Competitions with Other Claimants

• Author: Ronald C.C. Cuming, Catherine Walsh, Roderick Wood
• Pages: 494-517

494

CHA PTER 9

COMPETITIONS WITH

OTHER CLAIMANTS

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.