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Repossessions: 8.11 When the Repo Man Files Bankruptcy

Those representing consumers on various claims increasingly see defendants that file bankruptcy. A repossessor, for example, might file bankruptcy after your client obtains a judgment against it for damages and attorney fees in a case based on wrongful repossession.460 Similarly, a class action defendant may file a corporate bankruptcy while a case against it is pending—sometimes for reasons unrelated to the pending litigation.

Repossessions: Listing of Provisions

Listing of UCC Article 1 Sections Reprinted

[Note: Only sections of the 2001 revised version of Article 1 which are reproduced herein are listed below.]

Article 1 General Provisions [2001]

Part 1. General Provisions

1-101. Short Titles

1-102. Scope of Article

Repossessions: Section 1-101. Short Titles.

(a) This [Act] may be cited as the Uniform Commercial Code.

(b) This article may be cited as Uniform Commercial Code—General Provisions.

Official Comment

Source: Former Section 1-101.

Changes from former law: Subsection (b) is new. It is added in order to make the structure of Article 1 parallel with that of the other articles of the Uniform Commercial Code.

Repossessions: Section 1-103. Construction of [Uniform Commercial Code] to Promote Its Purposes and Policies; Applicability of Supplemental Principles of Law.

(a) [The Uniform Commercial Code] must be liberally construed and applied to promote its underlying purposes and policies, which are:

(1) to simplify, clarify, and modernize the law governing commercial transactions;

(2) to permit the continued expansion of commercial practices through custom, usage, and agreement of the parties; and

(3) to make uniform the law among the various jurisdictions.

Repossessions: Section 1-104. Construction Against Implied Repeal.

[The Uniform Commercial Code] being a general act intended as a unified coverage of its subject matter, no part of it shall be deemed to be impliedly repealed by subsequent legislation if such construction can reasonably be avoided.

Official Comment

Source: Former Section 1-104.

Changes from former law: Except for changing the form of reference to the Uniform Commercial Code, this section is identical to former Section 1-104.

Repossessions: Section 1-201. General Definitions.

(a) Unless the context otherwise requires, words or phrases defined in this section, or in the additional definitions contained in other articles of [the Uniform Commercial Code] that apply to particular articles or parts thereof, have the meanings stated.

(b) Subject to definitions contained in other articles of [the Uniform Commercial Code] that apply to particular articles or parts thereof:

Repossessions: Section 1-202. Notice; Knowledge.

(a) Subject to subsection (f), a person has “notice” of a fact if the person:

(1) has actual knowledge of it;

(2) has received a notice or notification of it; or

(3) from all the facts and circumstances known to the person at the time in question, has reason to know that it exists.

(b) “Knowledge” means actual knowledge. “Knows” has a corresponding meaning.

Repossessions: Section 1-203. Lease Distinguished From Security Interest.

(a) Whether a transaction in the form of a lease creates a lease or security interest is determined by the facts of each case.

(b) A transaction in the form of a lease creates a security interest if the consideration that the lessee is to pay the lessor for the right to possession and use of the goods is an obligation for the term of the lease and is not subject to termination by the lessee, and:

(1) the original term of the lease is equal to or greater than the remaining economic life of the goods;

Repossessions: Section 1-204. Value.

Except as otherwise provided in Articles 3, 4, [and] 5, [and 6], a person gives value for rights if the person acquires them:

(1) in return for a binding commitment to extend credit or for the extension of immediately available credit, whether or not drawn upon and whether or not a charge-back is provided for in the event of difficulties in collection;

(2) as security for, or in total or partial satisfaction of, a preexisting claim;

Repossessions: Section 1-205. Reasonable Time; Seasonableness.

(a) Whether a time for taking an action required by [the Uniform Commercial Code] is reasonable depends on the nature, purpose, and circumstances of the action.

(b) An action is taken seasonably if it is taken at or within the time agreed or, if no time is agreed, at or within a reasonable time.

Official Comment

Source: Former Section 1-204(2)–(3).

