Deck 16: Priority of Creditors

Question 1

Which of the following is governed by federal statute and thus has rules common to all of Canada?

A) conditional sale contracts
B) chattel mortgages
C) bankruptcy
D) assignments of accounts receivable
E) builder's liens

Answer 1

C

Question 2

Hank sold three properties for Ms.W and had been paid his commission for the first,but not for the last two.Hank had done everything according to the contract and according to the relevant statutes,but Ms.W wouldn't pay.Hank knows that Ms.W has a bank account with the Bank of Montreal and has money owing to her from a Mr.Gregory.With regard to the collecting of the debt owed,which of the following is false?

A) Hank could sue Ms. W for breach of contract.
B) After obtaining judgment, Hank could force the bank to pay into court an amount of money from Ms. W's account to satisfy the debt.
C) Hank's claim for commission is unenforceable because he failed to secure the debt by retaining title until the amounts were paid.
D) If Hank got judgment against Ms. W, he could get an order commanding seizure of enough of Ms. W's goods to satisfy the judgment debt.
E) If Ms. W goes into bankruptcy, Hank may not get paid.

Answer 2

C

Question 3

Last night at the dinner table,Uncle Isaac started on again about his company buying a truck on time.Which of these statements by his friends is false with regard to conditional sales contracts?

A) If goods are repossessed under a conditional sales contract, the creditor must use commercially reasonable care to protect the goods and keep them in good repair.
B) If the company is in default, in some provinces the conditional seller can seize the truck, sell it, and sue for any deficiency between the amount received and the amount the company owes.
C) If the company is in default and the conditional seller seizes the truck, the relevant statute provides that it still has the right to redeem it within a short period of time.
D) The rights and obligations of the company differ substantially if the company buys the truck under a chattel mortgage rather than a conditional sale contract.
E) If the company were in default, the conditional seller could sell the truck, but it must return any of the proceeds from that sale beyond the debt and costs owed.

Answer 3

D

Question 4

Amy Jones looked at a 2011 Ford being sold by a private party who told Jones that the car was free and clear of all encumbrances.Jones had the Ford inspected by Automobile Association,which reported it to be in good condition.Jones bought the Ford for $8000.Two months later,the car was seized by a chattel mortgagee bank that had properly registered its claim in the registry within the time allowed by the act governing chattel mortgages.Given these facts,which of the following is true?

A) Jones would be able to keep the Ford because the seller had represented that the Ford was free and clear of encumbrances.
B) Jones would be able to keep the Ford because she was an innocent purchaser without notice of any lien or charge.
C) The chattel mortgagee would get the Ford because it had title to it as security, and it could claim its right to title whether it registered the chattel mortgage or not.
D) The chattel mortgagee would get the Ford because it properly registered its chattel mortgage on time.
E) Jones will lose the car and has no recourse against anyone. She should have checked the registry.

Question 5

With regard to conditional sales and chattel mortgages,which of the following is false?

A) If a conditional buyer defaults in his payments, the conditional seller can generally seize the chattel without a court order.
B) A conditional seller can assign the conditional sale contract to a finance company without the consent of the conditional buyer.
C) A chattel mortgagee must register the mortgage in the appropriate registration office, not to protect his claim on the chattel against the chattel mortgagor, but to protect his claim against third parties-e.g., a bona fide purchaser for value.
D) There is no longer a distinction between a chattel mortgage and a conditional sale.
E) These transactions are now governed by the Personal Property Security Act.

Question 6

Which of the following describes the Bankruptcy and Insolvency Act?

A) Determines process by which debtors convey their assets to a trustee in bankruptcy who distributes them to the creditors.
B) Provides alternative to criminal charges.
C) Allow persons with impossible burdens of debt to discharge all of their debts.
D) Protects the interests of debtors.
E) Helps incorporated companies after discharge to carry on without the same burden of debt

Question 7

Which one of the following is true with respect to the builder's lien acts?

A) Various provincial statutes give suppliers of work and materials a claim for payment against the land enhanced by their services.
B) If a lien claimant files his lien within the time set, he can be assured that he will collect the full amount of his claim.
C) Compliance with the statutory holdback provisions is required, but gives an owner no protection against potential lien claims.
D) If a lien claimant loses the right to file a lien, he also loses the right to sue for breach of contract.
E) A lien claimant owed money by a general contractor can choose to pursue either the general contractor or the property owner for the full amount of the claim.

