Delgado is a retail seller of television sets. He sells a 3D HD TV set to Cummings. Cummings cannot pay cash, so she signs a security agreement, paying a certain amount down and agreeing to pay the balance in twelve equal installments. The security agreement gives Delgado a security interest in the set. Cummings makes six payments on time then goes into default because of unexpected financial problems. Delgado repossesses the set. Can he keep it in full satisfaction of the debt? Explain.

Question

What will be an ideal response?

Answer 1

Generally, under Article 9, a secured party, on repossession of the collateral, has the right to keep it in full satisfaction of the debt (on proper notice and if no objection is received within twenty-one days) or to sell it or dispose of it, using the proceeds to cancel the debt. If the debtor has paid 60 percent of the cash price of a purchase-money security interest in consumer goods and has not after default signed a waiver of rights, the secured party cannot keep the collateral in full satisfaction of the debt. The secured party is forced to dispose of the collateral within ninety days [UCC 9-620(f)]. Consumer goods are defined as those used or bought primarily for personal, family, or household purposes [UCC 9-102(a)(23)]. In this case, Cummings has paid $400 ($100 down plus six $50 payments) of the $600 purchase price. Because the security interest is purchase money in consumer goods and the amount paid exceeds 60 percent of the price, Delgado cannot keep the repossessed set in full satisfaction of the debt. Therefore, Delgado has a duty to sell, lease, or otherwise dispose of the collateral and to apply the proceeds as prescribed in UCC 9-610.