Default

Question 1

What are the consequences of a default?

Answer 1

The SP may:
1. seek possession of the collateral and sell or retain it,
OR
2. sue for a judgment based on the obligation

Question 2

Default regarding SI in fxtures?

Answer 2

SP may remove the fixture from the RP if the SI has priority; the SP is liable for repair costs

Question 3

Default regarding SI in accession?

Answer 3

SP ay remove the accession from the other property if the accession SI has priority

Question 4

Default regarding SP and account debtors?

Answer 4

SP may notify an account debtor to pay the SP directly.

Question 5

Rules regarding an SP taking possession of collateral upon default?

Answer 5

SP is NOT req’d to give notice of default, nor of an intent to take possession of the collateral.
* No breach of the peace
* You can render equipment unusuable pending sale/removal

Question 6

What is the standard for disposition of collateral following default?

Answer 6

All aspects of the disposition must be commercially reasonable (method, manner, time & place)

Question 7

What standards regarding price when disposing of collateral following default?

Answer 7

No specific price must be obtained; the mere fact that a higher price could have been obtained does not establish unreasonablenees

Question 8

What rules regarding TYPE of disposition?

Answer 8

It can be by either public or private sale, but the SP can NOT purchase the collateral at a PRIVATE sale.

Question 9

What notice of disposition is required?

Answer 9

SP is required to send an authenticated notification of disposition:

TO: (1) debtor, (2) any secondary obligor, (3) any other SP or lien holder who has an SI perfected by filing, and (4) any party who has notified the SP of a claim or interest in the collateral.

WHEN: at least 10 days before disposition

Question 10

When are the requirements regarding notification of disposition NOT required (exceptions)?

Answer 10

• Collateral is perishable or threatens to decline speedily in value;
• Collateral is of a type customarily sold on a recognized market (ex: NYSE)
• The person has waived his right in an authenticated writing.

Question 11

How are cash proceeds applied following disposition?

Answer 11

1. Reasonable disposition expenses
2. Satisfy the secured obligation
3. Satisfy subordinate SI’s (if SP made an authenticated demand before distribution is complete)
4. Any remainder to debtor

Question 12

How are non-cash proceeds applied following disposition?

Answer 12

Applied or paid over for application ONLY if the failure to do so would be commercially unreasonable

Question 13

What are the transferee’s rights following disposition of collateral?

Answer 13

The sale of the collateral gives the buyer at the sale ALL of the debtor’s rights in the collateral; the collateral remains subject to any senior SI’s.

Question 14

What happens with warranties following disposition?

Answer 14

Disposition of collateral includes the warranties of title, possession and quiet enjoyment; the warranties may be disclaimed or modified.

Question 15

What is strict foreclosure?

Answer 15

When a SP accepts return of collateral in either full or partial satisfcation of the obligation.

Question 16

Full Satisfaction of obligation by acceptance is shown by:

Answer 16

1. The debtor consents, after default, to acceptance in an authenticated record;
   OR
2. The debtor does NOT object to the SP’s proposal to accept the collateral w/in 20 days ater proposal is sent.

Question 17

Partial Satisfaction of obligation by acceptance is shown by:

Answer 17

The debtor consents, after default, to acceptance in an authenticated record;

Question 18

Partial Satisfaction of obligation by acceptance for
consumer debtors?

Answer 18

Not permitted in a consumer transaction; the SP can only accept the collateral in FULL satisfaction of the obligation.

Question 19

When is strict foreclosure allowed for consumer debtors for consumer goods?

Answer 19

If consumer goods are in possession of the SP, no strict foreclosure is permitted if the debtor has paid at least 60% of the cash price in the case of PMSI, or 60% of the obligation in the case of non-PMSI; the goods must be SOLD, not kept in satisfaction.

Waiver is permitted, but only AFTER default and in an authenticated agreement

Question 20

How can collateral be redeemed?

Answer 20

Redeemer must fulfill ALL obligations secured by the collateral AND reasonable expenses incurred by the SP in retaking the collateral or preparing for its disposition

An “acceleration clause” can require that entire balance be tendered for redemption.

Question 21

What is the time limit on redemption?

Answer 21

Redemption is not permitted after disposition or foreclosure

Question 22

Can you waive your right to redemption?

Answer 22

Waiver is permitted, but only AFTER default and in an authenticated agreement

Question 23

What remedies are available for a secured party’s failure to comply?

Answer 23

Injunctive relief (compel or restrain SP)
Actual Damages (any losses suffered)

Question 24

What remedies are available for a secured party’s failure to comply w/ rules regarding consumer goods?

Answer 24

Minimum Statutory Damages: a debtor or secondary obligor may recover an amount not less than the credit service charge, plus 10% of the principal amount of the obligation or time-price differential, plus 10% of the cash price, even if actual damages are less!

Question 25

What limitations on deficiency are applied when a SP fails to comply with Art. 9?
1. Commercial Transactions?
2. Consumer Transactions?

Answer 25

1. Commercial: Rebuttable presumption that the SP is NOT entitled to collect a deficiency; rebutted by showing that the deficiency would have nevertheless existed; no damages if deficiency is only reduced or eliminated as a consequence of the SP’s failure to comply.
2. Consumer: many courts appy same rule, some courts just outright bar deficiency