In re Pickle Logging, Inc.

Pickle Logging, Inc. (Pickle) (debtor) owed a debt to John Deere Credit, Inc. (John Deere) (creditor) for eight items of equipment. In order to bring a delinquency current, Pickle and John Deere refinanced the debt on the equipment. Pickle had used this equipment as collateral for other creditors as well. In April 2002, Pickle filed for bankruptcy under Chapter 11. The court made determinations regarding the priority of the various creditors and sought to determine the value of each piece of equipment. However, John Deere’s secured status in relation to one piece of equipment was unclear, as was discussed at a hearing to assign equipment values. On both the security agreement and the financing statement, John Deere had made an error in the description of one of the eight pieces of equipment. The equipment, a 548G skidder, had serial number DW548GX568154. However, the description given was for a 648G skidder with the serial number DW648GX568154. The model and serial numbers were wrong by one digit. There was expert testimony that these skidders were quite different in terms of how they looked, in price, and in performance. There was no other data on the forms that alerted a third party to the mistake. The insurance values for one machine were in range of the other. Both the model number and the serial number were incorrect on both the security agreement and the financing statement. In addition, Pickle owned two of the 548G skidders and two of the 648G skidders. The bankruptcy court ruled that John Deere had an unperfected security interest and did not assign a value to the machine for adequate-protection payments. John Deere moved for the bankruptcy court to reconsider both its order regarding John Deere’s unperfected status and the order regarding its adequate-protection payments. John Deere contended that the mistake in the description of a single number did not render the financing statement seriously misleading and that a reasonable third party would be on notice. John Deere argued that it had a perfected interest in the 548G skidder. Pickle argued just the opposite and pointed out that because of the mistake, the equipment subject to John Deere’s interest was not even listed in the security agreement or the financing statement.