Default

Question 1

What is unique about default under Art. 9 transactions?

Answer 1

Undefined by Art. 9; left up to the parties

Question 2

What body of law determines the enforceability of a term in a security agreement?

Answer 2

In genreal
-> a security agreement is a contract; contract law determines the enforceability of any terms in a security agreement

Question 3

Is an agreement not to assert defenses against an assignee permitted under Article 9?

Why or why not?

Answer 3

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).

Question 4

What are the consequences of a default?

Answer 4

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

Question 5

What happens if a secured party ignores the default?

Answer 5

Ignoring default -> may be treated as waiver of the secured party’s rights

Question 6

What can a secured party do in the following situations regarding a default?
-> SI in the fixtures
-> SI in the accession

Answer 6

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

Question 7

What can a secured party do in the following situations regarding a default?
-> Secured party and account debtors

Answer 7

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

Question 8

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?

Answer 8

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

Question 9

What is a disposition?

Answer 9

Disposition means sale pretty much.

Question 10

What is the standard for disposition?

Answer 10

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

Question 11

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?

Answer 11

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

Question 12

What are the requirements of notice of disposition?
-> required to do what?
-> to who?
-> when?

Answer 12

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

Question 13

What are the exceptions to the notification requirement?

Answer 13

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

Question 14

How do you apply the proceeds from disposition?

Answer 14

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

Question 15

How is a surplus or deficiency in proceeds treated?

What is a “low price” disposition? How is it treated with regards to a deficiency?

Answer 15

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

Question 16

What is the notice requirement relating to a debtor’s deficiency and surplus in default over a consumer good transaction?

Answer 16

Notice in consumer goods transaction
-> the secured party must send written notice as to any deficiency or surplus to the debtor upon demand

Question 17

What are the transferees (the buyer) rights under disposition of collateral? What SI still exists after default?

Answer 17

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.

Question 18

Under the disposition of collateral, what warranties does the collateral have?

Which ones can be disclaimed or not?

Answer 18

The disposition of the collateral includes the warranties of title, possession, and quiet enjoyment.

The warranties may be disclaimed or modified.

Question 19

What can acceptance of collateral (strict foreclosure) result in? How is does the debtor consent?

Answer 19

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

Question 20

Who must be notified in an acceptance of collateral (strict foreclosure) situation?

Answer 20

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

Question 21

What is the limit on a strict foreclosure with regards to a consumer transaction?

Answer 21

-> 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

Question 22

What is the limit on a strict foreclosure with regards to consumer goods?

Can the restriction be waived? If so, when?

Answer 22

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

Question 23

How does the right to redemption of collateral work?

Can an acceleration clause trigger a duty of redemption?

Answer 23

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

Question 24

Is there a time limit on redemption?

Answer 24

Time limit on redemption
-> redemption is not permitted after disposition or foreclosure

Question 25

Can the right to redemption be waived? If so, when and how?

Answer 25

Waiver of right of redemption
-> only permitted after default and by an authenticated agreement, except in a consumer-goods transaction

Question 26

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

Answer 26

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

Question 27

Can a debtor recover damages if a deficiency was reduced and eliminated because the secured party failed to comply with Art. 9?

Answer 27

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.”

Question 28

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?

Answer 28

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

Question 29

What are the damages a debtor can collect when dealing with a secured party not complying with Art. 9 in a consumer transaction?

Answer 29

-> consumer transactions - many courts apply the same rule as for commercial transactions, but some courts bar deficiency

Question 30

Can a debtor waive their Art. 9 remedies?

Answer 30

Non-waivable -> remedies statutorily provided to debtor for secured party’s failure to comply with Art. 9

Question 31

Is a secured party liable to other debtors and obligors when the secured party fails to comply with Art. 9?

Answer 31

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.