282.This section governs the priority of a pledge as regards a diligence executed against the encumbered property. Diligence is the term for various processes of debt enforcement in Scottish law and includes things such as arrestment or attachment of a debtor’s moveable property (both of which are effectively seizure mechanisms). The basic rule is prior tempore potior jure (earlier by time, stronger by right). If the diligence is executed first then it has priority, and if the statutory pledge is created first then it prevails.
283.Subsection (2) provides for a special rule relating to further voluntary advances made by the secured creditor after diligence has been executed. It has the effect that an advance made under a pledge after the diligence is executed does not have priority over the sum attached by the diligence unless there is a prior contractual obligation or undertaking to make the advance.
Example
Acme Ltd grants a statutory pledge over machinery for all sums due and become due to the Oban Bank, and the Bank advances £20,000 in reliance on the pledge. Louise, an unsecured creditor of Acme Ltd, then attaches the machinery for a £5,000 debt. The next day the Bank advances another £8,000 to Acme Ltd. The Bank’s priority over Louise in respect of the value of the pledged property is limited to the initial £20,000, unless it was contractually bound to lend the further £8,000.