2: Judicial Collection – Introduction,
Execution
© Charles Tabb 2010
Sheriff, get me the money
Basic premise
• “first in time is first in right”
• The race of diligence
Get a LIEN
• Creditor’s rights are fixed when gets a lien
against property of the debtor
– Either up front (e.g., Art. 9 security interest,
mortgage)
– Or in process of collecting (e.g., execution lien)
Secured vs Unsecured
• Secured creditors can collect just by
foreclosing on collateral
• i.e., apply the collateral to payment of debt
Unsecured?
• Unsecured creditor by definition does not
enjoy any collateral to secure its debt
• Cannot just seize debtor’s property to enforce
debt – would be conversion
• So how collect?
judgment
• Unsecured creditor has to get a judgment first
• Then can try to collect by
enforcing the judgment
• Enforcing judgment: state assists
creditor in collecting from debtor
Called “execution”
• The process of enforcing a judgment with the
aid of the state is called “execution”
• Derived from common law writ:“fieri facias”
--> Known as fi fa
—
Steps in Execution
• One: final money judgment
Steps in Execution
• Two: issuance of writ of execution
Steps in Execution
• Three: delivery of writ of execution to the
sheriff
 important in a minority of states (such as
Illinois), because this is point in time at which
execution lien arises (even though still
contingent or “inchoate”)
Steps in Execution
• Four: sheriff levies on debtor’s property,
makes return
majority rule: this is time that execution lien
arises
And in minority states is when contingency is
removed
What is “levy”?
• Levy is the sheriff’s assertion of dominion and
control over the property
Steps in Execution
• Five: sale of assets levied on
Steps in Execution
• Six: distribution of sale proceeds
Problem 1.6
* April 1: Creditor obtains a final money
judgment against Debtor for $5,000.
* May 1: The clerk issues a writ of
execution, with a return date of 90 days.
* September 1: the sheriff levies on
Debtor’s prize pig Porky.
-> What are the legal consequences?
Answer to Problem 1.6
• Since return date passed before levy,
sheriff had no legal authority to levy
• September 1 > 90 days after May 1
Return date passes
I think of the sheriff’s power under a execution
writ like the message in
Mission Impossible –
it just goes up in smoke
when the return date passes
SHERIFF’S POWER TO LEVY
Consequences of late levy
• 1st – sheriff is liable to Debtor in
conversion
• 2nd – Creditor has nothing – the levy is
ineffective, so no execution lien, no right
to continue execution process on pig
What can Creditor do?
• Get a new execution writ and try
again
Problem 1.7
• April 1: Creditor obtains a final money
judgment against Debtor for $5,000.
• May 1: clerk issues a writ of execution, with a
return date of 90 days.
• June 1, the sheriff returns the writ “nulla
bona.”
• The next day, the judgment creditor discovers
assets of the Debtor that are subject to levy.
 What should the Creditor do?
Effect of nulla bona return?
• Kills off sheriff’s power
under that writ
NULLA BONA RETURN ->
• Doesn’t matter that return date has
not passed – the writ is now dead
Now what?
• Creditor simply gets a new writ
issued
• Delivers to sheriff with specific
instructions on what asset to levy on
– see, e.g., Vitale
Problem 1.8
• April 1: Creditor obtains a final money judgment
against Debtor for $5,000.
• May 1: clerk issues a writ of execution, with a
return date of 90 days.
• May 2: writ is delivered to the sheriff
• May 10, Debtor sells his prize pig Porky to
Purchaser. Purchaser leaves Porky with Debtor,
saying he will pick the pig up on May 15.
• May 12, sheriff levies on Porky pursuant to
Creditor’s writ of execution.
Priority Battle
• There’s only one pig Porky – who
gets it?
• Purchaser vs Creditor
How decide priority battles?
• five basic principles
• 1st – property principle of “nemo dat”
(can’t give what you don’t have)
–So, when assessing rights of parties
who have dealt with the debtor, what
rights did the debtor have in the
property at the key moment in time?
2nd priority principle
• What date did each party’s rights
versus Debtor’s property 1st arise?
• Look to whatever the operative law
is (e.g., laws regarding sales of goods,
laws of execution liens, etc.)
3rd priority principle
• Did that party ever LOSE their
priority?
• i.e., did they do what they had to do
(if anything) to keep their priority
alive?
