Exam 23: Secured Transactions

Marlie carries on a business of selling new and used lamps. In 2009, she obtained an operating line of credit from the Bank of Nova Scotia. Marlie gave the Bank a security interest in all her present and future assets. Jordan is a dealer in imported chandeliers. He and Marlie agree that he will give her possession of a dozen chandeliers to sell on his behalf. Marlie is not obliged to pay for the chandeliers unless she keeps them for more than 30 days. Marlie goes into default on her loan. The Bank seizes all of her inventory, including the 12 chandeliers. Jordan finds out about the seizure and demands the chandeliers, saying that they are his. Is Jordan entitled to get the chandeliers back?

Which of the following is TRUE? The most important factor that a creditor considers in making its decision to grant credit to a debtor is

Muskoka Heritage Homes Inc builds vacation homes in a traditional style. In order to finance its acquisition of some earth- moving machinery, Laurentian Bank lent Muskoka $50 000. Muskoka gave Laurentian a security interest in all of its present and future assets to secure its obligation to repay the loan. Laurentian did not perfect its security interest. Subsequently, Muskoka had a dispute with one of its suppliers. The supplier sued and got a judgment against Muskoka, but had not yet taken steps to seize Muskoka's assets. Muskoka defaulted on its obligations to Laurentian. Laurentian has priority over the claim of the supplier, even though the supplier has successfully obtained a judgment.

Norman Cheese Inc operates a retail store selling specialty cheeses. Global Cheese is Norman's exclusive supplier. Global and Norman have an agreement under which Norman's buys cheese on credit, with the purchase price payable 30 days after delivery. As security for its obligation to pay, Norman has given Global a security interest in all of its cheese. Norman defaults on his obligation to pay Global. Global takes possession of Norman's cheese inventory and begins selling it for its own account. Desperate to save his business, Norman agrees to sell Karen all of his cheddar cheese. Karen has no knowledge of Global's interest in the cheese or the fact that the cheese is now in Global's possession. Does Global have an interest in the cheese sold to Karen?

Arvid purchased a television from Beula. Under the terms of that contract, Arvid was entitled to immediate possession, but he was not entitled to receive ownership until he paid the full price. The contract required him to pay the total price of $5000 in ten equal instalments of $500 each. The parties have created an arrangement known as a

Heidi's sister, Tammy, started a dog breeding business. Tammy borrowed $50 000 from Royal Bank that she needed to start the business. The Bank took a security interest in all of Tammy's assets. Heidi guaranteed Tammy's obligations to the Bank. Tammy defaulted on her loan and the bank seized many of her assets, including the dogs. At the time of the seizure, the dogs were worth $100 000. Because the Bank did not take adequate care of them, some of them died, and the total value of the dogs has declined to $50 000. Because of the Bank's actions, Heidi is no longer fully liable under her guarantee.

Perfection of a security interest in collateral means that

Anders runs a piano store. In order to finance his business, he has an operating line of credit from the New Brunswick Bank. His obligations to the Bank are secured by security interest in all of his assets, but he is permitted to sell pianos. The Bank has perfected its security interest by filing a financing statement under the New Brunswick Personal Property Security Act. Anders sells a piano to Mac. Does Mac get the piano free of the security interest that Anders has given to the Bank?

Jerome is a farmer who has just agreed to borrow $100 000 from the Bank of Montreal to buy some new farm equipment. He has given the bank a security interest under s 427 of the Bank Act. Which of the following distinguishes a security interest under the Bank Act from a security interest taken by the Bank in specific assets in a security agreement?

Solomon Ltd carried on a boat building business. In July, as security for a loan in the amount of $15 000 from the Royal Bank, Solomon Ltd had given the Bank a security interest in all its present and future assets. The loan provided that the interest rate would be 10 percent per year. Aaron Solomon is the sole shareholder and the president of Solomon Ltd. He gave the Bank a personal guarantee of the corporation's indebtedness. In September, the corporation, acting through Aaron Solomon, agreed that the interest rate on its loan would be increased to 11 percent, if it was given the right to prepay the loan any time it wanted to. In November, Solomon Ltd defaulted on its obligations to the Bank. The Bank seized the assets of the corporation, but these were insufficient to satisfy the corporation's obligations to the Bank. The Bank demands payment of the shortfall from Aaron Solomon under the guarantee. Is Aaron Solomon liable to pay the shortfall to the Bank?

