Rights on Default Flashcards
When does default occur?
Not specified in Art. 9, but in security agreement (for agricultural liens, by lien statute). Absent specification in agreement, default is restricted to failure to perform or pay obligation on due date.
What can a secured party do on default?
Repossess and sell the collateral
Can a secured party use self-help to repossess collateral?
Yes, so long as they do so without a breach of the peace (may also render equipment unusable and dispose of it on the debtor’s property).
When does a repossession by a creditor constitute breach of the peace?
A repossession made over any protest by the debtor as well as any violence, force, or actions containing implied threats (carrying a weapon, or dressing as law enforcement).
Is trespass by creditor for repossession breach of the peace?
No, but breaking and entering is.
What happens if a secured party breaches the peace during repossession?
The creditor loses the code’s authorization to repossess and may be sued for conversion, actual and punitive damages.
What self-help can a creditor engage in to repossess accounts?
The secured creditor can notify the account debtors (those owing money to the debtor) in a signed writing to pay the secured creditor instead of the debtor. Payment to the debtor will after this not discharge the account debtor’s obligation.
What judicial action can the creditor take on default?
Replevy (always available)
What may a secured party do with collateral after repossession?
Sell, lease, license, or retain in satisfaction of the debt
When may a secured party retain the collateral as satisfaction of the debt?
This is called strict foreclosure and can be done if:
(1) the debtor consents by either an agreement in an authenticated record after default or (for a full satisfaction only) failing to make an authenticated objection within 20 days after notice from the secured creditor
(2) the secured party sends an authenticated notice to the debtor, other secured parties who have perfected by financing statement or notation in certificate of title and other secured parties who have sent a notice of claim
(3) no party objects within 20 days after notice is sent
What are the restrictions on strict foreclosure?
No partial strict foreclosure in consumer transactions (can only keep collateral in full satisfaction of the debt).
In consumer goods cases where the debtor has paid at least 60% of the cash price (for PMSI) or the loan (for non-PMSI), the secured party must sell the collateral within 90 days after repossession unless they receive an authenticated agreement from the debtor.
Is there a right to redemption of repossessed collateral?
Yes, the debtor, surety or other secured party may redeem the collateral after default by paying off all the obligations and reasonable expenses of repossession.
What liability does a secured party have for failure to comply with Art. 9 requirements?
Actual damages
What liability does a secured party in consumer goods have for violation of default rules?
Debtor entitled to a minimum of 10% of cash price of goods and the amount equal to the interest charges to be paid over the life of the loan.
What liability do secured parties generally have for violation of default rules?
May lose right to seek deficiency judgment – rebuttable presumption in non-consumer transactions that the value of the collateral is equal to the amount of the debt. No rule for consumer transactions, but courts (1) follow the above rule, (2) deny a deficiency as an absolute bar, or (3) allow a deficiency minus actual damages proven by the debtor.
