Exam 23: Secured Transactions

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?

Under a conditional sales contract,the buyer gets neither title nor possession of the goods subject to the contract until the full amount of the purchase price is paid.

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

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?

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?

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.

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.

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?

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?

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?

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?

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?

Isis wants to buy a car,but cannot afford to pay cash,so she has to finance the car using credit.She is eager to get the car and drive out of the dealership.Which of the following is not a requirement of the dealership?

Alice needed some tractors for her gardening services business in Windsor.She approached Cooper's Equipment Leasing Inc.She asked Cooper's to obtain two tractors meeting her specifications and lease them to her.After performing a credit assessment of Alice,Cooper's decide to proceed with the transaction.Under the terms of the lease,Alice was obliged to make regular monthly payments over two years,which would result in paying Cooper's more than the full purchase price.Alice had an option to purchase the tractors at the end of the lease for $500 each.Alice knew that it was likely that the value of the tractors at the end of the lease would be at least $1000.In January,Alice stopped making payments under the lease and went bankrupt.Cooper's claimed the tractors,but the trustee in bankruptcy has refused to give them up.Who is entitled to the tractors?

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.

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.

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

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

Kingston Bank has a security interest in the equipment of Apex Manufacturing to secure a $10 000 loan that the Bank made to Apex.Apex has defaulted on one of its monthly loan payments in the amount of $1000.The security agreement provides that the whole amount of the loan is payable on demand.The bank can seize the equipment without notice to Apex.

A lease of goods can have the same financial characteristics as a secured loan to finance the acquisition of an asset.The interest in the asset held by the lessor,in the case of the lease,or the secured lender,in the case of a secured financing,secures the payments required to be made.For this reason,all leases of personal property must be registered under provincial personal property security laws regardless of whether they create a security interest.