On Faith Woollen Weaving Factory and Others v. Star Industrial Corporation

DCCJ001819/1968

IN THE DISTRICT COURT OF HONG KONG

HOLDEN AT VICTORIA

CIVIL JURISDICTION

Action Nos.1819/68 & 2788/68

and

Kowloon Distraint No.419 of 1968

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Coram: Judge O'Connor.

Date of Judgment: 11 September 1968

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RULING

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1. This problem has to do with the equitable doctrine of marshalling. The position is that a landlord has distrained for rent due by his tenant. In pursuance thereof property has been seized and sold, including a machine which was the subject matter of a bill of sale registered at the Supreme Court on 27th January 1967. The tenant in addition to being the grantor of the bill of sale is also a judgment debtor for debts in respect of which writs of fieri facias were delivered to the bailiff on 23rd May 1968. The goods including the machine have been sold and the distraint satisfied out of the proceeds. There is a surplus from the sale and the question I have for decision is whether the grantee of the bill of sale has a prior claim to the judgment creditors in respect of the surplus. The judgment creditors say there should be marshalling in their favour and that the distraint should first be cast upon the machine. The grantee of the bill on the other hand says that marshalling should be in his favour and the distraint should be satisfied, in the first instance, from the goods that were liable to seizure and sale under the writs of fieri facias.

2. Of course the landlord was entitled to distrain not only against the tenant's own goods (which were the only goods the judgment creditors could execute against) but also against the machine the subject of the bill of sale, as it was in the tenant's possession. The right of the landlord to distrain on the goods of a stranger is based on his having a lien on them by virtue of the place they are found. It appears to be an unjust and harsh law that permits this to be so.

3. If a landlord distrains on goods included in a bill of sale and on other goods the property of the grantor, he may be required under the doctrine of marshalling to resort in the first place for satisfaction of rent, to the goods not assigned by the bill of sale

and a mortgagee (which in effect a grantee of a bill of sale is) can marshall against a simple contract debtor

and against a judgment creditor

and to authorise marshalling it is necessary not only that a claim should exist against a fund, subject in common with another fund to a paramount liability; but also that those interested in that other fund should not have a right to throw the liability in the fund of the complainant. A man's property must be applicable to the payment of his debts in preference to the property of another

Applying these principles to the present case I consider that the landlord should have his claim flung in the first instance on the goods of the tenant, which would exempt the grantee of the bill of sale. The judgment creditors take through their debtor and should not be put in a better position that the debtor himself as they cannot have a higher right than the debtor.

4. In the result I rule as between the grantee of the Bill of Sale and the judgment creditors the grantee is entitled to have the sum due on the distraint paid out of the goods not subject to the Bill of Sale. The amount in Court will be paid out to the grantee.