Question 8

Which of the following is the consequence of an unpaid subcontractor failing to file his lien on time? The owner had contracted with the general contractor who in turn had contracted with this subcontractor.

A) He can submit documents giving his reason and he will be allowed to file the lien late.
B) He will lose all of his remedies.
C) He will lose his right to place a charge against the owner's property, but he can sue the owner directly for the amount owed him, because his work and materials went into the owner's house.
D) He would lose his right to place a charge against the owner's property, but he can sue the contractor on the contract.
E) He loses his right to claim against the building but can sue the owner of the property directly.

Question 9

With regard to guarantees and indemnities,which of the following is false?

A) A guarantor can use any defence against the creditor that the debtor could use.
B) A legally binding promise to be primarily responsible for someone else's obligation is an indemnity.
C) A guarantee cannot be enforced in court unless it satisfies the writing requirements set out in statute.
D) Subrogation can result in a guarantor's being able to sue successfully the very debtor whose obligation he guaranteed.
E) A legally enforceable guarantee must satisfy all the elements required to create a binding contract except consideration.

Question 10

Which one of the following statements about bankruptcy is true?

A) Bankruptcy law is different in every province.
B) Bankruptcy refers to a situation in which a debtor who cannot pay debts transfers his assets to the creditors directly.
C) Bankruptcy law forces a debtor to pay all his debts, regardless of his financial position.
D) All creditors of a bankrupt debtor are treated equally and will receive shares of the assets directly in proportion to how much is owed to each of them.
E) A debtor who has been discharged from bankruptcy is released from his previous financial obligations.

Question 11

Identify which of the following statements best describes the legal position of a conditional seller.

A) The conditional seller must comply with the provisions of the Personal Property Security Act to protect his interest.
B) He is given first priority over all of the other creditors with respect to all of the conditional buyer's assets.
C) The conditional seller is in a better legal position than if instead he had been the chattel mortgagee of the same assets.
D) The conditional seller loses all legal rights against the conditional buyer if he fails to register.
E) The conditional seller has no legal rights because such contracts are void.

Question 12

Bret decided to enlarge the fishpond in his backyard.He contracted with a general contractor,Conan.Conan subcontracted with Darson to do the excavation and with Ericson to do the plumbing.Conan's own workers did the masonry work.Bret made "progress payments" to Conan,since Conan said such payments were necessary to pay his workers and subcontractors.Bret learned that the workers and subcontractors had not been paid; Conan had used the payments to pay debts unrelated to the job on Bret's pond.Which of the following best describes Bret's position?

A) Because of the doctrine of privity of contract, Bret will not face any liability whatsoever.
B) If Bret held back the 10 percent required by statute from his payments to Conan, but then later paid it out despite liens having been filed against his property, Bret would still face no liability as he technically complied with the legislation.
C) Bret will be liable for all unpaid amounts, because the work was on his land and for his benefit.
D) If Bret held back the 10 percent required by statute from his payments to Conan, his obligation would generally be limited to the amount of that holdback.
E) Bret had no obligation to hold back any amount of the payments made to Conan as the hold back requirement doesn't apply to progress payments.

Question 13

Here comes your neighbour Max,who wants to ask you more questions about buying an Apple computer for use at home under a conditional sales contract.Which one of the following statements told to him at work is true?

A) If Max has paid two-thirds of the amount owing under the conditional sale contract, the conditional seller could never seize the computer, even if Max were in default.
B) If Max is in default and the conditional seller seizes the computer, the relevant statute provides that it can be sold immediately with no further notice to Max.
C) Max's rights would be much greater and his obligations fewer if he bought it under a chattel mortgage rather than a conditional sales contract.
D) If Max were in default, the conditional seller could sell the computer and keep all the proceeds of that sale, even if they were greater than the debt and costs.
E) In a conditional sales contract, the result of satisfying the condition is that the lien or charge will be removed from the goods used as security.

Question 14

Which of the following is false with regard to property?

A) Both real and personal property can be given as security to a creditor that he will be repaid.
B) Real property consists of land but does not include the buildings on that land.
C) Personal property includes intangible rights.
D) Personal property includes chattels.
E) Real property includes "fixtures."

Question 15

In which one of the following situations is a chose in action (intangible property)given as security by a debtor to the creditor?

A) A programmer pawns his computer.
B) Mr. Jason grants a chattel mortgage on the family car to secure repayment of money borrowed for a trip.
C) A farmer gives his future crop to the bank as security for the repayment of money borrowed for seed.
D) A dentist assigns her accounts receivable to the bank that lent her money for the purchase of a business.
E) Jeff buys a piano under a conditional sale contract.

