Presentation on theme: "Default and Enforcement. 2 Enforcement: Cumulative Remedies Proceed under non-UCC law, and satisfy a judgment out of almost any asset the Debtor owns;"— Presentation transcript:
Default and Enforcement
2 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.
3 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)]
4 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.
5 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.
6 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)]
7 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.
8 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").
9 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. [9- 603] Secured Party may purchase the collateral at a public sale. [9-610(c)]
10 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)
11 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 (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.
12 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.
13 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.
14 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
15 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 "walk- away" agreement where the SP takes back the collateral and both parties walk away.
16 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
17 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 (c)(2) In consumer cases, NO partial strict foreclosure (g)
18 Effect of Collateral or Acceptance on Third Parties 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)
19 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.
20 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