Question 1

As the fishing season slowed down in the fall,Bob decided that this might be a good time to find a real bargain in used equipment for his boat.He found a navigation instrument for sale for $15 000,a great price.However,he had only $10 000,so he borrowed the other $5000 from the bank.He also signed a chattel mortgage on the equipment as collateral in favour of the bank,which promptly registered its interest in the Personal Property Registry.Bob made his payments for a while,but things started to go badly for him.He was unable to make any further payments,although he still owed over $3000.Desperate and not thinking too clearly,Bob sold his boat to his friend Claude for $50 000 and left for Central America with the funds.When the bank realized what Bob had done,it located the boat and demanded that Claude pay off the $3,000+ or lose the navigational equipment.Claude was outraged because he had paid Bob in good faith and argued that he had never borrowed anything from the bank and therefore owed it nothing.Which one of the following statements accurately describes the legal situation here?
A) Because Bob transferred the boat and equipment to Claude, that was an assignment of his obligations and he no longer owed the debt.
B) Claude is right, and the bank's only remedy is to sue Bob.
C) If Claude is unwilling to pay off the $3000, the bank has the right to remove the equipment from the boat.
D) If the bank does seize the equipment and sells it for $2000, the bank can still sue Claude for the $5000.
E) If the bank had failed to register the chattel mortgage, it would still have a better right to the equipment than Claude, because the mortgage was signed before Bob sold the boat to him.

Accepted Answer

The bank has the right to remove the equipment from the boat if Claude is unwilling to pay off the remaining debt. As the bank had the chattel mortgage registered in the Personal Property Registry, it has a security interest in the equipment and can enforce its rights against the collateral. Claude's argument that he never borrowed anything from the bank and owed it nothing is not relevant as the bank's interest is in the equipment, not in Claude personally. If Claude wants to keep the equipment, he should pay off the debt to the bank.

Question 2

With regard to guarantees,which of the following is false?
A) A guarantor can use any defence against the creditor that the debtor could use.
B) A legally binding promise to be primarily responsible for someone else's obligation is an indemnity.
C) A verbal guarantee is as enforceable as a written one.
D) Subrogation can result in a guarantor's being able to sue successfully the very debtor whose obligation he guaranteed.
E) A legally enforceable guarantee must satisfy all the elements required to create a binding contract.

Accepted Answer

A verbal guarantee is generally not as enforceable as a written one, as it may be difficult to prove the terms of the guarantee without written documentation.

Question 3

After graduating,a student set up a business as a systems analyst.His monthly billings are healthy,about $10 000 a month.He rents his office,hardware,and furniture and owns few assets.He rents his apartment,has no car,and spends most of his income on concerts.If he approaches you,a bank manager,to borrow $50,000 for the purpose of increasing his working capital,which of the following securities would you most likely request?
A) conditional sale contract
B) chattel mortgage
C) security under sections 426 and 427 of the Bank Act
D) floating charge debenture
E) assignment of accounts receivable

Accepted Answer

Given that the student has few assets, renting his office and apartment, and spends most of his income on concerts, it is unlikely that he would be able to provide a conditional sale contract or chattel mortgage as a security. The Bank Act's sections 426 and 427 relate to the collateral for specific loans, which may not be applicable in this case. A floating charge debenture would be more appropriate for large corporates, whereas the student is an individual. An assignment of accounts receivable is a useful security for a small business with large amounts of outstanding invoices, and in this case, it is likely that the student relies on his monthly billings as his main source of income. Therefore, an assignment of accounts receivable would be the best option for the bank manager to consider.

Question 4

With regard to debt collection,which of the following is false?
A) The Bankruptcy and Insolvency Act provides for a procedure for an insolvent debtor to make a proposal to his creditors that, if accepted by his creditors, will not result in bankruptcy.
B) Under the execution procedure, the assets of a judgment debtor can be seized to satisfy a judgment debt.
C) A person who wins in an action and is awarded damages is called a "judgment creditor."
D) Any assets obtained by a bankrupt after his being discharged can still be claimed by former creditors who placed him into bankruptcy.
E) A debenture can create a "floating charge" that will not attach to anything specifically until the debtor defaults or until the happening of another "crystallizing" event.

