Rights and Duties of Secured Party Having Possession or Control of Collateral

1. Law
2. Georgia Code
3. Commercial Code
4. Secured Transactions
5. Effectiveness of Security Agreement; Attachment of Security Interest; Rights of Parties to Security Agreement
6. Rights and Duties of Secured Party Having Possession or Control of Collateral

1. Duty of care when secured party in possession. Except as otherwise provided in subsection (d) of this Code section, a secured party shall use reasonable care in the custody and preservation of collateral in the secured party's possession. In the case of chattel paper or an instrument, reasonable care includes taking necessary steps to preserve rights against prior parties unless otherwise agreed.
2. Expenses, risks, duties, and rights when secured party in possession. Except as otherwise provided in subsection (d) of this Code section, if a secured party has possession of collateral:
   1. Reasonable expenses, including the cost of insurance and payment of taxes or other charges, incurred in the custody, preservation, use, or operation of the collateral are chargeable to the debtor and are secured by the collateral;
   2. The risk of accidental loss or damage is on the debtor to the extent of a deficiency in any effective insurance coverage;
   3. The secured party shall keep the collateral identifiable, but fungible collateral may be commingled; and
   4. The secured party may use or operate the collateral:
      1. For the purpose of preserving the collateral or its value;
      2. As permitted by an order of a court having competent jurisdiction; or
      3. Except in the case of consumer goods, in the manner and to the extent agreed by the debtor.
3. Duties and rights when secured party in possession or control. Except as otherwise provided in subsection (d) of this Code section, a secured party having possession of collateral or control of collateral under Code Section 11-7-106, 11-9-104, 11-9-105, 11-9-106, or 11-9-107:
   1. May hold as additional security any proceeds, except money or funds, received from the collateral;
   2. Shall apply money or funds received from the collateral to reduce the secured obligation, unless remitted to the debtor; and
   3. May create a security interest in the collateral.
4. Buyer of certain rights to payment. If the secured party is a buyer of accounts, chattel paper, payment intangibles, or promissory notes or a consignor:
   1. Subsection (a) of this Code section does not apply unless the secured party is entitled under an agreement:
      1. To charge back uncollected collateral; or
      2. Otherwise to full or limited recourse against the debtor or a secondary obligor based on the nonpayment or other default of an account debtor or other obligor on the collateral; and
   2. Subsections (b) and (c) of this Code section do not apply.

(Code 1981, §11-9-207, enacted by Ga. L. 2001, p. 362, § 1; Ga. L. 2010, p. 481, § 2-21/HB 451.)

The 2010 amendment, effective May 27, 2010, inserted "11-7-106," in the introductory paragraph of subsection (c). See the Editor's notes for applicability.

Editor's notes.

- Ga. L. 2010, p. 481, § 3-1, not codified by the General Assembly, provides that: "This Act applies to a document of title that is issued or a bailment that arises on or after the effective date of this Act. This Act does not apply to a document of title that is issued or a bailment that arises before the effective date of this Act even if the document of title or bailment would be subject to this Act if the document of title had been issued or bailment had arisen on or after the effective date of this Act. This Act does not apply to a right of action that has accrued before the effective date of this Act." This Act became effective May 27, 2010.

Ga. L. 2010, p. 481, § 3-2, not codified by the General Assembly, provides that: "A document of title issued or a bailment that arises before the effective date of this Act and the rights, documents, and interests flowing from that document or bailment are governed by any statute or other rule amended or repealed by this Act as if such amendment or repeal had not occurred and may be terminated, completed, consummated, or enforced under that statute or other rule." This Act became effective May 27, 2010.

JUDICIAL DECISIONS

Editor's notes.

- In light of the similarity of the provisions, decisions under former Code 1933, §§ 12-605 and 12-607 and former Code Section 11-9-207 are included in the annotations for this section.

Value of collateral.

- This Code section requires only that a creditor use reasonable care to preserve the value of the collateral; it does not impose a duty to increase the value of the collateral, such as by repairing a repossessed automobile. McMillian v. Bank S., 188 Ga. App. 355, 373 S.E.2d 61 (1988) (decided under former Code Section11-9-207).

Subsection (2)(c) of this section concerns increase in collateral held by secured party which, if money, must be paid to debtor or applied to reduce secured obligation. Twisdale v. Georgia R.R. Bank & Trust Co., 129 Ga. App. 18, 198 S.E.2d 396 (1973) (decided under former Code Section11-9-207).

Care and diligence of pawnee.

- A pawnee is bound to exercise ordinary care and diligence, and whether such care has been exercised is question for jury. Johnson v. First Nat'l Bank, 53 Ga. App. 56, 184 S.E. 915 (1936) (decided under former Code 1933, § 12-605).

Expenses and repairs.

- A pawner is chargeable with necessary expenses and repairs on property pledged. Johnson v. First Nat'l Bank, 53 Ga. App. 56, 184 S.E. 915 (1936) (decided under former Code 1933, § 12-607).

Negligence by creditor.

- Where the creditor has negligently failed to perform its duty, which results in default on main debt, resulting injury or additional expense should be paid by creditor rather than by debtors. Irwin v. Life & Cas. Ins. Co., 204 Ga. 582, 50 S.E.2d 354 (1948) (decided under former Code 1933, § 12-605).

Decline in value of collateral.

- Pledgor of personalty cannot require pledgee to sell property, but where certain cotton was pledged to bank as security for note, and contract provided that pledgor should maintain excess of 10 percent in value of security over amount of debt, in default of which note should become due immediately, and where pledgor afterwards became alarmed by decline in cotton market and requested bank to sell, and bank refused, agreeing it would sell as soon as price of cotton declined to point where value of the cotton would not exceed amount of debt, breach of this agreement by bank could be set up in defense to suit on note. Johnson v. First Nat'l Bank, 53 Ga. App. 56, 184 S.E. 915 (1936) (decided under former Code 1933, §§ 12-605, 12-607).

Cited in Motors Acceptance Corp. v. Rozier, 278 Ga. 52, 597 S.E.2d 367 (2004).

RESEARCH REFERENCES

U.L.A.

- Uniform Commercial Code (U.L.A.) § 9-207.

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