Deck 26: The Legal Aspects of Credit

Question 1

With respect to financing a business,which of the following is a commonality shared by buildings and inventory?

A) Each is subject to a particular set of enforcement procedures.
B) Both can serve as collateral for business loans.
C) Both are commonly used in letters of credit to distribute default risk.
D) Each is subject to a particular set of legal rules.

Answer 1

B

Question 2

Which of the following would risk revocation of their operating licence for harassing,threatening,and exerting undue pressure on a defaulting borrower?

A) banking institution
B) collection agency
C) credit bureau
D) credit card company

Answer 2

B

Question 3

Even though consumer protection laws relating to lending institutions are scattered throughout a number of pieces of legislation,which of the following is the unifying theme that each seeks to regulate?

A) prohibition against misleading statements in credit applications
B) ongoing respectability of licensed credit bureaus
C) licensing, permitted activities, and terms of credit
D) protecting borrowers from exorbitant interest rates

Answer 3

C

Question 4

With respect to consumer debt,which of the following is a valid criticism of the regulations currently affecting banks and other lending institutions in Canada?

A) federal government intervention in the system of credit that hampers lenders' profit motive
B) time required to shop around for better terms and less restrictive lending conditions
C) ability to extract whatever promise of security is deemed necessary to protect a loan
D) inability to limit lenders from extracting blanket personal guarantees for loans.

Question 5

Which of the following is a major concern for consumers who apply for credit?

A) exemption of lenders from criminal prosecution
B) protection of requisite personal information
C) legislated limits for the total cost of borrowing
D) exploitation by lenders charging excessive costs of credit

Question 6

Which of the following is a valid criticism of the federal government's delegation of the regulation of payday lending costs to the provinces?

A) The provinces have been slow to establish a regulatory framework.
B) The permitted rate of fees, charges, and commissions are often too low.
C) The permitted costs of borrowing is inconsistent among the provinces.
D) The actual cost of these loans will continue to exceed 1000 percent.

Question 7

A lender considering a commercial loan application examined the potential customer's intellectual property and its accounts receivable history.Which of the following would most strongly influence the lender's position with respect to advancing the loan in this instance?

A) lender's unfair bargaining advantage
B) regulations ensuring accuracy of complied information
C) assets' current value and any existing creditor's claims
D) respectability of the lender's credit history

Question 8

Which of the following is a valid characterization of the borrower's promise to repay a loan and the lender's collateral or security if the borrow fails to repay?

A) They are the major elements of the credit agreement.
B) Each refers to any interest in property that is of value to a lender.
C) Each reflects the need for extensive security due to uncertain value.
D) They are the lender's value in any property interest.

Question 9

Which of the following would be applicable to every organization within Canada that collects,uses,or discloses personal information in the course of commercial activity?

A) PEPIDA
B) authority of provincial privacy commissioners
C) authority of the federal privacy commissioner
D) PIPEDA

Question 10

ImaBigBank has completed its risk assessment for a commercial loan application and has decided to grant the loan.What is the legal term given to the form of notice ImaBigBank will provide to the application detailing basic terms of the proposed loan?

A) letter of intent
B) letter of commitment
C) letter of acceptance
D) letter of credit

Question 11

Which of the following would a business law professor most likely indicate as being the result of the granting of credit arrangements that are outside normal business activities?

A) lender's increased requirement for formality and security
B) borrower's increased rights and obligations
C) limitation of security utility of the borrower's assets
D) borrower's collateral promise to repay

Question 12

A lender has been fined,its licence has been suspended,and it is subject to an order by the regulator prohibiting further violations.The complainant,in these circumstances,may seek which of the following as additional remedies?

A) protection of the personal information the borrower was required to provide
B) time to shop for better terms and less restrictive lending conditions
C) prohibition against misleading statements in ensuing credit reports
D) adjustment of loan terms by a court and a claim for damages

Question 13

The first mandatory five-year review of the federal government's privacy protection legislation resulted in which of the following criticisms?

