Default Flashcards
What is unique about default under Art. 9 transactions?
Undefined by Art. 9; left up to the parties
What body of law determines the enforceability of a term in a security agreement?
In genreal
-> a security agreement is a contract; contract law determines the enforceability of any terms in a security agreement
Is an agreement not to assert defenses against an assignee permitted under Article 9?
Why or why not?
An agreement not to assert defenses against an assignee is permitted under Article 9
Article 9 specifically recognizes the validity of an agreement between an account debtor and assignor that the account debtor will not assert against an assignee any claim or defense that the account debtor may have against the assignor (want to make sure the account debtor pays the assignee).
What are the consequences of a default?
The secured party may:
-> seek possession of the collateral and sell it or retain it
OR
-> sue for a judgment based on the obligation
Cumulative remedies, simultaneous exercise
What happens if a secured party ignores the default?
Ignoring default -> may be treated as waiver of the secured party’s rights
What can a secured party do in the following situations regarding a default?
-> SI in the fixtures
-> SI in the accession
SI in the fixtures
-> the secured party may remove the fixture from the real property if the SI has priority; the secured party is liable for repair costs
SI in accession
-> the secured party may remove the accession from other property if the accession SI has priority
What can a secured party do in the following situations regarding a default?
-> Secured party and account debtors
Secured party and account debtors
-> upon default, the secured party may notify an account debtor to pay the secured party and enforce the account debtor’s obligations against the account debtor
How does default work with possession of collateral?
-> is notice required?
-> what are the limitations on means of possession?
-> can you render the equipment unusable?
A secured party is not required to give notice of default, nor if there is an intent to take possession of the collateral
-> limitation on means of possession - no breach of the peace
-> rendering equipment unusable - permitted
What is a disposition?
Disposition means sale pretty much.
What is the standard for disposition?
All aspects of the disposition must be commercially reasonable (method, manner, time, and place)
What is the following information for disposition of collateral?
-> price: what doesn’t establish unreasonableness?
-> time of disposition: immediate or no?
-> type of disposition allowed?
Price
-> no specific price must be obtained; the mere fact that a higher price could have been obtained does not establish unreasonableness
Time of disposition
-> no specific time is required; immediate disposition is not always required
Type of disposition
-> disposition may be by either public or private sale, but the secured party cannot purchase the collateral at a private sale
What are the requirements of notice of disposition?
-> required to do what?
-> to who?
-> when?
The secured party is generally required to send an authenticated notification of disposition
To
-> debtor
-> any secondary obligor
-> any other secured party or lien holder who has an SI perfected by filing
AND
-> any party who has notified the secured party of a claim or interest in the collateral
When
-> at least 10 days before disposition
What are the exceptions to the notification requirement?
Exceptions to notification
-> the collateral is perishable or threatens to decline speedily in value
-> the collateral is of a type customarily sold on a recognized market
-> the person has waived his right in an authenticated writing
How do you apply the proceeds from disposition?
Cash proceeds
-> first to reasonable disposition expenses, then to satisfy the secured obligation, then to satisfy subordinate SIs (if the secured party made an authenticated demand before distribution is complete), and any remainder to the debtor
Non-cash proceeds
-> applied or paid over for application only if the failure to do so would be commercially unreasonable
How is a surplus or deficiency in proceeds treated?
What is a “low price” disposition? How is it treated with regards to a deficiency?
Treatment of a surplus or deficiency
-> generally, the debtor is entitled to any surplus and is liable for any deficiency
—-> not the case for sale of accounts, chattel paper, payment intangibles, or promissory notes
“Low price” dispositions happen when the collateral is sold to a secured party, a party related to the secured party, or a second obligor. This means that the party likely paid less then what the maximum the collateral could have gone for.
“Low price” disposition to secured party
-> the amount of the deficiency may be adjusted to reflect the higher price that would have been realized if another person had bought the collateral
What is the notice requirement relating to a debtor’s deficiency and surplus in default over a consumer good transaction?
Notice in consumer goods transaction
-> the secured party must send written notice as to any deficiency or surplus to the debtor upon demand
What are the transferees (the buyer) rights under disposition of collateral? What SI still exists after default?
