Part 5 I

1
Part 5 IIIUnsecured CreditorsPost-Judgment
RemediesPriorities
2
Terminology

• Bound JC has interest in property of the debtor
  which is effective against third parties
• Corresponds to perfection in PPSA
• Judgment the order of the court that the
  defendant pay to the plaintiff Form 60A
• Memorial of judgment evidence of the judgment
  which can then be registered in the land registry
  to bind land
• Notice of judgment notice of judgment which is
  registered in PPR to bind personal property

3
Terminology

• Enforcement orders order of the court addressed
  to the sheriff ordering the sheriff to seize and
  sell assets of the debtor.
• Traditionally called writs of execution
• writ of fi.fa. for personalty, elegit for
  land
• Now order for seizure and sale for land and
  real property (Form 61A)
• Garnishment execution against debt owing by
  account debtor to judgment debtor
• Corresponds to right to collect on intangibles
  under PPSA
• Attaching order is order prohibiting AD for
  paying JD

4
Relevant Acts

• Nfld and Alta have reformed judgment enforcement
  system
• Judgment/Civil Enforcement Acts
• Unreformed jurisdictions
• Creditors Relief Act
• Priorities among unsecured creditors
• Binding of property of judgment debtor, ie
  priority between JC third parties (in
  conjunction w PPSA etc.)
• Mini-bankruptcy obsolete prob.
  unconstitutional
• PPSA/Registry Act/Land Titles Act
• Binding of property of judgment debtor
• Memorials and Executions Act
• Enforcement against land and personal property
• Garnishee Act
• Enforcement against debts owing to JD

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Priorities
6
Binding

• Once the property is bound by the judgment any
  third party taking an interest in the property
  takes subject to the judgment creditors right to
  execute
• E.g. N.B. Creditors Relief Act 2.3(10)
• Where an interest acquired in personal property
  that is bound by registration of a notice of
  judgment is subordinate to the interest of a
  judgment creditor,
• (a) the property is subject to enforcement
  proceedings to the same extent as if the
  subordinate interest did not exist, and
• (b) a person who acquires the property as a
  result of enforcement proceedings obtains title
  free of the subordinate interest.

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Binding

• Problem
• Conflict of interests between
• JC
• Third parties dealing with the collateral
• Balance
• Easy and effective binding
• Against
• Adequate protection for third parties

8
History of Binding

• Originally the judgment of the court was binding
  when judgment was delivered or when writ was
  issued
• Harsh against third parties effective even
  against a BFPFV without notice of the writ
• First modification not binding until judgment
  entered on rolls
• Statute of Frauds 1677 provided that a writ was
  not binding until delivered to the sheriff
• Still harsh absent an effective system of notice

9
History of Binding

• Judicial response was to circumscribe the binding
  effect of the writ
• Binding effective of the writ only applies to
  goods exigible at common law, e.g. tangible goods
  and chattels
• Personalty made exigible by legislation is bound
  only on actual seizure

10
History of Binding

• Land
• Writ against land (elegit) is still binding on
  delivery to the sheriff unless legislation
  provides otherwise
• This is still the case in Ontario
• Problem
• This requires an additional search to verify
  title
• Most other jurisdictions require registration in
  the land registry
• E.g. NB

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Land N.B.

• Memorials and Executions Act
• 5 A memorial of a judgment . . . registered in
  the registry office of the county in which the
  lands are situated, binds the lands of the person
  against whom the judgment was recovered, decree
  made or execution issued. . .
• Registration binds land
• . . . but no writ of fieri facias issued on such
  judgment or decree, and delivered to the sheriff
  to be executed shall bind such lands.
• Delivery to sheriff does not

12
Land NB

• Registration of judgment has limited life
• Memorials and Executions Act
• 6 Every judgment or decree of which a memorial is
  so registered binds the lands of the person
  against whom the judgment or decree was recovered
  for five years from the registry, and after that
  period, if the judgment or decree remains
  unsatisfied, the memorial may be renewed for a
  further period of five years with like effect,
  and so on as often as required by registering it
  again in accordance with this Act.
• Overall limit of 20 years due to Limitations Act

13
History of Binding

• Legislative Response Goods Chattels
• U.K. Mercantile Law Amendment Act 1856 and
  adopted in most provinces, but not NB, NS or PEI
• No writ of fi fa would affect the right of a
  BFPFV without notice from execution debtor or
  seizure.
• Result was that JC had to seize in order to
  perfect at least as against BFPFV
• This remains the position in Ont., B.C., Manitoba