Question 16

If you want to buy a car from a private party (other than a dealer),which of the following is false?

A) If you request a search, and the central registry states that the car is free and clear of liens and encumbrances, then title is clear.
B) If the seller tells you that the car is free and clear, and two months later a properly registered chattel mortgagee claims a right to the car, you could lose the car.
C) Even if both the seller and the central registry indicate to you that the car's title is clear, you could still lose it to a third party.
D) If the seller indicates to you that the title is clear, but after the sale the car is seized by someone with the legal right to do so, you could still sue the seller.
E) If the seller makes no representations whatsoever about the car, and the car is seized by a creditor, you can still sue the seller because he had an obligation to deliver good title.

Question 17

With regard to bankruptcy and debt collection,which of the following is false?

A) The Bankruptcy and Insolvency Act provides for a procedure for an insolvent debtor to make a proposal to his creditors that may or may not result in bankruptcy for the debtor.
B) Both fraudulent conveyance and fraudulent preferences acts attempt to prohibit the debtor from delaying, hindering, or defrauding the creditor.
C) Corporations that go into receivership may not be involved in bankruptcy; the receivership may be based on contract.
D) The commission of a bankruptcy offence could prevent a bankrupt debtor from being discharged.
E) Any assets obtained by a discharged bankrupt can still be claimed by former creditors who placed the former bankrupt into bankruptcy.

Question 18

Which one of the following actions by a debtor constitutes an act of bankruptcy?

A) a fraudulent conveyance of liabilities to one of the creditors
B) a fraudulent transfer of money or assets
C) assignment of liabilities to a trustee
D) having more debts than assets
E) generally meeting liabilities as they become due

Question 19

Holtz hires Joe,a builder,to convert his attic into an apartment,so that Holtz's mother can move in.Joe employs two carpenters,an electrician,and a plumber to do the actual work.When making payments to Joe,Holtz holds back the 10 percent required by statute.After waiting the legislated minimum period,Holtz discovers that several liens have been registered against his property.It turns out that Joe failed to pay the various subcontractors for their work.Which one of the following statements best describes Holtz's position?

A) Holtz has no liability to any of those involved with the job except Joe, because he has a contract only with Joe.
B) Holtz and Joe are equally liable to the lien claimants, because of recent amendments to the builders' lien legislation.
C) Holtz bears the sole liability to the lien claimants for any debts arising out of their work on his property.
D) Holtz's mother will be liable to both Holtz and the lien claimants, as she will be taking the benefit of the renovations.
E) If Holtz has complied with the statutory requirements, his obligation will be limited to the amount of the holdback, even if the amount owed under the liens far greater.

Question 20

Which one of the following statements about the Personal Property Security Act is true?

A) This legislation applies only to all present transactions where personal property is given as security interest to enforce an obligation.
B) Unless a creditor in a secured transaction covered by this Act takes steps to "attach and perfect" her security interest, she could lose that interest to someone outside the contract.
C) In a situation where a debtor fraudulently attempts to transfer property that she has given as security, the Act is designed to protect both the debtor and secured creditor.
D) If a secured creditor fails to register her security interest in the Personal Property Registry, she loses his rights against the debtor.
E) If someone suspects that an item of personal property has been given as security by a particular person, she can sue on the breach of a condition.

Question 21

As the fishing season slowed down in the fall,Bob decided that this might be a good time to find a real bargain in used equipment for his boat.He found a navigation instrument for sale for $15 000,a great price.However,he had only $10 000,so he borrowed the other $5000 from the bank.He also signed a chattel mortgage on the equipment as collateral in favour of the bank,which promptly registered its interest in the Personal Property Registry.Bob made his payments for a while,but things started to go badly for him.He was unable to make any further payments,although he still owed over $3000.Desperate and not thinking too clearly,Bob sold his boat to his friend Claude for $50 000 and left for Central America with the funds.When the bank realized what Bob had done,it located the boat and demanded that Claude pay off the $3,000+ or lose the navigational equipment.Claude was outraged because he had paid Bob in good faith and argued that he had never borrowed anything from the bank and therefore owed it nothing.Which one of the following statements accurately describes the legal situation here?

A) Because Bob transferred the boat and equipment to Claude, that was an assignment of his obligations and he no longer owed the debt.
B) Claude is right, and the bank's only remedy is to sue Bob.
C) If Claude is unwilling to pay off the $3000, the bank has the right to remove the equipment from the boat.
D) If the bank does seize the equipment and sells it for $2000, the bank can still sue Claude for the $5000.
E) If the bank had failed to register the chattel mortgage, it would still have a better right to the equipment than Claude, because the mortgage was signed before Bob sold the boat to him.