4th priority principle
• Default rule for determining the winner
• Race – 1st in time wins
• E.g., compare the operative dates for
each party (from 1st 3 principles) – and
party with earliest date wins
5th priority principle
• See if there is an EXCEPTION to the default
rule
• For example
– A “purchase money” lender may trump earlier
parties
– Ditto (sometimes) a BFP (bona fide purchaser)
Answer to 1.8 – majority rule
• What are the relative priorities of the parties
with regard to Porky if the state follows the
majority rule on execution liens?
• Majority rule: Creditor’s execution lien arises
on LEVY
Application of majority rule
• PURCHASER wins
• Why? Nemo dat (principle 1) –
–Creditor got nothing on levy
–as of date of levy, it wasn’t Debtor’s
pig!
Sheriff?
• Liable to Purchaser for conversion
• Purchaser can either get money
damages from sheriff
• Or get Porky back
Answer to 1.8 – minority rule
• What are the relative priorities of the parties
with regard to Porky if the state follows the
minority rule on execution liens?
• What is minority rule?
– Creditor’s “inchoate” execution lien arises on
delivery of writ to sheriff
– Contingent on sheriff levying before return date
Application of minority rule
• Creditor wins under “1st in time” principle
• Why?
– Under nemo dat, what did Purchase get when he
bought Porky from Debtor?
– > a slab of breathing bacon subject to Creditor’s
inchoate execution lien
– and Creditor did perfect the lien – got levy
Practical consequence
• Porky is sold at execution to satisfy
Creditor’s judgment
• IF any proceeds are left, they go to
Purchaser
– Remember, Purchaser does have a property
interest in Porky
– It’s just junior to Creditor’s execution lien
Possible exception in 1.8
• Purchaser MIGHT win IF the state has an
exception (see principle 5) that protects a BFP
(bona fide purchaser)
– Rationale: how could P have known? Chill pig
sales without protection
• Of course, P has to qualify as BFP
– Gave fair value
– Without notice of any funny business
• May wonder why left Porky with Debtor?
A really, really short primer on Art. 9
• Governs security interests in
personal property
Art 9 primer
• Creditor (Secured Party) has rights in
specific Collateral (debtor’s property)
to secure an obligation
Art 9 primer
• When does SP get rights against Collateral?
• Upon ATTACHMENT
• “ATTACHMENT” means, simply, that the SP has
a right as against the debtor with regard to
the covered collateral
• Attachment has nothing to say about SP’s
rights versus third parties – except, with no
attachment, SP has nothing at all!
Art 9 primer
• For attachment, need:
• (1) agreement of debtor
• Usually in a signed security agreement
• (2) debtor has rights in collateral
• (3) SP gives value
• Usually a loan or extension of credit
Art. 9 primer
• For rights against THIRD PARTIES, the Art. 9
concept of PERFECTION comes into play
• In a priority fight vs 3rd party, an Art. 9 SP
almost always dates the time of its rights from
the date of perfection – not attachment
• Date of perfection – usually when SP files a
“financing statement” (or a “UCC-1”)
The Art. 9 priority rule vs judicial liens
• UCC § 9-317(a)(2):
“A security interest … is subordinate to the
rights of: …
(2) except as otherwise provided in subsection
(e), a person that becomes a lien creditor
before the earlier of the time:
(A) the security interest …is perfected.
Summary of SP v LC rule
• Winner is 1st party to “perfect” or “levy”
– i.e., did SP perfect its security interest before
creditor became a lien creditor by levy
– Stated otherwise, even if SP has a security
interest, if it is still unperfected, general creditor
can trump SP by getting sheriff to levy on
collateral
– Justification: Race-Notice
Art. 9 priority rule
• How does competing creditor “become[] a lien
creditor” for purposes of 9-317(a)(2)?
