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Q: 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.
A: 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. ]
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Asked 9/17/2011 11:03:04 PM
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