Default, Fixtures, & Accessions

Question 1

Default

Answer 1

Grounds for Default typically specified in security agreement.

In absence of specification, default restricted to FAILURE TO PERFORM or pay the obligation when due. (late or missed payments BUT look for possible waiver by secured party)

Question 2

Self-Help Repossession

Answer 2

Creditor can repossess himself without judicial process on default IF can do so without a “breach of the peace.”

Question 3

Breach of the Peace

Answer 3

any conduct by the secured party that has the potential to lead to violence.

Generally, physical presence of the debtor PLUS verbal objection = breach of the peace.

Unauthorized entry into home = breach of peace, even if sec. agrmt said it was ok

Garage - if attached, entry probably = BoP; if detached, probably NOT BoP

Unauthorized entry into commercial premises LESS likely BoP.

Question 4

Retention of Collateral (strict foreclosure)

Answer 4

Usual remedy is to repossess and sell, BUT can keep collateral as payment IF
1) gets consent of other secured parties he know have claim to collateral or who has perfected by filing FS/certificate of title. If object w/in 20 days, must SELL.
AND
2) gets Debtor’s consent either through (a) agreeing in authenticated record after default or (b) failing to make authenticated objection w/in 20 days.

Question 5

Resale of Collateral

Answer 5

The sale discharges the security interest under hich the sale is being made and ALL SUBORDINATE SECURITY INTERESTS.
Purchaser still subject to superior security interests.

Sale may be by public auction or private.

MUST BE COMMERCIALLY REASONABLE

Question 6

Reasonable Notification of Resale of Collateral

Answer 6

authenticated by secured party - must be given to debtor and any sureties on the debt AND other secured parties

NOT necessary when collateral is perishable or threatens rapid decline in value

Question 7

Commercially Reasonable Sale

Answer 7

Every aspect of the sale (method, manner, time, place, and terms) MUST BE COMMERCIALLY REASONABLE

Question 8

Secured Party’s Right to Deficiency

Answer 8

If secured party complies with resale requirements, has a right to deficiency for any debt the sale does not cover.

If sale produces SURPLUS - goes to debtor/owner of the collateral.

Question 9

Failure to Comply with Resale Requirements

Answer 9

If secured party fails to conduct a commercially reasonable sale, there is a rebuttable presumption that the sale proceeds equal the amount of the debt - NO deficiency judgment available.

Question 10

Debtor’s Right to Redeem

Answer 10

BEFORE resale - debtor may redeem by tendering fulfillment of ALL obligations secured by the collateral (assuming security agreement has an acceleration clause)

Question 11

Fixture definition

Answer 11

Goods that have become so related to particular real property that an interest in them arises under real property law.

Fixture = intent that chattels become permanent part of the real estate - measured by damage caused by removal.

Question 12

Perfecting Security Interest in Fixtures

Answer 12

must make “fixture filing” in the office where a mortgage on the real estate would be filed. In addition to FS requirements, must reasonably ID real estate and show name of owner if not debtor.

Question 13

Rights of Secured Party to a Fixture on Default

Answer 13

Can repossess fixture under any circumstances, even if would make home uninhabitable.

Question 14

Priority Rule for Fixtures

Answer 14

Secured party v. Subsequent Real Estate Interest =
SI has priority over any real estate interest that arises AFTER perfection of the SI by fixture filing.

Secured Party v. PRIOR Real Estate Interest =
Generally, prior real estate interest that is properly recorded prevails BUT PMSI takes priority if perfected by fixture filing before goods become fixtures or within 20 days thereafter.

Construction Mortgage Lender ALWAYS take priority

Question 15

When Fixture Filing Unnecessary?

Answer 15

1) factory or office machines
2) equipment that is not primarily used in operation of the real estate
3) replacements of domestic appliances which are consumer goods

Can use ANY method of perfection (fixture filing not required) before these goods become fixtures to get priority.

Question 16

Accession Definition

Answer 16

goods that are physically united with other goods but the identity of the original goods is not lost (e.g. tires on a car)

Question 17

Perfection of Accessions

Answer 17

If SI is perfected when the collateral becomes an accession, SI remains perfected.

Question 18

Priority of Accessions

Answer 18

General Rule: other priority rules apply.
BUT: SI in accession is subordinate to SI in the whole that is perfected by compliance with a certificate-of-title statute

Question 19

Removal of Accessions and

Reimbursement for physical injury to the whole

Answer 19

secured party may remove accession from other goods if the SI has priority.

BUT Secured party is responsible for the cost of repairs.

If entitled to reimbursement, can refuse to allow removal until adequate assurances of reimbursement are provided.