Default

Question 1

Default defined

Answer 1

Default occurs whenever debtor fails to tender an obligation when due. thus, if debtor fails to meet an installment payment, there’s a default

Question 2

Rights upon default

Answer 2

On default, secured party can reduce a claim to judgment, foreclose, or otherwise enforce the claim

Secured party has right to repo tangible collateral if it can do so w/o a BREACH OF THE PEACE
- not defined, but courts held that any act likely to lead to violence is a breach of the peace. also,
breaking locks, noisy protests, that kind of thing
- if secured party can’t obtain w/o breach of the peace, must bring REPLEVIN action, authorizing seizure
by sheriff

Question 3

Payment to secured party

Answer 3

If collateral is accounts receivable, instruments, or chattel paper, secured party can notify person obligated on the collateral to make payment to them
Notification must:
- be authenticated by EITHER party and
- reasonably identify rights assigned
Once notified, account debtor can ONLY discharge obligation by paying assignee, not debtor

Question 4

Right to redeem

Answer 4

Debtor has right to redeem by tendering amount of the obligation, inc interest, plus reasonable expenses/atty’s fees caused by default (unless waived in writing)

MUST be effected BEFORE:

• collateral collected;
• secured party disposed of collateral or contracted to do so; or
• secured party has accepted collateral in full or partial satisfaction

CANNOT waive redemption right except in writing, by all parties, immediately following default. NOT any time before

Question 5

Disposition after default - commercial reasonability

Answer 5

secured party can sell, license, or otherwise dispose of any or all of the collateral

disposition must be COMMERCIALLY REASONABLE:

• in usual manner on any recognized market;
• at price current in any recognized market; or
• otherwise in conformity w reasonable commercial practices among dealers in that type of property
• with proper notice (next slide)

Question 6

Notice reqs for disposition

Answer 6

Must send reasonable, authenticated notice to debtor, any filed secured parties, and any other person who seller has received notice of interest. This is an element of commercial reasonability. TEN DAYS is always enough in commercial transactions - less is fact question

Non-consumer transactions: need

• description of debtor and secured party
• description of collateral
• method of intended disposition
• statement that debtor is entitled to accounting of unpaid debt
• time and place of public disposition, or time after which collateral will be sold in private disposition

Consumer goods transactions: all above, PLUS:

• description of liability for a deficiency
• phone number debtor can call to obtain amount required to redeem; and
• phone number or mailing address for additional info

NO NOTICE required for perishable/quickly declining collateral
NO NOTICE required for collateral typically sold on “recognized market” - this means one w standard price quotes, like stock market. VERY narrow term

Question 7

Order of distribution of proceeds

Answer 7

Cash proceeds of collection/enforcement/disposition shall be applied as follows:
1) reasonable expenses of prepping disposition, and reasonable legal fees by secured party
2) satisfaction of obligations secured by interest under which disposition is made;
3) satisfaction of obligations secured by any subordinate interest/lien, IF party has received authenticated
demand before disposal (priority order)
4) the debtor, if there’s surplus (and debtor remains liable for deficiency) - unless sale is of accounts,
chattel paper, payment intangibles, or promissory notes