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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]

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enforcement cumulative remedies
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.
repossession self help
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)]
repossession breach of peace
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.
notice of disposition
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.
contents of notice
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)]
contents of notice consumer
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.
penalties for failure to comply
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").
  • 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)]
commercially reasonable disposition
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)
liability for deficiency in nonconsumer actions
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.
liability for deficiency in consumer transactions
Liability for Deficiencyin 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.
transfer statements
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.
secondary obligors
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
acceptance of collateral in satisfaction of debt strict foreclosure
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.
acceptance of collateral in satisfaction of debt full strict foreclosure
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
acceptance of collateral in satisfaction of debt partial strict foreclosure
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)
effect of collateral or acceptance on third parties
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)
collection of rights of payment
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.
  • 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