The Priority Pitfall Problem: The Contest Between Judgment and Secured Creditors in Ontario

When a judgment creditor seeks to enforce her judgment against the debtor, it is only that interest that the debtor has in her property that is subject to the execution. Accordingly, if the debtor’s assets are already subject to a duly perfected security interest, then the judgment creditor’s efforts to obtain a writ of execution against the debtor will only allow the sheriff to seize the debtor’s property subject to the rights of that perfected secured party.The traditional position under the common law was that the debtor’s goods “bound” by the judgment creditor’s writ of execution could be legally seized by the sheriff by way of enforcement from any person who had acquired a property interest in the goods (even full ownership) after the delivery of the writ to the sheriff. The common law’s severity was softened by statute in many Canadian jurisdictions starting in the late 19th century, such that security interests in the debtor’s property subsequently acquired became protected from the effect of the writ of execution under certain conditions provided for in the legislation. The result of different jurisdictions adopting legislative reform to the common law in different ways and at different times, however, was that judgment enforcement mechanisms vary by province across Canada.They remain varied to this day. Importantly, though, some of the provinces have begun to enact changes to their judgment enforcement systems in recent years. Under these “modernized” systems, the judgment creditor can acquire by way of the registration of her judgment a priority status akin to that of the secured creditor under provincial personal property security law.But not all provinces have modernized their judgment enforcement apparatus in this way. In those provinces which do not require the registration of a notice of judgment (e.g., Ontario) but also in those that require registration but provide for priority rules when judgment creditors do not register in time, a secured party’s unperfected interest will be subordinated to the interests of a judgment creditor who has caused the collateral to be seized under legal process. But at what time in the execution process has the judgment creditor caused the debtor’s property to be seized? This article takes up this priority pitfall problem under the Ontario Personal Property Security Act.

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