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.
Under the disposition of collateral, what warranties does the collateral have?
Which ones can be disclaimed or not?
The disposition of the collateral includes the warranties of title, possession, and quiet enjoyment.
The warranties may be disclaimed or modified.
What can acceptance of collateral (strict foreclosure) result in? How is does the debtor consent?
Full satisfaction of obligation
-> the debtor consents, after default, to acceptance in an authenticated record
OR
-> the debtor does not object to the secured party’s proposal to accept the collateral within 20 days after the proposal is sent
Partial satisfaction of obligation
-> the debtor consents, after default, to acceptance in an authenticated record
Who must be notified in an acceptance of collateral (strict foreclosure) situation?
Notification of parties other than the debtor
-> the secured party must notify any other secured party or lien holder of record, or person who timely notified the secured party of a claim of an interest in the collateral
What is the limit on a strict foreclosure with regards to a consumer transaction?
-> partial satisfaction - acceptance of the collateral in partial satisfaction of the obligation is not permitted in a consumer transaction; the secured party can only accept the collateral in full satisfaction of the obligation
What is the limit on a strict foreclosure with regards to consumer goods?
Can the restriction be waived? If so, when?
Strict foreclosure - if the consumer goods are in possession of the secured party, no strict foreclosure is permitted if the debtor has paid at least 60% of the cash price in case of PMSI, or 60% of the obligation in the case of non-PMSI; the goods must be sold, not kept in satisfaction
Waiver permitted, but only after default and in an authenticated agreement
How does the right to redemption of collateral work?
Can an acceleration clause trigger a duty of redemption?
Method of redemption
-> the redeemer must fulfill all obligations secured by the collateral and reasonable expenses incurred by the secured party in retaking the collateral or preparing for its disposition;
An acceleration clause can require the redeemer to tender the entire balance of the secured obligation
Is there a time limit on redemption?
Time limit on redemption
-> redemption is not permitted after disposition or foreclosure
Can the right to redemption be waived? If so, when and how?
Waiver of right of redemption
-> only permitted after default and by an authenticated agreement, except in a consumer-goods transaction
What are the basic remedies for a secured party’s failure to comply?
Injunction relief
-> sought by debtor from a court to compel or restrain the secured party
Actual damages
-> any losses suffered by the debtor due to the secured party’s failure to comply with Art. 9
Conversion action -> by the debtor against the secured party for the improper possession of the collateral - under tort law rather than the UCC
Limitations on deficiency for failure to comply with Art. 9
-> commercial transactions - there is a rebuttable presumption that the secured party is not entitled to collect a deficiency; rebutted by showing that the deficiency would have nevertheless existed even if the secured party adhered to Art. 9; no damages if the deficiency is only reduced or eliminated as a consequence of the secured party’s failure to comply with Art. 9
Can a debtor recover damages if a deficiency was reduced and eliminated because the secured party failed to comply with Art. 9?
No damages if the deficiency is only reduced or eliminated as a consequence of the secured party’s failure to comply with Art. 9.
Goal is to not allow debtor to have “double recovery.”
What are the minimum statutory damages can a debtor get against a secured party when dealing with consumer goods?
What happens if actual damages are less, are the minimum statutory damages reduced?
Consumer goods: minimum statutory damages
A debtor or secondary obligor may recover an amount no less than the credit service charge,
+ 10% of the principal amount of the obligation or time-price differential,
+ 10% of the cash price,
Even if actual damages are less
What are the damages a debtor can collect when dealing with a secured party not complying with Art. 9 in a consumer transaction?
-> consumer transactions - many courts apply the same rule as for commercial transactions, but some courts bar deficiency
Can a debtor waive their Art. 9 remedies?
Non-waivable -> remedies statutorily provided to debtor for secured party’s failure to comply with Art. 9
Is a secured party liable to other debtors and obligors when the secured party fails to comply with Art. 9?
Non-liability of secured party to unknown debtor or obligator, or to known debtor or obligor that the secured party doesn’t know how to communicate with.
