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Chapter 15 Priority of Creditors
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Chapter 15 Priority of Creditors Business Law In canada 11th Edition By Yates -Test Bank
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Business Law in Canada, 11e (Yates)Chapter 15 Priority of Creditors
1) Which of the following is false with regard to property?
A) Both real and personal property can be given as security to a creditor that he will be repaid.
B) Real property consists of land but does not include the buildings on that land.
C) Personal property includes intangible rights.
D) Personal property includes chattels.
E) Real property includes fixtures.
Answer: B
Diff: 1 Type: MC Page Ref: 501
Topic: Ch. 15 - Personal Property
Skill: Recall
Objective: Chapter 15: 1. Outline the process of securing debt by using personal property.
Bloom's Taxonomy: Knowledge
2) If you want to buy a car from a private party (other than a dealer), which of the following is
false?
A) If you request a search and the Personal Property Registry states that the car is free and clear
of liens and encumbrances, then title is clear.
B) If the seller tells you that the car is free and clear, and two months later a holder of a properly
perfected and attached security interest claims a right to the car, you could lose the car.
C) Even if both the seller and the Personal Property Registry indicate to you that the car's title is
clear, you could still lose it to a third party.
D) If the seller indicates to you that the title is clear, but after the sale the car is seized by
someone with the legal right to do so, you could still sue the seller.
E) If the seller makes no representations whatsoever about the car and the car is seized by a
creditor, you can still sue the seller because he had an obligation to deliver good title.
Answer: C
Diff: 3 Type: MC Page Ref: 501
Topic: Ch. 15 - Personal Property
Skill: Applied
Objective: Chapter 15: 1. Outline the process of securing debt by using personal property.
Bloom's Taxonomy: Knowledge
3) When the transaction is registered, the creditor's rights include all of the following except
A) contractual remedies upon default.
B) the right to seize the security.
C) the right to resell the security.
D) the right to sue the debtor rather than seize security.
E) the right to order the debtor arrested or detained.
Answer: E
Diff: 1 Type: MC Page Ref: 501
Topic: Ch. 15 - Personal Property
Skill: Recall
Objective: Chapter 15: 1. Outline the process of securing debt by using personal property.
Bloom's Taxonomy: Knowledge
1
Copyright © 2017 Pearson Canada, Inc.
,4) Hank sold three properties for Mr. W and had been paid his commission for the first, but not
for the last two. Hank had done everything according to the contract and according to the
relevant statutes, but Mr. W wouldn't pay. Hank knows that Mr. W has a bank account with the
Bank of Winnipeg and has money owing to him from a Mr. Gregory. With regard to the
collecting of the debt owed, which of the following is false?
A) Hank could sue Mr. W for breach of contract.
B) After obtaining judgment, Hank could force the bank to pay into court an amount of money
from Mr. W's account to satisfy the debt.
C) Hank's claim for commission is unenforceable because he failed to secure the debt by
retaining title until the amounts were paid.
D) If Hank got judgment against Mr. W, he could get an order commanding seizure of enough of
Mr. W's goods to satisfy the judgment debt.
E) If Mr. W goes into bankruptcy, Hank may not get paid.
Answer: C
Diff: 3 Type: MC Page Ref: 501
Topic: Ch. 15 - Personal Property
Skill: Applied
Objective: Chapter 15: 1. Outline the process of securing debt by using personal property.
Bloom's Taxonomy: Knowledge
5) After a creditor has taken possession of collateral, the debtor's right to reclaim it on payment
of any money owing is known as a
A) right to salvage.
B) right of settlement.
C) right to redeem.
D) constructive trust.
E) collateral contract.
Answer: C
Diff: 1 Type: MC Page Ref: 501
Topic: Ch. 15 - Personal Property
Skill: Recall
Objective: Chapter 15: 1. Outline the process of securing debt by using personal property.
Bloom's Taxonomy: Knowledge
6) Attachment takes place when
A) a contract is executed.
B) notice of a security arrangement is given.
C) after-acquired assets are secured.
D) a debtor receives some value under the contract.
E) a purchase money security interest arises.
Answer: D
Diff: 1 Type: MC Page Ref: 501
Topic: Ch. 15 - Personal Property
Skill: Recall
Objective: Chapter 15: 1. Outline the process of securing debt by using personal property.
Bloom's Taxonomy: Knowledge
2
Copyright © 2017 Pearson Canada, Inc.
,7) A company named Printers World Ltd. bought a $9000 plotter secured by a Security
Agreement and, because of business reverses, is unable to make the payments. Which of the
following is accurate with respect to the legal position of the parties?
A) The seller could seize the goods only if it obtained a court order.
B) The seller could seize the goods without a court order only if it had properly registered the
conditional sale contract.
C) The seller could seize the goods but, before resale can take place, the debtor must be given
notice and an opportunity to redeem.
D) The seller could only seize the goods and could not instead opt to sue the company.
E) The seller could seize and sell the same day because it had already waited three months after
default before taking any action.
Answer: C
Diff: 2 Type: MC Page Ref: 501
Topic: Ch. 15 - Personal Property
Skill: Applied
Objective: Chapter 15: 1. Outline the process of securing debt by using personal property.
Bloom's Taxonomy: Knowledge
8) 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 therefore 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 Personal Property Registry or will have actual possession of the
collateral.
Answer: A
Diff: 2 Type: MC Page Ref: 501
Topic: Ch. 15 - Personal Property
Skill: Recall
Objective: Chapter 15: 1. Outline the process of securing debt by using personal property.
Bloom's Taxonomy: Knowledge
3
Copyright © 2017 Pearson Canada, Inc.
, 9) 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.
Answer: D
Diff: 2 Type: MC Page Ref: 501
Topic: Ch. 15 - Personal Property
Skill: Recall
Objective: Chapter 15: 1. Outline the process of securing debt by using personal property.
Bloom's Taxonomy: Knowledge
10) As the fishing season slowed down in the fall, Bob decided that it 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 Security Agreement 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 $3000+ 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.
Answer: C
Diff: 3 Type: MC Page Ref: 501
Topic: Ch. 15 - Personal Property
Skill: Applied
Objective: Chapter 15: 1. Outline the process of securing debt by using personal property.
Bloom's Taxonomy: Knowledge
4
Copyright © 2017 Pearson Canada, Inc.
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