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Secured Creditor vs. Debtor.  When does secured party have possession of the debtor’s property (collateral)?  Creditor perfected by possession.  After.

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Presentation on theme: "Secured Creditor vs. Debtor.  When does secured party have possession of the debtor’s property (collateral)?  Creditor perfected by possession.  After."— Presentation transcript:

1 Secured Creditor vs. Debtor

2  When does secured party have possession of the debtor’s property (collateral)?  Creditor perfected by possession.  After repossession.

3  Basic duty = reasonable care  Not responsible for changes in market value

4  Expenses of secured party  Debtor responsible for reasonable expenses creditor incurs to keep and preserve the collateral.  Debtor responsible for insurance and taxes.  Expenses are also secured by the collateral.

5  Risk of loss  Risk of loss is on the debtor if creditor’s insurance is insufficient.

6  Increases or profits of the collateral  Non-monetary increases (e.g., appreciation, stock dividends) = creditor may hold as additional collateral.  Monetary increases (e.g., rent, cash dividends): ▪ Use to reduce the debt, or ▪ Remit to debtor.

7  Segregation of collateral  Keep collateral identified.  May commingle fungible collateral.

8  Use debtor’s property as collateral  Creditor may use the debtor’s collateral as collateral when the creditor becomes a debtor.  But, doing so cannot impair debtor’s ability to regain the collateral upon payment of the debt.

9  Use debtor’s property:  To preserve collateral or its value.  Pursuant to court order.  If non-consumer goods, as authorized in the security agreement. ▪ If consumer goods, debtor cannot agree to allow creditor to use the collateral.

10  Problems  Problem 374 – p  Problem 375 – p. 1010

11  Debtor’s “default” triggers creditor’s remedies (e.g., repossession).  No U.C.C. definition  Obviously, means not paying on time.  Security agreement should have extensive definition.  What types of things should be considered default?

12 Debtor shall be in default under this agreement upon the occurrence of any of the following events or conditions, namely: (a) default in the payment or performance of any of the Obligations or of any covenants or liabilities contained or referred to herein or in any of the Obligations; (b) any warranty, representation or statement made or furnished to Secured Party by or on behalf of Debtor proving to have been false in any material respect when made or furnished; (c) loss, theft, substantial damage, destruction, sale or encumbrance to or any of the Collateral, or the making of any levy, seizure or attachment thereof or thereon; (d) dissolution, termination of existence, filing by Debtor or by any third party against Debtor of any petition under any Federal bankruptcy statute, insolvency, business failure, appointment of a receiver of any part of the property of, or assignment for the benefit of creditors by, Debtor; or (e) the occurrence of an event of default in any agreement between Debtor and/or Secured Party and _______________.

13  Permits creditor to deem entire unpaid amount of debt due upon default.

14  Must be exercised in good faith even if security agreement says “at will.”  Honesty in fact, plus  Exercise of reasonable commercial standards.

15  Burden of proof on person claiming lack of good faith.

16  Problem 376 – p  Problem 377 – p. 1020

17

18  No judicial process needed.  Self-help remedy.

19  Creditor does NOT need to give debtor notice before repossessing.

20  Limitation = No breach of the peace

21  Problem 378 – p  Breach of the peace

22  MBank El Paso, N.A. v. Sanchez, 836 S.W.2d 151 (Tex. 1992).

23  Problem 379 – p  Property in collateral  Problem 380 – p  Accounts, instruments, chattel paper

24  Creditor’s choices after a proper repossession:  1. Sell the collateral, or  2. Strict foreclosure.

25  1. Notice of Sale

26  a. When requirement waived

27  1. Notice of Sale  a. When requirement waived ▪ 1. Perishable collateral

28  1. Notice of Sale  a. When requirement waived ▪ 1. Perishable collateral ▪ 2. Collateral rapidly decreasing in value

29  1. Notice of Sale  a. When requirement waived ▪ 1. Perishable collateral ▪ 2. Collateral rapidly decreasing in value ▪ 3. Collateral normally sold in recognized market

30  1. Notice of Sale  a. When requirement waived  b. Contents of notice

31  1. Notice of Sale  a. When requirement waived  b. Contents of notice ▪ 1. Description of debtor and secured creditor

32  1. Notice of Sale  a. When requirement waived  b. Contents of notice ▪ 1. Description of debtor and secured creditor ▪ 2. Description of collateral

33  1. Notice of Sale  a. When requirement waived  b. Contents of notice ▪ 1. Description of debtor and secured creditor ▪ 2. Description of collateral ▪ 3. Method of sale (public/auction or private)

34  1. Notice of Sale  a. When requirement waived  b. Contents of notice ▪ 1. Description of debtor and secured creditor ▪ 2. Description of collateral ▪ 3. Method of sale ▪ 4. Inform debtor about right to accounting

