Week 11: Chapter 29

Question 1

What is a Secured Creditor?

Answer 1

A creditor that looks to particular assets of the debtor to be collateral for the payment of the debt

Less risk

Question 2

What is a Pawn?

Answer 2

If the debtor puts something of value as collateral, they can borrow a certain percentage of the property’s market value

Failure to pay back the loan means the creditor can sell the property to recover the money

Question 3

Chattel Mortgage

Answer 3

A mortgage in which the title to a chattel owned by the debtor is transferred to the creditor
* Debt secured to personal property

Historically the debtor would transfer possession and not the title

Question 4

Obligations of the Debtor in a Chattel Mortgage

What happens if the don’t meet them? Creditor remedies?

Answer 4

• The debtor’s obligations are to pay debt and insure the chattel
• If they fail to pay the debt then the mortgagee has the right to take possession of the goods, sell them, or proceed with foreclosure
  
  • When sold, any surplus value goes to the mortgagor, if there is a deficiency then the mortgagor pays

Question 5

Registration of a Chattel Mortgage

Why? What is the effect of registration?

Answer 5

• Mortgaged goods must be publicly registered to protect other creditors and interested parties
• If the mortgage isn’t registered then the mortgagee has no priority over a bona fide purchaser of the goods
• No registration makes it so that the chattel cannot be used for security

Question 6

Conditional Sales Agreement

Answer 6

• An agreement for the sale of a chattel in which the seller grants possession of the goods, but withholds the title unitl the payment for the goods is made in full
• Security interest arises out of a sale rather than a normal debt transaction
• Agreement must be in writing and signed by parties

Question 7

Difference between conditional sale agreement and a hire - purchase

Answer 7

• In a hire - purchase (rent to own) the seller retains title, buyer takes possession
• buyer has option at end of term to purchase goods, no transfer of title unless option to purchase is exercised
• In a conditional sale agreement there is no option to purchase, all the money is applied towards the purchase price from the beginning

Question 8

Registration of a Conditional Sale Agreement (retailer manufacturer?)

Answer 8

• must register a short time after the sale
• Registration between a retailer and a manufacturer isn’t effective against the ultimate consumer
  
  • Because retailer ultimatley buys for purpose of resale

Question 9

Rule of good title and its application to used goods

Answer 9

The rule of good title:
* implied condition of sale that the goods are free from encumberances

Application to used goods:
* Retailer takes item as trade in, subject to any existing registered conditional sales agreement between purchaser and former retailer
* First sale of item from retailer to consumer is an “end sale”, not for purpose of resale.

Question 10

Conditional Sales Agreement: Assignment

Answer 10

• Conditional seller can assign title and debt to 3rd party
• All normal laws re assignment apply
• Assignee takes agreement as it stands, subject to encumbrances, defences, etc.
• Assignee registers agreements, gives notice to the purchaser, etc.

Question 11

Conditional Sales Agreement: Buyer’s Remedies

Answer 11

• Legislation is designed to give buyers relief from sellers who put onerous terms in the agreement
• Seller has ability to recover possession, (already has title), and sell
• Buyer in default must be given time to redeem

Question 12

What is a Bill Of Sale?

And its registration + rules

Answer 12

• A contract in which the title of goods passes to the buyer before the buyer takes possession from the seller
• Buyer must register the bill of sale with their province quickly after the sale
• Requires an affadavit by purchaser to protect the interests of the buyer and notify creditors of the seller

Question 13

Assignement of Book Debts

Answer 13

When a creditor of a merchant takes an assignment of the merchants Accounts Receivable and collects what the merchant owes from customers
* requires notice to debtors of the business

Question 14

Personal Property and Security Act (PPSA)

What is it and what’s its purpose

Answer 14

• Goal is to simplify debt transactions, and to provide simple system for registration of all personal property security interests
• Covers all security interests, eg., chattel mortgage, as well as conditional sales agreement
• Ontario registrations are searchable by anyone

Question 15

PPSA - Attachment

Answer 15

Attachement deals with the relationship between debtor and creditor
* Only occurs when:
* Value is given
* Creditor has rights in collateral
* Debtor has signed a security agreement identifying the collateral

Question 16

PPSA - Perfection

Answer 16

• Perfection deals with the security intererst and public at large
• Registration perfects interest

Question 17

What happens when you fail to register under the PPSA?

Answer 17

• Failure to register means bona fide purchaser for value without notice can acquire the security interest
• This creates a foot race to the Registry Office
• Failure to register means you lose priority,
  
  • You still have ability to recover the debt, just not first in line.
• Perfected security allows creditor to seize and sell asset etc.

Question 18

Credit Cards

What are they? Who is under contract? Secured or unsecured?

Answer 18

• Not Security interests, but they do secure payment to merchants
• Contract between the bank and the merchant (bank agree to accept card as payment)
• Contract between the bank and the cardholder
• Credit is unsecured from the cardholder’s perspective

Question 19

Mechanics Lien and Construction Lien

What are they? What are each for?

Answer 19

Right of a worker to claim security interest in property to secure payment for labour and / or materials applied to land or a chattel
* mechanics lien is for chattels
* Construction Lien is for property

Question 20

Mechanics Lien

Answer 20

• Lien on chattels
• A creature of statute
• Allows the person who repairs something to retain possession (or obtain possession)
• if they don’t receive payment they can give notice to the “owner” and sell their item

Question 21

Construction Lien

Answer 21

• For land based projects
• If the general contractor becomes insolvent, no privity of contract between subcontractor and owner
• Subcontractor is granted a security interest in the property
  
  • To prevent person entitled to interest in property to obtain benefit of labour and/ or materials without compensating builder

Question 22

Rules about claiming a Contruction Lien

Answer 22

Right to claim lien arises when work is first performed, or when supplier delivers first supplies, may then claim lien any time during performance
- Failure to register claim within 45 days lose right to lien
- Failure to perfect within next 45 days, lose right to claim lien
- Owner avoids liability by providing a “hold-back”

Question 23

What is a Lien Hold Back

Answer 23

The retention of a part of the contract price by the owner as required under contruction lien legislation to ensure payment of subcontractors and suppliers of materials
- allows owner to avoid liablilty

Question 24

3 Purposes of Bankruptcy

Answer 24

• Provide honest but unfortunate debtors with release from their debts, if debtors deliver all assets to creditors as required under Act
• Eliminate preferences, provide fair and predictable distribution of assets
• Expose and punish debtors who defraud

Question 25

How can you go bankrupt

3 ways

Answer 25

1. Make a proposal that is rejected by unsecured creditors, debtor deemed to have made an assignment
2. Voluntary assignment, debtor files assignment of property to official receiver for general benefit of creditors
3. A creditor may file a petition if debtor commits act of bankruptcy, Receiver General issues a receiving order