A) It fails to prevent application of foreign law to personal information of Canadians.
B) It fails to thoroughly review the effectiveness of personal information protection.
C) Aspects of regulated consumer credit are left to commercial parties to negotiate.
D) It fails to prohibit Canadian lenders from using foreign service providers.

Question 14

What would an importer of goods want to assure it has obtained prior to making payment for those goods to a foreign supplier?

A) title documents
B) letter of commitment
C) credit arrangements
D) collateral security

Question 15

In order to be put into a position to collect repayment of a debt,a creditor has had to exert its contractual right to sue a debtor.In this instance,what is the nature of the loan?

A) secured credit
B) unsecured credit
C) letter of credit
D) collateral loan

Question 16

Which of the following exemplifies the type of financing agreement that would contain conditions relating to the provision of,among other things,an invoice,shipping receipt,and proof of insurance?

A) collateral security agreement
B) letter of credit
C) blanket security agreement
D) letter of commitment

Question 17

The prohibition of transactions where there is no reasonable probability of the debtor making payment in full is a regulation found in which of the following legislation?

A) Business Practices and Consumer Protection Act
B) Collection Agencies Act
C) Unconscionable Transactions Relief Act
D) Consumer Protection Act

Question 18

Marina borrowed $5000 of the $25 000 she required to purchase her car from ImaBigBank.The only financing document Marina signed was ImaBigBank's loan agreement.Marina had a number of problems with the car and subsequently sold it.The outstanding balance of the loan is $1500.In the event Marina defaults on the loan,which of the following would be the most likely result?

A) The bank will give Marina notice of its intention to begin collection proceedings.
B) Fraud charges will be brought, as the bank holds title to the car pending debt repayment.
C) The bank will review Marina's cash flow projections and extend time for payment.
D) A judgment is obtained and satisfied from Marina's general financial resources.

Question 19

In addition to security relating to specific assets,which of the following would typically be requested by a lender being asked to grant a large commercial operating line of credit?

A) blanket coverage over all assets as security in the event of default
B) stabilization and enhanced regulation of the credit market
C) priority over other creditors' pre-existing secured claims
D) maintenance of continued utility in the assets used to secure the loan

Question 20

Which of the following would a business law professor most likely indicate to be a distinguishing characteristic of an unsecured debt?

A) loan must be advanced within a designated period
B) formal and deliberate financing arrangements
C) the incidental feature of routineness
D) absence of security interest in debtor's assets

Question 21

Why would a lender be able to call in an entire loan based on the borrower's default of one payment?

A) security clause
B) foreclosure
C) deficiency clause
D) acceleration clause

Question 22

In the case of Manulife Bank of Canada v.Conlin (1996),203 N.R.81 (S.C.C.),the Supreme Court of Canada established which of the following rules for releasing a guarantor from his obligations?

A) A guarantee may be verbal, written, or implied by the conduct of the guarantor.
B) Guarantee agreements provide blanket authorization to make material alternations.
C) The guarantor has not consented to material change of loan terms by the creditor and debtor.
D) A guarantor and a creditor are prohibited from opting out of the rules.

Question 23

Is a personal guarantee of a commercial loan considered to be dangerous?

A) No, once signed the guarantee must be renewed annually.
B) Yes, owing to the unconditional nature of this primary promise.
C) No, personal assets continue to be protected by limited liability.
D) Yes, their continuing nature includes total debt owned at any time.

Question 24

In the event of a borrower's repayment default,the remedies available to its creditors will largely be determined by which of the following?

A) distinction in creditors' status between secured and unsecured.
B) priority of registration in the personal property security registry
C) the amount of deficiency remaining after sale of assets
D) the presence of an acceleration clause in the loan agreement

Question 25

Which of the following would a business law professor most likely indicate to be a characteristic of a personal guarantee?

A) The guarantors cannot be compelled to sign to ensure granting of a loan.
B) Guarantees are independently negotiated arrangements.
C) Common law permits creditors to change loan terms without the guarantor's consent.
D) Guarantees are one component of a larger credit arrangement.

