Third-Party Chattel - Re: Distrainment (CTA)

859587 Ontario Ltd. v. Starmark Property Management Ltd., 1997 CanLII 12153 (ON SC)

In my view, however, these cases do not stand for the proposition that the lienholder always has priority, but merely that priority must be determined without reference to the P.P.S.A. Nor do they hold that the extent of the lienholder's priority, where a landlord does in fact have priority, is necessarily as complete as Starmark suggests. In Leavere, the court pointed out that in its earlier decision in Commercial Credit, it was assumed that if the P.P.S.A. did not apply, the lien had priority. That assumption was challenged, and addressed, in Leavere. The court noted that while at common law priorities were determined in accordance with the chronological order of the encumbrances, that rule can be displaced by statutory provisions. In Leavere, the court concluded the Municipal Act, R.S.O. 1990, c. M.45, gave priority to a statutory right of distress over a chattel provided for in that Act over a holder of a secured interest in the chattel. The issue of priority in this case, however, falls to be determined by a consideration of the provisions of the Landlord and Tenant Act, particularly the exception in s. 31(2).

The language of that provision is interesting. It permits a landlord to distrain the interest of a tenant in goods owned by a third party, but in the possession of a tenant under a conditional sales contract. Since the tenant's interest includes the right to possess the goods, the landlord can take possession of them, and hold them, but does so subject to the rights of the owner. Similarly, if the landlord sells such an item pursuant to s. 53, the sale is subject to the rights of the unpaid vendor. This, I believe, is what was decided by the Divisional Court, on appeal from the Chancery Division, in Carroll v. Beard (1895), 27 O.R. 349, in circumstances somewhat similar to these. The court was called upon to consider the very exception in issue here, which had been passed only shortly before, in 1894. As a consequence of this provision, MacMahon J. made an order restraining the landlord from selling certain distrained property "except subject to the rights of the plaintiffs as unpaid vendors". In upholding this decision, Boyd C. stated, at p. 358, "only the interest of Yorke [the tenant] in the goods could be sold, and not the corpus of the goods. His interest would be just what would be left after the balance of price is deducted out of the value of the goods seized".