Creditor Priority Rules in Insolvency Exam Questions and Answers with Complete Solutions. Chapter 15. Rated A+
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Course
Business commerce
Institution
Business Commerce
Distinguish between the following:
Real property and personal property
Choses in action and chattels
A chattel mortgage and a conditional sale
A chattel mortgage and a mortgage on real estate - Answers (a) Real property and personal property. Real property is land or buildings; pers...
Creditor Priority Rules in Insolvency Exam Questions and Answers with Complete Solutions. Chapter
15. Rated A+
Distinguish between the following:
Real property and personal property
Choses in action and chattels
A chattel mortgage and a conditional sale
A chattel mortgage and a mortgage on real estate - Answers (a) Real property and personal property.
Real property is land or buildings; personal property is moveable chattels or personal rights or claims
held by one party against another (chose in action).
(b) A chose in action and chattel. A chose in action is an intangible claim such as a debt. A chattel is
tangible, moveable property.
(c) A chattel mortgage and a conditional sale. With a chattel mortgage the personal property is used as
security for a loan from a new creditor. The title is transferred to the creditor from the debtor. A
conditional sale allows the seller to provide financing while retaining title to the goods until final
payment.
(d) A chattel mortgage and a mortgage on real property A chattel mortgage involves the use of a
tangible item of personal property such as a car or a boat for which the debtor conveys title to the
creditor to secure a loan. A real estate mortgage involves real property such as a house and land being
used for the same purpose.
What kinds of property can be used as collateral under the PPSA? - Answers Chattels, debts or claims
and lease arrangements and any other form of personal property, tangible or intangible.
What are the advantages of using the PPSA to govern all transactions involving the use of personal
property as security? - Answers The personal property security legislation passed brought all of the
, various rules dealing with different kinds of personal property security under one statute and dealt with
them in a uniform way. There is a common form, a common registry, and common procedures.
What significant problem associated with the practice of taking goods as security is alleviated by the
registration requirements introduced by legislation? Describe the resulting obligations on all parties. -
Answers The problem is that essentially two innocent parties are involved, that is, when a debtor
transfers title to goods to a creditor and then resells those goods to a third party without the creditor's
permission. Essentially, both the creditor and the third party are innocent. If the creditor were allowed
to retake the goods the third party would suffer. Similarly, if this were not permitted the creditor would
suffer. Registration was introduced to overcome that problem, which put an obligation on the creditor
to register the agreement and an obligation on the third party to search the registry before entering into
an agreement to purchase the goods. If either fails to do so they suffer the loss.
Distinguish among security agreement, attachment, and perfection. Explain the significance of each of
them and how each is accomplished. - Answers The security contract is the agreement between the
parties creating the security relationship. The attachment takes place where the contract has been
performed or partially performed and this attachment is where the creditor gets rights in relation to the
goods used as security, but still those rights are only good against the original debtor until the security
has been perfected. This is done either by registering the security contract or having the goods in the
possession of the creditor. Such perfection gives the secured creditor priority against third parties.
How is the priority of secured parties determined? What are two exceptions to this general approach? -
Answers Priority is generally determined by date of registration. The two exceptions are a purchase
money security interest, which will prevail over a general security interest as long as it is registered
within the time stipulated by statute. The other exception is goods bought in the normal course of
business, which would also not be subject to a general security agreement.
What are the rights of a secured party when there is a default by the debtor? What determines the
limitations of those rights? - Answers If the original contract provides for it the creditor can upon default
take possession of the goods and sell them to recover the amount owing. Where consumer goods are
involved a court order is needed to repossess if over two thirds has been paid. The creditor must take
commercially reasonable care in looking after the goods and reselling them. Any deficit can be obtained
from the debtor. Alternatively the goods can be retaken and the creditor can elect to retain the goods
(keep them in satisfaction of the debt). There are many additional restrictions on how the goods must
be treated and to control the process. In addition it must be remembered that the normal contractual
remedies are available.
What obligations are imposed on a secured creditor who takes possession of goods used as security
after a debtor defaults? - Answers The bailiff charged with repossessing the goods is not permitted to
break down doors, force open windows or use any threat of violence. When the goods have been
repossessed they can be resold to recover the money, after being held by the creditor for a specified
period of time. The goods must be sold at public auction or privately at a "fair price" depending on the
jurisdiction.
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