Exam 23: Secured Transactions

Eldon leases tools and other equipment on a long- term basis to construction companies. He needs to buy a new forklift truck to lease in his business. Which of the following describes ways that Eldon could acquire the forklift truck?

Vegreville Food & Farm Inc (VFFI) operates a general store in a rural area of Saskatchewan. For a variety of reasons, the company has experienced continuing and substantial financial difficulties over the past ten years. As a result, most of its assets are subject to one or more security interests. Those security interests are held by a number of creditors. VFFI recently found itself unable to meet its obligations and it has defaulted on a number of contracts. Creditors are now looking to execute upon their security interests. Which of the following statements is most likely to be TRUE?

The process of distraint

The registration systems established under provincial personal property security laws in most provinces are superior to the systems that existed previously. Which of the following best describes why the new systems are better?

Able Finance Corp carries on a lending business in St. John, New Brunswick. Athos Transport has asked Able to acquire a truck trailer and then lease it to Athos for five years in return for monthly payments which will cover the full amount of the purchase price plus 10 percent. At the end of the lease term, Athos has an option to buy the trailer for $100. Assuming that Able and Athos enter into this transaction, which of the following is TRUE? The New Brunswick Personal Property Security Act

Which of the following best describes why personal property security legislation requires that a secured party in possession of collateral act in a commercially reasonable way when disposing of it?

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?

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?

Caesar's School of Music wanted to substantially expand its operations. To do so, it required a loan for $2 000 000. Its banker agreed to that loan only on the condition that Caesar's grant security over all of its assets. That included both physical assets, like guitars and tubas, and intangible assets, like accounts receivable. It also included all the assets that the company held when the loan was created, as well as any assets that it subsequently acquired. Caesar's accepted those terms. Assuming that the general rules governing floating charges apply here, which of the following statements is TRUE?

The special rules providing for the creation of purchase money security interests under provincial personal property security laws were put in place because if there were no such rules

Sally borrowed $50 000 from Halifax Bank to renovate her basement. The loan was to be repaid in monthly instalments over five years. The interest rate was 5 percent. Sally's mother, Elise, guaranteed the loan. Elise was provided with independent legal advice before she signed the guarantee. After two years, Sally sought to increase the amount of the loan. After a few meetings, Sally and the Bank agreed to increase the loan to $75 000 and to increase the interest rate to 7 percent. Which of the following statements regarding Elise's legal position is TRUE?

A lien

MagicBank has loaned $5000 to Horwood. As security for the repayment of the loan, Horwood gave MagicBank a security interest in his car. Horwood has defaulted on his payments. He still owes $4000. MagicBank has taken possession of his car. Horwood estimates that his car is worth $3000. Which of the following is TRUE?

Albert carried on a jewelry store business in Edmonton. He borrowed $10 000 from the Bank of Edmonton. As security for the repayment of his loan, Albert had given the Bank a security interest in his inventory and equipment. The Bankfailed to file a financing statement to register its interest. Albert sold all of his gem cutting equipment to Bruce who carried on another jewelry store business because he had decided to get out of this aspect of the business. Bruce is not aware of the Bank's security interest. Which of the following statements best describes the interest of the Bank in the gem cutting equipment?

Orange Bank was going to lend Fasgo Inc $1 000 000. As security for the repayment of the loan, Fasgo was going to give Orange Bank a general security interest in all its present and future assets. The parties have decided that the agreements will be signed and the financing will be completed on Friday. Orange Bank should file a financing statement to register its interest a few days before the completion of the transaction because

Banks take collateral to secure the obligations of people who owe them money as a way to reduce the risks associated with non- payment. Having a security interest in collateral will not prevent a debtor from defaulting but will reduce the risk that the bank will be unable to recover what it is owed.

Shariff's Car Depot (SCD) sells new and used cars. Because it perceived a demand for Tucker Hupmobiles, a type of retro- design vehicle, it purchased several directly from Tucker Auto Inc. Those purchases were made under conditional sales contracts. At the relevant time, SCD paid part, but not all of the purchase price. As predicted, SCD received a great deal of consumer interest in the Hupmobiles. It sold one to Ingrid. Several days later, however, SCD fell into serious financial difficulties and defaulted on some of its debts. As it was entitled to do in the circumstances, Tucker purported to exercise its rights to recover all interest in the Hupmobiles that it had conditionally sold to SCD. Which of the following statements is TRUE?

In July, Monarch Taverns Inc borrowed $100 000 from the Bank of Commerce to finance its acquisition of a tavern. As security for Monarch's obligation to repay the loan, it gave the Bank a security interest in the tavern's inventory of spirits, then worth an estimated $50 000. Guillermo is an experienced businessman who has run several taverns. He is also the sole shareholder in Monarch. He signed a guarantee of Monarch's obligation to repay the Bank of Commerce. The corporation was represented by legal counsel in dealing with the Bank and Guillermo obtained the advice of an independent lawyer with respect to his obligations under the guarantee. After Monarch has operated the tavern business for six months, the value of the inventory has fallen to $20 000. Monarch has advised the Bank of this. Which of the following statements best describes Guillermo's obligation to the Bank of Commerce?

In August, Shazad borrowed $20 000 from the Bank of Nova Scotia in order to finance his pool cleaning business. The Bank and Shazad entered into a general security agreement under which the Bank took a security interest in all of the present and future assets of Shazad. Jacqueline is a car mechanic who did some repairs in September on a truck that Shazad uses to carry on his business. The truck is still in her shop in Hamilton, Ontario. Shazad has not paid Jacqueline the $2000 bill she gave him in September for repairs to the truck, and he is in default under his loan agreement with the Bank. Which of the following is TRUE?

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?