Question

Dennis purchased a big-screen television from ABC Electronics and financed the purchase through ABC Electronics based on an agreement granting ABC Electronics a security interest in the television and requiring that Dennis make monthly payments. Three months later, Dennis was unable to continue making payments on the television because he had bought a boat, a new car, an expensive engagement ring for his girlfriend, and some other items. The manager from ABC Electronics called and asked Dennis to return the television. Dennis refused on the basis that ABC Electronics never perfected its interest in the television. Which of the following is the correct designation for the television in the agreement between Dennis and the electronic store? a. Pledged goods b. Acknowledged goods c. Illegal security d. Defined security e. Collateral

Answer 1

Answer:

e. Collateral

Explanation:

Collateral refers to the security given by the person in order to secure the right of the creditor.

As for example, if I take a loan from bank and then sign an agreement to pay in installments, then the bank might secure its payment through a collateral to be paid by me. For this I might give the bank papers of my house.

In the given case also, Dennis took the Television in exchange of money promised to be paid in installments. Further as for collateral he provided the owner the right to take back the television.

Thus, there is a collateral provided, and since he has defaulted in payment owner has the right to collect television back.