14
Personal Property Ontario

• Execution Act
• 10.(1) Subject to the Land Titles Act and to
  section 11 a writ of execution binds the goods
  and lands against which it is issued from the
  time it has been received for execution and
  recorded by the sheriff.
• (2) Despite subsection (1), no writ of execution
  against goods other than bills of sale and
  instruments in the nature of chattel mortgages
  prejudices the title to such goods acquired by a
  person in good faith and for valuable
  consideration unless such person at the time of
  acquiring title had notice that such writ or any
  other writ by virtue of which the goods of the
  execution debtor might be seized or attached has
  been delivered to the sheriff and remains in the
  sheriff's hands unexecuted.
• Notice in subsection (2) means actual notice

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History of Binding

• Requiring seizure was good for BFPFV, but could
  be a problem for JC since
• 1) A JC ranked behind a secured creditor whose
  interest was subsequently created but registered
  prior to seizure
• 2) Prior debtor could prefer other creditors btw
  time of judgment and seizure by giving them a
  security interest before seizure (so long as the
  other creditors were not aware of the preference
  and subject to Fraudulent Preferences Act).
• 3) 2) is particularly a problem with respect to
  new assets, since if new assets were acquired the
  enforcement process had to be recommenced

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Personal Property New Rule

• General rule
• Property not bound except by registration
• Registration in PPR binds property
• In Nfld registration is in Judgment Enforcement
  Registry

17
Personal Property New Rule

• E.g. NB Creditors Relief Act
• 2.3(1) Personal property of a judgment debtor
  shall not be bound except by registration of a
  notice of judgment in accordance with subsection
  2.2(1) in PPR.
• 2.3(2) Registration of a notice of judgment binds
  all of the judgment debtor's non-exempt exigible
  personal property on registration and all
  non-exempt exigible personal property acquired by
  the judgment debtor after registration from the
  time of its acquisition.

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Personal Property New Rule

• Expiry
• Creditor may select period of time for which
  registration of notice of judgment in PPR is to
  be effective, up to a maximum of 20 years
• After 20 years recovery is barred by Limitations
  Act s.47.1

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Modern Position

• Personal Property
• Old Rule Ontario, Manitoba, B.C.
• Personal property bound on seizure of goods
• New Rule Other provinces, with some variation
  in details
• Personal property bound on registration of notice
  of judgment in the PPR
• Land
• Old Rule Ontario Registry Act
• Land bound on delivery of writ to sheriff
• New Rule Atlantic Provinces, Ont Land Titles
  Act
• Land bound on registration of memorial of
  judgment in land registry

20
Binding by Registration

• When property can be bound by registration,
  person dealing with the property of the debtor
  must search the registry for a notice of
  judgment, as for a financing statement
• Why should a JC be able to bind property by
  registration?

21
Subsequent Interest Holders

• Once the property is bound, subsequent interest
  holders (e.g. purchasers or secured parties) take
  subject to the JCs interest
• Exceptions
• Land
• No exceptions until the registration expires
• Personal Property
• Registered judgment is like registered security
  interest
• Exceptions for transferees
• Also pmsi, repairers lien (not covered in this
  course)

22
Subsequent TransfereePersonal Property

• Ordinary course, yard sale and serial number
  equipment rules apply to judgments as they do to
  security interests.
• (JC may register by serial number)
• Why?
• Thus the JC must register by serial to protect
  interest against purchasers
• This is different from the question of whether
  registration against equipment without serial
  is effective against JC

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Subsequent Transferee Personal Property Why?

• Creditors Relief Act 2.3(6) A person to whom
  personal property bound by a notice of judgment
  is transferred has priority as against the
  persons referred to in subsection (5) in the same
  circumstances that a transferee of personal
  property subject to a security interest perfected
  by registration has priority as against the
  secured party under subsections 30(1) to 30(4)
  ordinary course and yard-sale, subsections
  30(6) and 30(8) equipment and section 31 of the
  Personal Property Security Act reified
  intangibles, and those provisions apply with the
  necessary modifications.

