Secured Transactions
Lee
Fall 2016
The Creditor-Debtor Relationship
Creditor’s Remedies
: anyone who is owed a legal obligation that can be reduced to a money judgment is a creditor of the party owing the obligation
Lien Creditor: UCC 9-201(a)(52): a creditor that has acquired a lien on the property involved by attachment, levy, or the like
Consumer Goods: UCC 9-102(a)(23): goods that are used or bought for use primarily for personal, family, or household purposes
Id. (a)(48): goods, other than farm products, which (A) are leased by a person to a lessor; or (B) are held by a person for sale or lease or to be furnished under a K of service; or (C) are furnished by a person under a K of service; or (D) consist of raw materials, work in progress, or materials used or consumed in a business.
Id. (a)(33): goods other than inventory, farm products, or consumer goods
Proceeds: UCC 9-102(a)(64): (A) whatever is acquired upon the sale, lease, license, exchange, or other disposition of collateral; (B) whatever is collected on, or distributed on account of, collateral; (C) rights arising out of collateral; (D) to the extent of the value of collateral, claims arising out of the loss, nonconformity, or interference with the use of, defects or infringement of rights in, or damage to, the collateral; or (E) to the extent of the value of collateral and to the extent payable to the debtor or the secured party, insurance payable by reason of the loss or nonconformity of, defects or infringement of rights in, or damage to, the collateral
PMSI: UCC 9-103(a)(1): goods that secure an obligation incurred with respect to those goods
: an event (specified in the security agreement) which gives rise to the creditor’s right to receive a lien on some of the debtor’s property
: a creditor that has loaned money to a debtor in exchange for a general obligation from the debtor that the debtor will repay
a creditor that has loaned money to a debtor in exchange for an interest in a specific piece of property
Judgment Creditor: an unsecured creditor that has obtained a court order establishing a debtor’s liability (however, does not affect his secured status)
the act of taking possession (actual or constructive) of a piece of property that will be used to satisfy (either wholly or in part) a judgment lien
Vitale v. Hotel California (6): Creditor gets a judgment against debtor and sends sheriff to debtor’s place of business (a bar) to levy upon all monies and personal property there. When sheriff arrives, bouncers at the door turn him away. Court concludes that the sheriff did not do enough: there was no imminent threat of violence, so he should have pushed harder; and even if things did get violent, the bouncers would be subject to criminal prosecution, so still should have pursued. Holds the sheriff liable to the creditor for failing to properly execute against a judgment debtor (amercement). (this is not a common result: see next case for a more likely outcome)
Ellerbe v. City of L.A.: creditor delivers writ to sheriff, gives sheriff ample notice of where to find debtor with some personal property, and specifically tells the sheriff of the urgent nature of levying upon the debtor’s property immediately (“time is of the essence,” “PROMPT”.” “as soon as possible”). Held that the creditor cannot impose mandatory obligations like that upon a sheriff.
UCC 9-609: Secured Party’s Right to Take Possession After Default
(a): After default, a secured party:
(1): may take possession of the collateral…
(b): A secured party may proceed under subsection (a):
(1): pursuant to judicial process; or
without judicial process, if it proceeds without breach of the peace
Was it reasonable?: (1) Was notice given? (2) Is the creditor entering residential or nonresidential property? (3) Was there a confrontation? Salisbury v. CCCU (quoting Restatement (Second) Torts s. 198) (44).
Lots of cases testing whether BoP has occurred (46-48)
Chapa v. Traciers (49): Court held no breach had occurred even though the creditor repossessed the debtor’s car and there were children inside because there was still no “objection or confrontation.”
Foreclosure
UCC 9-620: Strict Foreclosure
(a): Except as otherwise provided in subsection (g), a secured party may accept collateral in full or partial satisfaction of the obligation it secured only if:
(1): the debtor consents to the acceptance under subsection (c);
the secured party does not receive, within the time set forth in subsection (d), a notification of objection to the proposal
if the collateral is consumer goods, the collateral is not in the possession of the debtor when the debtor consents to the acceptance
subsection (e) does not require the secured party to dispose of the collateral or the debtor waives the requirement pursuant to 9-624
(c): For purposes of this section:
(1): a debtor consents to an acceptance of collateral in partial satisfaction of the obligation it secures only if the debtor agrees to the terms of the acceptance in a record authenticated after default; and
a debtor consents to an acceptance of collateral in full satisfaction only if the debtor agrees to the terms in a record OR the secured party:
(A): sends to the debtor after default a proposal that is unconditional or subject only to a condition that collateral not in the possession of the secured party be preserved or maintained;
in the proposal, proposes to accept collateral in full satisfaction of the obligation it secures; and
does not receive a notification of objection authenticated by the debtor within 20 days after the proposal is sent.
(e): A secured party that has taken possession of collateral shall dispose of the collateral if
(2): 60% of the principal amount on the obligation has been paid in the case of consumer goods
(g): In a consumer transaction, a secured party may not accept collateral in partial satisfaction of the obligation it secures
Judicial Foreclosure
When you go through the court process and the sheriff levies upon property and then conducts a sale on the courthouse steps; typically issues will arise when a debtor wants to question the adequacy of a sale:
Armstrong v. Csurilla (61): Upon default and judicial sale, the creditor, who was also the buyer of the property at the sale, also received a deficiency judgment for the difference between the amount he was owed and the amount that the sale fetched. The debtor urged the court to set aside the sale on the grounds that the price that the property was sold for at auction was so substantially below its fair value that it “shocked the conscience.”
Inadequacy of
action arising from a transaction other than a consumer transaction, in which the amount of a deficiency or surplus is in issue, the following rules apply:
a secured party need not prove compliance with 9-610(b) unless the debtor puts the creditor’s compliance in issue
If the secured party’s compliance is placed at issue, the secured party has the burden of establishing compliance with 9-610(b)
(3): if a secured party fails to prove the disposition was conducted in accordance with 9-610(b) the liability of a debtor for a deficiency is limited to an amount by which the sum of the secured obligation, expenses, and attorney’s fees exceeds…
(B): the amount of proceeds that would have been realized had the noncomplying secured party proceeded in accordance with the provisions of 9-610(b).
(4): For purposes of paragraph (3)(B), the amount of proceeds that would have been realized is equal to the sum of the secured obligation, expenses, and attorney’s fees unless the secured party proves that the amount is less than the sum
This creates a rebuttable presumption that the value of the collateral is at least equal to the amount of the debt; this means that a secured creditor can recover a deficiency ONLY by rebutting that presumption; it does so by proving that the collateral was worth some amount less than the amount of the debt. This means that the court will have the determine the value of the collateral anytime this provision is invoked.
The limitation of these rules to transactions other than consumer transactions is intended to leave to the court the determination of the proper rules in consumer transactions.
What is the effect of a commercially unreasonable sale?
Majority (the Article 9 approach): There is a rebuttable presumption that the value of the collateral is at least equal to the amount of the debt. The consequence is that, if the debtor defends the request for a deficiency judgment, the court ends up determining what the sale price would have been had the sale complied with 9-610(b).
A substantial minority: hold that any significant irregularity in the sale procedure is sufficient to deny the deficiency altogether
UCC 9-623: Right to Redeem Collateral
(a): A debtor may redeem collateral
To redeem collateral, a person shall tender:
(1): fulfillment of all obligations secured by the collateral; and
the reasonable expenses and attorney’s fees
(c): A redemption may occur at any time before a secured party
(2): has disposed of collateral or entered into a K for its disposition under 9-610; or
has accepted collateral in full or partial satisfaction of the obligation it secures
