Question 1

Anders runs a piano store.In order to finance his business,he has an operating line of credit from the New Brunswick Bank.His obligations to the bank are secured by security interest in all of his assets,but he is permitted to sell pianos.The bank has perfected its security interest by filing a financing statement under the New Brunswick Personal Property Security Act.Anders sells a piano to Mac.Does Mac get the piano free of the security interest that Anders has given to the bank?

Accepted Answer

The answer of Anders runs a piano store.In order to...

Question 2

Theron is starting a new business after graduating from university.In order to secure a loan of $100 000,he gets his father,who holds a diversified portfolio worth $1 million,to guarantee the loan and secure it with the portfolio.The guarantee is for "all obligations" of his son.After one year,before the loan is paid back,Theron decides to expand the business and increase the size of the loan to $200 000.Which of the following is true?

Accepted Answer

Theron's father has guaranteed "all obligations" of his son, but the guarantee is limited to the original agreement of $100,000. Therefore, his liability is limited to the original agreement and does not extend to the new terms of the loan.

Question 3

Francesca carries on an investment business in Ontario.She borrowed $50 000 from Barry.Francesca gave Barry a security interest in all her present and future personal property.Barry never filed a financing statement to register his interest under the Ontario Personal Property Security Act.Subsequently,she borrowed $20 000 from Toronto Bank to invest in the shares of Argus Corp.The bank took a security interest in the shares and required Francesca to deposit the share certificates with the bank.Subsequently,Francesca defaulted on her obligations to Barry and to the bank.Who is entitled to the shares?

Accepted Answer

The answer of Francesca carries on an investment business in...

Question 4

Legrand Distribution Corp sells watches to wholesalers in Ontario who resell them to retail outlets.Legrand also sells to some retail outlets directly.One of Legrand's wholesale customers is Reuben.Legrand has entered into a contract with Reuben under which Reuben gave Legrand a security interest in all watches supplied by Legrand until they are paid for.Reuben defaulted on his payment obligations and Legrand,acting under the security agreement,seized all the watches supplied by Legrand that are in Reuben's store.The total amount owed by Reuben to Legrand is $2500.Legrand could probably sell the watches for $3000.Instead of selling them right away,Legrand decided to keep the watches.Legrand sent Reuben a note saying that it is taking the watches in full satisfaction of Reuben's debt to Legrand.Reuben is unhappy because he knows the watches are worth more than he owed Legrand.Is there anything that Reuben can do about this? Should he try to do anything about it?

Accepted Answer

The answer of Legrand Distribution Corp sells watches to wholesalers...

Question 5

Aruna ran a grocery store business in Niagara Falls.As security for a term loan to her,she had given Eaton Bank a security interest in her assets under s 427 of the Bank Act.Eaton Bank failed to register its interest under the Bank Act and made several other errors in creating the interest so that it was not effective under the Bank Act.Instead,Eaton Bank filed a financing statement under the Ontario Personal Property Security Act.Subsequently,Natasha lent Aruna $5000 and took a security interest in Aruna's assets.Natasha filed a financing statement under the Ontario Personal Property Security Act to perfect her interest.Later Aruna defaulted on her obligations to both Eaton Bank and Natasha.Whose interest in the assets of Aruna's grocery store business has priority? Would your answer be any different if Aruna's business had not been in Ontario?

Accepted Answer

The answer of Aruna ran a grocery store business in...

Question 6

Marlie carries on a business of selling new and used lamps.In 2009,she obtained an operating line of credit from the Bank of Nova Scotia.Marlie gave the Bank a security interest in all her present and future assets.Jordan is a dealer in imported chandeliers.He and Marlie agree that he will give her possession of a dozen chandeliers to sell on his behalf.Marlie is not obliged to pay for the chandeliers unless she keeps them for more than 30 days.Marlie goes into default on her loan.The bank seizes all of her inventory,including the 12 chandeliers.Jordan finds out about the seizure and demands the chandeliers,saying that they are his.Is Jordan entitled to get the chandeliers back?

Accepted Answer

The answer of Marlie carries on a business of selling...

Question 7

In Hamilton,Ontario,Ione has defaulted on her credit and the secured party is now looking to collect on the security agreement.As per the security agreement,she has 30 days to remedy the default.Which of the following is true?

