Secured Transactions: Lecture Three (Part 2): Default, Remedies, and Enforcement

Law School

This lecture, the third in a series on Secured Transactions, focuses on the final stage of the process: default, remedies, and enforcement under Article 9 of the Uniform Commercial Code (U.C.C.). It explains that while the U.C.C. allows parties to define default, common examples include failing to make payments or maintain collateral. Upon default, secured parties have several options, including repossession (often without judicial process if peaceable), selling the collateral in a commercially reasonable manner to potentially seek a deficiency judgment, or retaining it through strict foreclosure, though this is limited for consumer goods. The lecture emphasizes that secured parties must adhere to notice requirements and the debtor retains redemption rights until the collateral is disposed of, with courts playing a role in ensuring compliance and balancing creditor and debtor rights.

"Default" is largely defined by the security agreement between the parties, commonly including failure to make timely payments or breaches of covenants like maintaining collateral or unauthorized transfer.

The most significant self-help remedy is repossession of the collateral without judicial process, provided it can be done without breaching the peace.

"Without breach of the peace" means repossession must not involve physical force, threats, breaking and entering, or actions likely to provoke violence.

Replevin is a judicial process to recover collateral, used when self-help is too risky or likely to cause conflict, offering a court-backed recovery method.

The two main options are selling or disposing of the collateral (public or private sale) or retaining it in full or partial satisfaction of the debt (strict foreclosure).

The central requirement is conducting the sale or disposition in a commercially reasonable manner, considering factors like method, manner, time, place, and terms.

Sale proceeds are applied to expenses, then the debt, then junior interests. Surplus goes to the debtor; deficiency allows a deficiency judgment.

Strict foreclosure is retaining collateral for the debt. A key requirement is sending an authenticated proposal to the debtor and others for their potential objection.

Strict foreclosure is prohibited in consumer-goods transactions if the debtor paid 60% or more of the cash price.

The debtor (or secondary obligor) can redeem collateral by paying the full debt plus expenses before disposition or strict foreclosure is completed.