Default Flashcards
Default
Default is usually defined within each contract, it’s not defined by Art. 9. The following things are usually considered “default”
o Failure To Perform The Promised Obligation;
o Making of false or misleading statements in connection with making the agreement;
o The collateral being lost, stolen, damaged, or destroyed;
o The failure of the debtor to keep the collateral insured or in good repair/health (if an animal);
o A grant by the debtor of security interest in the same collateral to any other party;
o Any levy upon or seizure of the collateral through judicial process;
• Failure of the debtor to notify the secured party changes to debtor’s name, address, organizational structure, or change to the location of the collateral;
o Death, dissolution, termination of existence, insolvency, or business failure of the debtor.
Acceleration provision
Security agreement may also have provisions that allow the secured party to
“accelerate” the debt upon default
o So basically in the event of default, all obligations are immediately due and payable in full
Payment /Performance Acceleration
A term providing that one party or that party’s successor in interest may accelerate payment or performance or require collateral or additional collateral “at will” or when the party “deems itself insecure,” or words of similar import, means that the party has power to do so only if that party in good faith believes that the prospect of payment or performance is impaired.
The burden of establishing lack of good faith is on the
party against which the
power has been exercised.
After the default a secured party has rights:
A secured party:
o May reduce a claim to judgment, foreclose, or otherwise enforce the claim, security interest, or agricultural lien by any available judicial procedure; and
o If the collateral is documents, may proceed either as to the documents or as to the goods they cover.
§ (e) if a secured party has reduced its claim to judgment, the lien of any levy that may be made upon the collateral by virtue of an execution based upon the judgment relates back to the earliest of:
• The date of perfection of the security interest or agricultural lien in the collateral;
• The date of filing a financing statement covering the collateral; or
• Any date specified in a statute under which the agricultural lien was created
A “strict foreclosure”
is a colloquial term given to the post-default remedy that allows a secured party to propose to the debtor that the secured party will keep all or some of the collateral and forgive all or part of the unpaid secured debt. The technical term under article 9 is “acceptance.” The governing statutes are Sections 9-620, 9-621, and 9-622.
Article 9 leaves to the agreement of the parties the circumstances giving rise to…
a default.”
A default
The term is defined by the parties, and they should memorialize their understanding and agreement in the security agreement or one of the other loan papers.
A secured party, after default, has ability
to render equipment unusable.
The foreclosing creditor’s security interest, and any subordinate (junior) security interests,
are terminated by the foreclosure sale. Security interests that are not subordinate (junior) to the foreclosing creditor’s security interest are not terminated. Instead, they survive the disposition and can be enforced against the winning bidder.
Public Disposition
is one at which the price is determined after the public has had a meaningful opportunity for competitive bidding. ‘Meaningful opportunity’ is meant to imply that some form of advertisement or public notice must precede the sale (or other disposition) and that the public must have access to the sale (disposition).” Cf. § 2-706, cmt. 4 (permitting a seller, upon a buyer’s breach, to dispose of goods by “public sale,” which is described as “a sale by auction”). In summary, then, the key elements of a “public disposition” appear to be: (i) the public may participate (no segment is excluded, for example, as in a “dealers only” auction); (ii) the bidding is competitive (sealed bids may not be viewed as such); (iii) advertising precedes the disposition; and (iv) the public has access to the disposition.
The key elements of a “public disposition” are:
(i) the public may participate (no segment is excluded, for example, as in a “dealers only” auction);
(ii) the bidding is competitive (sealed bids may not be viewed as such);
(iii) advertising precedes the disposition; and
(iv) the public has access to the disposition.
A secured party should be aware that it can purchase collateral
at a public disposition but (as a general rule) cannot purchase collateral at a private disposition. See § 9-610(c).
Disposition notice needs to state
the location,
date, and
time of a public disposition,
but only the date after which any private disposition will be scheduled.
Article 9 excuses notice to the debtor in four situations:
First, notice is not required if the debtor authenticated, after default, a waiver of its right to receive notice. See § 9-624(a).
Second, notice is excused if the collateral is “perishable” (e.g., fruits and vegetables). See § 9-611(d).
Third, notice also is excused if the collateral “threatens to decline speedily in value” (e.g., seasonal products tied to a holiday that is about to come and go; tickets to an event that is about to happen). Id.
Finally, the secured party is not required to send notice if the collateral “is of a type customarily sold on a recognized market” (e.g., shares of capital stock traded on the NYSE). Id.; see also § 9-610, cmt. 9 (discussing “recognized market”).
