Secured Transactions Remedies

Question 1

Rights Upon Default

Answer 1

Secured party may reduce a claim to judgment, foreclosure, or otherwise enforce the claim
Secured party has right to repossess tangible collateral if it can do so w/out a breach of the peace
- Breach of the Peace: an act that is likely to lead to violence
- If cannot repossess w/out breach of peace, required to bring an action for replevin

Question 2

Payment to Secured Party

Answer 2

If collateral is accounts receivable, instruments, or chattel paper, secured party may notify person obliged on the collateral to make payment to the secured party
- Notification must:
- be authenticated by the secured party or the debtor
- reasonably identify the rights assigned
- Once notified, the account debtor may discharge its obligations only by paying the assignee & is not discharged by paying the original obligee

Question 3

Right to Redeem

Answer 3

Debtor has right to redeem the collateral by tendering to the secured party the amount of the obligation, including interest, together w/ reasonable expenses & attorney’s fees caused by the default
Must be effected before:
- collateral has been collected
- secured party has disposed of the collateral or has entered into a contract for its disposition
- secured party has accepted the collateral in full or partial satisfaction of the obligation
Waiver: no right to waive unless all parties agree in writing immediately following default
- May not occur in advance or at inception of transaction

Question 4

Disposition After Default

Answer 4

Secured party may dispose of any or all of the collateral in its present condition, or following any commercially reasonable preparation of processing
- All aspects must be commercially reasonable & may occur by public or private sale
- Commercially reasonable:
- usual manner on any recognized market
- at price current in any recognized market at the time of sale
- otherwise in conformity w/ reasonable commercial practices among dealers in the type of property that was sold

Question 5

Disposition at Default - Notification

Answer 5

Secured party must send to debtor, to any filed secured parties, and to any other person from whom the secured party has received notification of an interest in the collateral, a reasonable authenticated notice of disposition
- Does not apply to perishable, that which may quickly decline in value, or that is customarily sold on a recognized market (stocks)
- 10 days is enough in commercial transactions
- Non-consumer translation, must include
- description of the debtor & secured party
- description of the collateral
- method of intended disposition
- statement that debtor is entitled to an accounting of all unpaid indebtedness
- time & place of public disposition or time after which the collateral will be sold in a private disposition
- Consumer goods must also include:
- description of the liability for a deficiency
- telephone # the debtor can call to obtain the amount required to redeem
- telephone # or mailing address from which additional info is available

Question 6

Proceeds of Collection

Answer 6

Cash proceeds are applied as follows:
- reasonable expenses of retaking, holding, preparing, processing, & disposing plus reasonable legal fees
- satisfaction of obligations secured by the SI under which the disposition is made
- satisfaction of obligations secured by subordinate SIs in or other subordinate lien on teh collateral, if secured party has received an authenticated demand before disposal
Secured party shall pay to the debtor any surplus
Debtor is liable for any deficiency following sale unless underlying transaction is a sale of:
- accounts, chattel paper, payment intangibles, or promissory notes

Question 7

Proceeds of Collection - Deficiency

Answer 7

If collateral does not bring enough at sale/collection, secured party is entitled to a judgment for deficiency
- Deficiency: difference between amount owed & proceeds received
If sale conducted in commercially unreasonable manner, deficiency reduced
- Difference between outstanding amount of loan and amount collateral would have sold for in a commercially reasonable sale
- Presumed to be the outstanding amount of the loan
- Secured party can rebut this presumption