Republic Finance Co. is in the business of making consumer loans. You have been

Question

Republic Finance Co. is in the business of making consumer loans. You have been retained as a consultant by Republic and asked for your legal opinion in connection with the following practices: (Be specific and give reasons for your conclusions).

A. Republic loaned $5000 to Alan for the purchase of a TV and stereo system and had him sign a security agreement. Alan sold the stereo to his neighbor, Lou, and the TV to Steve’s Used TV Store and left town. Can Republic repossess the stereo and/or TV? Is there anything Republic could have done to better protect its interests in this matter?

B. Republic loaned $10,000 to Charles to buy a new car and had him sign a security agreement. Three months later the car is damaged and Bob’s Body Shop repairs it. The bill amounts to $6,000. Charles loses his job and files for bankruptcy owing $6,000 to Bob’s and $9,000 to Republic. Discuss who has priority with respect to the car which is now worth $8,000 and in Bob’s Body Shop.

C. Republic loaned $10,000 to Stan to buy a new tractor. Stan signed a security agreement. He made two payments and defaulted. The tractor is kept at Stan’s house in an open shed at the rear of the two acre property. What should Republic do to protect its loan?

Explanation / Answer

Republic cannot in force the specific security agreement on his neighbour as neighbour bought the TV from Steve and the contract was formed between Steve and Lou.

In this condition republic has the priority of getting the car as the agreement was signed on the basis of purchasing the car and the amount was loaned for the same. Repair shop has direct liability with charles rather than having liability against the car as a contract was formed with the Charles as his personal payment.

Firstly the bank has to send a written notice to Stan for making the remaining balance payment. If the payment is not made then the car can be repocessed from the private property as per the State Law but without breaching the peace. Bank cannot damage the property by any means as well as they cannot destroy any kind of locks.
As the truck is parked in open space they can easily take the vehicle and it is legally allowed.

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