Question 1

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

Accepted Answer

This is the basic principle of a secured debt. The debtor pledges collateral (such as a car or house) to the creditor as security for the debt. While the debtor retains possession of the collateral, the creditor has the right to seize it in the event of default.

Question 2

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

Accepted Answer

In case of default by either the creditor or debtor, breach of contract remedies apply. This means that if either party fails to live up to their contractual obligations, the other party has the right to seek legal remedies such as damages or specific performance.

Question 3

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

Accepted Answer

Lending institutions often require that guarantees be placed under seal to avoid problems related to consideration. This is to ensure that the guarantor has given something of value in exchange for the promise of the borrower to pay back the debt. However, the other statements are not true. The term guarantee refers to a secondary debt obligation, not a primary one. There is no requirement for a guarantor to appear before a notary public in every province. While a creditor has no obligation to protect the interests of the guarantor, there are certain legal protections in place for guarantors. Legal advice is often recommended prior to executing a guarantee.  So, option B is the correct choice.

Question 4

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?

Accepted Answer

The changes made to the loan agreement without Elizabeth's notice or consent have altered the underlying liability of the guarantee. As a result, the guarantee is likely to be invalid and unenforceable against Elizabeth. The principle of good faith and fairness requires that a guarantor be informed of any material changes to the loan agreement. Failure to provide such notice may result in the guarantee being discharged. Therefore, option C is the correct answer.

Question 5

A purchase money security interest

Accepted Answer

A purchase money security interest (PMSI) refers to a type of security interest that arises when a seller or other creditor extends credit to a buyer or debtor to help them acquire specific collateral. A PMSI can have priority over a pre-existing security interest in the same collateral granted by the debtor to another creditor, provided that certain conditions are met, such as registration within the specified time period. As a result, choice B is the best since it correctly states that a PMSI will prevail over a general security agreement covering all of a merchant's assets if it is registered within the specified time period.

Question 6

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?

Accepted Answer

Susan made sure to search the registry for any liens before buying the car, and the registry reported that there were no liens registered against the vehicle. This means that the conditional seller's claim should have been registered properly, and if it was not, it does not have the right to keep the car. Therefore, Susan should be able to get the car back if the conditional seller did not register its claim properly. Option D is the best choice as it states that the conditional seller could not keep the car if it had not registered its claim properly.

Question 7

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

Accepted Answer

Both chattels and choses in action can be used as collateral to secure a debt. A chattel refers to a movable item of personal property, while a chose in action refers to a right to sue or recover a debt, such as a promissory note or unpaid wages.

Question 8

Attachment takes place when

Accepted Answer

Attachment takes place when a debtor receives some value under the contract. This means that the security interest becomes enforceable against the debtor.

Question 9

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?

Accepted Answer

The Court reversed the transfer, determining it was a prohibited settlement under the Bankruptcy and Insolvency Act. Transferring the matrimonial home to his wife shortly before declaring bankruptcy was an attempt to avoid satisfying his creditors. The Bankruptcy and Insolvency Act prohibits settlements made by a person within one year of their bankruptcy if the purpose was to prevent the assets from being divided among the creditors. The transfer in this case falls under this category, and hence, it was reversed by the court.

Question 10

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

Accepted Answer

Certain debts, such as past maintenance for dependents, are not discharged in bankruptcy and continue to be owed even after discharge.

Question 11

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

Accepted Answer

The drawee or acceptor of a bill of exchange is primarily liable, meaning they are legally responsible for payment of the bill. The drawer and endorser are secondarily liable, meaning they are only responsible for payment if the drawee or acceptor fails to pay. The payee is not liable for payment of the bill.

Question 12

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

Accepted Answer

The answer of With regard to negotiable instruments,which of the...

Question 13

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?

Accepted Answer

The seller could seize the goods but, before resale can take place, the debtor must be given notice and an opportunity to redeem.

Question 14

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

Accepted Answer

The failure to register the mortgage does not mean the chattel mortgagee loses all legal rights; it primarily affects the priority of claims against third parties.

Question 15

A continuing guarantee

Accepted Answer

A continuing guarantee allows a creditor to advance further funds without affecting the obligation of the guarantor to pay in the event of default. This means that even if the creditor continues to lend money to the borrower, the guarantor will still be responsible for repaying the debt if the borrower defaults.

Question 16

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

Accepted Answer

Real and personal property can be used as collateral to secure a loan. This means that if the borrower defaults on the loan, the lender can seize the property as a way to recover the amount owed.

Question 17

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

Accepted Answer

The bulk sales acts, also known as "bulk transfer laws," are designed to prevent merchants from selling off a large portion of their business's inventory or assets without paying their debts to creditors. This helps to protect creditors from losing out on money owed to them by the merchant. Therefore, option E is the best choice as it best describes the purpose of bulk sales acts.

Question 18

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?

Accepted Answer

In this situation, Green is a bona fide purchaser for value without notice of any defects in the title. She has given Jones $400 for the $500 cheque, and Smith's good reputation and signature recognition are enough for her to believe that the cheque is valid. Therefore, Smith would have to honour the cheque to Green. In all other situations, there are defects in the title, and Smith would not be obligated to honour the cheque to Green.

Question 19

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

Accepted Answer

The right to reclaim collateral on payment of any money owing is known as the right to redeem. This means that the debtor has the right to pay off the debt and regain possession of the collateral. Therefore, option C is the correct choice. Option A (right to salvage) is a term used in insurance to refer to the right of an insurer to take possession of damaged property after paying a claim. Option B (right of settlement) is not relevant in this context. Option D (constructive trust) is a legal doctrine that applies when property is acquired by someone through deceit, fraud, or other wrongful means. Option E (collateral contract) is a separate agreement in which a third party agrees to pay the debt if the debtor defaults.

Question 20

_______________ 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.

Accepted Answer

A consolidation order requires the debtor to make court-ordered payments to pay off their debts within a specified timeframe, usually three years, unless creditors agree to a longer period. This is a form of debt restructuring and is typically used for individuals or businesses with multiple debts.

Quiz 16: Priority of Creditors