Repossessions: 2.1 Introduction
Article 9 of the Uniform Commercial Code is the primary source of law for the creation and enforcement of security interests in personal property. This chapter provides an introduction to Article 9.
Article 9 of the Uniform Commercial Code is the primary source of law for the creation and enforcement of security interests in personal property. This chapter provides an introduction to Article 9.
In commercial transactions it is often hard to distinguish between security interests in assets such as receivables and assignments or sales of those assets.142 Article 9 makes these distinctions unimportant, however, by covering not only true security interests, but also the sale of accounts, chattel paper, payment intangibles, and promissory notes.143 The term “account” is broadly defined to include a right to payment of many kinds of monetary obligations, including not only familiar items suc
UCC §§ 9-406 and 9-408 address the validity of contract clauses that prohibit assignment of various types of obligations. In general, Article 9 invalidates contract clauses and laws that prohibit or restrict assignment of these obligations.150
Revised Article 9 includes a number of definitions that govern whether a party or transaction is subject to specific consumer protections.175 “Consumer goods” are defined as goods that are “used or bought for use primarily for personal, family, or household purposes,”176 a definition carried over from the former version of Article 9.
Revised Article 9 adds a new distinction between a debtor and an obligor. A person who owes a debt is an “obligor.”182 A “debtor” is, counterintuitively, a person who has an interest in collateral, in other words, the owner of the collateral.183 Usually the debtor and the obligor will be the same person, but a person who puts up collateral for someone else’s debt is a debtor but not an obligor.
Many provisions of revised Article 9 apply to “accounts” or “account debtors,” terms that do not have an intuitive meaning. These terms are primarily relevant to the provisions of Article 9 regarding perfection of security interests and the rights and duties of assignees.
UCC Article 2A applies to leases of personal property that are not governed by Article 9. In general, when Article 9 does not apply to a lease, Article 2A will be the major source of governing law.227 Other federal and state statutes provide additional consumer protections, but UCC Article 2A provides the framework for analyzing the rights of lessors and lessees.
While most UCC law relating to consumer repossessions is found in either Article 2A or Article 9, certain relevant provisions are found in Article 1. The most relevant provisions are reproduced in Appendix A.2, infra, and are available online as companion material to this treatise.
Article 3 of the Uniform Commercial Code is primarily relevant to the rights of parties to promissory notes and checks. In the repossession context it is relevant to the obligations of certain cosigners, as it affords them special protections.
Analyses of repossession law often neglect to consider an important source of debtor protection: state consumer credit laws. This treatise pays special attention to these laws, which may determine such important repossession issues as when a security interest is valid, when the creditor can accelerate a note, whether the debtor can cure the default, how the collateral can be seized, whether special notices to the consumer are necessary, whether the creditor can seek a deficiency, and how the deficiency is calculated.
Former UCC § 9-203(4) allowed states to specify state consumer protection laws that would continue to apply along with Article 9. A drafting note indicated that state consumer credit statutes would not be displaced by the UCC even if not enumerated in the State’s enactment of UCC § 9-203.241
State unfair and deceptive acts and practices (UDAP) statutes set broad, flexible standards that apply to many forms of abusive repossession and leasing practices. Even if a practice does not violate the UCC, state consumer credit laws, or other specialized statutes, aggressive consumer attorneys can often find deceptive or unfair aspects of the practice. Because of the broad language found in most UDAP statutes, they can often be utilized to challenge new forms of misconduct never previously found to be deceptive.
42 U.S.C. § 1983 gives debtors whose property has been seized unconstitutionally a federal cause of action for actual and punitive damages and attorney fees.263 But consumers can raise such a cause of action relatively infrequently to challenge repossession practices.
The Servicemembers Civil Relief Act282 provides a host of protections for active-duty military personnel.
The federal Fair Debt Collection Practices Act (FDCPA)290 has several important applications to repossession practices. As statutory violations can result in awards to the debtor of actual damages, up to $1000 statutory damages, and attorney fees, FDCPA claims should be alleged whenever appropriate.291
The federal Fair Debt Collection Practices Act generally does not apply to the collection activities of creditors,293 but only to the collection efforts of independent collection agencies. On the other hand, state debt collection statutes often do apply to creditors, and typically provide private remedies for various forms of debt collection deception or abuse.
The United States Bankruptcy Code296 offers effective consumer remedies to prevent repossessions. With some exceptions, primarily for repeat filers, bankruptcy automatically stays all actions against the debtor’s secured property.297 A bankruptcy filing, in appropriate circumstances, can even lead to the return to the consumer of property already repossessed.
UCC Article 9 applies only to security interests created by agreement, not to interests in consumers’ property created by statute.302 Interests in personal property created by statute, called statutory liens, are treated in Chapter 15, infra, and state lien laws are identified in
While the most common form of seizure of an automobile is through self-help repossession, in certain situations a creditor will have to go to court to obtain a replevin order to recover the automobile. It is especially common for a creditor to use a court order to seize manufactured homes and household goods. Consequently, state replevin laws and related court rules are important to repossession law. These state replevin laws, sometimes called detinue, claim and delivery, bail, or sequestration laws, regulate seizures of personal property through judicial action.
Every state has a statute governing the foreclosure of real estate and some states have statutes dealing specifically with home mortgage foreclosures. In states where foreclosure is by judicial process, court rules and procedures will also be important.
Most states have enacted special statutes covering rent-to-own (RTO) transactions. In many cases, these statutes explicitly exempt RTO transactions from the provisions of UCC Article 9 and state consumer credit laws and replace these statutes with only minimal protections for consumers. Remedies vary by state. RTO statutes are listed and described in § 14.3, infra.
Common law torts such as conversion, negligence, trespass, assault, infliction of emotional distress, and invasion of privacy have applications when unsecured property is seized, when unlawful methods are used to seize secured or leased property, or when other improper repossession practices are committed. Common law claims are particularly useful when the creditor’s conduct justifies the award of punitive damages, or when statutory remedies are unavailable because of statute of limitations or scope issues.
Bailment issues primarily arise in repossession cases in two contexts.
Bailees have several obligations: to take care of the bailed item, to comply with instructions regarding the bailment, and to redeliver the bailed item to the bailor at the end of the bailment’s term.329 The standard of care that the bailee must exercise depends upon whom the bailment benefits.