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Repossessions: 10.9.4 Special Statutory Protections Against Below-Market Resale Prices

If the collateral was sold at a low price to a secured party, a person related to a secured party, or a secondary obligor, revised Article 9 provides a special remedy to the debtor, requiring the creditor to credit the debtor with the proceeds that an arm’s-length complying sale would have produced.570 This protection against low-price repossession sales is discussed in detail in

Repossessions: 10.9.5.1 Using Pricing Guides and Internet Resources to Establish Market Value

One way to determine the cash value of a car or other collateral is to use a published pricing guide. Courts may use a car’s book value to get an idea of the car’s worth in the face of the secured party’s failure to prove that the price obtained upon resale was reasonable.574 The guides should be just as persuasive to help show that a repossession sale price is so low that the disposition was commercially unreasonable.

Repossessions: 10.9.5.2 Purchaser’s Resale Price

The price for which the purchaser of the collateral resold the property is another possible measure of its value.586 When the secured party purchases the collateral and then resells it, courts will closely scrutinize the price at the second sale in order to determine whether a substantially lower price at the first sale was commercially unreasonable.587

Repossessions: 10.9.5.3 Other Methods to Establish Market Value

The price the debtor originally paid for the property is a possible indicator of a reasonable value. For example, a sale is not commercially reasonable if the debtor buys a used car for $3000 and, after repossession a few months later, the dealer sells it for $300.

Repossessions: 10.10.1 Secured Party May Not Purchase at Private Sale

The secured party may not buy the collateral at a private sale.596 The official comments to Article 9 state that an auction must be open to the public if it is to be considered a public sale,597 so a dealer only auction is not a public sale. A secured party’s purchase at such a private sale thus violates Article 9, entitling the debtor to UCC remedies.

Repossessions: 10.10.2 Secured Party’s Purchase at Sham Public Sale or Commercially Unreasonable Public Sale

While a creditor may purchase the collateral at a public sale,604 an ostensibly public sale may in fact have been private.605 For example, even though the creditor labeled a sale a public auction, a court found it to be a private sale when it was conducted at the creditor’s place of business, with only the creditor’s employees present, and with inadequate public notice of the sale.606 If the creditor or a related party purchases the collateral at p

Repossessions: 10.10.3 Low-Price Sales to Insiders

Revised Article 9 creates a special remedy for some debtors when the collateral is sold to an insider at a low price. If the collateral is sold to the secured party or certain insiders, and the proceeds are significantly below the range that a commercially reasonable sale to a non-insider would have brought, then the debtor must be credited with the price that would have been realized at an arm’s-length sale.

Repossessions: 10.10.4.1 Does Transferring the Obligation or the Collateral Back to the Dealer Constitute the Article 9 Disposition?

It is common for sellers to assign consumer credit contracts to finance companies. For example, a Ford automobile dealership may assign a consumer’s installment sale contract to Ford Motor Credit Corp. Many of these assignments are “with recourse” or contain “repurchase agreements.” If the debtor defaults, the assignor dealer pays the assignee finance company all or part of the outstanding balance, and the finance company transfers the debtor’s contract and security agreement back to the dealer.

Unfair and Deceptive Acts and Practices: 3.1.1 How to Use This Treatise to Prove a Violation

Deception, unfairness, and unconscionability are broad and evolving standards that arguably apply to almost every consumer abuse. Consequently, consumer attorneys should always consider the applicability of a UDAP claim when a consumer complains of merchant, creditor, landlord, or other marketplace misconduct. In addition, a UDAP counterclaim may be appropriate in defending a collection action if an investigation uncovers abuse in the underlying sales transaction, the credit terms, or collection practices.

Unfair and Deceptive Acts and Practices: 3.2.1 Pleading Per Se Violations

The first step in showing that a practice is a UDAP violation is to determine if it is an automatic or “per se” UDAP violation. A per se or automatic UDAP violation occurs when a practice violates a specific UDAP guideline, and violation of that guideline is automatically a UDAP violation.

