Question 1

Some debtors can submit a reorganization proposal to avoid bankruptcy.

Accepted Answer

A) True 
 B)False

Question 2

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?

Accepted Answer

A)  Chattel mortgage. 
B)  A debenture issued by a manufacturing firm with a floating charge over its inventory of products. 
C)  A sale of goods in which the buyer will obtain title when he finishes paying the price in installments. 
D)  Assignment of book accounts. 
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.

Question 3

If a fraudulent transfer is made to a bona fide purchaser for value, the transaction can still be reversed for a period of one year.

Accepted Answer

A) True 
 B)False

Question 4

After some careful research, Jake decided what kind of car to buy. He made an offer to Mr. Frank, a private party, to buy his car only after searching the registry for any liens. The registry reported that there were no liens registered against the vehicle. The seller accepted his offer of $8,000. After Jake had had the car for only three weeks, the car was seized by a conditional seller. Which of the following is true?

Accepted Answer

A)  If Jake had failed to search the registry, he could not get the car back whether or not the loan transaction had been properly registered. 
B)  If they have not properly registered the security, the conditional seller has lost all rights and claims. 
C)  The conditional seller has the right to keep the car for the sole reason that it has title to it and could assert its claim whether it properly registered with the central registry or not. 
D)  The conditional seller could not keep the car if it had not registered its claim properly. 
E)  Jake cannot keep the car nor can he complain to the seller, because the seller never said the car was free and clear of liens or encumbrances.

Question 5

The debtor usually retains possession of the goods used to secure a debt while the creditor has the right to seize them for default.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

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 legally enforceable guarantee must satisfy all the elements required to create a binding contract. 
D)  A verbal guarantee is as enforceable as a written one. 
E)  Subrogation can result in a guarantor's being able to sue successfully the very debtor whose obligation he guaranteed.

Question 7

Owen had borrowed money from a credit union to purchase a car, and the credit union had required a security against the car, which they registered under the Personal Property Security Act. As well, Owen's father guaranteed the loan. Some months later, Owen decided to go back to school, and he had to sell the car to do so. He returned to the credit union and, at his request, the credit union gave up the security they had against the vehicle, knowing that they still had the loan guaranteed by Owen's father. Explain the wisdom of this move.

Accepted Answer

The answer of Owen had borrowed money from a credit...

Question 8

Owen borrowed money from a credit union, guaranteed by his father, to buy a car. The credit union also registered a security interest under the Personal Property Security Act against the vehicle. Owen defaulted and, instead of repossessing the vehicle, the credit union demanded payment from the father. Explain the legal position of the father under these circumstances.

Accepted Answer

The answer of Owen borrowed money from a credit union,...

Question 9

When a supplier of goods such as a wholesaler transfers those goods to a debtor, who then goes bankrupt, explain the supplier's legal position.

Accepted Answer

The answer of When a supplier of goods such as...

Question 10

Explain the role of the trustee in bankruptcy proceedings.

Accepted Answer

The answer of Explain the role of the trustee in...

Question 11

What obligations are placed on the owner of property in respect of builders' liens?

Accepted Answer

The answer of What obligations are placed on the owner...

Question 12

With regard to conditional sales and chattel mortgages, which of the following is false?

Accepted Answer

A)  There is no longer a distinction between a chattel mortgage and a conditional sale. 
B)  A chattel mortgagee must register the mortgage in the appropriate registration office, not to protect his claim on the chattel against the chattel mortgagor, but to protect his claim against third parties, e.g., a bona fide purchaser for value. 
C)  These transactions are now governed by the Personal Property Security Act. 
D)  A conditional seller can assign the conditional sale contract to a finance company without the consent of the conditional buyer. 
E)  If a conditional buyer defaults in his payments, the conditional seller can generally seize the chattel without a court order.

Question 13

Explain what is meant by a floating charge.

Accepted Answer

The answer of Explain what is meant by a floating...

Question 14

Which of the following is a goal of the Bankruptcy and Insolvency Act?

Accepted Answer

A)  Determines process by which debtors convey their assets to a trustee in bankruptcy who distributes them to the creditors 
B)  Allow persons with impossible burdens of debt to discharge all of their debts. 
C)  Protects the interests of debtors. 
D)  Provides alternative to criminal charges 
E)  Helps incorporated companies after discharge to carry on without the same burden of debt

Question 15

Pursuant to the Bills of Exchange Act

Accepted Answer

A)  any negotiable instrument used to advance credit in a consumer transaction must be marked "Consumer Purchase". 
B)  floating charges are automatically issued against the general assets of a corporation. 
C)  certified cheques have been replaced by letters of credit. 
D)  cheques are now considered to be legal tender. 
E)  promissory notes must now be executed by more than one signatory prior to transfer to a holder in due course.

Question 16

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 only had $10,000, so he borrowed the other $5,000 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 $3,000. 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?

Accepted Answer

A)  Claude is right, and the bank's only remedy is to sue Bob. 
B)  If Claude is unwilling to pay off the $3,000, the bank has the right to remove the equipment from the boat. 
C)  Because Bob transferred the boat and equipment to Claude, that was an assignment of his obligations and he no longer owed the debt. 
D)  If the bank does seize the equipment and sells it for $2000, the bank can still sue Claude for the the $5,000. 
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.

Question 17

Which of the following is primarily liable on an accepted bill of exchange?

Accepted Answer

A)  Payee 
B)  No one 
C)  Drawer of the bill 
D)  Endorser 
E)  Drawee or Acceptor

Question 18

Explain what constitutes a bulk sale and how they are controlled in some jurisdictions.

Accepted Answer

The answer of Explain what constitutes a bulk sale and...

Question 19

Nick has a consulting business with monthly billings of $4,000. 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?

Accepted Answer

A)  Assignment of accounts receivable 
B)  Conditional sale contract 
C)  Security under sections 426 and 427 of the Bank Act 
D)  Floating charge debenture 
E)  Chattel mortgage

Question 20

A guarantee must be supported by consideration, just like any other contractual obligation. Explain what consideration is present when one person guarantees the debt of another.

Accepted Answer

The answer of A guarantee must be supported by consideration,...

Exam 16: Priority of Creditors

Some debtors can submit a reorganization proposal to avoid bankruptcy.

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?

If a fraudulent transfer is made to a bona fide purchaser for value, the transaction can still be reversed for a period of one year.

The debtor usually retains possession of the goods used to secure a debt while the creditor has the right to seize them for default.

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

When a supplier of goods such as a wholesaler transfers those goods to a debtor, who then goes bankrupt, explain the supplier's legal position.

Explain the role of the trustee in bankruptcy proceedings.

What obligations are placed on the owner of property in respect of builders' liens?

With regard to conditional sales and chattel mortgages, which of the following is false?

Explain what is meant by a floating charge.

Which of the following is a goal of the Bankruptcy and Insolvency Act?

Pursuant to the Bills of Exchange Act

Which of the following is primarily liable on an accepted bill of exchange?

Explain what constitutes a bulk sale and how they are controlled in some jurisdictions.

A guarantee must be supported by consideration, just like any other contractual obligation. Explain what consideration is present when one person guarantees the debt of another.