Default (Article 9: UCC)

Towards the end of the life cycle of a secured transaction comes default. Default provides the right of a secured party to proceed against collateral. On the bar exam, it's almost always the case that this right is triggered by the debtor's failure to pay a debt. 

One avenue for the secured party after default is to use self help and take possession of the collateral. This can only be done, however, if there will not be a breach of the peace. If the secured party breaches the peace, the secured party loses the authorization to re-possess and may actually be sued for conversion if the collateral is re-possessed. Other intentional torts like battery, assault, etc., are also on the table. 

What does it mean to breach the peace? Any conduct by the secured party that has the potential to lead to violence is a breach of the peace. The standard isn't very high: if the debtor physically occupies the space where the secured party intends to acquire the collateral, that may be sufficient to prevent the secured party from using self help to acquire the collateral. If the debtor verbally objects, it almost certainly is. Merely breaking and entering onto property to acquire the collateral, however, isn't necessarily a breach of the peace if the debtor is not present on the property at the time of the breaking and entering. 

Because of this limit involving breach of the peace, self help is not always available. Another avenue is to use judicial process. Replevin is a common judicial process used to acquire collateral after the debtor has defaulted. Another option is for the secured party to make equipment unusable and then to dispose of it on the debtor's property (provided doing so does not breach the peace). If the collateral is accounts, the secured party might provide notice to the account debtor to pay the secured party rather than the party that defaulted. 

Once the secured party possesses the collateral, the secured party might choose to retain the collateral in full or in part. Or, the secured party might choose to sell, lease, license, or otherwise dispose of the collateral in a public or private sale. To sell the collateral, reasonable written notice of intent to sell must be given to the debtor and to any sureties on the debt as well as to any other secured parties. There are a few exceptions here: for example, notice need not be given if the collateral is consumer goods or if the collateral is perishable or its value threatens to decline rapidly. The notice must be sent within a reasonable time before sale.

The notice must adequately describe the parties and the collateral and every aspect of the sale must be commercially reasonable. That's to say, the secured party must show that it made an effort to obtain the best price for the collateral. 

Even after default, the game is not entirely over for the debtor. Any time before the secured party has resold the collateral, retained the collateral through possession, or has entered into a contract for disposition of the collateral, the debtor may redeem the collateral by fulfilling all obligations secured by the collateral including paying for any reasonable expenses. Typically, to redeem will require paying off the entire debt, not least of which is because there's generally an acceleration clause in the agreement between the secured party and the debtor that requires full payment upon default.