Part 11- Appendix B: Uniform Commercial Code, Note 31

Summary of Appendix B B-147 to B-150: Remedies, Compliance, and Transition Provisions This section focuses on remedies for noncompliance, liability limitations for secured parties, and transitional rules related to changes under the Uniform Commercial Code (UCC). 1. Remedies for Noncompliance (§ 9–625): Judicial Orders (§ 9–625(a)):  Courts can issue orders to restrain or adjust improper collection, enforcement, or disposition actions. Damages for Noncompliance (§ 9–625(b)-(d)):     Damages are available for losses caused by noncompliance, including increased costs of alternative financing. For Consumer Goods: o Minimum recovery: the credit service charge + 10% of the principal obligation or the time-price differential + 10% of the cash price. Statutory Damages: o $500 per violation applies to failures such as:  Improper filing of records.  Failure to provide termination statements.  Noncompliance with specified notification and response requirements. Limitations: o Recovery is barred if a debtor’s deficiency is eliminated or reduced through compliance failures. 2. Determination of Commercial Reasonableness (§ 9–626 to § 9–627): Deficiency or Surplus in Issue (§ 9–626):   Burden of Proof: o The secured party must prove compliance with UCC provisions if questioned. o If noncompliance occurs, the debtor’s liability is limited to the amount by which secured obligations and expenses exceed either:  Actual proceeds.  Hypothetical proceeds from a compliant transaction. Consumer Transactions: o Courts retain discretion to determine rules, as the UCC does not prescribe specific standards. What Constitutes Commercial Reasonableness (§ 9–627):   A transaction is commercially reasonable if: o Conducted in a recognized market. o At current market prices. o In accordance with dealer practices for similar property. Court or Creditor Approval: o Judicial or creditor approval strengthens the presumption of reasonableness but is not mandatory. 3. Limitations on Liability (§ 9–628):    Secured parties are not liable for noncompliance unless: o They know the debtor/obligor’s identity and how to contact them. No liability arises for: o Reasonable reliance on debtor/obligor representations about collateral or transaction type. o Misjudgment of a transaction as non-consumer. Statutory damages under § 9–625(c)(2) are capped at one occurrence per secured obligation. 4. Transition Provisions (§ 9–701 to § 9–706): Effective Date (§ 9–701):  The UCC revisions became effective on July 1, 2001. Pre-Effective Transactions (§ 9–702 to § 9–704):    Savings Clause (§ 9–702): o Transactions and liens valid before the effective date remain valid under the new act unless explicitly overridden. Perfected Security Interests (§ 9–703): o Pre-effective-date perfected security interests:  Automatically remain perfected if compliant with the new act.  Remain valid for one year if compliance is not met, after which they must conform to new rules to stay effective. Unperfected Security Interests (§ 9–704): o Unperfected interests must achieve enforceability and perfection under the new act within one year. Pre-Effective Actions and Filings (§ 9–705):  Pre-Effective Filings: o Financing statements filed before the new act are valid if they meet new requirements. o Such filings cease to be effective by:  The expiration date under old law.  June 30, 2006, unless reperfected under the new act. Initial Financing Statement as Continuation (§ 9–706):  Initial filings in accordance with § 9–501 may continue the effectiveness of pre-effective filings if: o Filed in the appropriate jurisdiction. o Accompanied by proper documentation and satisfaction of UCC requirements. Key Takeaways: 1. Enforcement and Remedies: o Debtors and other parties have access to statutory and compensatory damages for secured party noncompliance. o Secured parties bear the burden of proof in disputes over commercial reasonableness. 2. Commercial Reasonableness Standards: o Flexibility in method, market, and pricing supports fair collateral dispositions. o Compliance with established practices or creditor approval ensures better outcomes. 3. Transitional Protections: o The UCC safeguards pre-effective transactions and provides a oneyear grace period for adjustments to comply with new requirements.