Question 26

Which of the following must be in place in order for a lender to appoint a receiver or manager in the event of default on a commercial operating loan?

A) deficiency of assets
B) specific security agreement
C) general security agreement
D) acceleration clause

Question 27

Why is the unencumbered status of assets considered to be a distinguishing characteristic?

A) They are typically worth more than the existing debt.
B) They are typically acquired after giving a security interest.
C) Lenders typically find them most attractive as security.
D) Lenders typically find their portability to be a risk.

Question 28

With respect to a general security agreement,how are assets used as security generally classified?

A) as a real property mortgage over the business's assets
B) as an assignment of the business's accounts receivable
C) in terms of the degree of control the lender will acquire upon default
D) in terms of whether they are meant to be retained in the debtor's business

Question 29

When a lender has appointed a receiver,its primary objective is redeeming sufficient assets to clear a loan.The ability of the receiver to control the business to the exclusion of the debtor is directly related to which of the following?

A) Courts recognize that creditors are in the lending business.
B) Creditors have a duty to deal with assets in a commercially responsible way.
C) The survival of the business is secondary to the creditor.
D) Creditors must avoid creating conflicts of interest.

Question 30

With respect to the priority of registered interests in a personal property security registry,which of the following would be given priority as a result of the limitation regarding after-acquired property?

A) general financing statements
B) blanket financing statements
C) specific security agreements
D) general security agreements

Question 31

Which of the following are likely unlimited in terms of which assets the bank can pursue as an unsecured creditor?

A) borrower's basic right to limit lender's default remedies
B) creditor's seizure and sale notice requirements
C) contracts of guarantee in favour of the creditor
D) standard form credit agreement for a particular creditor

Question 32

With respect to a borrower's default,which of the following provinces would limit a lender's remedy to the proceeds from seized assets and prohibit the lender from suing the debtor for any resulting deficiency?

A) Ontario
B) Alberta
C) New Brunswick
D) Nova Scotia

Question 33

What role does legislation play with respect to enabling a creditor to begin legal action for arrears,retain or take possession of collateral,and appoint a receiver or manager?

A) confirms and supplements contractual remedies
B) protects borrowers' assets in the event of deficiency
C) protects borrowers from acceleration clauses
D) classifies status of creditors as secured or unsecured

Question 34

The right of a guarantor to recover from the debtor any payments made to the creditor is legally known as which of the following?

A) subrogation
B) joint liability
C) priority interest
D) subversion

Question 35

The health of the real estate market and the nature of a specific piece of land would most likely strongly influence which of the following?

A) lender's credit insurance cost
B) lender's confidence in the event of default
C) the value of land for security
D) the need for environmental due diligence

Question 36

Which of the following would strongly influence the borrower's ability to challenge an improvident sale?

A) borrower's right to an ongoing accounting of the state of the loan
B) the Ombudsman for Banking Services and Investments (OBSI)
C) creditor's insistence on provision of personal guarantees from a borrower's owners
D) the Model Code for Bank Relations with Small- and Medium-Sized Businesses

Question 37

Which of the following would offer an additional source of protection to both a commercial lender and a business with accounts receivable against the risk of default on an uncollectable loan?

A) blanket security agreement
B) promissory note
C) credit insurance
D) general security agreement

Question 38

With respect to personal property security arrangements,which of the following would a business law professor most likely indicate as a common feature shared among the provinces?

A) major inconvenience and expense
B) a patchwork of different statutes
C) each has one set of registration rules
D) compliance with differing sets of rules

Question 39

Which of the following would a commercial lawyer most likely indicate as encompassing the broader form of security available to a lender with respect to a business's current and future assets?

A) a collateral mortgage
B) a general security agreement
C) a blanket credit agreement
D) a general financing statement

Question 40

When the availability of credit becomes limited,which of the following is most likely to be the result for commercial borrowers?

