SECURED TRANSACTIONS
Fall Semester 2015
PROBLEM SET 20
Default and Repossession
Carefully read the following:
•
•
Chapters 17-19 of UNDERSTANDING SECURED TRANSACTIONS
§§ 1-304, 1-309, 9-102(a)(40), 9-102(a)(41), 9-334, 9-335, 9-501, 9-502, 9-601, 9-623
1.
Your day begins with a call from Sara Jones at First Bank:
We have a customer, Crouch, who has a car loan with us that obligates him to pay
$456.33 each month for 60 months. From the beginning of the loan, Crouch was always
a slow pay. Recently though, due to illness, Crouch lost several consulting jobs and
missed two monthly payments on the car. We sent him a notice that we had accelerated
the maturity of his note, and directing him to pay full outstanding balance of the debt, in
the amount of $14,498.59. Yesterday, he sent me a check for $912.66 (the two missed
payments), along with a note from his doctor, an apology, and a promise never to miss a
payment again.
What do I do with this payment? If we accept it, does that mean we have to reinstate the
loan? Or can we demand the full remaining balance and repossess his car if he doesn’t
pay it?
What’s your advice to Sara Jones? Did First Bank properly accelerate Crouch’s loan? Must it
now reinstate his loan if it accepts Crouch’s check? What additional information, if any, would
you need to know to advise Sara Jones fully?
2.
Part of your job for BankGroup is to review any events of self-help repossession by any
of its subsidiary companies. The purpose of this review is to monitor legal compliance by
employees and their contractors, as well as to make recommendations for establishing a liability
reserve in cases where noncompliance could result in liability.
You just got this past month’s report from Bubba Charles at Putnam County Bank (PCB). It
reflects the following situations:
(a)
PCB repossessed a car from the Hitt Street Garage. The car’s owner, Henson,
was not present and did not object to the repossession. However, Henson was not
in default on his loan at the time; his car got onto the “repo” list due to a clerical
error by PCB.
(b)
PCB repossessed the second car from the garage of the car’s owner, Crouch (who
was in default). The garage door was closed but unlocked. PCB’s repo agent
opened the garage door, towed the car away, and then closed and locked the
garage door. Crouch was not present and did not object to the repossession.
(c)
PCB repossessed the third car from the driveway of the car’s owner, Reuben (who
was in default). Reuben emerged from his home during the repossession and
stated “Please do not take my car; instead, let’s engage in mindful conversation
about how we might resolve this conflict between us.” PCB’s repo agent (who
was carrying a baseball bat) laughed and completed the repossession while
Reuben stood on his front steps pleading politely.
(d)
PCB repossessed the fourth car from the driveway of the car’s owner, Barondes.
Barondes was not present at the time of the repossession, but he had sent a prior
e-mail to Bubba Charles saying “I think what we have here is a failure to
communicate. I hereby object to any attempt by Putnam County Bank to
repossess my car without judicial process. I will be armed and will respond to
any repossession attempt with deadly force. Go ahead, make my day.”
(e)
PCB repossessed the fifth car from its owner, Dessem. PCB’s repo agent called
Dessem and posed as an agent of Honda who was authorized by Honda to
perform repairs pursuant to a recently issued recall. Because Honda had in fact
issued a recall notice on Dessem’s car, Dessem voluntarily turned the car over to
the repo agent, even though (unknown to him) the repo agent was lying.
In which of these cases has PCB’s conduct violated Article 9, and why? For those cases in
which PCB has violated Article 9, what are the consequences for PCB?