| QUESTION FOUR (14 marks) On the evening before the Business Law || midterm, Procas Tinator, a student taking the MGT 394 course sent an e-mail to his friend, Riley Smart, asking the following last-minute questions: \"Riley, | need your help! | missed a couple of Business Law Il classes, the midterm is Tuesday morning and knowing my luck, there will be questions on the midterm that | won't be able to answer. | set my question out below: 1. Looking through the Class 3 handout | see a reference to PMSI. | note it says something about Purchase Money which is something my parents always give me when going to school. Could you please explain, what this is, how it is attained, how it makes any difference to anyone and what it has to do with secured transactions. From what | can tell, if my parents provide me the purchase money to buy a new iPhone, they legally may own it. Sorry for all the questions Riley, but thanks again for your help. As a gesture of thanks and appreciation, I'll buy you a lunch at Tim Hortons after the midterm.\" Required: Assume the role of Riley Smart and prepare a detailed response to the question asked. 10. PURCHASE MONEY SECURITY INTEREST (aka a PMSI) = special priority; = security interest arises when a seller reserves a security interest in the very goods sold to the debtor - s. 20(3) \"purchase-money security interest\" means, (a) a security interest taken or reserved in collateral, other than investment property, to secure payment of all or part of its price, (b) a security interest taken in collateral, other than investment property, by a person who gives value for the purpose of enabling the debtor to acquire rights in or to the collateral, to the extent that the value is applied to acquire the rights, or (c) the interest of a lessor of goods under a lease for a term of more than one year, * Purchase Money Security Interests e Special priority over GSA for supplier of goods when Creditor lends money to debtor to acquire an asset * Debtor actually uses money to acquire asset * Debtor uses asset as collateral for loan * Process for obtaining PMSI Perfect by filing with 15 days of (or before if inventory) debtor getting possession Notice to all parties with registered interests in inventory e Security Interests When Collateral Transferred expensive and time consuming for all transactions 11. ENFORCEMENT OF SECURITY = making demand for repayment - must be reasonable; = demand and section 244 - BIA notice interim receiver may be appointed Advance notice 244 (1) A secured creditor who intends to enforce a security on all or substantially all of o (a) the inventory, o (b) the accounts receivable, or o (c) the other property of an insolvent person that was acquired for, or is used in relation to, a business carried on by the insolvent person shall send to that insolvent person, in the prescribed form and manner, a notice of that intention. Period of notice (2) Where a notice is required to be sent under subsection (1), the secured creditor shall not enforce the security in respect of which the notice is required until the expiry of ten days after sending that notice, unless the insolvent person consents to an earlier enforcement of the security. = Secured party can take possession upon debtor's default = Default: failure to pay or perform stipulated event = Obligations regarding possession Page | 5 = Must give reasonable notice of intention to take = Cannot take goods by force = |f debtor resists, seek court order for possession = Must exercise reasonable care over collateral Unperfected security interests 20. (1) Except as provided in subsection (3), until perfected, a security interest, (a) in collateral is subordinate to the interest of, (i) a person who has a perfected security interest in the same collateral or who has a lien given under any other Act or by a rule of law or who has a priority under any other Act, or [edit] (b) in collateral is not effective against a person who represents the creditors of the debtor, including an assignee for the benefit of creditors and a trustee in bankruptcy; 12. CONSIDER APPROPRIATE METHOD FOR ENFORCEMENT = Receivership = Duties Of Receiver PPSA 17(1) - REASONABLE CARE; Care of collateral 17 (1) A secured party shall use reasonable care in the custody and preservation of collateral in the secured party's possession, and, unless otherwise agreed, in the case of an instrument or chattel paper, reasonable care includes taking necessary steps to preserve rights against prior parties. R.S.0. 1990, . P.10, s. 17 (1). Idem, rights and duties of secured party (2) Unless otherwise agreed, where collateral is in the secured party's possession, (a) reasonable expenses, including the cost of insurance and payment of taxes and other charges incurred in obtaining and maintaining possession of the collateral and in its preservation, are chargeable to the debtor and are secured by the collateral; (b) the risk of loss or damage, except where caused by the negligence of the secured party, is on the debtor to the extent of any deficiency in any insurance coverage; (c) the secured party may hold as additional security any increase or profits, except money, received from the collateral, and money so received, unless remitted to the debtor, shall be applied forthwith upon its receipt in reduction of the obligation secured; (d) the secured party shall keep the collateral identifiable, but fungible collateral may be commingled; and (e) the secured party may create a security interest in the collateral upon terms that do not impair the debtor's right to redeem it. R.S.0. 1990, c. P.10, s. 17 (2). Liability for loss (3) A secured party is liable for any loss or damage caused by the secured party's failure to meet any obligations imposed by subsection (1) or (2), but does not lose the security interest in the collateral. R.S.0. 1990, c. P.10, s. 17 {(3). Use of collateral (4) A secured party may use the collateral, (a) in the manner and to the extent provided in the security agreement; (b) for the purpose of preserving the collateral or its value; or (c) pursuant to an order of, (i) the court before which a question relating thereto is being heard, or (ii) the Superior Court of Justice upon application by the secured party. R.S.0. 1990, c. P.10, s. 17 (4); 2000, c. 26, Sched. B, s. 16 (1)