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Repossessions: 10.4.11.12.2 Inclusion of additional non-required information that is misleading

Inaccuracies in non-required information that the creditor adds at the end of the notice will make the notice insufficient if the error is misleading with respect to rights arising under Article 9.361 Under this standard, misstatement of the time allowed for redemption of the collateral or of the redemption amount362 will invalidate a notice because these errors relate to the Article 9 right of redemption.

Repossessions: 10.4.12 Remedies for Notice Violations

When a secured party fails to give proper notice, UCC § 9-625 gives the debtor remedies, including actual damages,368 statutory damages, and injunctive relief.369 Actual damages may include any diminution in the sale price caused by the inadequate notice that reduced the number of potential bidders at the sale.370 The debtor may also recover consequential damages, subject to proof of causation and foreseeability.

Repossessions: 10.5.1 Unreasonable Delay

Under Article 9, creditors must sell repossessed consumer goods within ninety days if the debtor has already paid sixty percent of the cash price or loan principal.379 This requirement is substantively identical to that under the former version of Article 9, except that revised Article 9 allows any longer period to which the debtor and all secondary obligors have agreed. Such an agreement must be entered into and signed or otherwise authenticated after default.380

Repossessions: 10.6.2 Definitions

An official comment to Article 9 defines “public sale” as: “[O]ne at which the price is determined after the public has had a meaningful opportunity for competitive bidding.

Repossessions: 10.7.1 Creditor’s Choice of Manner of Sale Must Be Commercially Reasonable

Article 9 allows the creditor to choose the manner of selling the collateral, including the choice between a public sale or a private sale. However, the creditor’s choice must be commercially reasonable.435 Article 9 explicitly requires that the “method” and “manner” of disposition be commercially reasonable,436 and it authorizes “public or private proceedings” only “if commercially reasonable.”437

Repossessions: 10.7.4.1 Generally

Dealers and creditors frequently dispose of repossessed automobiles at auctions that are open only to automobile dealers and not to the public or the consumer debtor. These are wholesale auctions, as the buyers are dealers who intend to resell the vehicles at retail to the public. Because the auctions are designed to bring in a wholesale price, repossessed cars will often sell for less than half of their fair market value.467

Repossessions: 10.7.4.3 Dealer Only Automobile Auctions Do Not Conform to “Reasonable Practices Among Dealers in the Type of Property”

Another way that a creditor can establish that a disposition was commercially reasonable is to show that it was done “in conformity with reasonable commercial practices among dealers in the type of property.”472 Courts that accept testimony that dealer only auctions are the customary practice among creditors for their repossessed automobiles473 miss the thrust of this provision.

Repossessions: 10.7.4.4 Evidence of Results of Dealer Only Auctions

A few cases have upheld dealer only auctions as commercially reasonable based on the creditor’s evidence that such sales brought higher prices than other sales to which the public was invited.477 The debtor’s attorney should not take such an assertion at face value, but should investigate whether a sale to which the public was invited might have brought higher prices, and whether there may be reasons other than price for the creditor’s use of a dealer only auction (such as custom, friendships, or the creditor’s convenience).

Repossessions: 10.8.1 Overview

Article 9 does not include a specific definition of commercial reasonableness, but courts have listed factors for determining whether a sale of repossessed collateral is commercially reasonable.484 The subsections that follow apply these principles to particular types of sales and particular features of sales.

Repossessions: 10.8.2 Manner of Conducting an Auction

Auctions are the most common method by which creditors dispose of repossessed or off-lease vehicles. Creditors also often use auctions to dispose of other types of collateral. Except when something about the public or private nature of the auction mandates different treatment, the standards for a commercially reasonable auction should be the same whether it is a public auction—one to which the public is invited485—or a private auction, such as a dealer only auction.486

Repossessions: 10.9.1 Low Price Is a Persistent Problem in Repossession Sales

Low price is a pervasive and persistent problem in repossession sales that has been documented repeatedly by empirical studies since the late 1960s. The first of these studies, published in 1969,551 showed that the sale of repossessed vehicles in Connecticut produced only 71% of wholesale book value and 51% of retail value. After the repossession sale, however, the vehicles were typically sold at retail, and the resale produced 92% of retail value.

Repossessions: 10.2.4 Duty of Commercial Reasonableness Is Not Waivable

The requirement of commercial reasonableness cannot be waived.43 This prohibition applies both in consumer and non-consumer transactions, and protects both debtors and obligors.44 Resolving a split in decisions under the former version of Article 9 over whether a guarantor could waive the right to object to a commercially unreasonable sale,45 revised Article 9 makes it clear that neither a primary obligor nor a secondary obligor can waive this requiremen

Repossessions: 10.2.5.1 Article 9’s Burden of Proof Rules

In non-consumer cases in which the amount of a deficiency or surplus is in issue, UCC § 9-626(a) provides that the secured party bears the burden of proving that it complied with the UCC requirements for collection, enforcement, disposition, and acceptance of the collateral.52 It must meet this burden only if the defendant places compliance in issue, however.53

Repossessions: 10.2.5.3 Burden of Proof in Debtor’s Affirmative Suit

When the debtor filed suit against the creditor for failure to dispose of the collateral in a commercially reasonable fashion, some pre-revision cases placed the burden of proof on the debtor.58 Other decisions placed the burden of proof on the creditor, regardless of which party was the plaintiff.59

Repossessions: 10.2.6 Question of Law or Fact

Most courts consider whether a sale was commercially reasonable a factual question appropriate for jury determination.61 A minority of jurisdictions regard it as a mixed question of law and fact.62 In either case, the issue may be appropriate for summary judgment, which can be a useful litigation tool when the violation is clear, such as when no notice was sent to the debtor, or the notice was improper on its face.