Accepted Answer

Option B, also known as the right of redemption, allows the borrower to regain possession of the collateral by paying off the debt within a specific period of time after the creditor seizes it. Option A, on the other hand, is incorrect because Ione can only purchase the collateral back after paying off the debt. Option C is incorrect because the creditor cannot use the collateral until the debt is fully paid off. Option D is incorrect because the proceeds may not always cover the debt, and the borrower may be responsible for any shortfall. Finally, option E is incorrect because the borrower can recover the collateral through the right of redemption.

Question 8

Royal Bank is considering making a loan to O'Dell Inc,a manufacturer of computers.O'Dell is seeking a loan of $100 000 repayable over three years.If you were the bank manager,what kinds of information would you need to assess the risk of non-payment by O'Dell?

Accepted Answer

The answer of Royal Bank is considering making a loan...

Question 9

Isis wants to buy a car,but cannot afford to pay cash,so she has to finance the car using credit.She is eager to get the car and drive out of the dealership.Which of the following is not a requirement of the dealership?

Accepted Answer

The answer of Isis wants to buy a car,but cannot...

Question 10

Norman Cheese Inc operates a retail store selling specialty cheeses.Global Cheese is Norman's exclusive supplier.Global and Norman have an agreement under which Norman's buys cheese on credit,with the purchase price payable 30 days after delivery.As security for its obligation to pay,Norman has given Global a security interest in all of its cheese.Norman defaults on his obligation to pay Global.Global takes possession of Norman's cheese inventory and begins selling it for its own account.Desperate to save his business,Norman agrees to sell Karen all of his cheddar cheese.Karen has no knowledge of Global's interest in the cheese or the fact that the cheese is now in Global's possession.Does Global have an interest in the cheese sold to Karen?

Accepted Answer

The answer of Norman Cheese Inc operates a retail store...

Question 11

People who give guarantees are vulnerable to the actions of the principal debtor and the creditor.Explain how the law seeks to protect guarantors with reference to examples of the ways in which the guarantor may be put at risk.

Accepted Answer

The answer of People who give guarantees are vulnerable to...

Question 12

Itzik operates a bakery with 10 employees in Regina,Saskatchewan.In May,Itzik borrowed $10 000 from MBank to finance the acquisition of a new oven.He gave MBank a security interest in all his present and future assets as security for his obligation to repay the loan.By July,his business was in trouble.He failed to remit to the Canada Revenue Agency the amounts he had withheld from the wages he paid his employees for May,June,and July.Instead,he used some of it to pay suppliers and the rest,$5000,he kept at the bakery for emergencies.Itzik defaults on his obligation to MBank.Is MBank entitled to the $5000?

Accepted Answer

The answer of Itzik operates a bakery with 10 employees...

Question 13

Kathy has a horse farm where she raises thoroughbred horses to race.She had negotiated a loan of $25 000 from Commerce Bank to buy a new truck for the business.The bank took a security interest in all her present and future assets in a general security agreement.The bank registered its security interest in February 2010.A few months later,Kathy negotiated a loan in the amount of $200 000 from Canada Trust for the purpose of buying horses and equipment.Canada Trust took a security interest in all of Kathy's present and future assets under a general security agreement.Kathy spent the money to buy the horses,and they were delivered on June 15,2010.Canada Trust registered its security interest by filing a financing statement on July 15,2010.Kathy defaults on her obligations to Canada Trust and the bank.Both the bank and Canada Trust claim that its security interest has first priority.Who is entitled to Kathy's assets?

Accepted Answer

The answer of Kathy has a horse farm where she...

Question 14

Alice needed some tractors for her gardening services business in Windsor.She approached Cooper's Equipment Leasing Inc.She asked Cooper's to obtain two tractors meeting her specifications and lease them to her.After performing a credit assessment of Alice,Cooper's decide to proceed with the transaction.Under the terms of the lease,Alice was obliged to make regular monthly payments over two years,which would result in paying Cooper's more than the full purchase price.Alice had an option to purchase the tractors at the end of the lease for $500 each.Alice knew that it was likely that the value of the tractors at the end of the lease would be at least $1000.In January,Alice stopped making payments under the lease and went bankrupt.Cooper's claimed the tractors,but the trustee in bankruptcy has refused to give them up.Who is entitled to the tractors?

