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Repossessions: 10.4.11.11 Standard of Accuracy
For consumer-goods transactions, all information required by UCC § 9-614 must be included in the notice and must be accurate.
Repossessions: 10.4.11.12.1 Whether the creditor has an obligation to include additional information
If the creditor agrees in the credit contract to give a particular type of notice or take some particular steps in disposition, failure to follow the agreement may be commercially unreasonable, even if the notice or other steps would not otherwise be required. For example, when a General Motors Acceptance Corp.
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: 10.5.2 Constructive Strict Foreclosure and Other Remedies for Excessive Delay
If the creditor retains the collateral too long before disposing of it, courts under former Article 9 often found that an involuntary, or constructive, strict foreclosure had occurred—in other words, they deemed the creditor to have accepted the collateral in full satisfaction of the debt. These courts then held that the creditor had no right to seek a deficiency.401
Repossessions: 10.5.3 Rushed Sale; Choice of Unreasonable Date
A sale that is too hastily conducted may not be commercially reasonable for a number of reasons.
Repossessions: 10.6.1 Implications of the Distinction Between Public and Private Sales
An important early step in examining a repossession sale is to determine whether the sale was public or private. The implications of a creditor’s mischaracterization of the nature of the sale are significant.
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: 10.6.3 Are Dealer Only Auctions Public or Private Sales?
Most repossessed vehicles are sold at dealer only auctions, that is auctions to which admission is carefully restricted to dealers who have completed certain paperwork, and members of the general public are not admitted.
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: 10.7.2.1 Article 9 Language Regarding Wholesale Dispositions
One of the most persistent problems faced by consumer debtors is the sale by the dealer of repossessed collateral at wholesale when the dealer could, with little additional effort or cost, sell the same collateral at retail at a higher price, thus reducing the size of the deficiency claim.442
Repossessions: 10.7.2.2 Dealer Justifications for Wholesale Disposition
Dealers may claim that they do not sell the type of car repossessed at retail. But this justification is of dubious merit when the debtor purchased the car from the dealer, particularly if the car was purchased used.
Repossessions: 10.7.3 Challenging a Creditor’s Choice of a Private, Non-Auction Wholesale Disposition
A highly suspect practice involves private, non-auction sale of repossessed cars at wholesale. That is, instead of auctioning the car, the dealer solicits bids from a limited number of other dealers. This method has a high potential for abuse, and arguably will not produce as good a result as either a private retail sale or a public or dealer only auction.
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: 10.7.4.2 Dealer Only Automobile Auctions Are Not a “Recognized Market”
Section 9-627 provides that a disposition is commercially reasonable if it is made “in the usual manner on any recognized market.” Creditors’ assertions that dealer only automobile auctions are a “recognized market” ignore the meaning of that term under the UCC.
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: 10.2.3 Factors in Determining Commercial Reasonableness
The determination of commercial reasonableness requires analysis of several factors.38 One court enumerated nine factors to be considered in such a determination:
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