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MEE Secured Transactions > Default and Enforcement > Flashcards

Default and Enforcement Flashcards

1
Q

What is the prerequisite to repossession rights or rights to enforce a security interest?

A

Attachment

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2
Q

What determines what constitutes a default?

A
  • The security agreement
  • Applicable contract law
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3
Q

What triggers Article 9 enforcement rights?

A

Default

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4
Q

Are Article 9 enforcement rights cumulative?

A

Yes

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5
Q

Can Article 9 enforcement rights be exercised simultaneously?

A

Yes

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6
Q

What are a secured party’s Article 9 enforcement rights?

A
  • Seek possession of tangible collateral and sell/retain in satisfaction of the obligation owed
  • Abandon its Article 9 rights and obtain a judgment against the debtor or obligor on the obligation
  • Pursue other courses of action that the debtor and secured party have agreed upon
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7
Q

What methods can a secured party use to repossess collateral?

A
  • The judicial process
  • Self-help repossession
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8
Q

When using self-help repossession, what can the secured party NOT do?

A

Breach the peace

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9
Q

What are some examples of breaching the peace?

A
  • Bringing an officer who is not judicially authorized to be there
  • Breaking into the debtor’s home or garbage
  • Criminal acts
  • Some physical confrontations
  • Some deception or trickery
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10
Q

What are some examples of NOT breaching the peace?

A
  • Trespassing on land
  • No confrontation (even at night)
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11
Q

Is oral protest (e.g. “Don’t take it!”) a breach of the peace?

A

Circuit split: some say it is, while others require a threat of violence

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12
Q

For equipment that is hard to repossess (e.g. large equipment), what can be done in lieu of repossession?

A

Render it unusable (and then it can be sold on sight)

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13
Q

After repossession, what can the secured party do?

A
  • Article 9 disposition sale
  • Accept the collateral in partial or full satisfaction of the obligation
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14
Q

Once a secured party takes possession of the collateral after default, it may sell, lease, license, or otherwise dispose of the collateral, so long as everything about the disposition is _______________________.

A

commercially reasonable

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15
Q

When is a disposition commercially reasonable as a matter of law?

A

When the collateral is:

  • Sold in the usual manner in a recognized market;
  • Sold at the price current in that market; or
  • Otherwise in conformity with the reasonable commercial practices among dealers in that type of collateral

Note: These are like safe harbors for a question of fact

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16
Q

Is price alone determinative of whether a sale is commercially reasonable?

A

No

However, a very low price will trigger increased scrutiny

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17
Q

True or false: A disposition sale can be public or private.

A

True

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18
Q

When can a secured party buy collateral at a public sale?

A

Always

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19
Q

When can a secured party buy collateral at a private sale

A

If the price of the collateral is fixed or subject to widely distributed standard price quotes

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20
Q

Every aspect of the timing of a disposition sale must be _______________________ under the circumstances.

A

commercially reasonable

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21
Q

When is notice of a disposition NOT required?

A
  • The collateral is perishable or threatens to decline speedily in value;
  • The collateral is sold on a recognized market (e.g. NYSE); or
  • Notice is waived after default
22
Q

What’s the general rule regarding notice of a disposition?

A

A secured party must send authenticated notice of the disposition

23
Q

Who must be given notice of a disposition?

A
  • The debtor
  • Secondary obligors (e.g. cosigners, guarantors)
  • Other secured parties
  • Anyone else who has given the secured party notice of a claim or interest in the collateral
24
Q

When must notice of a disposition be given?

A
  • Timing must be commercially reasonable
  • Must give the notified party time to act

“Safe harbor” for noncommercial transactions: Reasonable if sent at least 10 days before the disposition sale

25
Q

What must notice of a disposition include?

A
  • Name of the secured party
  • Name of the debtor
  • Description of the collateral
  • How, when, and where the collateral is to be disposed of
  • Statement that the debtor is entitled to an accounting for the unpaid indebtness
26
Q

What are the additional requirements for notice of a disposition for a consumer goods transaction?