24
Subsequent Security InterestsPersonal Property

• PMSI (if registered in timely manner) and
  repairers lien have priority over prior
  registered JC
• PPSA s.22 32
• Exceptions may arise for other statutory liens

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Prior Interests

• To what extent is a prior interest affected by a
  binding judgment?
• Prior unregistered interests
• Future advances

26
Prior Interests Common Law

• Starting point
• You cant grant a security interest in someone
  elses property
• A judgment debtor cant bind someone else
  property
• So, common law
• The JC steps into the shoes of the debtor

27
Prior Interests Common Law

• The rule in Jellett v Wilkie
• ". . .an execution creditor can only sell the
  property of his debtor subject to all such
  charges, liens and equities as the same was
  subject to in the hands of his debtor
• Jellett v Wilkie (1896) 26 S.C.R. 282
• The rule in Jellett v Wilkie is simply a
  statement of nemo dat in the judgment enforcement
  context
• The alternative to Jellett v Wilkie is some form
  first-to-register wins

28
Prior Interests Land

• Interest of JC with registered memorial of
  judgment is of course subordinate to prior
  registered interests in the property
• Same as secured party
• Interest of JC is also subordinate to prior
  unregistered interests Jellett v Wilkie
• Different from security interests
• Any unregistered interest is void as against a
  prior registered security interest

29
Prior Interests Land

• The rule in Jellett and Wilkie applies in most
  jurisdictions
• Including land titles jurisdictions
• Including NB Land Titles Act
• Can only be changed by clear language
• Modified by NB Registry Act
• 19(2) Subject to subsections (3), (4) and (5),
  all instruments shall, if not registered within
  three months of the date of their execution, be
  deemed fraudulent and void as against any bona
  fide -judgment creditor, when, prior to the
  registry of such conveyance, a memorial of the
  judgment has been registered.

30
Prior Interests Land

• Why should JC who registers be treated
  differently from secured party who registers?
• JC is different from secured party in that JC
  does not rely on register, so why prejudice bona
  fide purchaser who failed to register?
• But what about successor in title to JC, namely
  purchaser from sheriff?
• Must be able to give clear title to get best
  price
• No doubt if the sheriff had sold and the
  purchaser had registered his transfer, the Act
  would apply, and would in that case invalidate
  prior unregistered transfers made by the
  execution debtor before the registry of the
  execution...
• Jellett v Wilkie
• But that is too late for purchaser, who has
  already purchased

31
Prior Interests Land

• Consider problem of fraudulent conveyances
• Conveyances intended to defeat judgment creditor
• Better that my spouse gets the land rather than
  my creditor
• After registration of judgment JD executes
  conveyance to spouse and backdates it
• Fraudulent conveyances can be attacked under
  fraudulent preferences Acts (Assignments and
  Preferences Act in NB), but these require showing
• Intent to defraud, and
• That D was insolvent at time of the transfer

32
Prior Interests Land

• Should rule in Jellett v Wilkie be abolished in
  respect of land in favour of a rule that JC with
  registered memorial of judgment has priority over
  prior unregistered interests?
• Consider
• Prejudice to purchaser from sheriff
• Prejudice to prior unregistered interest holder
• Burden on prior unregistered interest holder
• Problem of fraudulent conveyances

33
Prior Interests Personal Property

• Rule in Jellett v Wilkie does not apply to prior
  security interests
• PPSA 20(1) An unperfected security interest in
  collateral is subordinate to the interest of
• (a) a judgment creditor who has registered a
  notice of judgment in the Registry pursuant to
  subsection 2.2(1) of the Creditors Relief Act if
  the security interest is unperfected when the
  notice is registered,
• This rule applies even to prior unperfected
  security interests
• Note In Ontario the JC must actually seize to
  get priority over a prior unregistered security
  interest

34
Prior Interests Personal Property

• Rule in Jellett v Wilkie does apply to prior
  ownership interests
• This is simply to say that a judgment creditor
  cannot attach property that does not belong to
  the debtor
• We cannot say that a prior unregistered ownership
  interest is subordinate to a registered JC
  because there is no ownership registry an owner
  could never protect themselves
• Note that there are mechanisms to deal with
  fraudulent conveyances
• Where debtor conveyed property prior to binding
  in order to defeat judgment creditor

35
Future Advances Personal Property

• PPSA rule for future advances is different for JC
  than for SP2
• 35(6) A perfected security interest has priority
  over the interest of a judgment creditor referred
  to in paragraph 20(1)(a) with registered notice
  of judgment only to the extent of
• (a) advances made before the judgment creditor
  registers the notice of judgment referred to in
  paragraph 20(1)(a), and
• (b) advances made before the secured party has
  knowledge of the registration of the notice of
  judgment referred to in paragraph 20(1)(a),
• Like Hopkinson v Rolt JC who registers and
  gives actual notice has priority over future
  advances

36
Future AdvancesPersonal Property

• Why is JC treated differently from SP in respect
  of future advances under the PPSA?

