Ch 5: Default

Question 1

What is the definition of ‘Default’ in the context of a security agreement?

Answer 1

‘Default’ is not defined by Article 9. It is determined by the parties to a security agreement.

Question 2

What is the only event of default in the absence of an agreement?

Answer 2

The failure of the obligor to make timely payments to the secured party.

Question 3

What governs the enforceability of terms in a security agreement?

Answer 3

Contract law.

Question 4

What does Article 9 recognize regarding agreements between account debtors and assignors?

Answer 4

The validity of an agreement that the account debtor will not assert claims or defenses against an assignee.

Question 5

What remedies may a secured party pursue after a default?

Answer 5

• Seek possession of the collateral
• Initiate a judicial action for judgment
• Pursue any agreed course of action

Question 6

True or False: A secured party may ignore a default without consequences.

Answer 6

False.

Question 7

What happens if a secured party ignores a default?

Answer 7

It may constitute a waiver of the secured party’s rights.

Question 8

How may a secured party proceed with fixtures in a security agreement?

Answer 8

In accord with the rights and remedies regarding the real property.

Question 9

What is a secured party liable for when removing a fixture from real property?

Answer 9

The cost of repairing any physical object damaged by the removal.

Question 10

What rights does a secured party have regarding account debtors upon default?

Answer 10

Notify the account debtor to make payment and exercise any rights of the debtor.

Question 11

What is the secured party entitled to do after a default?

Answer 11

Take possession of the collateral—no notice required unless specified in the security agreement.

Question 12

What is required for a secured party to obtain possession without judicial process?

Answer 12

Possession must be obtained without breach of the peace.

Question 13

Define ‘breach of the peace’ in the context of repossession.

Answer 13

Not defined by Article 9; left to court interpretation.

Question 14

What alternative action can a secured party take instead of securing possession of collateral?

Answer 14

Render equipment unusable.

Question 15

What may a secured party do with collateral after default?

Answer 15

Sell, lease, license, or otherwise dispose of all or any of the collateral.

Question 16

What standard must be met for the disposition of collateral?

Answer 16

Must be conducted in a commercially reasonable manner.

Question 17

True or False: A secured party must obtain the highest possible price when disposing of collateral.

Answer 17

False.

Question 18

What must a secured party do regarding notification of disposition?

Answer 18

Send an authenticated notification of disposition.

Question 19

Who must receive notification of disposition?

Answer 19

• The debtor
• Any secondary obligor
• Other secured party or lien holder
• Any party with authenticated notice of a claim

Question 20

Fill in the blank: A secured party must apply cash proceeds of a disposition in the following order: reasonable expenses, satisfaction of obligations, satisfaction of any subordinate security interests, and _______.

Answer 20

The remainder of the proceeds to the debtor.

Question 21

What is the general obligation of a secured party regarding surplus after disposition?

Answer 21

Pay the surplus to the debtor.

Question 22

What happens if there is a deficiency after the required payments from the disposition?

Answer 22

The obligor is generally liable for the deficiency.

Question 23

What rights does a buyer have when purchasing collateral?

Answer 23

All of the debtor’s rights in the collateral.

Question 24

What warranties accompany a disposition of collateral?

Answer 24

Warranties of title, possession, and quiet enjoyment.

Question 25

What is the UCC section that allows a secured party to accept collateral in full or partial satisfaction of an obligation?

Answer 25

UCC § 9-620 ## Footnote This section outlines the conditions under which a secured party may accept collateral instead of disposing of it.

Question 26

Under what conditions can a secured party accept collateral in full satisfaction of an obligation?

Answer 26

1. The debtor consents after default in an authenticated record. 2. The debtor does not object within 20 days after the proposal is sent. ## Footnote This ensures that the debtor is aware and agrees to the terms of collateral acceptance.

Question 27

What must a secured party do when proposing to accept collateral in satisfaction of an obligation?

Answer 27

Send the proposal to: * Any secured party or lien holder with a perfected interest * Any person with an authenticated notification of a claim * Any secondary obligor for partial satisfaction ## Footnote This notification process ensures transparency with all interested parties.

Question 28

True or False: In a consumer transaction, a secured party can accept collateral in partial satisfaction of the obligation.

Answer 28

False ## Footnote Acceptance in partial satisfaction is not allowed in consumer transactions and is considered void.

Question 29

What is the 60% rule in consumer goods transactions regarding strict foreclosure?

Answer 29

If the debtor has paid at least 60% of the cash price or obligation secured, the secured party cannot keep the goods in satisfaction of the debt. ## Footnote This rule protects consumers by ensuring that they have a right to the goods if a significant portion of the price has been paid.

Question 30

What is required for a debtor to redeem collateral?

