Exam 22: Secured Transactions

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 Bank of Nova Scotia and MMX Corp are discussing setting up a line of credit for MMX.Under the terms of the line of credit, MMX will be able to require the bank to advance it funds at any time up to an aggregate cap of $10 000.MMX will give the bank a security interest in all of its present and future assets.The parties have not yet entered into an agreement and the bank has advanced no money.The bank files a financing statement to register its interest in anticipation of the agreement being entered into.Subsequently, Melanie, the president of MMX, lends the corporation $20 000.MMX gives her a security interest in all its present and future assets.Melanie files a financing statement to register her interest.Which statement best describes the relative priority of the claims of Melanie and the bank?

Isis is currently sitting in a car dealership's showroom.She wants to buy a car for purely personal use, but since she cannot afford to pay cash, she will finance the purchase with credit.She nevertheless is eager to close the deal and drive away with the car this afternoon.The dealership is willing to business with Isis, but it knows that the transaction must satisfy several special requirements.Which of the following is LEAST likely to be one of those requirements?

Chester owns and operates a farm.As a result of financial difficulties in Chester's past, a bank currently holds a security interest in all of Chester's after-acquired property.Unfortunately, Chester's situation recently deteriorated even further when his thresher (a type of farm vehicle) developed irreparable defects.He cannot continue on with business unless he acquires a replacement.This appears to be a problem because he has no money for the purchase price.And while he could otherwise simply purchase the new machine on credit, the bank's security interest suggests that any new security interest necessarily would rank second.Which of the following statements is TRUE?

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 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?

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, 2011.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, 2012, 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?

Under the Bank Act, banks may take a special type of security interest in specified assets.No other creditor may take this interest.Nevertheless, banks remain free to take any other kind of security interest in any type of personal property in addition to any interest under the Bank Act.

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.

Info-Tech Ltd is a distributor of computers.Info-Tech borrowed $500 000 from the Bank of Montreal in 2008.In its written agreement, Info-Tech agreed pay back the loan over four years.As security for the loan, it gave the bank a security interest in all of its present and future assets.The bank never filed a financing statement to perfect its interest.In September 2009, Info-Tech still owed $400 000 to the bank.It also owed $40 000 to Computer Sales Inc, its primary supplier.Info-Tech defaults on its loan payments and its payments to Computer Sales.Computer Sales sues Info-Tech and gets a judgment for $40 000.It then takes possession of Info-Tech's inventory and starts selling it off.The bank finds out and claims that its security interest prevails over Computer Sales.Which of the following best describes the legal position of the parties?

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?

Terry borrowed $5000 from Jerry to buy a new car for her personal use in Winnipeg, Manitoba where they both lived.The loan was to be repaid in 12 blended monthly installments of $500, which included both principal and interest.The loan agreement also provided that if Terry missed one payment, Jerry could declare that the whole amount outstanding at that time was immediately due.Terry gave Jerry a security interest in her car as security for her obligations under the loan agreement.Terry missed the first payment.Jerry declared the whole amount due and seized the car.Terry is entitled get the car back and reinstate the loan by making the first payment and paying any reasonable expenses incurred by Jerry in taking possession of the car, notwithstanding Jerry's demand for payment in full.

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?

Battleford Bank lent 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?

Perfection of a security interest in collateral means that

Francesca carries on an investment business in Ontario.She borrowed $50 000 from Barry.Francesca gave Barry a security interest in all her present and future personal property.Barry never filed a financing statement to register his interest under the Ontario Personal Property Security Act.Subsequently, she borrowed $20 000 from Toronto Bank to invest in the shares of Argus Corp.The bank took a security interest in the shares and required Francesca to deposit the share certificates with the bank.Subsequently, Francesca defaulted on her obligations to Barry and to the bank.Who is entitled to the shares?