Question 1

Where security devices are agreed to in advance as terms in the contract,they are often called

Accepted Answer

When security devices are agreed to in advance as terms in the contract, they are consensual security interests. This means that the borrower consents to providing the security as a term of the agreement. Non-consensual security interests would be imposed on the borrower without their consent, such as a court-ordered garnishment of wages. Collateral security refers specifically to assets pledged as security for a loan. The pledge of assets is a similar term. The creditor back-up system is not a term commonly used in this context.

Question 2

Jack and Reba purchased some furniture on a conditional sale contract.This couple carries no insurance on their household goods.The furniture is stolen one Sunday afternoon.Who will most likely take the loss?

Accepted Answer

In a conditional sale contract, the buyer takes possession of the items but the seller retains legal ownership until the full purchase price is paid. If the goods are stolen before the contract is fully paid off and the buyer does not have insurance, the buyer (in this case, the couple) is typically responsible for the loss. This is because the risk of loss generally passes to the buyer upon taking possession of the goods, unless the contract specifies otherwise.

Question 3

Use this fact situation to answer the related questions that follow. A purchases a video business from B,who takes back a chattel mortgage on the inventory,which is composed of DVDs.The chattel mortgage states that it covers after-acquired property.B then registers this mortgage under the provincial PPSA.A few months later,A needs to purchase more DVDs and goes to his bank to borrow the money for the purchase.In turn,the bank takes a chattel mortgage for the amount of its loan,registers its chattel mortgage,and gives A the money.A then buys the DVDs.
In this case,under PPSA legislation,the bank has

Accepted Answer

The bank has a purchase money security interest because it lent money to A specifically for the purpose of purchasing more DVDs, which then become collateral for the loan. This type of security interest is given priority over all other security interests, including B's chattel mortgage on the inventory.

Question 4

A,a manufacturer,enters into a conditional sales agreement with B,a retail seller of goods,under which A supplies 100 amplifiers to B.The manufacturer registers the agreement under provincial PPSA legislation.B now sells one amplifier to C and a few days later defaults on the conditional sales agreement.In this case,the manufacturer

Accepted Answer

The manufacturer's rights are against B, the retail seller, under the conditional sales agreement and the security interest registered under the PPSA. The manufacturer cannot directly pursue C, the end consumer, for the value of the amplifier or retake possession of it from C, as C was not a party to the original agreement or security interest.

Question 5

Phillip,who has a loan on his car at the bank,has placed his car on consignment at the local used car lot.His law professor tells Phillip that consignments can amount to a secured type of credit.If this is true,who is the creditor?

Accepted Answer

The answer of Phillip,who has a loan on his car...

Question 6

A decides to purchase B's office,which consists of an industrial condominium unit and inventory and equipment.However,A only has enough money for the deposit and B agrees to help him.In this case,to help A finance the purchase,

Accepted Answer

The answer of A decides to purchase B's office,which consists...

Question 7

Use this fact situation to answer the related questions that follow. A enters into a conditional sales agreement with B,a truck dealership,for the purchase of a truck that B has ordered from the manufacturer but will not receive for another month,during which time A must make his first payment.
In this case,under PPSA legislation,attachment occurs

Accepted Answer

Attachment under PPSA legislation occurs upon the signing of the agreement and delivery of the truck to A.

Question 8

A bill of sale can be used as an instrument of credit.Which document is the bill of sale most like when it is used as an instrument of credit?

Accepted Answer

The answer of A bill of sale can be used...

Question 9

Use the fact situation in Q8 to answer the related question that follows. Also in this case,as between B and the bank,

Accepted Answer

The answer of Use the fact situation in Q8 to...

Question 10

Which one of the following requires permission from the security holder before the item(s)used as collateral can be sold?

Accepted Answer

The answer of Which one of the following requires permission...

Question 11

Some provinces have provided relief to conditional buyers by

Accepted Answer

The answer of Some provinces have provided relief to conditional...

Question 12

Use the fact situation in Q6 to answer the related question that follows. Also in this case,B's security interest is perfected

Accepted Answer

According to the fact situation, B's security interest is perfected when they register a financing statement. This is typically the method used to perfect a security interest in personal property under the Uniform Commercial Code. Possession and delivery of the truck would not be enough to perfect the security interest, and simply signing an agreement would not provide notice to third parties of the security interest.

Question 13

What is the difference between a chattel mortgage and a conditional sale contract?

Accepted Answer

The answer of What is the difference between a chattel...

Question 14

Regarding the remedies of a conditional seller,she or he

Accepted Answer

The answer of Regarding the remedies of a conditional seller,she...

Question 15

Use the fact situation in Q2 to answer the related question that follows. In this situation,if B takes back a chattel mortgage on the inventory,title to the inventory

Accepted Answer

The answer of Use the fact situation in Q2 to...

Question 16

The Hendersons have purchased their new riding lawnmower on a conditional sale contract.They have just been notified that the contract was assigned to a finance company.The Hendersons may now

Accepted Answer

When a contract is assigned to a finance company, the new holder of the contract typically has the same rights and obligations as the original seller. Therefore, the Hendersons can expect to have the same defences against the finance company as they would have had against the retailer.

Question 17

Each of the following may create consensual security interests EXCEPT

Accepted Answer

Liens are not a form of consensual security interest, as they are created by operation of law rather than by agreement between parties. The other options, guarantees, leases, consignments, and accounts receivable, all involve an agreement between parties to create a security interest.

Question 18

A purchases a chattel from B under a conditional sales agreement.A few days later and unknown to B,A sells the chattel to C,who believes A is the owner.At common law,B

Accepted Answer

Under common law, B can retake possession of the chattel from C because the conditional sales agreement means that B retains ownership until the conditions of the agreement are fulfilled. A's sale to C without B's knowledge or consent does not transfer ownership to C, and therefore B has the right to retake possession of the chattel.

Question 19

Use this fact situation to answer the related questions that follow. A is buying a video business including the inventory of DVDs,which is valued at half the worth of the business,but A only has half the purchase price,so B agrees to help A out.
In this case,to help A buy the business,B will

Accepted Answer

Taking back a chattel mortgage on the inventory would be the best choice for B to help A finance the purchase of the business. This would give B a security interest in the inventory, allowing B to repossess and sell the inventory if A fails to make the payments on the loan. A mortgage/charge or floating charge may not provide enough security for B, while a chattel lease would give B ownership of the inventory rather than just a security interest.

Question 20

B,a car dealership,sells A a car on terms that provide that A will have possession of the car for a period of three years,during which A will make monthly payments; however,ownership in the car remains with the dealership until A makes the last payment.In this case,A and the dealership have effected

Accepted Answer

This scenario describes a conditional sale, as ownership remains with the dealership until the last payment is made. A consignment involves the dealership selling the car on behalf of the owner, a chattel lease involves the temporary transfer of possession for a fee, and a chattel mortgage involves using the car as collateral for a loan. A floating charge is a type of security interest in which the asset (in this case, the car) serves as collateral for a loan, but the specific asset may change over time (i.e. the borrower may sell the car and use the proceeds to buy a different asset). It is not applicable in this scenario.

Quiz 28: Secured Transactions