Bernard wants to buy a 60" high-definition television from his local appliance store, Rip M Off, Inc. The store, which caters to low-income clientele and offers electronics and other household goods at highly inflated prices and at the highest interest rate that the law allows in his state, agrees to sell the set to him for $5,000 financed over six years at a 25% interest rate. The financing agreement makes it clear that the store retains a purchase money security interest in the television set.

As part of the deal, Bernard also executes a second security agreement covering his $5,000 synthesizer (he is a professional musician) and a $2,000 diamond ring that he inherited from his dad. He turns the ring over to the appliance store as security in a verbal agreement. Still, it is agreed that he will be allowed to keep the synthesizer if he makes timely payments. He provides a written, signed copy of an agreement to this effect to Rip M Off.  

Rip M Off promptly perfects its interest in the synthesizer by forwarding a financing statement to his state's secretary of state with the appropriate fee and in the form required by local law. Still, it does not send financing statements covering the television set or ring to the secretary of state.

Two years later, Bernard stops paying for the television set because he realizes he made a bad bargain when agreeing to buy the set.

A. Has Rip M Off perfected its security interest with regard to the ring under the facts given?

B. May Rip M Off enforce the security agreement against the synthesizer if the outstanding loan amount at the time of Bernard's default is $4,000 and the actual value of the television set at the time is $500?

C. If the value of the synthesizer at the time of the debtor's default is $3,000 and the market value of the television set is $500, what are the creditor's rights with regard to the secured property? Discuss fully.

2. Assume the same facts as in the previous question.

If you were to represent Bernard, what argument would you make (if any) in his defense if Rip M Off chooses to sue him personally for the outstanding loan balance?

Answer rating: 100% (QA)

A Rip M Off has not perfected its security interest in the ring Perfection of a security interest typically requires the filing of a financing stateme... View the full answer