35  1. Notice of Sale  a. When requirement waived  b. Contents of notice ▪ 1. Description of debtor and secured creditor ▪ 2. Description of collateral ▪ 3. Method of sale ▪ 4. Inform debtor about right to accounting ▪ 5. Time and place of auction or earliest date of private sale

36  1. Notice of Sale  a. When requirement waived  b. Contents of notice ▪ 1. Description of debtor and secured creditor ▪ 2. Description of collateral ▪ 3. Method of sale ▪ 4. Inform debtor about right to accounting ▪ 5. Time and place of auction or earliest date of private sale ▪ 6. If consumer goods, explain debtor’s liability for any deficiency and how to get further information

37  1. Notice of Sale  a. When requirement waived  b. Contents of notice  c. When notice given

38  1. Notice of Sale  a. When requirement waived  b. Contents of notice  c. When notice given  d. Who gets notice

39  1. Notice of Sale  a. When requirement waived  b. Contents of notice  c. When notice given  d. Who gets notice ▪ 1. Debtor (unless waived after default)

40  1. Notice of Sale  a. When requirement waived  b. Contents of notice  c. When notice given  d. Who gets notice ▪ 1. Debtor (unless waived after default) ▪ 2. Sureties

41  1. Notice of Sale  a. When requirement waived  b. Contents of notice  c. When notice given  d. Who gets notice ▪ 1. Debtor (unless waived after default) ▪ 2. Sureties ▪ 3. Unless collateral consumer goods, other creditors who filed, noted on certificate of title, or gave notice to creditor selling the collateral

42  2. Standard of care for sale – commercially reasonable:  Method  Manner  Time  Place  Terms

43  3. May creditor purchase collateral?  Yes, if public sale (auction).  No, if private sale (unless no real debate on sale price).

44  4. Title of purchaser at resale  Creditor warrants title, possession, and quite enjoyment.  Creditor may disclaim the warranties.

45  5. Application of sale proceeds:

46  a. Creditor’s reasonable expenses such as: ▪ Repossession fee ▪ Storage ▪ Preparation for sale ▪ Advertising

47  5. Application of sale proceeds:  a. Creditor’s reasonable expenses  b. Balance of debt

48  5. Application of sale proceeds:  a. Creditor’s reasonable expenses  b. Balance of debt  c. Subordinate secured creditors in the same collateral

49  5. Application of sale proceeds:  a. Creditor’s reasonable expenses  b. Balance of debt  c. Subordinate secured creditors in the same collateral  d. Surplus (if any) to debtor

50  6. If deficiency, creditor sues debtor but is unsecured for the deficiency.

51  7. Creditor’s liability if not follow rules:

52  7. Creditor’s liability if not follow rules  a. Debtor’s actual damages

53  7. Creditor’s liability if not follow rules  b. If consumer goods, at least finance charge (interest) plus 10% of principal

54  7. Creditor’s liability if not follow rules  c. Possible restriction on creditor’s ability to recovery deficiency ▪ Non-consumer – rebuttable presumption collateral equals debt ▪ Consumer transaction – absolute bar to deficiency [Tanenbaum v. Economics Laboratory, Inc., 628 S.W.2d 769 (Tex. 1982).]

55  Problem 381 – p  Problem 382 – p  Problem 383 – p  Problem 384 – p  Problem 385 – p  Problem 386 – p. 1050

56  Debtor’s right to cure the default and regain the collateral.

57  1. Creditor not yet sell (or have contract to sell) the collateral

58  2. Strict foreclosure has not occurred

59  3. Debtor has not waived right to redeem after default  Waiver in security agreement would not work.

60  4. Debtor pays all obligations secured by the collateral  Because acceleration clauses are common, redemption requires payment of all amounts due, not just the late payments.

61  4. Debtor pays all obligations secured by the collateral Shumway v. Horizon Credit Corp., 801 S.W.2d 890 (Tex. 1991).  Before acceleration, a secured party must: ▪ Present note to maker, ▪ Notify maker of secured party’s intent to accelerate, and ▪ Notify maker of the acceleration itself.  Exception = The maker has waived right to presentment, notice of intent to accelerate, and notice of acceleration in a clear and unequivocal manner.

62  5. Debtor pays all creditor’s reasonable expenses such as:  Repossession fee  Storage costs  Advertising  Preparing collateral for sale

63  Problem 387 – p. 1060

64  Creditor retains collateral:  Total satisfaction of debt = consumer or non- consumer situations  Partial satisfaction of debt = non-consumer situations

65  1. Debtor consents  Express, or  Implied by failing to object within 20 days of when creditor sent notice.

66  2. Creditor gives notice to:  Debtor, and  If not consumer goods: ▪ Creditors who perfected by filing ▪ Creditors who have noted their interests on certificate of title ▪ Creditors who have given notice to creditor

67  3. No objection by debtor or another creditor within 20 days

68  4. Special rule for consumer goods if debtor has paid 60% of price  Creditor must resell within 90 days of repossession  Policy?

69  Problem 388 – p  Problem 389 – p. 1061


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