Default Flashcards
What is default?
The right of the secured party to proceed against collateral is normally triggered by default.
Article 9 does not define it.
Typically grounds of default are specified in the security agreement. In the absence, default has been restricted to failure to perform or pay the obligation when it is due.
Self-help possession
After default the secured party is entitled to take possession of the collateral w/o judicial process if this can be done without “breach of the peace.”
When a secured party breaches the peace, he loses the authorization to repossess, may be sued for conversion ( and possibly assault, battery, trespass) and is liable for actual (and frequently) punitive damages.
What is breach of the peace?
Any conduct by the secured party that has the potential to lead to violence.
physical presence by the debtor + verbal objection is enough.
If self-help is unavailable:
the secured party can use judicial process (e.g. replevin to get the goods).
Retention of collateral (strict foreclosure)
After default and repossession, the secured party may propose retaining the collateral in full or partial satisfaction of the debt.
Resale of collateral
After default, the secured party may sell, lease, license, or otherwise dispose of the collateral in its condition when repossessed or after reasonable preparation.
Reasonable notification
Reasonable notice that is authenticated by the secured party (cannot be oral) must be given to the debtor and any sureties on the debt and (except for consumer goods) to any other secured parties who have notified the secured party of their interests, and any secured parties who have perfected by filing a financing statement or making a notation on a certificate of title.
Timeliness
notice must be sent within a reasonable time before the sale (a question of fact). Notice is deemed to be sent within a reasonable time if it is sent 10 days or more before the time of the same.
Content of Notice
(1) statute provides for “safe harbor” notice forms.
(2) For a public sale, notice of the time and place of sale is required.
(3) for private sale, notice of the time after which the sale will occur must be given (the car will be sold after x date)
(4) extra information is required for consumer goods.
Commercially reasonable sale
every aspect of the sale (including the method, manner, time, place and terms) must be commercially reasonable.
Secured party buying collateral
the secured party may buy at any public sale, but may buy at a private sale only if the collateral is of a type customarily sold in a recognized market or is of a type which is the subject of widely distributed standard price quotations.
Compliance with resale requirements - secured party’s right:
to deficiency.
Right to deficiency judgment?
If the secured party fails to conduct a commercially reasonable sale, there is a rebuttable presumption that the sale proceeds equal the amount of the debt.
Debtor’s right to redeem
Any time before the secured party has resold the collateral or has entered into a contract for its disposition, or the obligation has been discharged by the secured party’s retention of the collateral, the debtor may redeem the collateral.
To do so, the debtor must tender fulfillment of all obligations secured by the collateral. Because most security agreements contain an acceleration clause, the debtor typically must tender the entire balance in order to redeem.