A) stringent classification of assets in terms of retention by the business
B) stringent requirements to maintain inventory and book debts at specified levels
C) stringent lending terms affecting fees, rates, and monitoring of performance
D) requirements to submit financial reports and maintain specified debt/equity ratios

Question 41

Assets acquired by a debtor after pledging a security interest in its current assets are commonly described in financing documents as after-acquired property.

Question 42

A secured creditor will achieve secured status only if its loan agreement contains a term that makes the entire loan due if one payment is missed.

Question 43

In the event of default involving a commercial loan,the potential claims against any shareholders personally are defined by the contracts of guarantee they sign with bank.

Question 44

A commercial lender will typically detail the basic terms of its offer of a loan in the form of a commitment letter,which could contain,among other things,a requirement that the borrower maintain a specified financial position.

Question 45

A loan granted to an individual for a non-commercial purpose is governed primarily through provincial consumer protection legislation.

Question 46

A letter of commitment contains the actual loan agreement between the lender and the commercial borrower; the borrower,lacking bargaining power,must meet those terms if it wants the loan.

Question 47

A receiver may be appointed by an unsecured creditor once the creditor has given reasonable notice for calling a loan.

Question 48

The lenders required EcoEnergy Inc.to pledge the new equipment it had financed as collateral security for the loan.With respect to commercial loans,this is an uncommon practice among lenders.

Question 49

Payday loan lenders must be extremely cautious and take care that the actual cost of loans does not exceed the 60 percent rate allowable under the Criminal Code of Canada.Failure to do so will result in the criminal prosecution of the payday lender.

Question 50

A sale that is improperly conducted or that produces unreasonably low proceeds is known as an improvident sale.

Question 51

The process of recording a security interest in a personal property security registry is known as registration.

Question 52

A deficiency results when a creditor has been forced to sell assets because of borrower default and the price realized by the sale is less than the outstanding amount of the debt.

Question 53

A pledge given by a borrower to repay the bank for its loan is sufficient to classify the loan as a secured debt.

Question 54

A financing statement is required to be registered each time a borrower has acquired assets after giving a general security agreement over the borrower's current assets.

Question 55

Credit bureaus provide a service to consumers by compiling personal credit history information created by an individual's lenders and then making the information available to that individual.

Question 56

Failure to adhere to a loan repayment schedule will allow a creditor to take action to have a debtor's assets seized and sold to satisfy the unpaid balance of the debt.

Question 57

A lender who,through a registered security interest,has the right to seize and sell specific assets of a borrower to collect a debt typically has included an acceleration clause in its standard form loan agreement.

Question 58

Because of the uncertain future value of pledged assets,the demand by commercial lenders for as much security as possible often results in the current value of those assets exceeding the extent of the lender's risk .

Question 59

A written promise by a buyer's bank to a seller's bank to pay the seller when specified conditions are met is legally known as a letter of credit.

Question 60

The amount of security derived from a business's inventory and accounts receivable pledged in a general security agreement is the value of those assets at any given time.

Question 61

Discuss the letter of commitment and describe the basic terms that are detailed in this type of financing document.

Question 62

Discuss the borrower's rights in relation to the lender's seizure and sale of assets.

Question 63

Identify three types of security pledges that are typically required for a commercial loan.

Question 64

Briefly explain what an acceleration clause is,what it does,and the incentive it provides.

Question 65

Identify the source of prevention of hidden charges by a lender that also enables a borrower to appreciate the cost of a loan transaction,and briefly discuss what is required to achieve these outcomes.

Question 66

Identify the document registered as evidence of a security interest in personal property and explain the registration process and requirements that apply to it.

Question 67

Explain the environmental due diligence process.

Question 68

Briefly explain what a letter of credit is and discuss the requirements that this type of financing arrangement involves.

Question 69

Identify the new federal government regulations that apply to credit cards issued by federally regulated institutions.

Question 70

Discuss the criteria that will be used to determine the length of reasonable notice required to be given to a debtor by a creditor that has decided to call in a loan.