Unfair and Deceptive Acts and Practices: 3.2.2.1 Most UDAP Statutes Prohibit Specific Enumerated Practices

The first place to look for per se violations is in the list of enumerated prohibitions found in the UDAP statute itself. Most state UDAP statutes prohibit itemized practices in what is sometimes called the statute’s “laundry list” of enumerated deceptive practices. There is no substitute for simply reading the statute to see which prohibitions are enumerated.14 Because of the enormous variation from state to state, this treatise will not analyze individual state UDAP laundry lists.

Unfair and Deceptive Acts and Practices: 3.2.5 UDTPA Violations As Per Se UDAP Violations

Delaware, Georgia, Hawaii, Illinois, Maine, Nebraska, Ohio and Oklahoma have enacted two separate UDAP statutes—one modeled after the Uniform Deceptive Trade Practices Act (UDTPA)30 and which often does not give consumers a private right of action,31 and another UDAP statute that does provide a private right of action. The UDTPA contains a laundry list of prohibited practices that may not be explicitly listed in the state’s other UDAP statute.

Unfair and Deceptive Acts and Practices: 3.2.7.1 Importance of Finding Violations of Other Laws Per Se UDAP Violations

A critical issue is whether a violation of another statute, particularly one meant to protect the public, is a per se UDAP violation. Other consumer protection laws, especially when agency regulations and local ordinances are included, often have very specific requirements and prohibitions that can add concreteness to a UDAP claim.45 A finding that a violation of federal or state law is a per se UDAP violation can open up one of the most effective uses of a UDAP statute.

Unfair and Deceptive Acts and Practices: 3.2.7.2 UDAP Scope Issues May Limit Applicability of Per Se Approach

The enormous utility of a per se approach to violation of other state laws has a significant limitation. The challenged practice must be within the scope of the UDAP statute. There can be no per se UDAP violation for a violation of the landlord-tenant code if landlord practices are outside the scope of a particular UDAP statute. Similarly, if a state’s courts find that the legislature intended the state insurance legislation to displace a UDAP statute’s applicability to insurance practices, a violation of insurance legislation is not a UDAP violation.

Unfair and Deceptive Acts and Practices: 3.2.7.3.1 One of two California UDAP statutes explicitly adopts per se approach

One of California’s two UDAP statutes, the Unfair Competition Law, prohibits not only unfair or deceptive conduct, but also unlawful business conduct.48 Thus the statute itself specifies that a violation of another statute is a per se UDAP violation. The state’s courts find that such unlawful business activity includes anything that is forbidden by law.49 But the reference to acts made illegal by other statutes is not a limitation on the UDAP statute’s scope.

Unfair and Deceptive Acts and Practices: 3.3.1 Introduction

In many situations, an unscrupulous practice does not specifically violate an enumerated prohibition in the UDAP statute, a UDAP regulation, or some other statute. The practice may still be a UDAP violation, but the consumer litigant must take extra steps to demonstrate liability to the court. When a practice must be proven deceptive or unfair without the aid of a per se theory, the consumer litigant should adopt a three-step approach.

Unfair and Deceptive Acts and Practices: 3.3.3 Practice-Specific Precedent

The second step, after fully developing the facts, is to produce for the court specific precedent that holds the exact practice or some similar practice to be a UDAP violation. Courts may feel uneasy dealing with broad statutes generally prohibiting deception or unfairness, or even the UDAP standards developed by the FTC, federal and state courts. To the extent that cases factually on point exist, it is always helpful to provide the court with this precedent.

Unfair and Deceptive Acts and Practices: 3.4.2.1 General

State legislative history for a UDAP statute is often sparse. However, there is often legislative history for a model law upon which the UDAP statute is based. Local law review articles written at the time of enactment can also be helpful to courts in determining the legislature’s objectives.