Which of the following is TRUE? A conditional sale is

The Canadian Imperial Bank of Commerce has loaned $100 000 to Cryo Corp, a corporation manufacturing medical equipment. Cryo carries on business in Ontario. The Bank has taken a security interest in Cryo Corp's inventory under s 427 of the Bank Act. Which of the following is TRUE?

Kajal wanted to borrow $500 000 from a bank in order to start up a new business. Because the bank was not convinced that the business would succeed, it insisted upon having repayment of the loan guaranteed. Kajal therefore persuaded her father, Ameen,to sign as guarantor. As the bank had feared, Kajal's business failed, and as a result, Kajal cannot afford to repay the entire loan. The bank therefore insists that Ameen is liable to pay as guarantor. Which of the following statements is TRUE?

In June, Alicia borrowed $10 000 from the Toronto- Dominion Bank to start her record company. She agreed to give the Bank a security interest in all of her assets, but the agreement was never recorded in writing. In July, she sold some CD burning equipment to Record Supply Inc. Which of the following best describes the Bank's claim against the equipment?

The notice filing systems in place in most provinces have which of the following advantages?

TevCo Inc supplies tennis racquets to Olympus Sports Inc, a retail sporting goods store. TevCo and Olympus have entered into a supply agreement which provides that TevCo has a security interest in all racquets it supplies until they are paid for by Olympus. TevCo filed a financing statement to register its security interest on January 1, 2010. Prior to that date, Olympus had entered into an agreement with the Bank of Ottawa for an operating line of credit. As part of that agreement, Olympus gave the Bank a security interest in all its present and future assets. The Bank filed a financing statement to register its interest on December 1, 2009, indicating an interest in all of the debtor's assets including inventory. On March 1, 2010, TevCo delivered to Olympus its first shipment of 100 tennis racquets. Olympus never paid for them. A few days later, Olympus went into default under its agreement with the Bank. Both TevCo and the Bank claim to be entitled to the tennis racquets. Which of the following best describes the legal position of the two secured parties?

Battleford Bank loaned Artegal Manufacturing Inc $50 000. The loan is secured by a general security agreement under which Artegal has given Battleford Bank a security interest in all of its equipment. The agreement provides that Artegal must deliver financial statements to the Bank every three months. Failure to do so is defined as a default under the agreement. Artegal fails to deliver financial statements for a three- month period, though it has not missed any loan payments. Which of the following is TRUE?

Ornak Furniture Inc had an operating line of credit with the Bank of Brandon. Ornak had given the Bank a security interest in all its present and future assets to secure its obligations under the line of credit. The Bank had perfected its interest by registration in 2008. Cronin carried on business as a supplier of wicker furniture. In 2009, Cronin delivered 20 wicker chairs to Ornak. Ornak put the chairs on display in its showroom. Under the agreement that Ornak had with Cronin, Ornak was not obliged to buy the chairs, but the act of selling a chair to a customer constituted the agreement by Ornak to buy the chair from Cronin. For every chair sold, Ornak paid Cronin whatever it sold the chair for less 50 percent. In December 2009, Ornak defaulted on its obligations to the Bank and the Bank seized its assets including the chairs supplied by Cronin. The Bank is entitled to the chairs.

Blue Bank agreed to give Clarice an operating line of credit. Clarice gave Blue Bank a security interest in all the present and future assets of her home renovation business which she carries on in Thunder Bay, Ontario to secure her obligations under the line of credit. The security agreement says nothing about Clarice's right to sell her assets. The Bank has registered its security interest under the Ontario Personal Property Security Act. Clarice can sell any of her assets without the consent of the Bank.

Sarah, a public servant, gave a security interest to her brother Peter in all her assets to secure her obligation to repay a loan from Peter. Peter filed a financing statement to register his interest. Subsequently, Joan bought some furniture from Sarah. Joan had no knowledge of Peter's security interest. Which of the following statements best describes Joan's legal position?