Question 22

With regard to guarantees,which of the following is false?

A) A guarantor can use any defence against the creditor that the debtor could use.
B) A legally binding promise to be primarily responsible for someone else's obligation is an indemnity.
C) A verbal guarantee is as enforceable as a written one.
D) Subrogation can result in a guarantor's being able to sue successfully the very debtor whose obligation he guaranteed.
E) A legally enforceable guarantee must satisfy all the elements required to create a binding contract.

Question 23

After graduating,a student set up a business as a systems analyst.His monthly billings are healthy,about $10 000 a month.He rents his office,hardware,and furniture and owns few assets.He rents his apartment,has no car,and spends most of his income on concerts.If he approaches you,a bank manager,to borrow $50,000 for the purpose of increasing his working capital,which of the following securities would you most likely request?

A) conditional sale contract
B) chattel mortgage
C) security under sections 426 and 427 of the Bank Act
D) floating charge debenture
E) assignment of accounts receivable

Question 24

With regard to debt collection,which of the following is false?

A) The Bankruptcy and Insolvency Act provides for a procedure for an insolvent debtor to make a proposal to his creditors that, if accepted by his creditors, will not result in bankruptcy.
B) Under the execution procedure, the assets of a judgment debtor can be seized to satisfy a judgment debt.
C) A person who wins in an action and is awarded damages is called a "judgment creditor."
D) Any assets obtained by a bankrupt after his being discharged can still be claimed by former creditors who placed him into bankruptcy.
E) A debenture can create a "floating charge" that will not attach to anything specifically until the debtor defaults or until the happening of another "crystallizing" event.

Question 25

When the transaction is registered,the creditor's rights include all of the following except

A) the right to contractual remedies upon default.
B) the right to seize the security.
C) the right to resell the security.
D) the right to sue debtor rather than seize security.
E) the right to order the debtor arrested or detained.

Question 26

Greg told Rick that he would be willing to pay a high rate of interest for a two-month loan of $2000.Rick agreed to lend Greg this amount at an annual rate of 20 percnet,repayable March 1,2011.Greg agreed to these terms.Greg did not pay on March 1.Rick learned that Greg had recently completed some work for Martinson for which Greg was owed $2000.Now that Greg is in default,which of the following is false?

A) Rick could sue Greg for breach of contract.
B) Rick could execute against Greg even if Rick had not obtained judgment against him.
C) Rick could not place Greg into bankruptcy unless Greg had committed an "act of bankruptcy."
D) If Rick obtained a judgment against Greg, he could compel him to be examined about his income, property, and debts.
E) Once he has obtained judgment, Rick can garnishee the money owed to Greg by Martinson.

Question 27

Identify which of the following statements is true about secured transactions in provinces not having a personal property security act.

A) This kind of transaction, which formerly was legal, is now prohibited by law in all provinces.
B) Various kinds of secured transactions, such as conditional sales, chattel mortgages, etc., are regulated by their own distinct statutes.
C) An assignment of an account receivable does not qualify as a security arrangement because no tangible property is involved.
D) All kinds of security arrangements involving personal property as collateral now come under one statute.
E) Only tangible personal property can be used as security.

Question 28

Which one of the following statements about bankruptcy is false?

A) Bankruptcy law is identical in every province.
B) "Bankruptcy" refers to a situation in which a debtor who cannot pay debts transfers his assets to a trustee who acts on behalf of creditors
C) Bankruptcy law may allow a debtor to escape from having to pay his debts.
D) All creditors of a bankrupt debtor are treated equally and will receive shares of the assets directly in proportion to how much is owed to each of them.
E) A debtor who has been discharged from bankruptcy is released from his previous financial obligations.

Question 29

The owner of the house had contracted with a general contractor,Mr.Hadrian,for a greenhouse addition to the house at a cost of $20 000.In accordance with the legislation,the owner withheld 10 percent and waited the legislated period of time within which any liens are to be filed.Which of the following correctly describes the owner's liability?

