You are the chief executive officer of Money Games Inc.(MGI), which has begun to market Borrow & Spend, a video game set in the world of finance. To buy ads, MGI borrows $50,000 from First Savings Bank. On MGI's behalf, you sign a note for the loan and offer its accounts receivable as collateral. You sign a security agreement that describes the collateral. The bank does not file a financing statement.
Has the banks security interest attached?
If so, when?
The bank's security interest has attached, but it has not perfected its security interest. [ Typically in a closing for a secured loan, the borrower executes and delivers the note and security agreement and then the bank authorizes the release of the funds to the borrower. When the funds are released, the bank's security interest has attached because it has an executed security agreement describing the collateral and has given something of value for the secured interest (the loan).
While the bank has a secured claim on the borrowers accounts receivable if there is a default on the loan, it has not perfected its security interest until it files the financing statement in the proper jurisdiction which would be the jurisdiction of incorporation of the corporation. Until it perfects its security interest, its claim against the accounts receivable will be subordinate to claims of other secured creditors who have perfected their security interest and it may lose priority to other creditors who perfected ahead of it. ] Auto answered|Score 1|Koolsum|Points 223|User:
Agile Corporation borrows $1 million from Hi Finance Company (HFC). Agile signs a financing statement that describes the collateral, its inventory and proceeds, and HFC files the statement in the appropriate state office. Using the same collateral, Agile later borrows $500,000 from Metro Bank, which files its financing statement. Agile defaults on the loans. Metro claims that at the time of its loan it was unaware of HFCs interest. Between these parties, who has priority to the collateral? Discuss your answer.
Metro Bank..Under the Personal Property Securities Act 1999 the general rule for priority of financing statements is outlined in Section 66 where:
A perfected security interest has priority over an unperfected security interest in the same [ collateral
Priority between perfected security interests in the same collateral (where perfection has been continuous) is determined by the party who perfected first (either by registration or possession).
Read our glossary definition of perfection.
Note | This information is intended as a guideline - you should obtain your own independent legal advice.
Exceptions to the priority rules
The most common exception to the priority rules set out in Section 66 is where a Purchase Money Security Interest (or PMSI) exists. Where a PMSI exists it will have a 'super priority' over a general security interest in the same collateral. A PMSI may exist in the following situations:
A security interest taken in collateral by the seller. For example,
A hire purchase agreement relating to the purchase of a television or
a supplier providing the goods on the basis that they retain the title until the goods are paid for. Sometimes referred to as a 'Romalpha clause'.
A loan by a bank for the purchase of a car where the loan is secured by the car, and the proceeds are applied towards the car?s purchase. ] Auto answered|Score 1|bestWeegy|Points 165|
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