Problem.Default

     A. For the past six months, Marlene has consistently made payments late on a loan she obtained to purchase an automobile (as much as 20 days after the monthly due date).  On several occasions she tendered $100 less than the $500 monthly amount due . The creditor, secured by a security interest in the automobile, has to this point refrained from comment or action, but the latest tender, 25 days late and $200 short, was the last straw. The secured creditor wishes to repossess the automobile but has sought your counsel before doing so. What do you advise? Consult our sample security agreement, U.C.C. 1-103, and Official Comment 3 to 9-601 before venturing a conclusion.

     B. The creditor referred to in Part A, above, has just received notice from State Barn Insurance Company that Marlene has failed to pay the most recent premium for her automobile insurance policy and that State Barn will be cancelling the policy (on which the creditor is named as loss payee) unless the premium is received within two weeks. What do you advise?  Consult our sample security agreement.

     C. Barry Eliason, CEO of Pinnacle Corp., decided to sell his private jet because his late night arrivals at the local airport violated a city noise ordinance.  Bill Gateway, Chairman of the Board of Macro Corp., bought the jet for $3,675,000, part of which Gateway agreed to pay in monthly installments.  The purchase agreement included the following terms:  a statement of Gateway's installment payment obligation; Gateway's grant of a security interest in the jet to Eliason to secure the payment obligation; Eliason's express warranty that the jet would be free from defects in material or workmanship for a period of one year following execution of the agreement.  Two months after the purchase, the jet developed engine problems that required $50,000 worth of repair.  Claiming a breach of warranty, and citing U.C.C. 2-717, Gateway notified Eliason that Gateway would be withholding the next several months of installment payments as reimbursement for the cost of repairs.   U.C.C. 2-717 provides:   "The buyer on notifying the seller of his intention to do so may deduct all or any part of the damages resulting from any breach of the contract from any part of the price still due under the same contract."  If Gateway withholds for the stated purpose, has he defaulted under the security agreement? 

     D.  Same facts as in D, above, except that Gateway paid cash for the jet and now wants to rescind the deal ("revoke acceptance of the goods" in Article 2 terminology) and thereby obtain a refund of the purchase price.  Assuming that Gateway would be justified in revoking acceptance, if Eliason refuses Gateway's request, may Gateway treat the jet as collateral, sell it, apply the proceeds of sale to the amount he wants back from Eliason, and thereafter pursue Eliason for any deficiency?  Even if there is no written security agreement?.  See U.C.C. 2-711(3) and U.C.C. 9-110(1).