Accepted Answer

Assets obtained by a bankrupt after being discharged cannot be claimed by former creditors who placed him into bankruptcy. This is because the bankruptcy discharge eliminates the debtor's legal obligation to pay certain debts. However, any assets obtained by the bankrupt before being discharged may be claimed by the creditors.

Question 5

When the transaction is registered,the creditor's rights include all of the following except
A) the right to contractual remedies upon default.
B) the right to seize the security.
C) the right to resell the security.
D) the right to sue debtor rather than seize security.
E) the right to order the debtor arrested or detained.

Accepted Answer

The creditor does not have the right to order the debtor to be arrested or detained. This would be a violation of the debtor's constitutional rights and could lead to legal action against the creditor.

Question 6

Greg told Rick that he would be willing to pay a high rate of interest for a two-month loan of $2000.Rick agreed to lend Greg this amount at an annual rate of 20 percnet,repayable March 1,2011.Greg agreed to these terms.Greg did not pay on March 1.Rick learned that Greg had recently completed some work for Martinson for which Greg was owed $2000.Now that Greg is in default,which of the following is false?
A) Rick could sue Greg for breach of contract.
B) Rick could execute against Greg even if Rick had not obtained judgment against him.
C) Rick could not place Greg into bankruptcy unless Greg had committed an "act of bankruptcy."
D) If Rick obtained a judgment against Greg, he could compel him to be examined about his income, property, and debts.
E) Once he has obtained judgment, Rick can garnishee the money owed to Greg by Martinson.

Accepted Answer

If Rick had not obtained a judgment against Greg, he would not be able to execute against Greg's assets. However, if Rick does obtain a judgment against Greg, he could execute against Greg's assets, which includes the money owed to Greg by Martinson. Choice B is false because it suggests that Rick can execute against Greg's assets without obtaining a judgment first.

Question 7

Identify which of the following statements is true about secured transactions in provinces not having a personal property security act.
A) This kind of transaction, which formerly was legal, is now prohibited by law in all provinces.
B) Various kinds of secured transactions, such as conditional sales, chattel mortgages, etc., are regulated by their own distinct statutes.
C) An assignment of an account receivable does not qualify as a security arrangement because no tangible property is involved.
D) All kinds of security arrangements involving personal property as collateral now come under one statute.
E) Only tangible personal property can be used as security.

Accepted Answer

Without a personal property security act, various kinds of secured transactions, such as conditional sales and chattel mortgages, are regulated by their own distinct statutes.

Question 8

Which one of the following statements about bankruptcy is false?
A) Bankruptcy law is identical in every province.
B) "Bankruptcy" refers to a situation in which a debtor who cannot pay debts transfers his assets to a trustee who acts on behalf of creditors
C) Bankruptcy law may allow a debtor to escape from having to pay his debts.
D) All creditors of a bankrupt debtor are treated equally and will receive shares of the assets directly in proportion to how much is owed to each of them.
E) A debtor who has been discharged from bankruptcy is released from his previous financial obligations.

Accepted Answer

The answer of Which one of the following statements about...

Question 9

The owner of the house had contracted with a general contractor,Mr.Hadrian,for a greenhouse addition to the house at a cost of $20 000.In accordance with the legislation,the owner withheld 10 percent and waited the legislated period of time within which any liens are to be filed.Which of the following correctly describes the owner's liability?
A) The owner is liable to any unpaid subcontractors, whether or not a lien was filed, but can use the holdback money to reduce his liability a certain extent.
B) Whether or not there are liens registered, the owner is free to pay out the retained holdback once the legislated time period has expired.
C) Unpaid subcontractors can no longer place liens on the owner's property, because of the doctrine of privity of contract.
D) If the owner checks the registry and there are no liens registered, he is free to pay out the retained holdback.
E) Lien holders would have no claim against the property but would be entitled to the 10 percent holdback, in addition to being able to sue the owner for the amount not satisfied by the holdback.

