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Exam 29: Leasehold Interests

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Question 1

Multiple Choice

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Which transaction is the most suitable way for a bank to take inventory as security?

A) Chattel mortgage
B) Conditional sales contract
C) Purchase money securities interest
D) Section 427 Bank Act security
E) None of the above

F) B) and D)
G) C) and D)

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Question 2

Multiple Choice

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On graduation, you start a small business consulting service operating from leased premises, and one year into business you borrow $25,000 from a bank. The best (being the most useful) security the bank can likely get from you is probably

A) a chattel mortgage.
B) a bill of sale.
C) an assignment of book debts.
D) a conditional sale agreement.
E) a right of lien.

F) B) and C)
G) B) and D)

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Question 3

True/False

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Jeff entered into a building contract with Mike under which Jeff agreed to construct a garage on Mike's lot for $60,000. Lumber Supply Company supplied the lumber at Jeff's request, but when Jeff failed to pay for the material within a few weeks after it was supplied, the Company filed a construction lien for $30,000 against Mike's property. When Mike is notified of the registration of the lien, he must hold back the amount of the lien, or whatever funds he has in his hands at the time, if they should be less than the amount of the claim.

Seabreeze Outboard and Outdoor Shop Limited was offering for sale used reconditioned snowmobiles. Tim was interested in one of the snowmobiles and purchased it. Sometime after his purchase he found that Empire Financial, which held a conditional sale agreement over the snowmobile with Seabreeze, had petitioned the bankruptcy of Seabreeze. On seizing the company's files and learning the whereabouts of the goods sold that were covered by the conditional sale agreement, Empire had tracked down Tim and had ultimately removed the snowmobile from Tim's yard. Tim was outraged, but admitted that he had not searched the province's personal property security registry to determine whether or not the snowmobile was subject to a conditional sale agreement before he purchased it. Discuss the likely outcome of this situation.

Under a chattel mortgage, the debtor starts out with title to the goods, gives it to the creditor, and earns it back upon the final payment.

Under a Conditional Sale Agreement, the purchaser never gets title until the final payment is made.

Discuss how the internationalization of business affects the practical legal aspects of security for debt. Give some examples to illustrate your discussion.

A security interest is perfected on creation of the security instrument, and attaches upon either registration or possession by the creditor.

An assignment of book debts is a common corporate financing method. Describe such an assignment, the two ways debts may be collected and why each may be preferred by the assignor. Further, describe the notion of crystallization as it would apply in this context.

Appliance Paradise sold Carson a refrigerator by Conditional Sale Agreement, duly registered. Carson some months later, in the course of moving to another province offered it to a neighbour, Jones, who was helping Carson load his van. Jones recognized it as a bargain and in good faith paid Carson. On demand from Appliance Paradise, Carson refused to make further payments. Jones refuses to pay, citing that he is a bona fide purchaser for value. Appliance Paradise

In what transaction does title not transfer?

Doe purchased an automobile from Jones for $1,000. Unknown to Doe, Jones had used the automobile as security for a loan from his bank, and the bank had registered its security in the automobile under the provincial personal property security registration legislation. A few months after the sale, Jones defaulted on his loan, and the bank discovered that Doe was in possession of the automobile. Which of the following are true?

A security interest must not be attached before it is perfected.

The maintenance of a prescribed hold-back defeats all claims for liens even if they exceed the amount held back, and an order vacating the liens shall issue.

A is an unsecured creditor in a loan agreement dated January 1, 2010. B is a secured creditor in an unregistered chattel mortgage dated January 2, 2010. C is a secured creditor in a registered chattel mortgage dated January 3, 2010 and registered on January 13, 2010. D is a secured creditor in a registered chattel mortgage dated January 4, 2010 and registered on January 12, 2010. E is a secured creditor in a registered chattel mortgage dated and registered on January 5, 2010. Which of the following creditors has the highest priority?

Compare and contrast the conditional sales agreement and the chattel mortgage, with respect to their principal differences, similarities and uses.

Which transaction is not registered under the Personal Property Securities Act?

Security under Section 427 of the Bank Act gives a Chartered Bank security

Where there is a security interest in goods, a bona fide purchaser for value with notice can obtain good title to the goods.

Wen purchased an automobile from Nick for $10,000. Unknown to Wen, Nick had used the automobile as security for a loan from his bank, and the bank had registered its security interest in the automobile under the provincial personal property security registration legislation. A few months after the sale, Nick defaulted on the loan, and the bank discovered that Wen was in possession of the automobile. The bank is not entitled to seize the automobile, because it had not given Wen notice of its claim against the vehicle before Wen purchased it.