Accepted Answer

The answer of Alice needed some tractors for her gardening...

Question 15

Baton Trucks Inc sold trucks in Alberta.Baton bought its trucks from Cold Automotive Inc.Under the terms of its agreement with Cold,Baton had agreed to give Cold a security interest in all of the trucks it acquired from Cold until they were paid for.Baton sold two trucks to Del's Flowers Inc in July.Del's paid for them but did not pick them up right away.Del's was run by Wendel,a friend of the president of Baton and knew about the security agreement that Baton had with Cold,though not its specific terms.Baton defaulted on its agreement with Cold,and Cold seized all of the trucks on Baton's lot including the two that had been sold to Del's.Who is entitled to the two trucks bought by Del's?

Accepted Answer

The answer of Baton Trucks Inc sold trucks in Alberta.Baton...

Question 16

Sabra carries on a business selling women's clothing at a retail store.She borrowed $10 000 from the Bank of Nova Scotia and gave the bank a security interest in all of her inventory.The bank filed a financing statement to register its interest.Sabra's entire inventory was bought on credit.The supplier retained title in the clothes as security for the payment of the purchase price.The supplier did not perfect its security interest.About $5000 worth of inventory had not been paid for when Sabra defaulted on her loan.She had $8000 left to pay on the loan and the Bank seized all her inventory.Sabra thinks that the inventory was worth in excess of $12 000 if it were sold at full retail prices.The bank found another store to buy it for $9000.Should Sabra complain about the bank's disposition of the collateral?

Accepted Answer

The answer of Sabra carries on a business selling women's...

Question 17

Joshua had a licence to operate a nursing home in Scarborough.Under the legislation setting up the licensing scheme,the licence was fully transferable at the request of the licensee.Indeed,licences were bought and sold all the time along with the nursing home businesses that they related to.The licence could only be revoked on limited grounds by the responsible agency of the government of Ontario,and there was a right to appeal any decision to revoke the licence.Under the licence,Joshua operated Green Acres Nursing Home.In order to finance the building of an addition to the nursing home,Joshua borrowed $75 000 from the Bank of Ontario.As security for the loan,he gave the bank a security interest in all his personal property.A few months after he received the loan,Joshua defaulted.Can the bank seize the licence along with Joshua's other personal property?

Accepted Answer

The answer of Joshua had a licence to operate a...

Question 18

Solomon Ltd carried on a boat building business.In July,as security for a loan in the amount of $15 000 from the Royal Bank,Solomon Ltd had given the bank a security interest in all its present and future assets.The loan provided that the interest rate would be 10 percent per year.Aaron Solomon is the sole shareholder and the president of Solomon Ltd.He gave the bank a personal guarantee of the corporation's indebtedness.In September,the corporation,acting through Aaron Solomon,agreed that the interest rate on its loan would be increased to 11 percent,if it was given the right to prepay the loan any time it wanted to.In November,Solomon Ltd defaulted on its obligations to the bank.The bank seized the assets of the corporation,but these were insufficient to satisfy the corporation's obligations to the bank.The bank demands payment of the shortfall from Aaron Solomon under the guarantee.Is Aaron Solomon liable to pay the shortfall to the bank?

Accepted Answer

The answer of Solomon Ltd carried on a boat building...

Quiz 23: Secured Transactions

In Hamilton,Ontario,Ione has defaulted on her credit and the secured party is now looking to collect on the security agreement.As per the security agreement,she has 30 days to remedy the default.Which of the following is true?

Royal Bank is considering making a loan to O'Dell Inc,a manufacturer of computers.O'Dell is seeking a loan of $100 000 repayable over three years.If you were the bank manager,what kinds of information would you need to assess the risk of non-payment by O'Dell?

Isis wants to buy a car,but cannot afford to pay cash,so she has to finance the car using credit.She is eager to get the car and drive out of the dealership.Which of the following is not a requirement of the dealership?

People who give guarantees are vulnerable to the actions of the principal debtor and the creditor.Explain how the law seeks to protect guarantors with reference to examples of the ways in which the guarantor may be put at risk.