Exam 22: Secured Transactions

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.

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 2011.Cronin carried on business as a supplier of wicker furniture.In 2012, 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.

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?

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

Jovan Co owns a building in Winnipeg in which Saturn Shoes Inc has rented a store premises since 2000.In 2012, Galaxy Shoes Inc agreed to supply Saturn with its inventory of shoes on credit.Under its agreement with Saturn, Saturn gives Galaxy a security interest in its shoe inventory.Galaxy filed a financing statement to register its interest under the Manitoba Personal Property Security Act.No other financing statements have been registered against Saturn.Saturn has not paid its rent for two months and is in default under its agreement with Galaxy.Jovan and Galaxy both claim to be entitled to seize the shoes currently in Saturn's store.Which of the following is TRUE?

Royal Bank is considering making a loan to O'Dell Inc, a manufacturer of computers.O'Dell is seeking a loan of $100 000 repayable over three years.If you were the bank manager, what kinds of information would you need to assess the risk of non-payment by O'Dell?

Able Finance Corp carries on a lending business in Saint 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

Caesar's School of Music wanted to substantially expand its operations.To do so, it required a loan of $2 million.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, such as guitars and tubas, and intangible assets, such as 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?

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?

Gisele operates an outdoor equipment store in premises rented from Orca Real Property Inc.Before she moved to these premises, she borrowed $10 000 from Imperial Bank for her business and gave Imperial a security interest in her present and future inventory and accounts receivable.Gisele defaults on her obligations to the bank and to Orca.Orca is entitled to seize Gisele's assets located in the space rented from Orca.

Itzik operates a bakery with 10 employees in Regina, Saskatchewan.In May, Itzik borrowed $10 000 from MBank to finance the acquisition of a new oven.He gave MBank a security interest in all his present and future assets as security for his obligation to repay the loan.By July, his business was in trouble.He failed to remit to the Canada Revenue Agency the amounts he had withheld from the wages he paid his employees for May, June, and July.Instead, he used some of it to pay suppliers and the rest, $5000, he kept at the bakery for emergencies.Itzik defaults on his obligation to MBank.Is MBank entitled to the $5000?

Comerica Bank is considering lending $50 000 to Piat Co, a farm equipment dealer that carries on business across the country and has its head office in Toronto.Piat will use the money to build an addition to its show room in Regina, Saskatchewan.Comerica wants to take a security interest in Piat's farm equipment inventory in all provinces.Which of the following best describes the searches that Comerica should do to assess the value of such a security interest? Comerica should search

Baton Trucks Inc sold trucks in Alberta.Baton bought its trucks from Cold Automotive Inc.Under the terms of its agreement with Cold, Baton had agreed to give Cold a security interest in all of the trucks it acquired from Cold until they were paid for.Baton sold two trucks to Del's Flowers Inc in July.Del's paid for them but did not pick them up right away.Del's was run by Wendel, a friend of the president of Baton and knew about the security agreement that Baton had with Cold, though not its specific terms.Baton defaulted on its agreement with Cold, and Cold seized all of the trucks on Baton's lot including the two that had been sold to Del's.Who is entitled to the two trucks bought by Del's?

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.

The process of perfection

Pierce Electrical is a new company.Upon its creation, Pierce obtained a loan from the Bank of Montreal.Collateral consisted of a perfected general security agreement.That agreement was registered on April 30.On June 1, Pierce realized it needed to expand its fleet.In order to buy 15 new vans on credit, it created a purchase money security interest with the dealer and the vans were used as collateral.That interest was registered on June 8.Which of the following statements is most likely to be TRUE?

Orange Bank was going to lend Fasgo Inc $1 million.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

Which of the following is TRUE? A bank will be more likely to lend money to a borrower if the borrower grants the bank a security interest in its assets because

The Canadian Imperial Bank of Commerce has lent $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?