37
Future AdvancesLand

• In land, the rule regarding the priority of JC
  with respect to future advances is not clear.
• What should it be?

38
Priorities as between JCs
39
Common-Law

• First writ delivered to the sheriff has priority
• Regardless of the time at which the debt was
  incurred to the judgment obtained
• That is,
• Sheriff has several writs of execution
• Sheriff executes the first writ delivered to him
• When that writ is satisfied in full, sheriff
  turns to the second writ
• What is wrong with this rule?
• Still the law in PEI

40
Pro-Rata Sharing

• The common law was modified by Creditors Relief
  Acts near the turn of the century
• Unsecured creditors share pro-rata
• That is, in proportion to their share of the
  total debt
• E.g. D owes 30,000 to Unsecured Creditor 1,
  10,000 to UC2
• Ds total assets are 1000
• UC1 gets 750, UC2 gets 250
• E.g. NB Creditors Relief Act
• 3 Subject to the provisions hereinafter
  contained, there is no priority among creditors
  by execution from The Court of Queen's Bench of
  New Brunswick.

41
Pro-rata Sharing

• Pro-rata sharing is subject, . . . to the
  payment of the costs of the creditor under whose
  execution the money was levied. CRA s.4(1)
• Why?

42
Implementation of Pro-rata Sharing

• CRA s.4(1) Where a sheriff levies money upon an
  execution against the property of a debtor . .
  .he shall forthwith enter in a book to be kept in
  his office, open to public inspection without
  charge, a notice stating that the levy has been
  made, and the amount thereof, and the money shall
  thereafter be distributed rateably amongst all
  execution creditors and other creditors whose
  writs, or certificates given under this Act, were
  in the sheriff's hands at the time of the levy,
  or who delivered their writs or certificates to
  the sheriff within one month from the entry of
  notice . . .

43
Establishing a Claim

• Creditor must establish a claim to be entitled to
  share in the distribution CRA s.5
• Traditionally, it was not necessary to have
  obtained a judgment
• Although the initiating creditor had to have
  obtained a judgment in order that a writ of
  execution would issue
• Certificate system allowed creditors to obtain
  a certificate through a summary administrative
  procedure
• That certificate was then equivalent to a
  judgment
• If objections were raised, they would be dealt
  with by a court

44
Establishing a Claim

• The certificate system is was abolished in NB
  with PPSA
• CRA 2.3(13) A judgment creditor is not entitled
  to share in the proceeds of a levy by the sheriff
  against the personal property of the judgment
  debtor under this Act unless the creditor has
  registered a notice of judgment under subsection
  2.2(1).

45
Establishing a Claim

• 2.3(14) In applying the provisions of this Act
  for the purposes of determining the entitlement
  of creditors to share in the proceeds of a levy
  by the sheriff, a reference to an execution or
  certificate or the delivery of an execution or
  certificate to the sheriff shall be construed as
  a reference to a registered notice of judgment or
  the registration of a notice of judgment, unless
  the context otherwise requires.

46
Defects of CRA

• In NB, NS BC, Creditors Relief Act does not
  apply to garnishment, only to execution
• Apparently a drafting error
• Is CRA redundant in light of bankruptcy?

47
Defects of CRA

• Recall CRA s.4(1)
• Where a sheriff levies money upon an execution .
  . . the money shall thereafter be distributed
  rateably amongst all execution creditors

48
Defects of CRA

• What about where SP distributes surplus funds?
• PPSA s. 60(2) Surplus distributed in order of
  priority
• JC1 gets paid out before JC2 because sheriff is
  not distributing
• What about CRA s. 3?
• S. 3 Subject to the provisions hereinafter
  contained, there is no priority among creditors
  by execution from The Court of Queen's Bench of
  New Brunswick.