A) The owner is liable to any unpaid subcontractors, whether or not a lien was filed, but can use the holdback money to reduce his liability a certain extent.
B) Whether or not there are liens registered, the owner is free to pay out the retained holdback once the legislated time period has expired.
C) Unpaid subcontractors can no longer place liens on the owner's property, because of the doctrine of privity of contract.
D) If the owner checks the registry and there are no liens registered, he is free to pay out the retained holdback.
E) Lien holders would have no claim against the property but would be entitled to the 10 percent holdback, in addition to being able to sue the owner for the amount not satisfied by the holdback.

Question 30

Which one of the following is false with regard to creditors' remedies?

A) A garnisheeing order is an order to the sheriff to seize assets of a judgment creditor to satisfy a judgment debt.
B) A person who wins in an action and is awarded damages is called a "judgment creditor."
C) A guarantor is a person who agrees to be responsible for a debt if the borrower (the person primarily liable) defaults.
D) A debenture can create a "floating charge" that will not attach to anything specifically until the debtor defaults or until the happening of another "crystallizing" event.
E) A guarantor may avoid liability if the creditor does some act or enters into an agreement that weakens the guarantor's position.

Question 31

Identify which of the following statements is true about secured transactions in provinces having a personal property security act.

A) This kind of transaction, which formerly was legal, is now prohibited by law in all provinces.
B) Various kinds of secured transactions, such as conditional sales, chattel mortgages, etc., are regulated by their own distinct statutes.
C) An assignment of an account receivable does not qualify as a security arrangement because no tangible property is involved.
D) All kinds of security arrangements involving personal property as collateral now come under one statute.
E) Only tangible personal property can be used as security.

Question 32

In a secured transaction,the creditor's right to payment of a debt may be secured by his taking title to certain assets.In which one of the following types of transactions do those assets consist entirely of intangible property?

A) chattel mortgage
B) assignment of book accounts
C) A debenture issued by a manufacturing firm with a floating charge over its inventory of products.
D) A sale of goods in which the buyer will obtain title when he finishes paying the price in installments.
E) A transaction under section 427 of the Bank Act, whereby a bank takes security over a farmer's growing crops with respect to a loan to purchase the seed and fertilizer necessary to grow those crops.

Question 33

They couldn't remember exactly how it happened,but the Mauris ended up a three-computer family with the consequent mess of books and papers in three different rooms.Mr.Mauri hired a general contractor,Mr.Wip,to build a "computer room." Wip had several qualified workers but still sub-contracted with an electrician and a carpenter.The work went well.Mauri held back 10 percent,but paid out 90 percent in good faith; i.e.,when he paid,there were no complaints or liens filed.It turned out,however,that before any of the workers had completed their work-and no one expected payment until the job was finished-Wip disappeared with the money.Given these facts,which of the following is true?

A) The subcontractors, but not the workers, are entitled to place a lien on Mauri's property.
B) If the electrician failed to file his lien on time, he can file it late if he uses the right form.
C) If the carpenter properly files a lien in the appropriate office, he can be assured that he will recover the entire amount owed.
D) If all those entitled to file a lien do file and prove in court the amounts owed, Mauri is responsible for the sum total of those claims.
E) The workers and subcontractors have an action against Wip for breach of contract.

Question 34

Your brother wants to borrow $8000 from the Bank of Britannia and has asked if you would guarantee the loan.You have been told the following with regard to guarantees.Which of the following statements is false?

A) As guarantor, you can use any defence against the bank that your brother could use.
B) A guarantor, like an indemnitor, becomes primarily liable on the debt as soon as the document is signed.
C) You, as guarantor, may be relieved of your obligation if the bank does anything to weaken your position-e.g., by agreeing with your brother to increase the amount without your consent.
D) If he defaulted on his payments and you had to pay the debt to the bank, you would be subrogated to the rights of the bank-i.e., you would get the bank's right to sue your brother.
E) A legally enforceable guarantee must satisfy all the elements required to create a binding contract.

Question 35

Nick has a consulting business with monthly billings of $4,00.He rents his office,hardware,and furniture and owns few assets.Nick rents his apartment,has no car,and spends most of his income on leisure.If he came to you,a bank manager,and asked to borrow $10 000 for the purpose of increasing his working capital,which of the following securities would you most likely request?

A) conditional sale contract
B) chattel mortgage
C) security under sections 426 and 427 of the Bank Act
D) assignment of accounts receivable
E) floating charge debenture

Question 36

Which one of the following is false with respect to the Builders' Lien Act?

