Chapter 1: Creditors Remedies Against Debtor Repossession

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Chapter 1 Creditors Remedies Against Debtor -
Repossession

• A. When possession is at issue
• B. Possession pending foreclosure real property
• C. Possession pending foreclosure personal
  property
• 1. Court process
• 2. Self-help under Article 9
• a. Breach of Peace
• b. Self-Help against accounts

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A. When possession is at issue
Default
Foreclosure
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B. Possession pending foreclosure real property

• Residential real property
• Strong bias against receivership
• Commercial real property
• Receivership may be granted if
• In contract, and
• Lender will probably prevail

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C. Possession pending foreclosure personal
property

• Court process File an action of replevin
• A cause of action for possession
• Secured party has right 9-609
• Can be enforced by sheriff
• Self-Help

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C. 1. Possession pending foreclosure replevin
and notice

• Dels Big Saver Foods v. Carpenter Cook
• Two procedures are Constitutional

Hearing
Notice
10-20 days
Default
Complaint
Writ
Levy
Hearing
Post-hearing
Default
10-20 days
Complaint
Writ
Levy
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C.2. Possession pending foreclosure Self Help

• Okay for Article 9 secured creditors, unless
• Breach of the peace 9-609 (b)(2), or
• Trespass
• Entry on land without express or implied
  authority (civil) , but
• An entry to repossess is privileged if no
  confrontation and the timing and manner,
  including notice or lack of notice, are found
  reasonable.

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C.2. Possession pending foreclosure Self Help
and trespass

• Trespass
• Criminal standard after warning
• Civil Entry on land without express or implied
  authority
• Privilege (to trespass) An entry to repossess is
  privileged if there is no confrontation and
  the timing and manner, including notice or lack
  of notice, are found reasonable.

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Problem 3.1

• Problem 1.1
• Our advice then Jeff cant use self help.
• Problem 3.1. Can Jeff use self- help now? Yes /
  No.
• What policy justifies the difference?

Lisa
Jeff
1K Loan
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Problem 3.2

• Faye Maretka

• How do we repossess?

Developer
General Contractor
Subcontractor
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Problem 3.2. (continued)

• Faye

• First scenario No guard and no fence.
• Repossession permissible as long as it occurs
  during regular business hours.
• Repossession will not constitute trespass.
• Repossession will be a breach of the peace if
  someone on premise verbally objects.
• Repossession need not be breach of peace just
  because someone verbally objects.

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Problem 3.2. (continued)

• Faye

• Second scenario No guard, but a locked fence.
• Is picking the locks allowed?
• What must she do when she leaves?

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Problem 3.2. (continued)

• Faye

• Third scenario Guard on duty.
• If the guard permits it, can they repossess the
  bull-dozer?
• Can Faye deceive the guard?

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Problem 3.2. (continued)

• Faye

• Fourth scenario Bulldozer in a locked steel
  building.
• Can you break in?

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Problem 3.2. (continued)

• Faye

• What language should be in the security
  agreement?
• Debtor permits creditor to enter any premises
  to repossess the collateral without liability for
  trespass.
• Code Sections in problem 3.2.
• 9-609, 9-201, 9-602(6), 9-603

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Problem 3.2.

• Faye

• First scenario No guard and no fence.
• Repossession need not be breach of peace just
  because someone verbally objects.

Second scenario No guard, locked
fence. Picking the locks is not allowed because
developers land (in any case, you lock up
afterwards).
Third scenario Guard on duty. Can fool the
guard to get permission.
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Problem 3.3.

• What advice would you give to Salvatore
  Ferragamo?
• Stay by your equipment and object if they come to
  repossess it.
• Also, physically block their exit if they try and
  take the equipment.
• If you legally possess a gun, pull it out and
  fire some shots into the air, if they come near.
• Hide the collateral where no one can find it.

Maybe, hiring an armed security guard is safer
than doing a Mel Gibson impersonation
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Problem 3.3.
What does the answer above say about incentives
created by Article 9 repossession rights? What
if they bring a sheriff?
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Problem 3.4.
Who wins Faye Marekta or Salvatore Ferragamo?
B.
vs.
A.
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Problem 3.5
What could go wrong?

• How accounts act as collateral
• Deare sells tractors
• Deare gets accounts
• Deare assigns accounts
• First Bank advances 60

First Bank
Accounts (as security)

Deare Distributors
Retail Stores
Accounts
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Problem 3.6.a.

• Bank sends notice to account debtor
• Account debtor pays Deare
• Can Bank make account debtor pay twice?
• Yes / No

First Bank
Pay Bank, not Deare
Accounts (as security)

Tractor
Deare Distributors
Retail Stores
Accounts

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Problem 3.6.a.

• UCC 9-607(a) After default, a secured party
• (1) may notify an account debtor or other person
  obligated on collateral to make payment . . . to
  or for the benefit of the secured party.
• UCC 9-406(a). . . . After receipt of the
  notification, the account debtor may discharge
  its obligation by paying the assignee and may not
  discharge the obligation by paying the assignor.

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Problem 3.6.b.
Deare assigns accounts
19K warranty claim accrues
Deare defaults
Bank notifies Wilsons
Bank sues

Warranty claim made
Deare Sells 42K
Bank
Notice and lawsuit

• To how much is Bank entitled?
• A. 0
• 23K
• 42K
• Hint see 9-404

Account
19K warranties
Deare
Wilsons
42K account
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Problem 3.6.b.

• UCC 9-404(a). The rights of an assignee are
  subject to
• (1) all terms of the agreement between the
  account debtor and assignor and any defense
  arising from the transaction that gave rise to
  the contract and
• (2) any other . . . claim of the account debtor
  against the assignor which accrues before the
  account debtor receives a notification of the
  assignment . . .

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Problem 3.7.