Transcript Default and Enforcement

Default and
Enforcement
Enforcement:
Cumulative Remedies

Proceed under non-UCC law, and satisfy a
judgment out of almost any asset the Debtor
owns;

Proceed under the UCC, and repossess the
collateral (self-help). [9-601; 9-609]

OR, the SP can do both, but only entitled to
one satisfaction.
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Repossession: Self-Help

No notice required under the code (but see
revised 1-304, or contract modification
theories).

No court case or supervision required -- self
help. [9-609]

Repossession must be accomplished without
"breach of the peace." [9-609(b)]
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Repossession: Breach of
Peace

Breach of the peace standard: a personal and
unequivocal objection to repossession is usually
enough. (but see cases like Williams v. Ford Motor
Co.).

A breach of the peace also occurs if an enclosed
area is entered (e.g., breaking into a garage).

If Breach of Peace occurs, under 9-625(b), SP may
be liable for damages.
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Notice of Disposition
A secured party must send a "reasonable
authenticated notice of disposition” to:
 the Debtor;
 secondary obligors;
 (if non-consumer goods): any other secured
party, interest holder, or lien holder, as of 10
days before the notification date.
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Contents of Notice:

In commercial (non-consumer) transactions, the
notification must include:






The debtor and secured party;
The collateral to be disposed;
The method of disposition;
The debtor's right to an accounting;
Time and place for public disposition; Time after
which for private disposition;
In commercial (non-consumer) transactions, the
notice may be sufficient if it contains minor
errors. [9-613(3)]
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Contents of Notice
(Consumer)

A consumer notice must contain all of
the above, plus:
A description of any liability for
deficiency;
 A telephone number for paying the full
amount to redeem the property;
 A telephone number or address for
additional information about the
disposition.

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Penalties for Failure to
Comply

In non-consumer cases, the UCC
adopts a rebuttable presumption that
at a complying sale, the price would
have equaled the remaining debt.

In consumer cases, courts are free to
apply non-UCC rules (often "Absolute
Bar").
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Disposition

Disposition must be at a “commercially
reasonable sale”. [9-610(b)]

Parties may agree by contract (within limits)
as to what is commercially reasonable. [9603]

Secured Party may purchase the collateral at
a public sale. [9-610(c)]
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Commercially Reasonable
Disposition

A disposition is commercially reasonable if it is “in
conformity with reasonable commercial practices
among dealers in the type of property that is the
subject of the disposition.” See §9-627(b)(3)

The fact that a higher price could have been
obtained at a different time or in a different
method from the one the SP selected is not of
itself sufficient to preclude the SP from
establishing that the disposition was made in a
commercially reasonable manner. See §9-627(a)
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Liability for Deficiency
In nonconsumer actions:

A debtor gets any surplus of sale over amount
owed, and the obligor (who is usually the debtor) is
liable for any deficiency. 9-615(d)

A debtor's deficiency can be limited to the
difference between the outstanding debt and the
fair market value when a "commercially reasonable
sale" to the SP or related party results in a lower
price than a sale to a third party would have
yielded.
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Liability for Deficiency
in Consumer Transactions

Under §9-616 if after disposition the debtor is either
entitled to a surplus liable for a deficiency, the SP
may have to give the debtor a detailed explanation
of how the surplus or deficiency was calculated.

No surplus or deficiency, no need for explanation.

If SP sends consumer obligor a waiver of SP’s right
to deficiency, no explanation required.
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Transfer Statements

§9-617 empowers the selling SP to pass “all of the
debtor’s rights in the collateral” to the transferee (a
person who buys at a foreclosure sale), and warranties
of title, possession, quiet enjoyment, and the like, are
made unless disclaimed.

§9-619 helps the SP and the transferee, i.e. an
automobile that was used as collateral, that is subject to
a certificate of title statute and the record owner won’t
voluntarily indorse the title and deliver it to the SP.
 It allows a transfer of title to the SP if the transfer
statement is sought before disposition, or to the
transferee if obtained after disposition.
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Secondary Obligors
See §9-102(a)(71)
 Generally known as a “guarantor.”
 Under §9-611(c), secondary obligors, as
well as debtors, are entitled to notification of
disposition.
 No waivers of right to a commercially
reasonable disposition or notification of
disposition

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Acceptance of Collateral in
Satisfaction of Debt:
Strict Foreclosure



To escape the requirements of commercial
reasonableness, and the traps posed by
notification, the SP may be willing to give up its right
to any deficiency.
The debtor may be willing to abandon the current
payments made for the collateral, and to simply
surrender the collateral.
The UCC encourages "Strict Foreclosure," a "walkaway" agreement where the SP takes back the
collateral and both parties walk away.
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Acceptance of Collateral in
Satisfaction of Debt: Full Strict
Foreclosure

In non-consumer cases, Full Strict Foreclosure (the
entire debt is forgiven, the collateral is repossessed)
can be accomplished by:



Consent. §9-620(a)(1)
Silence (20 day rule). §9-620(a)(2)]
In consumer cases, Full Strict Foreclosure can be
accomplished only by consent. If the Debtor has
paid for 60% of the price of a consumer good,
Disposition is required, and Full Strict Foreclosure is
not an option
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Acceptance of Collateral in
Satisfaction of Debt:
Partial Strict Foreclosure

In non-consumer cases, partial strict
foreclosure (only part of the debt is written
off, and a deficiency remains), can only be
accomplished by consent. 9-620(c)(2)

In consumer cases, NO partial strict
foreclosure. 9-620(g)
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Effect of Collateral or
Acceptance on Third Parties


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Transferees: §9-617(a)(1) allows SP to make a transfer of all the
D’s rights
Junior Security Interests or Liens: foreclosure sales cut off rights
of junior lien holders (JLH).
 JLH are entitled to any surplus or they become unsecured
creditors
 SP must give notice to JLH if it received an authenticated notice
of claim before sale notification
 And if JLH perfected its interest by filing a financing statement. §
9-611(c)(3)
 SP must search files.
Junior lien holders must send foreclosing SP “an authenticated
demand for proceeds before distribution of the proceeds is
completed.” §9-615(a)(3)(A)
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Collection of Rights of
Payment

With non-goods collateral such as accounts, and
instruments, if the debtor who gave a SI in the
collateral defaults, the SP can notify the person
owing money to the debtor, i.e., the account debtor,
to make payment to the SP rather than to the
debtor.

Upon notification, the account debtor must pay the
SP rather than the debtor. See §9-607.
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Redemption

Until the secured party has sold the collateral or has
discharged the debt by retention of the collateral,




Debtor
Surety or
Any other SP or lien holder, unless she has otherwise
agreed after default
May redeem the collateral by paying all obligations
secured by the collateral plus the reasonable
expenses incurred by the SP in relation to the
repossession, including reasonable attorney’s fees.
§ 9-623
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