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 accordance with the Personal Property Security Act. 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 to the bank. 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 it would seize the navigational equipment from Claude. 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.

1. State the two primary legal issues as two legal questions (2 marks)

2. Advises who wins (1 mark)

3. State the relevant law and how the facts support your decision in proving the rule of law for the case (2 marks)