Question 1

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?

Accepted Answer

Since the student's business is service-oriented, he does not have any tangible assets to provide as security. However, he does have monthly billings which could be assigned as collateral. Therefore, the best choice would be to request an assignment of accounts receivable.

Question 2

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

Accepted Answer

The introduction of the Personal Property Security Act (PPSA) in all provinces has consolidated various kinds of security arrangements, such as chattel mortgages, conditional sales, and others, under one statute. The PPSA provides a legal framework for the creation, perfection, and enforcement of security interests in personal property. It applies to both tangible and intangible personal property, including accounts receivable. However, there may be some specific rules or requirements for certain types of collateral or transactions, depending on the particular province's legislation.

Question 3

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

Accepted Answer

A garnisheeing order is an order to the debtor's bank or employer to withhold income or funds owed to the debtor and pay them directly to the judgment creditor. It is not an order to seize assets of the judgment creditor.

Question 4

Your brother wants to borrow $8,000 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?

Accepted Answer

A guarantor is not primarily liable; they are secondarily liable, meaning they only become liable if the primary debtor defaults.

Question 5

They couldn't remember exactly how it happened, but the Mauri's 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%, but paid out 90% in good faith; i.e., when he paid, there were no complaints or liens filed. It turned out, however, that before anyone had completed his work--and no one expected payment until the job was finished-- Wip disappeared with the money. On these facts, which of the following is true?

Accepted Answer

The workers and subcontractors have an action against Wip for breach of contract because he failed to pay them for their work.

Question 6

John, a salesman 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, he wants to discuss chattel mortgages and conditional sales contracts. Which of the following is false with regard to these contracts?

Accepted Answer

A chattel mortgagee is required to register their interest to protect against third-party claims, just like a conditional seller. Therefore, statement C is false.

Question 7

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

Accepted Answer

This statement is false. A verbal guarantee is not as enforceable as a written one because it can be difficult to prove the terms of the guarantee without written documentation.

Question 8

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% 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?

Accepted Answer

If the owner checks the registry and there are no liens registered, he is free to pay out the retained holdback. If there are liens registered, the owner must satisfy them from the holdback money before paying the general contractor.

Question 9

Which one of the following statements about bankruptcy is false?

Accepted Answer

In bankruptcy, not all creditors are treated equally; secured creditors are paid first, and unsecured creditors may receive a proportionate share of remaining assets.

Question 10

Nick has a consulting business with monthly billings of $4,000. 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?

Accepted Answer

Since Nick's business relies on monthly billings, an assignment of accounts receivable would be the most appropriate security as it would give the bank the right to collect payments directly from Nick's clients in case of default. The other securities listed are more appropriate for businesses with significant assets or a longer operating history.

Question 11

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?

Accepted Answer

Assignment of book accounts involves the transfer of rights to receive payments for accounts receivable or other intangible assets. The creditor does not take title to any physical property, but instead secures the right to receive payments from the debtor's customers or other third parties.

Question 12

Greg told Rick that he would be willing to pay a high rate of interest for a two-month loan of $2,000. Rick agreed to lend Greg this amount at an annual rate of 20%, 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 $2,000. Now that Greg is in default, which of the following is false?

Accepted Answer

This statement is false. Rick cannot execute against Greg's property without obtaining a judgment against him first.

Question 13

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?

Accepted Answer

Under the Personal Property Security Act, if a secured creditor seizes the truck, the debtor has a set period of time in which to pay what is owing and costs and get the truck back. This period is known as the redemption period. Therefore, option B is the accurate statement with respect to the legal position of the parties.

Question 14

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 only had $10,000, so he borrowed the other $5,000 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 $3,000. 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?

Accepted Answer

The bank has a chattel mortgage on the navigational equipment, which is a form of security interest. This means that the bank has the right to repossess the equipment if the borrower (Bob) fails to make the agreed-upon payments. When Bob sold the boat to Claude, he sold it subject to the bank's security interest in the navigational equipment. Therefore, Claude acquired the boat subject to the bank's interest in the equipment. If Claude wants to keep the equipment, he must pay off the outstanding debt owed by Bob. If he refuses to do so, the bank has the right to repossess the equipment from the boat.

Question 15

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

Accepted Answer

In provinces not having a personal property security act, various kinds of secured transactions, such as conditional sales, chattel mortgages, etc., are regulated by their own distinct statutes. Therefore, option B is correct. Option A is incorrect because there is no one statute governing all kinds of security arrangements. Option C is incorrect because an assignment of an account receivable qualifies as a security arrangement even though no tangible property is involved. Option D is incorrect because it is a general statement without any specific context or support. Option E is incorrect because both tangible and intangible personal property can be used as security.

Question 16

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

Accepted Answer

Any assets obtained by a bankrupt after being discharged cannot be claimed by former creditors who placed him into bankruptcy. Once a debtor is discharged from bankruptcy, he is released from all debts that are provable in bankruptcy, except for certain debts such as student loans or court-ordered fines that he incurred before he declared bankruptcy.

Question 17

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

Accepted Answer

This statement is false. 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 they do not retain the right to sue the debtor on his personal covenant to pay for any deficiency. This is because they have already taken possession of the collateral and sold it to satisfy the debt.

Question 18

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?

Accepted Answer

It is not necessary to ask your creditors to begin the bankruptcy procedure, as you can begin it yourself by filing for bankruptcy under the Bankruptcy and Insolvency Act.

Question 19

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

Accepted Answer

The creditor does not have the right to order the debtor arrested or detained. Such actions would be illegal and violate the debtor's rights.

Question 20

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

Accepted Answer

Filing a lien within the time set does not guarantee that the lien claimant will collect the full amount of his claim. The amount that can be recovered through a lien depends on the available equity in the property after other liens, mortgages, and encumbrances have been satisfied.

Quiz 16: Priority of Creditors