5. Default

Question 1

What are the grounds for default?

Answer 1

Security agreement

NO security agreement

• Failure to perform
• Failure to pay obligation when due

Question 2

What is self-help repossession?

Answer 2

Secured Party can take possession of collateral with NO judicial process after default

UNLESS breach of peace
- Unruly public behaviour

Question 3

What if there is breach of the peace?

Answer 3

• Secured Party loses authorisation to repossess
• Secured Party can be sued for conversio
• Secured Party is liable for actual damages

Question 4

What is required for retention of collateral?

Answer 4

• Proposal to other secured parties
• Debtor’s consent

UNLESS they object within 20 days => Must dispose collateral by sale

Question 5

What can Secured Party do after default?

Answer 5

Self-help repossession
Retention of collateral
Resale of collateral

Question 6

What are the options for resale of collateral?

Answer 6

Sale
Lease
License
Disposal

Question 7

Is Buyer subject to existing security interests on collateral?

Answer 7

Superior security interests (NOT subordinate)

Question 8

Which parties must Secured Party give reasonable notification to for resale of collateral?

Answer 8

Debtor
Sureties
Other secured parties with perfection

UNLESS => NO notification required

• Perishable collateral
• Potentially rapid declining collateral
• Ordinarily sold in recognised market collateral

Question 9

When must notification be sent for resale of collateral?

Answer 9

Consumer sale
- Within reasonable time

Non-consumer sale
- Within 10 days or more

Question 10

What is the priority for proceeds of sale of collateral?

Answer 10

1) Costs of repossession + sale
2) Foreclosing Creditor
3) Creditors (lower priority)
4) Debtor (surplus)

Question 11

What are the consequences for failure to comply with resale requirements?

Answer 11

Liability for damages

Consumer goods

• Liability for min. 10% cash price of goods to Debtor
• Interest charges to Debtor

If Debtor still owes deficiency => Rebuttable presumption that sale proceeds EQUALS debt amount (NO deficiency judgment)

Question 12

When may Debtor redeem collateral?

Answer 12

Before resale of collateral
Before disposition contract
Before retention of collateral

Question 13

What is required for Debtor to redeem collateral?

Answer 13

Fulfill ALL obligations secured by collateral

UNLESS Acceleration clause is included in security agreement
- Must tender ENTIRE balance as well