VII. REMEDIES OF SECURED PARTY WHEN DEBTOR DEFAULTS

Question 1

A. REMEDIES TRIGGERED BY DEBTOR’S DEFAULT

Answer 1

A. REMEDIES TRIGGERED BY DEBTOR’S DEFAULT
“Default” not defined in UCC. Clearly default means not paying, but the term may include other things specified in the security agreement such as taking the collateral out of state without permission or not keeping the collateral insured.

Question 2

kinds of remedy

Answer 2

B. REPOSSESSION

then creditor can:
C. SALE OF COLLATERAL BY CREDITOR
D. STRICT FORECLOSURE

Question 3

B. REPOSSESSION

Answer 3

1. Upon Default, Creditor May Repossess
2. No judicial process Needed — self-help remedy
3. Creditor Need Not Give Debtor notice
4. Limitation on Repossession — No breach of peace on either side
   Fact question to determine whether the peace was breached.
5. Creditor Cannot Delegate Duty Not to Breach Peace
   Creditor cannot delegate the duty not to breach the peace to the repo person/company.
   Thus, if the repo person breaches the peace, the creditor is strictly liable even if the repo person is an independent contractor.
   This liability could be for conversion of the repossessed item, actual damages, and even punitive damages.

Creditor now has choice after a proper repossession:
1. Resell Collateral — sue for deficiency, give surplus to debtor 2. Strict Foreclosure — keep collateral and call things square

Question 4

C. SALE OF COLLATERAL BY CREDITOR

1. Notice of Sale

Answer 4

1. Notice of Sale
   a. General Rule = Notice Required
   b. Exceptions
   (1) perishable (fruit) Collateral
   (2) Collateral Threatening to Decline Speedily in Value (ticket)
   (3) Collateral is Customarily Sold on a Recognized Market
   c. Contents of Notice
   (1) Description of debtor and secured party
   (2) Description of the collateral
   (3) Method of sell
   (4) Statement that debtor is entitled to accounting and the charge, if any
   (5) Time and place of public sale; time after which a private sale will be made (earliest date of sale)
   (6) If the collateral is consumer goods, the notice must also:
   (a) Explain that debtor liable for deficiency
   (b) Telephone number of person from whom debtor can obtain amount needed to redeem the collateral
   (c) Telephone number or address from which debtor can get additional information about the sale
   d. Timeliness of Notice
   Notice must be sent a reasonable amount of time before the sale.
   It is a fact question as to what is a reasonable time but in a nonconsumer transaction, 10 days or more before the sale is considered reasonable.
   e. Who Receives Notice
   (1) Debtor — unless debtor has waived notice in an authenticated agreement after default
   (2) Sureties
   (3) If Collateral Not Consumer Goods – Notice to Creditors Who Have Perfected by Filing, Notation on Certificate of Title, or Who Have Given Notice to Reselling Creditor

Question 5

C. SALE OF COLLATERAL BY CREDITOR

2. Debtor’s Right to Redeem

Answer 5

2. Debtor’s Right to Redeem
   Debtor has the ability to cure the default and regain the collateral if certain requirements satisfied.
   a. Creditor Has Not Yet sold or Entered Into a Contract To Sell Collateral
   b. strict foreclosure Has Not Yet Occurred
   c. Debtor Has Not Waived the Right to Redeem after Default
   d. Debtor Must Tender Fulfillment of all Obligations Secured By the Collateral
   Not enough just to tender the late payments. Watch out for acceleration clauses.
   e. Debtor Must Tender Creditor’s Reasonable Expenses
   Examples: repo cost, storage cost, everything incurred for the sale

Question 6

C. SALE OF COLLATERAL BY CREDITOR

3. Standard of Care

Answer 6

3. Standard of Care
   All aspects of the sale, that is, the method, manner, time, place, and terms, must be commercially reasonable.
   It is a fact question whether the sale was commercially reasonable.
   Merely because a better price could have been obtained does not make sale unreasonable but if the difference in price is substantial, the sale will be closely analyzed.

Burden of proof is on the creditor to show commercial reasonableness of the sale in a deficiency suit.

Question 7

C. SALE OF COLLATERAL BY CREDITOR

4. Ability of Creditor to Purchase at Resale
5. Title of Purchaser at Resale

Answer 7

4. Ability of Creditor to Purchase at Resale
   a. Public Sale (auction) = yes
   b. Private Sale = Only if:
   (1) Collateral is customarily sold in a recognized market, or
   (2) Collateral is subject to widely distributed standard price quotations
5. Title of Purchaser at Resale
   The reselling creditor warrants title, possession, and quiet enjoyment of the collateral by the purchaser unless the creditor takes steps to disclaim the warranties.

Question 8

C. SALE OF COLLATERAL BY CREDITOR

6. Application of Resale Proceeds
7. Deficiency

Answer 8

6. Application of Resale Proceeds
   a. Reasonable expenses of Reselling Creditor
   b. Satisfaction of debt
   c. Satisfaction of Subordinate Creditors
   d. Surplus, if any, to debtor
7. Deficiency
   The creditor is unsecured for the deficiency amount.

Question 9

C. SALE OF COLLATERAL BY CREDITOR

8. Penalty for Not Complying With Resale Requirements
9. If Collateral is Accounts or Instruments

Answer 9

8. Penalty for Not Complying With Resale Requirements
   a. Creditor Liable for Actual Damages
   This liability could be to the debtor or to subordinate creditors.
   b. Consumer Goods
   The creditor is automatically liable for amount equal to finance charge plus 10% of the principal.
   c. Effect on Creditor’s Ability to Recover Deficiency
   (1) Consumer Transactions = absolute bar to recovery of deficiency
   (2) Nonconsumer Transactions = rebuttable presumption that value of collateral was equal to amount of debt
   Secured creditor may prove otherwise and still recover a deficiency.
9. If Collateral Accounts or Instruments
   The creditor directs the obligor to make payments directly to the creditor, rather than to the debtor.

Question 10

D. STRICT FORECLOSURE

1. Creditor Retains Collateral

Answer 10

1. Creditor Retains Collateral
   The creditor may retain the collateral in total satisfaction of the debt.
   In non-consumer situations, the creditor may retain the collateral in total or partial satisfaction of the debt.

Question 11

D. STRICT FORECLOSURE
2. Requirements to Use Strict Foreclosure

3. Exception for High Equity (debtor has paid 60% of price) Consumer Goods

Answer 11

2. Requirements to Use Strict Foreclosure
   a. Debtor Consents
   (1) Express, or
   The debtor agrees in an authenticated record made after default
   (2) Implied
   The debtor fails to object to the creditor’s proposal to strictly foreclose within 20 days of when the creditor sent notice.

b. Creditor Sends Authenticated Notice to Retain Collateral to:
(1) Debtor — unless the debtor has waived notice in an authenticated agreement made after default
(2) If Collateral Not Consumer Goods – Notice to Creditors Who Have Perfected by Filing, Notation on Certificate of Title, or Who Have Given Notice to Creditor
c. No Timely Objection
If the debtor or another creditor objects in writing within 20 days, the creditor may not keep the collateral and must conduct a resale.

3. Exception for High Equity (debtor has paid 60% of price) Consumer Goods — resale necessary within 90 days of repossession