Chapter 1: Creditors Remedies Against Debtor in State Law

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Chapter 1 Creditors Remedies Against Debtor in
State Law

• Assignment 4 Judicial Sale Sheriff or clerk
• Assignment 5 Article 9 Sale Secured party

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Comparing judicial sales and Article 9 sales
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Sale of collateral Key Article 9 provisions

• 9-602 rules that cant be waived, but 9-603
  can set standards for agreement.
• 9-610 disposition of collateral has to be
  commercially reasonable.
• 9-611 notice to debtor required of
  disposition.
• 9-615 how to distribute the proceeds from sale
  of the collateral.
• 9-620 letting collateral satisfy obligation,
  and mandatory disposition of consumer goods (e).
• 9-623 debtors right to redeem.
• 9-625 remedies if secured party does not
  comply.
• 9-626 how the deficiency is calculated.
• 9-627 determining if conduct is commercially
  reasonable.

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Calculating the deficiency under Article 9

• 9-615(d)(2). After application of the proceeds
  of sale the obligor is liable for any
  deficiency.
• 9-615(f). If the transferee . . . is the
  secured party then the deficiency is based on
  the amount of proceeds that would have been
  realized in a sale to third party
• 9-626(3) If the secured party did not comply with
  Article 9 procedures , liability is limited to
  the amount by which the secured obligation
  exceeds the greater of (1) the proceeds or (2)
  the amount that would have been realized by
  compliance.

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Debtor versus obligor

• 9-102 Comment 2
• Debtor person who has ownership interest in
  collateral, and so wants security interest
  properly enforced.
• Secondary obligor wants security interest
  properly enforced, because of their obligation to
  pay secured debt.
• Obligor person who has obligation to pay
  secured debt, but not necessarily ownership
  interest in the collateral.

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9-102 Comment 2Debtors and obligors
Secondary Obligor
Lisa promises to repay loan
Debtor and Obligor

• Creditor

Obligor
Burns lends 10 to Lisa
Lisa grants Burns a security interest
Debtor
Collateral
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Problem 5.1.
10K Lien

• Commercially reasonable sale. How much is the
  deficiency?
• 0
• 2,000
• 3,000
• 8,000

Fair market value 8K
Sale price 7K
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Problem 5.1.
10K Lien

• How much would it cost to redeem the car?
• 0
• 5,000
• 8,000
• 10,000

Fair market value 8K
Sale price 7K
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Problem 5.1.
10K Lien

• Should you redeem this car or buy another just
  like it?
• Redeem
• Buy another similar car

Fair market value 8K
Sale price 7K
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Problem 5.1.
10K Lien

• What deficiency if bank turns down Maxwells
  friends 8K and sells at 7K?
• 0
• 2,000
• 3,000
• 8,000

Fair market value 8K
Sale price 7K
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Chapter 1 Creditors Remedies Against Debtor in
State Law

• Assignment 5 Article 9 Sale Secured party
• Problem 5.1 The silver Mercedes answers
• 3K, 9-615(d)(2). After application of the
  proceeds of sale the obligor is liable for any
  deficiency.
• 10K, 9-623(b)(1) can redeem by fulfilling all
  obligations secured by the collateral.
• Comparing a. and b. shows b. is better
• 9-627(a) the fact that greater amount could have
  been received is not dispositive, and 9-627 (b)
  (3), commercially reasonable includes dealer
  auctions.

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Chapter 1 Creditors Remedies Against Debtor in
State Law

• Problem 5.2. handling sale proceeds answers
• 9-615(a), expenses are first recouped, and the
  bank can take what is left as repayment.
• 9-615(d)(1), surplus must be paid to debtor,
  unless other creditors are secured.

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Problem 5.3.

• Which of the following is the best advice to East
  Bank
• There is no acceptable way to avoid giving
  notice.
• The bank need not give notice in this setting
  because the dealers auction is a recognized
  market 9 611 (b) and (d).
• The bank need not give notice if the debtor
  waived notice under 9-624(a).
• The bank is best served by modifying the notice
  provision to a 48-hour notice of sale under
  9-603(a), since there is little gained by the
  debtor receiving notice.

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Chapter 1 Creditors Remedies Against Debtor in
State Law

• Problem 5.3. the nuisance of notice answers
• Best advice reduce required notice in agreement
  to 48 hours in advance.
• 9-611(b). A secured party that disposes of
  collateral . . . shall send . . . an
  authenticated notice of disposition . . .
• 9-611(d). Subsection (b) does not apply if the
  collateral . . . is of a type customarily sold on
  a recognized market.
• Comment 9 to 9-610. A car auction is not a
  recognized market.
• 9-624(a). A debtor . . . may waive the right
  to notification only by an agreement entered
  into and authenticated after default.
• 9-602(7). Cannot waive the notice provisions.
• 9-603(a). Can agree on standards unless
  manifestly unreasonable.
• 9-612 Timeline for notification requires 10
  day notice.

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Problem 5.4.

• Grizzly Bear Bank repossessed a helicopter that
  should have been worth 345,000, but the
  electronics are missing, and the hull is worth
  nothing.
• What should Bank do?
• Dispose of hull and sue for deficiency
• Add electronics, give notice, and dispose of in a
  commercially reasonable manner

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Chapter 1 Creditors Remedies Against Debtor in
State Law

• Problem 5.4. the gutted helicopter answers
• Case for selling/disposing of the helicopter as
  is
• 9-610(a) says you can sell in present
  condition.
• But Comment 4 may not dispose in preset
  condition, if that would be commercially
  unreasonable.
• Holding requiring adequate preparation in Chavers
  v. Fraizer.
• If unreasonable, 926(a)(3)(B) may be applied
  literally proceeds.
• If you do the repairs, invest an additional
  245,000, but
• Deficiency calculation 615(d)(2) applies.
• 345,000 claim less 100,000 profit from sale.

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Problem 5.5.
Pedro buys The Store from Lamp Fair for
327K Pedro defaults and surrenders the
collateral Lamp Fair wants a 131K deficiency.
327K
50K equity
277K Lien
146K Lamp Fair Value

• Shes right No requirement to sell in Article 9.
• Youre right Lamp Fair needs to sell the store
  to sue for deficiency.

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Sale of collateral Key Article 9 provisions

• 9-602 rules that cant be waived, but 9-603
  can set standards for agreement.
• 9-610 disposition of collateral must be
  commercially reasonable.
• 9-611 notice to debtor required of
  disposition.
• 9-615 how to distribute proceeds from sale.
• 9-620 letting collateral satisfy obligation.
• 9-623 debtors right to redeem.
• 9-625 remedies if secured party does not
  comply.
• 9-626 how the deficiency is calculated.
• 9-627 determining if conduct is commercially
  reasonable.

Problem 5.3.
Problem 5.2.
Problem 5.5.
Problem 5.1. a.
Problem 5.1. b.
Problem 5.1. a.
Problem 5.4.
Problem 5.1. d.