A) The lien claim is required to be filed at the appropriate registry in order to establish a claim against the property.
B) If a lien claimant files his lien within the time set, he can be assured that he will collect the full amount of his claim.
C) The Builders' Lien Act gives some protection for those in the building trades, and these include contractors, subcontractors, workers, and materialmen.
D) If a lien claimant loses the right to file a lien, he still has the right to sue the party who failed to pay him for breach of contract.
E) A lien claimant has a limited period of time from filing his lien within which to begin his court action.

Question 37

A company in the delivery business bought a $29 000 truck under a conditional sale contract.Because of business reverses they are now unable to make the payments.Which of the following is accurate with respect to the legal position of the parties?

A) The seller would have to get a court order before it could seize the truck.
B) The creditor would have to serve notice on all interested parties before it could seize the truck.
C) The seller would have been in a far more favourable position if it had obtained a chattel mortgage instead of using a conditional sale agreement.
D) The remedy of the conditional seller, as a secured creditor, is limited to the seizure of the truck.
E) If the secured creditor seized the truck, under the Personal Property Security Act the debtor has a set period of time in which to pay what is owing and costs and get the truck back.

Question 38

John,a salesperson for the computer division of B & C Machines Ltd.,is meeting with a potential customer at 11:00 tomorrow morning.Because the customer does not have the funds to pay the full price of the system required,John wants to discuss chattel mortgages and conditional sales contracts.Which of the following is false with regard to these contracts?

A) If the seller of goods is willing to allow the buyer to pay by installments, he could use either a conditional sale contract or a chattel mortgage to obtain security for payment of the debt.
B) Both contracts are governed by the Personal Property Security Act.
C) Both contracts provide that the debtor has quiet possession of the goods given as security as long as he is not in default.
D) In both cases, the debtor is entitled to have the lien removed upon final payment.
E) Only a conditional seller needs to register his interest for protection against third-party claims; a chattel mortgagee need not do so.

Question 39

You are in debt to three creditors for $200 000,and the debt is increasing because you are not able to meet your monthly financial obligations.Which of the following is false with regard to your situation?

A) It is illegal for you to transfer assets to a spouse or friend to shield them from your creditors
B) If you become bankrupt, your assets are conveyed to a trustee in bankruptcy who deals with them for the benefit of your creditors.
C) If you become bankrupt, you are restricted from carrying certain activities until you are discharged.
D) If your long-time financial well-being would be served by bankruptcy, you must ask your creditors to begin the procedure; you cannot begin it yourself.
E) The Bankruptcy and Insolvency Act provides a procedure to avoid bankruptcy by making a proposal to your creditors for satisfying their claim.

Question 40

Consider the following statements about the use of personal property as security for a creditor in a creditor-debtor transaction.Indicate the false statement.

A) If the transaction involves the use of consumer goods as collateral, upon default of payment by the debtor, the creditor can seize the goods and sell them, but also always retains the right to sue the debtor on his personal covenant to pay for any deficiency.
B) Regardless of the type of personal property involved, whether tangible or intangible, as long as it is being used as security, then the transaction is governed by the Personal Property Security Act, and thus an unpaid creditor may be able to repossess them.
C) Real estate professionals need to be aware of the Personal Property Security Act because items that constitute fixtures under real property law may also constitute chattel security, and thus an unpaid creditor may be able to repossess them.
D) Before a creditor who has been promised an interest in personal property as security can claim priority rights, two processes must have taken place: the security interest must have attached to the collateral item, and the security must have been perfected.
E) If the required procedures have taken place, a potential buyer from an unscrupulous debtor who has already given personal property as security will be protected; i.e., the creditor will either have registered his interest in the public registry or will have actual possession of the collateral.

Question 41

The debtor usually retains possession of the goods used to secure a debt while the creditor has the right to seize them for default.

Question 42

In case of default by either the creditor or debtor,breach of contract remedies apply.

Question 43

Which of the following statements regarding the securing of debt is true?

A) The term guarantee, otherwise known as an indemnity, refers to a primary debt obligation.
B) To avoid problems related to consideration, lending institutions often require that guarantees be placed under seal.
C) In every province, there is now a requirement that a guarantor appear before a notary public.
D) Because of the principle of caveat emptor, a creditor has no obligation to protect the interests of a guarantor.
E) As guarantees are mere formalities, there is little point in getting legal advice prior to executing one.

Question 44

Elizabeth gave a guarantee to the Bank in support of a loan to Tomasz.Over the next few years,the Bank and Tomasz made a number of alterations to the loan agreement.The effect of these changes was to significantly increase the amount owing to the Bank.Elizabeth had no notice or knowledge of these changes,nor she did not consent to any such changes.What is the likely result?

