p. 378: That no man is to be judged unheard was a precept known to the Greeks, inscribed in ancient times upon images in places were justice was administered, proclaimed in Seneca s Media, enshrined in the scriptures, mentioned by St. Augustine, embodied in Germanic as well as African proverbs, ascribed in the Year Books to the law of nature, asserted by Coke to be a principle of divine justice, and traced by an eighteenth-century judge to the events in the Garden of Eden. [19] If it were necessary to go behind the order of September 27, 2006, it is to be noted that the grounds for the application of the trustee was s. 3 of the Vendors and Purchasers Act, R.S.P.E.I. 1992, Cap. 71. Section 3 of the latter Act reads: 3. A vendor or purchaser of any interest in land or his or her representative may, in accordance with the rules of court, apply in a summary way to a judge or the Prothonotary in respect of any requisition or objection or any claim for compensation or any other question arising out of or connected with the contract and the judge or Prothonotary may make such order upon the application as appears just. [20] It is obvious that the Vendors and Purchasers Act has no application to the facts relating to the application of the Trustee resulting in the order of September 27, That Act as its name indicates, applies solely to contracts of sale between vendors and purchasers. Here there was no contract of purchase and sale. The Prothonotary had no basis upon which to sign the order of September 27, [21] While there are ample reasons to set aside the September 27, 2006 order, the matter before me can be decided taking into consideration s.1(2) and (3) of the Judgment and Execution Act, R.S.P.E.I. 1988, Cap J-2. These sections read: (2) A judgment entered against any person in the Court of Appeal or the Supreme Court operates as a lien and charge upon all lands, tenements, and hereditaments, leasehold as well as freehold, of or to which such person is, at the time of entering up the judgment or at any time afterwards, seized, possessed or entitled for any estate or interest whatsoever, in law or in equity, whether in possession, reversion, remainder or expectancy, or over which such person, at the time of entering up the judgment, or at any time afterwards, has or shall have any disposing power which he might, without the assent of any other person, exercise for his own benefit.

8 Page: 6 (3) A judgment referred to in subsection (2) is binding as against the person against whom it has been or shall be so entered, and against all persons claiming under and against him after the judgment, and is also binding as against the issue of his body, his heirs, executors, administrators and personal representatives, and all other persons whom he might, without the assent of any other person, cut off and debar from any remainder, reversion of other interest in or out of the lands, tenements and hereditaments. R.S.P.E.I. 1974, Cap. J-2, s.1; 1994,c.30,s.1; 1997,c.20,s.3; 2000,c.5,s.3; 2008,c.20,s.72(50). [22] In accordance with the Judgment and Execution Act, the entry of a judgment operates as a charge upon any interest MacEachern might have in any land. Further, the judgment is binding against all persons claiming under the debtor after the judgment. Consequently, whatever interest the Trustee may have obtained would be subject to the judgment of the applicant. As a result, the judgment of the applicant as against the interest of MacEachern in the matrimonial home has priority over any claim of the Trustee. [23] The applicant shall have its costs. If the parties are unable to agree on costs they shall submit briefs on the issue of costs within 30 days of these reasons. January 11, 2010 MacDonald J