Accepted Answer

According to the legislation, the owner can release the holdback after the legislated time period has expired if there are no liens registered. Therefore, if the owner checks the registry and finds no liens filed, he can pay out the retained holdback without any liability.

Question 10

Which one of the following is false with regard to creditors' remedies?
A) A garnisheeing order is an order to the sheriff to seize assets of a judgment creditor to satisfy a judgment debt.
B) A person who wins in an action and is awarded damages is called a "judgment creditor."
C) A guarantor is a person who agrees to be responsible for a debt if the borrower (the person primarily liable) defaults.
D) A debenture can create a "floating charge" that will not attach to anything specifically until the debtor defaults or until the happening of another "crystallizing" event.
E) A guarantor may avoid liability if the creditor does some act or enters into an agreement that weakens the guarantor's position.

Accepted Answer

A garnisheeing order is an order to the debtor's employer or bank to divert some of the debtor's wages or funds in the account towards the creditor's judgment debt. It is not an order for the sheriff to seize assets.

Question 11

Identify which of the following statements is true about secured transactions in provinces having a personal property security act.
A) This kind of transaction, which formerly was legal, is now prohibited by law in all provinces.
B) Various kinds of secured transactions, such as conditional sales, chattel mortgages, etc., are regulated by their own distinct statutes.
C) An assignment of an account receivable does not qualify as a security arrangement because no tangible property is involved.
D) All kinds of security arrangements involving personal property as collateral now come under one statute.
E) Only tangible personal property can be used as security.

Accepted Answer

The Personal Property Security Acts (PPSA) in various provinces consolidate the law regarding security interests in personal property, including both tangible and intangible assets, under one statute. This means that different types of security arrangements involving personal property as collateral, such as conditional sales, chattel mortgages, and assignments of accounts receivable, are governed by this single piece of legislation.

Question 12

In a secured transaction,the creditor's right to payment of a debt may be secured by his taking title to certain assets.In which one of the following types of transactions do those assets consist entirely of intangible property?
A) chattel mortgage
B) assignment of book accounts
C) A debenture issued by a manufacturing firm with a floating charge over its inventory of products.
D) A sale of goods in which the buyer will obtain title when he finishes paying the price in installments.
E) A transaction under section 427 of the Bank Act, whereby a bank takes security over a farmer's growing crops with respect to a loan to purchase the seed and fertilizer necessary to grow those crops.

Accepted Answer

An assignment of book accounts is a type of secured transaction in which the creditor takes title to intangible assets, specifically the right to payment for goods or services sold or rendered by the debtor. Chattel mortgage involves tangible personal property, a debenture is a type of bond secured by the issuer's general credit rather than specific assets, the sale of goods in installments involves a conditional sales contract with tangible goods, and taking security over growing crops (as in option E) is a specific type of secured transaction.

Question 13

They couldn't remember exactly how it happened,but the Mauris ended up a three-computer family with the consequent mess of books and papers in three different rooms.Mr.Mauri hired a general contractor,Mr.Wip,to build a "computer room." Wip had several qualified workers but still sub-contracted with an electrician and a carpenter.The work went well.Mauri held back 10 percent,but paid out 90 percent in good faith; i.e.,when he paid,there were no complaints or liens filed.It turned out,however,that before any of the workers had completed their work-and no one expected payment until the job was finished-Wip disappeared with the money.Given these facts,which of the following is true?
A) The subcontractors, but not the workers, are entitled to place a lien on Mauri's property.
B) If the electrician failed to file his lien on time, he can file it late if he uses the right form.
C) If the carpenter properly files a lien in the appropriate office, he can be assured that he will recover the entire amount owed.
D) If all those entitled to file a lien do file and prove in court the amounts owed, Mauri is responsible for the sum total of those claims.
E) The workers and subcontractors have an action against Wip for breach of contract.