Repossessions: Section 1-301. Territorial Applicability; Parties’ Power to Choose Applicable Law.

(a) Except as otherwise provided in this section, when a transaction bears a reasonable relation to this state and also to another state or nation the parties may agree that the law either of this state or of such other state or nation shall govern their rights and duties.4

(b) In the absence of an agreement effective under subsection (a), and except as provided in subsection (c), [the Uniform Commercial Code] applies to transactions bearing an appropriate relation to this state.

Repossessions: Section 1-303. Course of Performance, Course of Dealing, and Usage of Trade.

(a) A “course of performance” is a sequence of conduct between the parties to a particular transaction that exists if:

(1) the agreement of the parties with respect to the transaction involves repeated occasions for performance by a party; and

(2) the other party, with knowledge of the nature of the performance and opportunity for objection to it, accepts the performance or acquiesces in it without objection.

Repossessions: Section 1-304. Obligation of Good Faith.

Every contract or duty within [the Uniform Commercial Code] imposes an obligation of good faith in its performance and enforcement.

Official Comment

Source: Former Section 1-203.

Changes from former law: Except for changing the form of reference to the Uniform Commercial Code, this section is identical to former Section 1-203.

Repossessions: Section 1-305. Remedies to Be Liberally Administered.

(a) The remedies provided by [the Uniform Commercial Code] must be liberally administered to the end that the aggrieved party may be put in as good a position as if the other party had fully performed but neither consequential or special damages nor penal damages may be had except as specifically provided in [the Uniform Commercial Code] or by other rule of law.

(b) Any right or obligation declared by [the Uniform Commercial Code] is enforceable by action unless the provision declaring it specifies a different and limited effect.

Repossessions: Section 1-309. Option to Accelerate at Will.

A term providing that one party or that party’s successor in interest may accelerate payment or performance or require collateral or additional collateral “at will” or when the party “deems itself insecure,” or words of similar import, means that the party has power to do so only if that party in good faith believes that the prospect of payment or performance is impaired. The burden of establishing lack of good faith is on the party against which the power has been exercised.

Official Comment

Repossessions: Listing of Provisions

Listing of UCC Article 2A Sections Reprinted

[Note: Only sections of the 1990 version of Article 2A which are reproduced herein are listed below.]

Article 2A Leases [1990]5

Part 1. General Provisions

2A-101. Short Title

2A-102. Scope

Repossessions: Section 2A-102. Scope

This Article applies to any transaction, regardless of form, that creates a lease.

Official Comment

Uniform Statutory Source: Section 9-102(1). Throughout this Article, unless otherwise stated, references to “Section” are to other sections of this Act.

Changes: Substantially revised.

Repossessions: Section 2A-103. Definitions and Index of Definitions.

(1) In this Article unless the context otherwise requires:

* * *

(e) “Consumer lease” means a lease that a lessor regularly engaged in the business of leasing or selling makes to a lessee who is an individual and who takes under the lease primarily for a personal, family, or household purpose[, if the total payments to be made under the lease contract, excluding payments for options to renew or buy, do not exceed $_________].

* * *

Repossessions: Section 2A-108. Unconscionability.

(1) If the court as a matter of law finds a lease contract or any clause of a lease contract to have been unconscionable at the time it was made the court may refuse to enforce the lease contract, or it may enforce the remainder of the lease contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.

Repossessions: Section 2A-504. Liquidation of Damages.

(1) Damages payable by either party for default, or any other act or omission, including indemnity for loss or diminution of anticipated tax benefits or loss or damage to lessor’s residual interest, may be liquidated in the lease agreement but only at an amount or by a formula that is reasonable in light of the then anticipated harm caused by the default or other act or omission.

Repossessions: Section 2A-506. Statute of Limitations.

(1) An action for default under a lease contract, including breach of warranty or indemnity, must be commenced within 4 years after the cause of action accrued. By the original lease contract the parties may reduce the period of limitation to not less than one year.