A) Elizabeth is bound by the changes to the loan, because guarantees are, by their nature, continuing.
B) Guarantees are a mere formality; only Tomasz has obligations to the Bank.
C) The guarantees are likely to be invalid and unenforceable against Elizabeth.
D) A guarantee is executed under seal, therefore it will be presumed valid regardless of defect.
E) The failure to notify Elizabeth would release both Elizabeth and Tomasz from their obligations.

Question 45

A purchase money security interest

A) will be automatically subordinate to any general security agreeement, even if registered within the specified time period.
B) will prevail over a general security agreement covering all of a merchant's assets, if it registered within the specified time period.
C) is also known as floating charge.
D) is now obsolete, in light of the Personal Property Security Act.
E) is prohibited in most provinces.

Question 46

After some careful research,Susan decided what kind of car to buy.She made an offer to Mr.Frank,a private party,to buy his car only after searching the registry for any liens.The registry reported that there were no liens registered against the vehicle.The seller accepted her offer of $8000.After Susan had had the car for only three weeks,the car was seized by a conditional seller.Which of the following is true?

A) If Susan had failed to search the registry, she could not get the car back whether or not the loan transaction had been properly registered.
B) Susan cannot keep the car nor can she complain to the seller, because the seller never said the car was free and clear of liens or encumbrances.
C) The conditional seller has the right to keep the car for the sole reason that it has title to it and could assert its claim whether it properly registered with the central registry or not.
D) The conditional seller could not keep the car if it had not registered its claim properly.
E) If it has not properly registered the security, the conditional seller has lost all rights and claims.

Question 47

Both a chattel and a chose in action can be used to secure a debt.

Question 48

Attachment takes place when

A) a contract is executed.
B) notice of a security arrangement is given.
C) after-acquired assets are secured.
D) a debtor receives some value under the contract.
E) a purchase money security interest arises.

Question 49

In Re Fancy,a businessperson knew that he was facing substantial losses from pending litigation.Shortly before declaring bankruptcy,he transferred his interest in the matrimonial home to his wife.What was the result?

A) The Court reversed the transfer because it was unnecessary: The wife would automatically receive the matrimonial home once the bankruptcy took effect.
B) The Court allowed the transfer, determining the wife was not a co-conspirator.
C) The Court allowed the transfer, because transfers between spouses are exempt under the Bankruptcy and Insolvency Act.
D) The Court reversed the transfer, determining it was a prohibited settlement under the Bankruptcy and Insolvency Act.
E) The Court declined to exercise jurisdiction because a bankrupt has no status to appear in court.

Question 50

Which of the following debts continue even after a bankrupt has been discharged?

A) past maintenance for dependents
B) secured loans
C) judgment debts
D) ordinary debt
E) unsecured loans

Question 51

Which of the following is primarily liable on an accepted bill of exchange?

A) drawer of the bill
B) drawee or acceptor
C) endorser
D) payee
E) no one

Question 52

With regard to negotiable instruments,which of the following is false?

A) A cheque is a bill of exchange drawn on a bank, payable on demand.
B) A cheque that has been certified cannot be countermanded by the drawer.
C) A negotiable instrument used to advance credit in a consumer transaction must be marked "consumer purchase."
D) Bills of exchange can be made payable for some future date.
E) A drawer of a cheque can refuse to pay any holder of it if the drawer can prove that the payee obtained the cheque by fraud.

Question 53

A company named Printers World Ltd.bought a $9000 plotter under a conditional sale contract and,because of business reverses,is unable to make the payments.Which of the following is accurate with respect to the legal position of the parties?

A) The seller could seize the goods only if it obtained a court order.
B) The seller could seize the goods without a court order only if it had properly registered the conditional sale contract.
C) The seller could seize the goods but, before resale can take place, the debtor must be given notice and an opportunity to redeem.
D) The seller could only seize the goods, and could not instead opt to sue the company.
E) The seller could seize and sell the same day because it had already waited three months after default before taking any action.

Question 54

If a bank as chattel mortgagee fails to register the mortgage of a car,which of the following is false?

A) The failure to register would not affect the rights of the chattel mortgagee against the chattel mortgagor if no third party is involved.
B) If the chattel mortgagor would sell the car to a third party and not pay the chattel mortgagee, the third party's claim would override that of the chattel mortgagee.
C) If a trustee in bankruptcy seizes the car from the chattel mortgagor, the trustee's claim would override that of the chattel mortgagee.
D) A potential purchaser of the car from the chattel mortgagor would not find the bank's interest recorded in the central registry.
E) The chattel mortgagee has lost his security and thus all his legal rights.