A
  • Description of any liability for the deficiency
  • Phone number that the debtor can call to obtain additional information, including the amount needed to redeem the collateral
27
Q

In what order are cash proceeds of a disposition distributed?

A
  1. Reasonable expenses for collection and enforcement
  2. Debt to the foreclosing secured party
  3. Subordinate security interests, provided the subordinated party makes a formal demand prior to distribution
  4. The debtor, if there’s any surplus
28
Q

What happens to senior (superior) security interests after a disposition sale?

A

They survive the sale

29
Q

If there is not enough money from a disposition to satisfy the debt, what can the secured party do?

A

Seek a deficiency judgment against the obligor for the remaining amount

30
Q

How does a debtor accept collateral in full or partial satisfaction of the debt?

A

By consenting after default to the acceptance in an authenticated record

31
Q

When accepting collateral in full satisfaction of the debt, is acceptance by silence permitted?

A

Yes, if the debtor does not object to the secured party’s proposal to accept within 20 days after the proposal is sent

32
Q

When accepting collateral in full satisfaction of the debt, what are the additional requirements for consumer goods transactions?

A
  • The secured party can only accept the collateral in full satisfaction of the obligation
  • 60% Rule: If the debtor has paid back 60% or more of the debt or the value of the collateral, then the goods must be sold – no acceptance (debtor can waive in an authenticated record)
33
Q

When accepting collateral in partial satisfaction of the debt, is acceptance by silence permitted?

A

No

34
Q

How may a debtor, secondary obligor, or other secured party redeem collateral?

A

By paying the entire secured obligation and expenses (including attorneys’ fees) incurred in repossessing and preparing the collateral for sale

35
Q

When must redemption occur?

A

Before the secured party has sold the collateral or accepted the collateral in satisfaction of the debt

36
Q

Can a debtor waive the right to redemption before default?

A

No

37
Q

When may a secured party remove a fixture from the real estate?

A

When the secured party has priority

38
Q

What cost(s) is a secured party liable for after removing a fixture?

A

The cost of repairing damage to the real estate

NOT the diminution in value resulting from the removal

39
Q

When may a secured party remove an accession from the other goods?

A

When the secured party has priority

40
Q

What can a secured party do to collect amounts owed to the debtor by third parties (account debtors)?

A

Step into the debtor’s shoes

41
Q

When can an account debtor NOT discharge the debt by paying the debtor directly? (i.e. when must an account debtor pay the secured party?)

A

Once the account debtor receives proper notice from the secured party

42
Q

If a secured party is collecting payments, may an account debtor raise defenses they had against the debtor against the secured party?

A

Yes

43
Q

If the underlying transaction is a sale of accounts, chattel paper, promissory notes, or payment intangibles, do the rules regarding surplus and deficiency apply?

A

No

44
Q

With enforcement, what are the remedies for a secured party’s failure to comply?

A
  • Injunctive relief
  • Actual damages
  • Statutory damages
45
Q

With enforcement, if a secured party’s failure to comply is ongoing, who can seek what injunctive relief?

A

The debtor or another secured party can ask the court to halt the improper enforcement activity

46
Q

With enforcement, if a secured party fails to comply, what statutory damages are available?

A

Minimum damages in consumer goods transactions for specific violations of Article 9

47
Q

With enforcement, if a secured party has violated its obligations under Article 9, what may the secured party be prevented from claiming?

A

A deficiency

48
Q

With enforcement, if a secured party has violated its obligations under Article 9 for a commercial transaction, what is the rebuttable presumption rule?

A

If the secured party did not sell the goods in a commercially reasonable manner, they are not entitled to a deficiency, unless they can prove a sale that complied with Article 9 would have created a deficiency

49
Q

With enforcement, if a secured party has violated its obligations under Article 9 for a consumer transaction, what rule do some courts follow?

A

An absolute bar rule: the secured party cannot recover a deficiency

50
Q

What may a secured party that improperly repossesses collateral be liable for?

A

Conversion

MEE Secured Transactions (5 decks)

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