– This is critical because it determines the relevant date
for the creditor versus the SP, under the normal “1st in
time wins” rule
• Answer: 9-102(a)(52): "Lien creditor" means:
(A) a creditor that has acquired a lien on the
property involved by attachment, levy, or the like
“Lien creditor” under Art. 9
• Under the Art. 9 “lien cr” definition – requires
“attachment, levy or the like”
• Reason: consistent with the public notice
premise of Art. 9 for resolving priority fights
• Which suggests that getting an execution lien
by delivering a writ to a sheriff (rule in
minority states) probably won’t be enough –
i.e. delivery of a writ is not “like” levy
Special rule for “PMSI”
• One major exception to race-notice rule
of 9-317(2)(a)
• For a “purchase money security interest”
(PMSI)
• PMSI is where the very obligation
secured enabled the debtor to purchase
the collateral. See 9-103(a)
2 basic types of PMSI
• (1) Seller of goods on credit retains
security interest to secure the balance of
price due
• (2) Lender loans Debtor money to
enable Debtor to buy collateral, debtor
does so, and lender gets security interest
in collateral to secure the loan
Justification for PMSI rule
• Debtor would not have had the
collateral in the 1st place but for the
credit/loan from the PM-SP
• Necessary to encourage PM
credit/loans
Special PMSI rule vs LC
• UCC § 9-317(e):
“… if a person files a financing statement with
respect to a purchase-money security interest
before or within 20 days after the debtor
receives delivery of the collateral, the security
interest takes priority over the rights of a
buyer, lessee, or lien creditor which arise
between the time the security interest
attaches and the time of filing”
Summary of PMSI rule
• PM-SP gets a 20-day grace period (dated from
when debtor receives delivery of collateral) to
perfect
• If files within that 20 days, still wins even
against an LC who levied in the interim
• In essence, PMSI rule allows for relation back
of PM-SP from date of perfection to date of
attachment
Problem 1.9(a)
• Feb 1: SP’s security interest in Porky attached,
secures debt of $5K
- SP’s security interest perfected
• April 1: Creditor obtains a final money judgment
against Debtor for $5,000.
• May 1: clerk issues 90-day writ of execution
• May 2: writ is delivered to the sheriff
• May 10, the sheriff levies on Debtor’s prize pig
Porky, who is worth $5,000, pursuant to
Creditor’s writ of execution.
1.9(a)
• What are the relative priorities of the parties
with regard to Porky, assuming the state
follows the majority rule on execution liens?
Answer to 1.9(a) [majority rule state]
• SP wins
• Security interest attached and was
perfected before C got levy
1.9(a) – minority rule state?
• Would the result change if in a
minority rule state, which dates C’s
execution lien from delivery of the
writ to the sheriff?
Answer – minority state, 1.9(a)
• Result would not change – SP still
was perfected before C did anything
Problem 1.9(b)
• Feb 1: SP’s security interest in Porky attached,
secures debt of $5K
• April 1: Creditor obtains a final money judgment
against Debtor for $5,000.
• May 1: clerk issues 90-day writ of execution
• May 2: writ is delivered to the sheriff
• May 5: SP perfects
• May 10, the sheriff levies on Debtor’s prize pig
Porky, who is worth $5,000, pursuant to
Creditor’s writ of execution
1.9(b)
b. what are the relative priorities of the
parties with regard to Porky, assuming the
state follows the majority rule on execution
liens?
Answer to 1.9(b) – majority rule state
• SP wins
• Perfected (May 5) before C’s levy
(May 10)
Answer to 1.9(b) – minority rule state
• Depends
• On what?
– Is C considered a “lien creditor” for Art. 9
purposes when writ delivered to sheriff (May 2 –
before SP perfected) and inchoate lien arose, or
only on actual levy (May 10 – after SP perfected)?
– Remember that Art. 9 “lien cr” dfn. Requires that
creditor obtain lien “by attachment, levy, or the
like”. Better view is thus that SP wins
Problem 1.9(c)
• Feb 1: SP’s security interest in Porky attached,
secures debt of $5K
• April 1: Creditor obtains a final money judgment
against Debtor for $5,000.
• May 1: clerk issues 90-day writ of execution
• May 2: writ is delivered to the sheriff
• May 10, the sheriff levies on Debtor’s prize pig
Porky, who is worth $5,000, pursuant to
Creditor’s writ of execution
1.9(c)
c. what are the relative priorities of the parties
with regard to Porky, assuming the state
follows the majority rule on execution liens?
Answer to 1.9(c) – majority state
• Creditor wins
• Got execution lien by levy on May
10, which was before SP perfected
(on May 15)
1.9(c) – minority rule state
• No change in result – Creditor still wins
• Latest execution lien arose (even for Article 9
purposes) was May 10, which is before May 15
Vitale v Hotel California
• how do you think plaintiff's attorney
found out about the debtor's liquor
license in "The Fast Lane“?
Vitale
• what did Israelow (plaintiff’s lawyer)
do vis-a-vis the sheriff to enhance
the likelihood of successful
execution?
Vitale
• Why did the sheriff get amerced?
