Circular Priority Systems

Abstract

WHAT should be done when an inadequate fund is to be distributed among competing claimants and under applicable rules of law, A is entitled to priority over B, who is entitled to priority over C, who is entitled to priority over A? Or, in a variant, when B and C have claims entitled to equal priority, one of which is superior, the other inferior, to A's claim? The problem has long entertained lawyers, particularly those in whom a speculative turn of mind is allied with some proficiency in mathematics.' Several exceedingly complex all-purpose theoretical solutions have been proposed. These have been ignored by the courts. A judge who finds himself face to face with a circular priority system typically reacts in the manner of a bull who has been goaded by the picadors: he paws the ground and roars with rage. The spectator can only sympathize with judge and bull. In the most comprehensive contribution to the literature on circular priorities 2 it has been suggested that there are three quite different types of situation out of which circular, or apparently circular, systems may arise and that quite different solutions are appropriate to the several situations. Confusion, which is unavoidable at best, is compounded when the three basic situations are not clearly distinguished. The simplest of the three situations, which may be dismissed as not involving a true circularity, arises from a contractual subordination or waiver.