Default

Question 1

Does the UCC define what a default is?

Answer 1

No

Generally look for grounds of default in the security agreement;

Otherwise, look for late or missed payments

• beware of waiver

Question 2

What may a party do to get possession back in the event of default?

Answer 2

Self-help repossession without** a **breach of the peace

• non-delegable duty
• if breaches the peace, loses authorization to repossess and may be sued for conversion

If self-help not available, use judicial process

• replevin

Question 3

What constitutes a breach of the peace?

Answer 3

Collateral taken over debtor’s objection

Constructive force (fraud, duress, or coercion)

Unauthorized entry into a home

• need consent at the time of entry
• driveways and the streets are ok
• opening a closed garage door likely not ok
• separate buildings that are garages are more likely to be ok than if attached to the house
• business premises more likely to be ok than a dwelling

NOTE: if repossess additional items than the collateral, must hold the additional items for the debtor (implied right if no contractual duty)

Question 4

What options does a secured party have upon respossessing the collateral?

Answer 4

Retention of collateral via strict foreclosure

Resale of collateral

Question 5

What are the requirements for a strict foreclosure of the collateral?

Answer 5

Secured party may propose retaining the collateral in full or partial satisfaction of the debt

Must send proposal to:

• any other secured party from whom the foreclosing party has received notice of a claim to the collateral; and
• any other secured party who has perfected a security interest in the collateral by 1) filing a financing statement; or 2) noting its security interest on a certificate of title

If a notified party** **objects**, the collateral must be **disposed of by sale

Must also obtain the debtor’s consent

• agreeing in an authenticated record after default; or
• in the case of a full strict foreclosure, failing to make an authenticated objection within 20 days after the secured party sent notice

NOTE: in a consumer transaction**, secured party may **keep the collateral only in full satisfaction of the debt

NOTE: in consumer cases**, where the debtor has paid at **least 60%** of the case price in the case of a PMSI or 60% or the loan, the secured party **must sell the collateral within 90 days after repossession unless

• after default the debtor waives this rights or extends the time via an authenitcated agreement

Question 6

What are the requirements for resale of collateral?

Answer 6

May sell or lease the collateral in its condition when repossessed or after reasonable preparation

May be public auction or private

Sale discharges the security interest and all subordinate security interests

• still subject to superior security interests

Must provide reasonable notification authenticated by the secured party to:

• the debtor (may waive after default via authenticated agreement);
• any sureties on the debt (may waive after default via authenticated agreement);
• any other secured parties who have notified the secured party of their interests;
• secured parties who have perfected by filing a financing statement or making a notation on certificate of title

NOTE: notice is not necessary when the collateral is perishable or threatens to decline rapidly** in value or is ordinarily **sold in a recognized market

Notice must be sent within a reasonable time before the sale

• nonconsumer–10 days or more before the sale

Content of Notice (nonconsumer transactions)

• description of debtor and secured party
• description of collateral
• method of sale (public or private)
• statement that debtor is entitled to an accounting
• time and place of public sale or time after which a private sale will be made

Content of Notice (Consumer transactions)

• description of debtor and secured party
• description of collateral
• method of sale (public or private)
• statement that debtor is entitled to an accounting
• time and place of public sale or time after which a private sale will be made
• description of recipient’s liability for a deficiency
• telephone number from which recipient can discover cost of redeeming the collateral
• telephone number or mailing address from which recipient can get additional information concerning the sale

NOTE: if the notice contains the above items, per se sufficient**; if not, then **question of fact

Sale must be commercially reasonable

• method
• manner
• time
• place
• terms

Secured party purchasing collateral

• may buy at any public sale
• may buy at a private sale only if collateral is of a type customarily sold in a recognized market or is a type which is subject of widely distributed standard price quotes

Question 7

What is a secured party’s right to deficiency?

Answer 7

Compliance with resale requirements

• May seek the deficiency and expenses of the sale

Noncompliance with resale requirements

• Rebuttable presumption that the value of the collateral=amount remaining on tehedebt

NOTE: a secured party is liable for actual damages caused by its failure to comply with the resale requirements

• if collateral is consumer goods, debtor is entitled to a minimum of 10% of the cash price of the goods plus amount equal to all the interest charges to be paid over the life of the loan

Question 8

Does the debtor have a right to redeem the collateral?

Answer 8

Any time before the secured party:

• has resold the collateral; or
• entered into a contract for its disposition; or
• the obligation has been discharged by the secured party’s retention of the collateral

The debtor may redeem the collateral

Steps:

• tender fulfillment of all obligations secured by the collateral
• beware of acceleration clauses