Illi
• Necessary preliminary points about
an “ABC” - assignment for the
benefit of creditors
–1st – a collective proceeding (state law
alternative to chapter 7 bankruptcy) …
may be used by a corporation, which
doesn’t care about a bankruptcy
discharge
ABC
• 2nd – “trustee” (or “assignee”) takes
title to Debtor’s assets, and holds in
trust for the benefit of all debtor’s
creditors
• Pretty much the same as a
bankruptcy trustee
ABC
• 3rd – priority status of creditors’ claims is
determined as of the moment of the
assignment
• The assignment freezes creditors’ rights vs.
debtor, and vs. each other
• Again, this mirrors the bankruptcy approach
ABC
• 4th – Nemo dat
• i.e., the trustee take title to the debtor’s
property, as of the moment of the assignment,
exactly as it is
• That is, however the debtor’s title is limited,
ditto the trustee’s title
• And again, this presages the bankruptcy
approach
ABC
• 5th: distribution of property to pay claims
– 1st – parties holding valid liens against property
are paid in full out of that collateral
– 2nd – next are some statutory priorities (e.g., fed
govt income taxes)
– 3rd – sharing pro rata – all the general unsecured
creditors
– Again – similar to bankruptcy approach
ABC
• The trustee (assignee) has the status of a
“lien creditor”
• And thus generally will beat an
unperfected lien or security interest
• Just like the bankruptcy rule
Application: vs Brookfield & Youngs
• Chronology:
–Fi fa issued & delivered to sheriff
–Sheriff levied
–B & Y entered into payment schedule
with DR, suspended execution sale
–ABC made
B & Y’s priority status
• Held: have valid execution lien against
the property levied on, which is
enforceable in the ABC
• Which means that the property they
levied on will be paid entirely to them, to
the exclusion of all other creditors
Rationale as to B & Y
• Got a choate (perfected) execution
lien by delivery of the writ to the
sheriff AND levy before the ABC
• That perfected lien is good against
the trustee (and thus all general
unsecured creditors)
B&Y
• Only issue was whether they abandoned their
execution liens by holding off on execution
sale while accepting payments
• Court held no (reversing lower court) – they
still were proceeding toward goal of collecting
judgment, not just sitting on their rights
The other 5
(i.e, those with the dumb lawyer)
• Chronology:
– November 2: writs delivered to sheriff
– November 4: ABC made
– November 6: Dumb lawyer asks sheriff to return
writs “in custodia legis”
– Sheriff returns “nulla bona”
– Dumb lawyer does not object to return
Priority Status of the Unlucky 5
• They lose
• Impact – relegated to general unsecured
status
• Will share the dregs of whatever is left
with everybody else who does not have a
lien or priority
Rationale as to Unlucky 5
• Originally had an inchoate execution lien prior
to the ABC
-- because writ delivered to sheriff before
-- and Maryland is a minority state
But they LOST the lien when the sheriff returned
the writ “nulla bona” (and no objection was
filed)
So what would a SMART lawyer have done?
• One clue: Nemo dat
• i.e., What was state of debtor’s title
to its property vis-à-vis the Gang of 5
as of Nov 4, the moment of the ABC?
Nemo dat?
• Debtor’s interest in property was subject to
Gang of 5’s inchoate execution lien at the
moment of the ABC
• i.e., the Gang of 5 had the right (as of the
moment of the ABC) to make their inchoate
lien perfected, or choate, by levy before the
return date
• So, trustee’s title was likewise limited
What should Gang of 5 done?
• Levy
• Could have instructed sheriff to make
levy on debtor’s property in the hands of
the assignee prior to the return date on
the writ
– Can have a “constructive” levy
Perfect after ABC??
• You may wonder how Gang of 5 could have
perfected after the ABC was made
• Have to ask – under state law (Maryland), who
would have priority in a lien cr vs. lien cr fight,
where chronology was:
– one LC (# 1) had writ delivered to sheriff
– Other LC got Levy (or equivalent – this is the ABC)
– LC # 1 got levy
(continued)
• Answer: in Maryland, as a minority rule state,
LC # 1 would win – got the 1st lien (albeit
inchoate) upon delivery of writ to sheriff, and
can make choate and still win, with relation
back effect
• So – Trustee of the ABC (who has LC status)
would likewise lose to a prior LC
Unperfected SP vs ABC?
• What is SP had a security interest that was
unperfected at the time of the ABC?
• It would LOSE under UCC 9-317(a)(2)
– Because Trustee of ABC is considered a “lien
creditor”
– And recall that LC beats unperfected SP