Competitions with Other Claimants

• Author: Ronald C.C. Cuming/Catherine Walsh/Roderick J. Wood
• Profession: University of Saskatchewan, College of Law/McGill University, Faculty of Law/University of Alberta, Faculty of Law
• Pages: 395-424

CHAP TER 10

COMPETITIONS WITH

OTHERCLAIM A NTS

A. COMPETING INTERESTS UNDER MONEY

JUDGMENT ENFORCEMENT LAW

1) Introduction

Canadian sec ured f‌inancing law has always recognized that unsecured

creditors are one of the categories of persons protected under per fection

and priority rules. However, the theoretical basis for this protection and

the operation of these rules h as not always been consistent. Indeed, there

are currently ver y considerable differences between the approaches t aken

in the various jur isdictions to the respective priorit y 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 jurisd ictions. The effect of the new systems is to g ive to

an unsecured judgment creditor the ability to acquire a pr iority stat us in

relation to other interests, includi ng PPSA security interests, very sim ilar

to that of a secured creditor. Because of the ver y different conceptual and

operational differences among judgment enforcement systems, t he auth-

ors have grouped the systems and t reated each group separately.

The PPSAs of British Columbia, Manitoba, Ontar io, Saskatchewan,

the Northwest Territories, Nunav ut, and the Yukon Territory1 employ a

1 PPSA (NB, NWT, Nu, O, S) s. 20(1); (BC, M) s. 20(a); PEI s. 20(2); Y s. 19(1).

395

PERSO NAL PR OPERTY SEC URI TY LAW396

more traditional approach to the priority status of an unsecured credit-

or in relation to the secured creditors of a debtor. Saskatchewan and

the Northwest Territories form a sub-g roup as a result of additional

features contained in their judgment enforcement laws. The newer ap-

proach is ref‌lected in the Acts in effect in the Atla ntic provinces and

Alberta.

2) The Traditional Approach

a) Binding Effect of a Writ of Execution

The position of a secured party who acquire s a security interest in prop-

erty of a debtor after it is bound by the is sue and delivery of a writ of f‌ieri

facias to the sheriff is determined by execution law. The common law

early recognized t hat, while the issue and delivery of a writ of execu-

tion against chattels to t he sheriff did not give to the judgment creditor

any claim to or interest in good s of the debtor, it did “bind” the goods.2

However, this binding effect was never extended to other forms of per-

sonal property. Goods “bound” by a writ of execution could be legally

seized by the sherif f from any person who acquired a property interest,

including full ownership, after the delivery of the writ.3 Con sequently,

goods subject to the binding effect of a wr it have been treated as bei ng

“encumbered” with the power of the sheriff to sei ze them.4 The harsh

consequences that resulted f rom this conclusion were ameliorated in

many jurisd ictions by legislation patterned on sect ion 1 of the English

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 with-

out notice.5 The effect of this legislation is to in sulate from the binding

effect of writs of execution subsequent interests, includi ng security in-

terests, acquired under t he circumstances described i n the provision.

In practical term s, this str ips the binding ef fect of a writ of execution

of much of its value in giving prior ity with respect to goods over subse-

quent interests in debtors’ property. However, the legislation does not

protect a person who acquires an interest from a debtor in possession

2 See, for example, Ross v. Dunn (1889), 16 O.A.R. 552.

3See

Young v. Short (1885), 3 Man. R. 302 (C.A.).

4See

Lloyds and Scotti sh Finance Ltd. v. Modern Cars and Caravans (Kingsto n) Ltd.,

[1966] 1 Q.B. 764.

5 See, for example, Law a nd Equity Act, R.S.B.C. 1996, c. 253, s. 35(1).