Pierce Electrical is a new company.Upon its creation, Pierce obtained a loan from the Bank of Montreal.Collateral consisted of a perfected general security agreement.That agreement was registered on April 30.On June 1, Pierce realized it needed to expand its fleet.In order to buy 15 new vans on credit, it created a purchase money security interest with the dealer and the vans were used as collateral.That interest was registered on June 8.Which of the following statements is most likely to be TRUE?

Question

Quizplus · Accepted Answer

In the case of default, the purchase money security interest would have priority over the general security agreement because it was created specifically for the purpose of buying the 15 new vans, whereas the general security agreement covers all assets of the company. The registration date of the purchase money security interest (June 8) is also after the registration date of the general security agreement (April 30), but this does not matter because purchase money security interests have priority over general security agreements if they are registered within certain time limits (which it was). Option A is incorrect because the general security agreement does not automatically have priority over the purchase money security interest. Option C is incorrect because the purchase money security interest was registered within the required time limit. Option D is incorrect because the bank can still recover its interest, but the purchase money security interest would have priority over the general security agreement for the specific assets covered by that interest. Option E is incorrect because purchase money security interests can be used for physical capital.

Pierce Electrical Is a New Company