Exam 22: Secured Transactions

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?

Ione lives and conducts business in Ottawa.Three months ago, she borrowed $25 000 from Donovan and put up her brand new Jaguar vehicle as collateral.Two months ago, she borrowed $10 000 from a small lending company, called SkyLeitch Inc, and again used her Jaguar as collateral.Unfortunately, as a result of a drop in business revenues, Ione defaulted on Donovan's loan almost immediately.Donovan consequently has seized the car.Which of the following is most likely to be TRUE?

Which of the following is TRUE? A conditional sale is

Marissa Inc carries on an automobile parts manufacturing business in Ontario.Marissa has just finished negotiating a loan in the amount of $50 million from National Bank.As security for the corporation's obligations under the loan, Marissa has agreed to give National Bank a security interest in all of the corporation's present and future assets.Which of the following is TRUE?

Gluco Inc is a large producer of pharmaceuticals.It enters into an agreement to supply Discount Drugs Inc, which operates a chain of drug stores in British Columbia, with its products.In its agreement with Discount, Discount gives Gluco a security interest in the drugs supplied until they are paid for.On 1 July 2017, Gluco filed a financing statement to register this interest under the British Columbia Personal Property Security Act.Previously, on 1 May 2017, Discount had given a security interest in all of its present and after-acquired property to Baker Bank, including inventory.The bank filed a financing statement to register its interest under the British Columbia Personal Property Security Act on 1 May 2017.Gluco's security interest has priority over the Bank's because it is a purchase money security interest.

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.

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 10 equal instalments of $500 each.The parties have created an arrangement known as a

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?

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?

The process of distraint

Walid carries on a retail electronics equipment sales business.He needs a new delivery truck.He is considering two options for acquiring the truck: a secured bank financing and lease financing with an option to purchase the truck.Which of the following distinguishes secured bank financing from lease financing?

A lien

Oneal carries on a wholesale toy distribution business.He sells to his customers on credit, giving them 30 days to pay.Oneal is negotiating for an operating line of credit and his bank has asked him to assign his receivables to them as security for his obligations under the line of credit.Assuming that Oneal agrees to the assignment, which of the following is TRUE?

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 true consignment

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,

People who give guarantees are vulnerable to the actions of the principal debtor and the creditor.Explain how the law seeks to protect guarantors with reference to examples of the ways in which the guarantor may be put at risk.

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 statements is FALSE?

Simtech Inc needs $1 million for research related to a new product it is developing.It has been discussing a loan with Toronto Bank.On January 10, the Bank files a financing statement to register a security interest in all the assets of Simtech.On January 12, Simtech borrows $20 000 from one of its shareholders, secured by a security interest in all the assets of the corporation.The shareholder files a financing statement to register its security interest on the same day.On January 15, the bank and Simtech agree that the bank will lend Simtech $1 million and Simtech agrees to give the bank a security interest in all of its assets.If Simtech defaulted on the loans to both the shareholder and the bank, the shareholder's security interest would have first priority because the shareholder advanced its money first, before the bank advanced money.

Marissa bought some used computers from Jordan Human Resources Services where she worked.She does not have to worry about there being any security interests in the computers because a security interest is only enforceable against a purchaser of collateral if they were aware of the interest at the time they purchased the collateral and Marissa is not aware of any security interests in the computers she bought from Jordan.