Default and Enforcement Flashcards
What is the prerequisite to repossession rights or rights to enforce a security interest?
Attachment
What determines what constitutes a default?
- The security agreement
- Applicable contract law
What triggers Article 9 enforcement rights?
Default
Are Article 9 enforcement rights cumulative?
Yes
Can Article 9 enforcement rights be exercised simultaneously?
Yes
What are a secured party’s Article 9 enforcement rights?
- 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
What methods can a secured party use to repossess collateral?
- The judicial process
- Self-help repossession
When using self-help repossession, what can the secured party NOT do?
Breach the peace
What are some examples of breaching the peace?
- 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
What are some examples of NOT breaching the peace?
- Trespassing on land
- No confrontation (even at night)
Is oral protest (e.g. “Don’t take it!”) a breach of the peace?
Circuit split: some say it is, while others require a threat of violence
For equipment that is hard to repossess (e.g. large equipment), what can be done in lieu of repossession?
Render it unusable (and then it can be sold on sight)
After repossession, what can the secured party do?
- Article 9 disposition sale
- Accept the collateral in partial or full satisfaction of the obligation
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 _______________________.
commercially reasonable
When is a disposition commercially reasonable as a matter of law?
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
Is price alone determinative of whether a sale is commercially reasonable?
No
However, a very low price will trigger increased scrutiny
True or false: A disposition sale can be public or private.
True
When can a secured party buy collateral at a public sale?
Always
When can a secured party buy collateral at a private sale
If the price of the collateral is fixed or subject to widely distributed standard price quotes
Every aspect of the timing of a disposition sale must be _______________________ under the circumstances.
commercially reasonable
When is notice of a disposition NOT required?
- 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
What’s the general rule regarding notice of a disposition?
A secured party must send authenticated notice of the disposition
Who must be given notice of a disposition?
- 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
When must notice of a disposition be given?
- 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
What must notice of a disposition include?
- 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
What are the additional requirements for notice of a disposition for a consumer goods transaction?
- 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
In what order are cash proceeds of a disposition distributed?
- Reasonable expenses for collection and enforcement
- Debt to the foreclosing secured party
- Subordinate security interests, provided the subordinated party makes a formal demand prior to distribution
- The debtor, if there’s any surplus
What happens to senior (superior) security interests after a disposition sale?
They survive the sale
If there is not enough money from a disposition to satisfy the debt, what can the secured party do?
Seek a deficiency judgment against the obligor for the remaining amount
How does a debtor accept collateral in full or partial satisfaction of the debt?
By consenting after default to the acceptance in an authenticated record
When accepting collateral in full satisfaction of the debt, is acceptance by silence permitted?
Yes, if the debtor does not object to the secured party’s proposal to accept within 20 days after the proposal is sent
When accepting collateral in full satisfaction of the debt, what are the additional requirements for consumer goods transactions?
- 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)
When accepting collateral in partial satisfaction of the debt, is acceptance by silence permitted?
No
How may a debtor, secondary obligor, or other secured party redeem collateral?
By paying the entire secured obligation and expenses (including attorneys’ fees) incurred in repossessing and preparing the collateral for sale
When must redemption occur?
Before the secured party has sold the collateral or accepted the collateral in satisfaction of the debt
Can a debtor waive the right to redemption before default?
No
When may a secured party remove a fixture from the real estate?
When the secured party has priority
What cost(s) is a secured party liable for after removing a fixture?
The cost of repairing damage to the real estate
NOT the diminution in value resulting from the removal
When may a secured party remove an accession from the other goods?
When the secured party has priority
What can a secured party do to collect amounts owed to the debtor by third parties (account debtors)?
Step into the debtor’s shoes
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?)
Once the account debtor receives proper notice from the secured party
If a secured party is collecting payments, may an account debtor raise defenses they had against the debtor against the secured party?
Yes
If the underlying transaction is a sale of accounts, chattel paper, promissory notes, or payment intangibles, do the rules regarding surplus and deficiency apply?
No
With enforcement, what are the remedies for a secured party’s failure to comply?
- Injunctive relief
- Actual damages
- Statutory damages
With enforcement, if a secured party’s failure to comply is ongoing, who can seek what injunctive relief?
The debtor or another secured party can ask the court to halt the improper enforcement activity
With enforcement, if a secured party fails to comply, what statutory damages are available?
Minimum damages in consumer goods transactions for specific violations of Article 9
With enforcement, if a secured party has violated its obligations under Article 9, what may the secured party be prevented from claiming?
A deficiency
With enforcement, if a secured party has violated its obligations under Article 9 for a commercial transaction, what is the rebuttable presumption rule?
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
With enforcement, if a secured party has violated its obligations under Article 9 for a consumer transaction, what rule do some courts follow?
An absolute bar rule: the secured party cannot recover a deficiency
What may a secured party that improperly repossesses collateral be liable for?
Conversion
