Default + Consequences

Question 1

Default

Answer 1

Occurs when debtor fails to tender obligation when due
Fail to meet installment payment always = default–but may have other obligations depending on contract

Question 2

Rights Upon Default

Answer 2

Can reduce claim to judgement AND/OR foreclose, AND/OR otherwise enforce

Have right to repossess tangible collat IF can do so w/out breach of peace

Can’t obtain w/out breach = must bring action for writ of replevin

If acts receivables or instruments or chattel paper–can notify person obligated to make payment to sec party vs. debtor

Question 3

Breach of the peace

Answer 3

Not specifically defined by UCC–ask self “is this peaceable?”
Includes
-act likely to lead to violence
-Unauthorized entry into home = always breach

Question 4

Default + Accts Receivables, Instruments, + Chattel Paper

Answer 4

On default–can notify obligor that must now pay sec party, not creditor
MUST BE:
1) Authenticated by sec party or debtor AND
2) r. ID rts assigned

Once notified = obligor must pay assignee, NOT original obligee–if pay original, debt not discharged

Question 5

Right to Redeem

Answer 5

Must pay amt of obligation + interest + r. expenses + atty’s fees

Must be before:
1) Collateral collected OR
2) Sec. party disposed of collat/entered into contract for disposition (ex. foreclosure sale) OR
3) Sec. party accepted collat in full or partial satisfaction of obligation (ex. “I’ll keep this + let you off the hook”–can’t redeem after make deal)

Question 6

Waiver of Rt to Redeem

Answer 6

ONLY if
1) All parties agree
2) In writing AND
3) Agree immediately following default

CANNOT waive in before of default (idea–once default, waiver like a settlement)

Question 7

Sale/Foreclosure of Collateral

Answer 7

Public (ex. auction) or private (all else)

All aspects (prep, sale, licensing etc.) MUST be commercially reasonable

Must give r. authenticated notice to:
1) Debtor
2) Any filed secured parties
3) Any other person who has notified sec. party of interest
Exception: perishables, sold on recog. mkt (basically = stock mkt)

Question 8

Commercial Reasonableness

Answer 8

1) In usual manner on any recognized market OR
2) At price current in any recog. market at time OR
3) Otherwise in conformity w/ r. comm. practices among dealers of the type of property

Ex. prob unreasonable not to advertise

Includes r. notice (unless perishables, sold on recog. mkt (stock mkt))

Comm debtor– 10 days always r. notice

Can reduce deficiency if unreasonable

Question 9

Required Notice Contents (Non-Consumer)

Answer 9

1) Description of debtor + sec. party
2) Description of collat
3) Method of intended disposition
4) Statement debtor entitled to accounting of all unpaid indebtedness AND
5) Time + place of public disposition OR time after which will be sold in private trans.

Commercial debtor = 10 days always = r. notice

Question 10

Required Notice Contents (Consumer)

Answer 10

Same reqs as non-consumer
1) Description of debtor + sec. party
2) Description of collat
3) Method of disposition
4) Statement debtor entitled to accting of all unpaid indebtedness
5) Time + place of public disposition OR time after which sold in private trans.
PLUS
6) Descrip. of any liability for def
7) Tel. # debtor can call to get amt req. to redeem
8) Tel. # or mailing address where additional info available

Question 11

Order of Distribution

Answer 11

Expenses –> Obligation to foreclosing secured party (almost always = one holding sale) –> other sec. parties/liens IF sent auth demand to foreclosing party–> debtor, if surplus left

Question 12

Right of second priority sec. interests re: proceeds

Answer 12

Want share of proceeds–MUST send authenticated demand re: desire to foreclosing party

Flip side to req. that foreclosing party send notice to everyone w/ interest–need to send demand back for rt to surplus

Question 13

Deficiency

Answer 13

Generally = debtor liable if sale can’t cover debt

Exception–sale of accounts, chattel paper, payment intangibles or promissory notes

Idea–UCC fiction this is sec. transaction vs. outright sale–but recog. reality here (i.e. if buy accts recievable + don’t get as much $$ as wanted, can’t demand more)

Question 14

Rebuttable Presumption Rule (Comm. Reasonableness)

Answer 14

If non-consumer debtor proves sale comm unreasonable–> rebuttable presumption that amt of sale if comm. reasonable = amt of outstanding debt

Result = presume deficiency $0

(Consumer debtor–no UCC rule, varies widely by jx)