Accepted Answer

The answer of They couldn't remember exactly how it happened,but...

Question 14

Your brother wants to borrow $8000 from the Bank of Britannia and has asked if you would guarantee the loan.You have been told the following with regard to guarantees.Which of the following statements is false?
A) As guarantor, you can use any defence against the bank that your brother could use.
B) A guarantor, like an indemnitor, becomes primarily liable on the debt as soon as the document is signed.
C) You, as guarantor, may be relieved of your obligation if the bank does anything to weaken your position-e.g., by agreeing with your brother to increase the amount without your consent.
D) If he defaulted on his payments and you had to pay the debt to the bank, you would be subrogated to the rights of the bank-i.e., you would get the bank's right to sue your brother.
E) A legally enforceable guarantee must satisfy all the elements required to create a binding contract.

Accepted Answer

A guarantor becomes secondarily liable on the debt, meaning that they are only liable to pay if the borrower (in this case, the brother) defaults on their payments. The primary responsibility to pay the debt still rests with the borrower. Therefore, statement B is false.

Question 15

Nick has a consulting business with monthly billings of $4,00.He rents his office,hardware,and furniture and owns few assets.Nick rents his apartment,has no car,and spends most of his income on leisure.If he came to you,a bank manager,and asked to borrow $10 000 for the purpose of increasing his working capital,which of the following securities would you most likely request?
A) conditional sale contract
B) chattel mortgage
C) security under sections 426 and 427 of the Bank Act
D) assignment of accounts receivable
E) floating charge debenture

Accepted Answer

Since Nick's business has monthly billings, he is likely to have accounts receivable that he can use as collateral. Therefore, the most suitable security would be an assignment of accounts receivable. This would allow the bank to collect the outstanding debts due to Nick's business in case he defaults on the loan.

Question 16

Which one of the following is false with respect to the Builders' Lien Act?
A) The lien claim is required to be filed at the appropriate registry in order to establish a claim against the property.
B) If a lien claimant files his lien within the time set, he can be assured that he will collect the full amount of his claim.
C) The Builders' Lien Act gives some protection for those in the building trades, and these include contractors, subcontractors, workers, and materialmen.
D) If a lien claimant loses the right to file a lien, he still has the right to sue the party who failed to pay him for breach of contract.
E) A lien claimant has a limited period of time from filing his lien within which to begin his court action.

Accepted Answer

The Builders' Lien Act does not guarantee that a lien claimant will collect the full amount of their claim. It provides a mechanism for securing a claim against the property and potentially increasing the likelihood of payment, but it does not guarantee collection.

Question 17

A company in the delivery business bought a $29 000 truck under a conditional sale contract.Because of business reverses they are now unable to make the payments.Which of the following is accurate with respect to the legal position of the parties?
A) The seller would have to get a court order before it could seize the truck.
B) The creditor would have to serve notice on all interested parties before it could seize the truck.
C) The seller would have been in a far more favourable position if it had obtained a chattel mortgage instead of using a conditional sale agreement.
D) The remedy of the conditional seller, as a secured creditor, is limited to the seizure of the truck.
E) If the secured creditor seized the truck, under the Personal Property Security Act the debtor has a set period of time in which to pay what is owing and costs and get the truck back.

Accepted Answer

Under the Personal Property Security Act, if a secured creditor seizes the collateral, the debtor typically has a redemption period during which they can pay the outstanding amount and costs to reclaim the property.

