234 MODULE 26 SECURED TRANSACTIONS

to MJC because he made no contract and did not agree to
take on liability with MJC.
23. (b) Because Kantar has a security interest in the
inventory it sold and is also using the same inventory as
collateral for the credit, this is a purchase money security
interest. However, because the items Rally purchased are
inventory, not consumer goods, in Rally's hands, this is not
a PMSI in consumer goods. Answer (a) is not chosen be-
cause this does describe a PMSI since Kantar retained a
security interest in the same items sold on credit to secure
payment. Answer (c) is not chosen because a PMSI includes
a third party giving a loan who retains a security interest in
the same items purchased by the loan. Answer (d) is not .
chosen because this is a PMSI in consumer goods since the
customer purchased the items for his/her home use.
24. (d) When a purchase money security interest uses
noninventory as collateral, it has priority over prior com-
peting interests as long as it is perfected within twenty days
of the debtor obtaining possession of the collateral. Since
the collateral in this fact pattern was equipment, and Eastern
filed within twenty days, Eastern has priority over the trustee
in bankruptcy. Perfection was not automatic since it was a
purchase money security interest in equipment, not in con-
sumer goods. Furthermore, since the secured party did not
have possession of the collateral, the way to perfect this
security interest is by filing a financing statement.
F. Rights of Parties upon Default
public sale, it also may be disposed of by a private sale if the
sale uses commercially reasonable practices.
28. (b) A good-faith purchaser for value at a private sale
will take the property free from any security interest or sub-
ordinate liens in the property, but remains subject to security
interests which are senior to that being discharged at the
sale. In this case, Smith perfected his security interest later
than Gray and has a subordinate interest in the property.
Thus, Walsh takes the equipment free from this subordinate
security interest. The fact that Bean is current in his pay-
ments to Smith would not affect Smith's interest in the
property. As long as Walsh is a good-faith purchaser for
value, it doesn't matter if the equipment is sold at a public or
private sale. Smith is not a purchase money secured creditor
since the proceeds of Smith's loan to Bean were not used to
purchase the equipment acting as collateral.
29. (a) If the debtor defaults on the debt, the secured
party may proceed against the collateral. This extra protec-
tion is one of the main reasons for having secured transac-
tions. If the creditor chooses, s/he may obtain a general
judgment against the debtor.
30. (c) Under the UCC, after a secured creditor right-
fully sells the debtor's collateral after repossession, the se-
cured party's reasonable sale expenses are paid first. Next,
the debt owed to the secured party is paid. Any junior secu-
rity holders then get paid to the extent of any money re-
. .
mairung.
I

25. (a) After Hale repossesses the computer and sells it

in a commercially reasonable fashion, Hale may obtain a
deficiency judgment for the amount still owed after the pro-
ceeds from the sale pay the expenses of repossession and
sale and the debt owed to Hale. Any remaining proceeds go
to the debtor after repossession and sale expenses and se-
cured parties are paid. For consumer goods, such as the
personal computer in this fact pattern, the goods must be
sold if the debtor has paid more than 60% of the debt se-
cured by the consumer goods. In this fact pattern, Drew
paid two-thirds of the debt. Hale must notify Drew in writ-
ing of the impending sale unless Drew had agreed otherwise
in writing.
26. (c) Since Drew has paid two-thirds of the price,
which is over 60% payment on the secured debt for con-
sumer goods, Hale is obligated to sell the computer rather
than keep it in satisfaction of the debt. The debtor may re-
deem before, not after, the sale. Hale may keep the proceeds
needed to payoff repossession and sale expenses and the
debt owed to Hale. Any excess would go to Drew. Hale has
the right to sell the repossessed computer to payoff the se-
cured debt unless Drew properly redeems the interest s/he
has in the computer.
27. (a) Upon the debtor's default, the secured party may
take possession of the collateral and sell it. A good-faith
purchaser for value buys the collateral free of any liens or
security interests. Answer (b) is incorrect because the debtor
has the right to redeem the collateral before the secured
party disposes of it. The debtor does this by paying the debt
in full as well as the secured party's reasonable expenses.
Answer (c) is incorrect as a good-faith purchaser of the col-
lateral takes it free of the debtor's rights and any secured
interest or lien subordinate to it. Answer (d) is incorrect
because although the collateral may be disposed of by a