Default: disposition

Question 1

Commercially reasonable standard

Answer 1

A disposition of collateral is commercially reasonable when conducted:

(1) In the usual manner on a recognized market—e.g., a stock exchange—that has standardized price quotations for fungible goods;
(2) At the price current in any recognized market at the time of the disposition; or
(3) Otherwise in conformity with reasonable commercial practices among dealers in the type of property that was the subject of the disposition.

Question 2

Commercially reasonable standard: disposition price

Answer 2

A price can be commercially reasonable even if a higher price could have been obtained through a different disposition.

But a low price may trigger scrutiny of its reasonableness.

Question 3

Notice of disposition

Answer 3

A secured party generally must send an authenticated notification of disposition to:

(1) The debtor;
(2) Any secondary obligor; and
(3) With respect to non-consumer goods:
(a) Any other secured party or lien holder who held a security interest that was perfected by filing or pursuant to a statute; and
(b) Any other party from whom the secured party has received authenticated notice of a claim or interest in the collateral.

Question 4

Notice of disposition: reasonableness

Answer 4

The notification must be reasonable as to:

• its content,
• the manner in which it is sent, and
• its timeliness.

With respect to timeliness:

• The notice should be sent sufficiently in advance of disposition to allow the notified party to act on the notification;
• In a non-consumer transactions, a lead time of at least 10 days is reasonable.

Question 5

Purchase of collateral by the secured party

Answer 5

The secured party can purchase the collateral:

(a) In a public sale; or
(b) In a private sale if the collateral:
(i) Is of the kind customarily sold on a recognized market—e.g., the NYSE; or
(ii) Is the subject of widely distributed standard price quotations.

Question 6

Cash proceeds from a disposition

Answer 6

A secured party must apply, or pay over for application, cash proceeds of a disposition in the following order

(1) Reasonable expenses for collection and enforcement, including attorneys’ and legal fees;
(2) Satisfaction of obligations secured by the security interest;
(3) Satisfaction of any subordinate security interests, provided that:

• the junior secured party made an authenticated demand for proceeds
• before distribution of the proceeds is complete, then;

(4) The remainder of the proceeds to the debtor (“surplus”).

Question 7

Cash proceeds from a disposition: deficiencies

Answer 7

If there is a deficiency after the requirements and application of proceeds are made, the obligor generally is liable for the deficiency.

Question 8

Remedies for breach by secured party

Answer 8

If a secured party fails to comply with the disposition requirements, then the debtor or other secured party may seek damages for any loss caused by the secured party’s failure to notify.

Question 9

Remedies for breach by secured party: deficiencies

Answer 9

There is a rebuttable presumption that the secured party is not entitled to collect a deficiency.

The secured party can rebut this presumption in whole or in part by showing that the deficiency would have existed even had the secured party complied with Article 9.