Secured Transactions: Remedies Of Secured Party Upon Debtor's Default

Front 1

Default

Back 1

Not paying

Can include other things specified in security agreement (taking collateral out of state w/o permission, not keeping collateral insured)

Front 2

Upon default, creditor may repossess

- No judicial process needed (self-help)
- Need not give debtor notice
- Limitation on repossession: no breach of peace

Back 2

Creditor can't delegate duty not to breach peace to repo person/company --> creditor is strictly liable even if repo dude is a contractor (conversion of repossessed item, actual damages, punitive damages)

Front 3

After proper repossession,

Back 3

Creditor may:
1) Resell collateral (sue for deficiency, give surplus to debtor)

2) Strict foreclosure (keep collateral and call things square)

Front 4

Notice of sale

- Generally required

Back 4

Exceptions: perishable collateral, collateral threatening to decline speedily in value, collateral is customarily sold on recognized market

Front 5

Contents of Notice

- Must be sent reasonable time before sale (fact question)
- Nonconsumer transactions, 10 days or more before sale

Back 5

- description of debtor and secured party
- description of collateral
- method of sale
- statement that debtor entitled to an accounting and the charge, if any
- time and place of public sale, time after which private sale will be made (earliest date of sale)

Hint 5

If collateral is consumer goods, notice must also

1) explain that debtor liable for deficiency
2) tele. # of person from whom debtor can obtain amount needed to redeeem collateral
3) tele. # or address from which debtor can get additional info about sale

Front 6

Who Receives Notice

Back 6

* 1) Debtor: unless waived in authenticate 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

Front 7

Debtor's Right to Redeem

Back 7

Ability to cure default and regain collateral if certain requirements satisfied

Hint 7

1) Creditor hasn't sold or entered into contract to sell collateral

2) Strict foreclosure has not yet occurred

3) Debtor has not waived right to redeem after default

4) Debtor must tender fulfilllment of all obligations secured by collateral (watch out for acceleration clauses)

5) Debtor must tender creditor's reasonable expenses

Front 8

All aspects of sale (method, manner, time, place, terms) must be commercially reasonable- Fact Question

Back 8

Merely because better price could've been obtained doesn't make unreasonable

Substantial price difference - close analysis

Hint 8

Burden of proof on creditor to show commercial reasonableness of sale in deficiency suit

Front 9

Ability of Creditor to Purchase at Resle

Back 9

Public Sale (Auction): Yes

Private Sale: Generally not, unless
1) Collateral customarily sold in a recognized market, or
2) Colalteral is subject to widely distributed standard price quotations

Front 10

Title of Purchaser at Resale

Back 10

Reselling creditor warrants good title, possession, and quiet enjoyment of the collateral by the purchaser unless the creditor takes steps to disclaim the warranties

Front 11

Application of Resale Proceeds

Back 11

1) Reasonable expenses of reslling creditor
2) Satisfaction of debt
3) Satisfaction of subordinate creditors
4) Surplus, if any, to debtor

Front 12

Deficiency

Back 12

Creditor is undersecured/unsecured for deficiency amount

Front 13

For not complying with resale requirements, creditor liable for actual damages (liability do debtor or another creditor)

Back 13

Consumer Goods:

Creditor automatically liable for amount equal to finance charge plus 10% principal

Hint 13

Consumer Transactions: absolute bar to recovery of deficiency by creditor

Nonconsumer Transactions: rebuttable presumption that value of collateral was equal to amount of debt

Secured creditor may prove otherwise and still recover a deficiency

Front 14

If Collateral Accounts or Instruments

Back 14

Creditor directs obligor to make payments directly to creditor, rather than debtor

Front 15

Strict Foreclosure

Creditor retains collateral in total satisfaction of debt

Non-consumer situations, may retain collateral in total or partial satisfaction of debt

Back 15

Requirements:

1) Debtor consents:
Express, or debtor agrees in authenticated record made after default; or

Implied: debtor fails to object to creditor's proposal to strictly foreclose within 20 days fo when creditor sent notice

Hint 15

2) Creditor sends authenticated notice to retain collateral to:
Debtor (unless d's waived notice in authenticated agreement made after default)

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

3) No timely objection: if debtor or another creditor objects in writing within 20 days, creditor may not keep collateral and must conduct a resale

Front 16

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

Back 16

Resale necessary within 90 days of repossession

Front 17

Basic Strategy for Bar Questions

Back 17

1. Is transaction w/in Article 9?
2. Classify the collateral.
3. Determine if security interest created (attachment).
4. Determine if security interest has been properly perfected.
5. Determine claimants to the collateral.
6. Apply proper priority rules and rules regarding repossession