Question 55

A continuing guarantee

A) allows a creditor to advance further funds without affecting the obligation of the guarantor to pay in the event of default.
B) is a primary obligation of a third party to pay a debt along with a debtor.
C) is a written commitment not to pursue a legal claim against another.
D) is an equitable principle assuring that when security is repossessed, there will be a period of time during which the debtor can still make payment.
E) allows a breaching party to pay an amount specified in a contract, rather than facing a lawsuit for damages.

Question 56

Real and personal property can be used to secure a loan.

Question 57

The bulk sales acts in place in some provinces are designed to do which of the following?

A) To set minimum statutory standards for goods sold by description in large, unpackaged quantities.
B) To provide relief to commercial purchasers when a ship's cargo is destroyed.
C) To enable commercial debtors to sell their products at a reduced price in order to pay back their creditors in a more timely way.
D) To give priority to creditors who are owed money in respect of inventory sold to the debtor within the last 30 days.
E) To prevent merchants from selling all or almost all of their business's assets before a creditor can take action to stop them.

Question 58

Jones did work for Smith,who agreed to pay him in advance by cheque.Smith prepared a cheque for Jones.In which of the following situations would Smith have to honour the cheque to Green after it had been transferred to her by Jones?

A) Where Green was Jones's girlfriend who had been given the note as a gift. Jones had not yet started the job.
B) Where Green knew that Jones had taken the completed cheque from Smith's desk while Smith was out to lunch.
C) Where Green and Jones had worked together in a scheme to cheat Smith.
D) Where Green operated a finance company and, while not knowing Jones but recognizing Smith's signature and knowing his good reputation, had given Jones $400 for the $500 cheque.
E) Where Jones had changed the $500 to read $5000 by adding a zero and rubbing out the word "hundred" and writing "thousand" over it. The alteration was clearly visible on the cheque.

Question 59

After a creditor has taken possession of collateral,the debtor's right to reclaim it on payment of any money owing is known as a

A) right to salvage.
B) right of settlement.
C) right to redeem.
D) constructive trust.
E) collateral contract.

Question 60

_______________ require(s)the debtor to make the stipulated payments into court,such that all of his debts will be paid in full within three years,unless the creditors consent to a longer period.

A) An OPD program
B) Restructuring
C) An unsecured creditors
D) A consolidation order
E) Division 1 proposals

Question 61

The Bankruptcy and Insolvency Act allows a supplier of goods to a bankrupt to seek return of those goods.

Question 62

The assignment of book accounts is the conditional right to collect on outstanding accounts in the event of default.

Question 63

Legislation and the principles of contract and common law primarily protect the interests of the debtor in the event of a default.

Question 64

Where a debtor has committed an act of bankruptcy,a creditor who is owed more than $1000 can petition the court to force that debtor into bankruptcy.

Question 65

Some debtors can submit a reorganization proposal to avoid bankruptcy.

Question 66

Having a lien perfected simply means the claimant must begin a court action to enforce it.

Question 67

Student loans survive bankruptcy and remain payable for up to 10 years after the debtor ceases to be a student.

Question 68

A Division I proposal is available only to consumer debtors with less than $75 000 in claims against them.

Question 69

As long as the debtor lives up to the terms of an accepted consumer proposal,creditors cannot take action against him or her.

Question 70

Bankruptcy is a wholly voluntary process designed primarily to protect debtors from abusive creditors.

Question 71

When a tenant fails to pay rent on a leased commercial property,the common law right of distress is available to the landlord.

Question 72

When the value of the security is not great enough to cover the debt,a secured creditor is an unsecured creditor for that outstanding amount.

Question 73

Crops still in the ground and products in the process of being made can be used as security.

Question 74

A "confirmed letter of credit" is another name for a "standby letter of credit."

Question 75

When creditors receive notice of a consumer proposal from an insolvent debtor,they must demand a meeting or the proposal will be automatically accepted.

Question 76

If no builders' liens are registered within the specified time,the owner gives the holdback to the general contractor.

Question 77

When a mortgage is taken on personal property in a PPSA jurisdiction,the borrower temporarily transfers title to the lender.

Question 78

With few exceptions,once a bankrupt is discharged,there is no longer an obligation to pay back the creditors.

Question 79

The practice of paying out one creditor over another is known as fraudulent preference.

Question 80

Settlements involve the transfer of assets for nominal or no consideration.