Competitions with Other Claimants

AuthorRonald C.C. Cuming, Catherine Walsh, Roderick Wood
A. ComPETInG InTEREsTs undER monEY
judGmEnT EnfoRCEmEnT lAW
1) Introduction
Canadian sec ured f‌inancing law has always recognized that unsecured
creditors are protected under perfection and priority r ules. However, the
theoretical basis for this protection and the operation of these rules has
not always been consistent. Indeed, there are c urrently very considerable
differences between the approaches t aken in the various jurisdictions to
the respective priority positions of the secured and unsecured creditors
of a debtor. Some of these differences result from recent fundamental
changes in the judgment enforcement systems of some jur isdictions. The
effect of the new systems is to give to an un secured judgment creditor
the ability to acquire a priorit y status in relation to other interests, in-
cluding PPSA security intere sts, very similar to that of a secured c reditor.
Because of the conceptual and operationa l differences among judgment
enforcement systems, the authors have grouped the system s and treated
each group separately.
When addressing the relative priority positions of unsecured
creditors and secured creditors it is nece ssary to dist inguish between
two scenarios: (i) where a writ of execution has been is sued and deliv-
ered to the sheriff prior to the att achment of a security interest; and
(ii) where the collateral has been seized or otherwise made subject to
Competitions w ith Other Claimant s 495
an enforcement measure (including an enforcement charge) before the
security interest h as been perfected.
2) The Traditional Approach
a) Prior Binding Effect of a Writ of Execution
The position of a secured party who acquire s a security interest i n prop-
erty of a debtor after it is bound by the issue and delivery of a writ of
execut ion to the sheriff is determi ned by judgment enforcement law.
The common law early recognized th at, while the issue and delivery of
a writ of execution to the sheriff d id not give to the judgment creditor
any claim to or interest in goods of t he judgment debtor, it did “bind”
the good s.1 However, this binding effect was never extended to other
forms of personal property. Goods “bound” by a writ of execution
could be legally seized by the sheri ff from any person who acquired an
interest in the property, including full ownership, after the delivery of
the wr it.2 Consequently, goods subject to the binding effect of a writ
have been treated as bei ng “encumbered” with the power of the sheriff
to seize them.3 The harsh consequences th at resulted from this conclu-
sion were ameliorated by legislation patterned on section 1 of the Eng-
lish Mercantile Law Amendment Act, 1856, which provided that no writ
of execution can prejudice the right of any person to goods acquired
from an execution debtor in good faith, for valuable consideration and
without notice. This provision was adopted in British Columbia.4 The
effect of this legislation is to insulate from the binding effect of writs of
execution subsequent interests, including security interests, acquired
under the circumstances described in the provision. In practical terms,
this strips the binding effect of a writ of execution of much of its value
in giving priorit y with respect to goods over subsequent intere sts in
debtors’ property. However, the legislation does not protect a person
who acquires an interest from a debtor in posse ssion under an under-
1 See, for example, Ross v D unn (1889), 16 OAR 552. This feature of the com mon
law was codi f‌ied in legislation in most prov inces. See, for example, Execution
Act, RSO 1990, c E.24, s 10(1).
2 See Young v Short (1885), 3 Man R 302 (CA).
3 See Lloyds and Scotti sh Finance Ltd v Modern Cars and Caravans (Kingston) Ltd,
[1966] 1 QB 764.
4 See, for example, Law a nd Equity Act, RSBC 1996, c 253, s 35(1). The Court Order
Enforcement Act, RSBC 1996, c 78 doe s not state that a writ of execut ion binds
the goods of the judg ment debtor. This must be inferred from t he common law
which has not bee n replaced or codif‌ied in thi s respect.

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