Exam 23: Secured Transactions

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.

Vegreville Food & Farm Inc (VFFI)operates a general store in a rural area of Saskatchewan.For a variety of reasons,the company has experienced continuing and substantial financial difficulties over the past 10 years.As a result,most of its assets are subject to one or more security interests.Those security interests are held by a number of creditors.VFFI recently found itself unable to meet its obligations and it has defaulted on a number of contracts.Creditors are now looking to execute upon their security interests.Which of the following statements is most likely to be TRUE?

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?

A lien

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

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?

Pierce Electricians is a new company that contracts out for electrical work.Upon creating the company,they took out a loan from the Bank of Montreal with a perfected general security agreement as collateral.The agreement was registered on April 30.On June 1,Pierce realizes it needs to expand its fleet.In order to buy 15 new vans on credit,they create a PMSI with the dealer with the vans as collateral,which is registered on June 8.Which of the following statements is true?

Donaldo China Inc is an importer of plates operating in Toronto.It borrowed $100 000 from Barings Bank and,in a written agreement,gave the bank a security interest in its inventory.The bank filed a financing statement to register its security interest for two years in 2010.The bank's registration expired in December 2012.In April 2013,Donaldo becomes bankrupt.A trustee in bankruptcy is appointed to administer the estate of Donaldo.Which of the following statements 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 July 1,2010,Gluco filed a financing statement to register this interest under the British Columbia Personal Property Security Act.Previously,on May 1,2010,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 May 1,2010.Gluco's security interest has priority over the Bank's because it is a purchase money security interest.

A true consignment

Kathy has a horse farm where she raises thoroughbred horses to race.She had negotiated a loan of $25 000 from Commerce Bank to buy a new truck for the business.The bank took a security interest in all her present and future assets in a general security agreement.The bank registered its security interest in February 2010.A few months later,Kathy negotiated a loan in the amount of $200 000 from Canada Trust for the purpose of buying horses and equipment.Canada Trust took a security interest in all of Kathy's present and future assets under a general security agreement.Kathy spent the money to buy the horses,and they were delivered on June 15,2010.Canada Trust registered its security interest by filing a financing statement on July 15,2010.Kathy defaults on her obligations to Canada Trust and the bank.Both the bank and Canada Trust claim that its security interest has first priority.Who is entitled to Kathy's assets?

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?

Eldon leases tools and other equipment on a long-term basis to construction companies.He needs to buy a new forklift truck to lease in his business.Which of the following describes ways that Eldon could NOT acquire ownership of the forklift truck?

Gratzia Cross Country Skiing Inc told Power Leasing Inc that it wanted to acquire a machine that cuts cross-country ski tracks.Gratzia enters into a lease under which the Power Leasing will buy a track-cutting machine and then lease it to Gratzia for three years.The lease payments will pay Power the full amount of the purchase price plus a return of 14 percent per year.At the end of the three years,Gratzia has an option to buy the machine for $1.This transaction is similar in effect to a secured financing.Power should file a financing statement to register its title to the track-cutting machine under the applicable provincial personal property security legislation to protect his interest.

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?

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

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?

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?

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?

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?