Answer 30

Fulfill all obligations secured by the collateral and pay reasonable expenses incurred by the secured party. ## Footnote This includes any monetary obligations currently due and expenses related to retaking the collateral.

Question 31

What happens if the secured party has disposed of the collateral?

Answer 31

Redemption cannot occur. ## Footnote This limitation ensures that once the collateral is disposed of, the debtor loses the right to redeem it.

Question 32

Can a debtor waive the right of redemption in the security agreement?

Answer 32

No, any attempted waiver is void, except in authenticated agreements after default in non-consumer transactions. ## Footnote This protects the debtor's rights in the event of default.

Question 33

What type of relief can a debtor seek if a secured party fails to comply with Article 9?

Answer 33

Injunctive relief ## Footnote This allows the debtor to compel or restrain actions regarding the collateral.

Question 34

What are the minimum statutory damages a debtor can recover for non-compliance with Article 9 regarding consumer goods?

Answer 34

Not less than the credit service charge, plus 10% of the principal amount or time-price differential, plus 10% of the cash price. ## Footnote This ensures the debtor is compensated even if actual damages are less.

Question 35

What presumption applies to secured parties in commercial transactions if they fail to comply with Article 9?

Answer 35

There is a rebuttable presumption that the secured party is not entitled to collect a deficiency. ## Footnote This protects debtors by shifting the burden to the secured party to prove otherwise.

Question 36

What is a conversion action in the context of secured transactions?

Answer 36

A legal action that a debtor may pursue if a secured party improperly repossesses collateral. ## Footnote This action is based on tort law rather than UCC provisions.

Question 37

True or False: The remedies provided to a debtor for a secured party's failure to comply with Article 9 are waivable.

Answer 37

False ## Footnote Statutory remedies are nonwaivable to protect debtor rights.

Question 38

What duty does a secured party have towards unknown debtors or obligors?

Answer 38

A secured party does not owe a duty to a person they do not know is a debtor or an obligor. ## Footnote This means that secured parties are only responsible for known debtors.

Question 39

What is a default in the context of a security agreement?

Answer 39

A default is not defined by Article 9, so the parties can decide what constitutes a default. It typically occurs when the debtor fails to make a payment or fails to keep the collateral insured.

Question 40

What are the consequences of default for a secured party?

Answer 40

* Seek possession of the collateral and sell or retain it * Sue for a judgment based on the obligation * Pursue any agreed course of action * Notify an account debtor to pay the secured party

Question 41

True or False: A secured party can ignore a default without any consequences.

Answer 41

False

Question 42

What action can a secured party take regarding fixtures after default?

Answer 42

The secured party may remove the fixture from the real property if the security interest has priority but is liable for repair costs.

Question 43

After default, what is the secured party entitled to do with the collateral?

Answer 43

The secured party is entitled to take possession of or otherwise dispose of the collateral.

Question 44

What must a secured party do to obtain possession of collateral if it cannot be obtained without breach of the peace?

Answer 44

Use judicial process (e.g., replevin).

Question 45

What is required for the disposition of collateral to be considered commercially reasonable?

Answer 45

* Conducted in the usual manner on a recognized market * At the price current in that market * Conformity with reasonable commercial practices

Question 46

Fill in the blank: A secured party must send an authenticated notification of disposition at least _____ days before disposition.

Answer 46

10

Question 47

Who must receive the authenticated notification of disposition?

Answer 47

* The debtor * Any secondary obligor * Other secured parties or lienholders * Parties with notified claims or interests in the collateral

Question 48

What are the priorities for applying cash proceeds from a disposition?

Answer 48

* Secured obligation * Reasonable disposition expenses * Subordinate security interests * Debtor

Question 49

What happens to the debtor's rights after a sale of collateral?

Answer 49

The buyer receives all of the debtor’s rights in the collateral, but it remains subject to any senior security interest.

Question 50

What is strict foreclosure?

Answer 50

Acceptance of collateral in full or partial satisfaction of the corresponding obligation when the debtor consents or does not object within 20 days.

Question 51

In a consumer transaction, what restriction exists regarding acceptance of collateral?

Answer 51

The secured party can accept the collateral only in full satisfaction of the obligation.

Question 52

What is the right of redemption for a debtor?

Answer 52

A debtor can redeem the collateral after default by paying the entire obligation and expenses incurred by the secured party.

Question 53

What remedies are available to a debtor if the secured party fails to comply?

Answer 53

* Injunctive relief * Actual damages * Minimum statutory damages for consumer goods * Limitation on deficiency claims * Conversion action

Question 54

What are the four issues usually tested in secured transactions questions?

Answer 54

* Attachment * Perfection * Priority * Enforcement