Question 18

John,a salesperson for the computer division of B & C Machines Ltd.,is meeting with a potential customer at 11:00 tomorrow morning.Because the customer does not have the funds to pay the full price of the system required,John wants to discuss chattel mortgages and conditional sales contracts.Which of the following is false with regard to these contracts?
A) If the seller of goods is willing to allow the buyer to pay by installments, he could use either a conditional sale contract or a chattel mortgage to obtain security for payment of the debt.
B) Both contracts are governed by the Personal Property Security Act.
C) Both contracts provide that the debtor has quiet possession of the goods given as security as long as he is not in default.
D) In both cases, the debtor is entitled to have the lien removed upon final payment.
E) Only a conditional seller needs to register his interest for protection against third-party claims; a chattel mortgagee need not do so.

Accepted Answer

This statement is false. Both a conditional seller and a chattel mortgagee need to register their interest for protection against third-party claims.

Question 19

You are in debt to three creditors for $200 000,and the debt is increasing because you are not able to meet your monthly financial obligations.Which of the following is false with regard to your situation?
A) It is illegal for you to transfer assets to a spouse or friend to shield them from your creditors
B) If you become bankrupt, your assets are conveyed to a trustee in bankruptcy who deals with them for the benefit of your creditors.
C) If you become bankrupt, you are restricted from carrying certain activities until you are discharged.
D) If your long-time financial well-being would be served by bankruptcy, you must ask your creditors to begin the procedure; you cannot begin it yourself.
E) The Bankruptcy and Insolvency Act provides a procedure to avoid bankruptcy by making a proposal to your creditors for satisfying their claim.

Accepted Answer

This statement is false. The Bankruptcy and Insolvency Act allows an individual to voluntarily file for bankruptcy without the need for creditor involvement or consent.

Question 20

Consider the following statements about the use of personal property as security for a creditor in a creditor-debtor transaction.Indicate the false statement.
A) If the transaction involves the use of consumer goods as collateral, upon default of payment by the debtor, the creditor can seize the goods and sell them, but also always retains the right to sue the debtor on his personal covenant to pay for any deficiency.
B) Regardless of the type of personal property involved, whether tangible or intangible, as long as it is being used as security, then the transaction is governed by the Personal Property Security Act, and thus an unpaid creditor may be able to repossess them.
C) Real estate professionals need to be aware of the Personal Property Security Act because items that constitute fixtures under real property law may also constitute chattel security, and thus an unpaid creditor may be able to repossess them.
D) Before a creditor who has been promised an interest in personal property as security can claim priority rights, two processes must have taken place: the security interest must have attached to the collateral item, and the security must have been perfected.
E) If the required procedures have taken place, a potential buyer from an unscrupulous debtor who has already given personal property as security will be protected; i.e., the creditor will either have registered his interest in the public registry or will have actual possession of the collateral.

Accepted Answer

The answer of Consider the following statements about the use...

Quiz 16: Priority of Creditors

With regard to guarantees,which of the following is false?

With regard to debt collection,which of the following is false?

When the transaction is registered,the creditor's rights include all of the following except

Identify which of the following statements is true about secured transactions in provinces not having a personal property security act.

Which one of the following statements about bankruptcy is false?

Which one of the following is false with regard to creditors' remedies?

Identify which of the following statements is true about secured transactions in provinces having a personal property security act.

In a secured transaction,the creditor's right to payment of a debt may be secured by his taking title to certain assets.In which one of the following types of transactions do those assets consist entirely of intangible property?

Your brother wants to borrow $8000 from the Bank of Britannia and has asked if you would guarantee the loan.You have been told the following with regard to guarantees.Which of the following statements is false?

Which one of the following is false with respect to the Builders' Lien Act?

A company in the delivery business bought a $29 000 truck under a conditional sale contract.Because of business reverses they are now unable to make the payments.Which of the following is accurate with respect to the legal position of the parties?

You are in debt to three creditors for $200 000,and the debt is increasing because you are not able to meet your monthly financial obligations.Which of the following is false with regard to your situation?

Consider the following statements about the use of personal property as security for a creditor in a creditor-debtor transaction.Indicate the false statement.