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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: § 3914. Extension of protections to citizens serving with allied forces

A citizen of the United States who is serving with the forces of a nation with which the United States is allied in the prosecution of a war or military action is entitled to the relief and protections provided under this chapter if that service with the allied force is similar to military service as defined in this chapter. The relief and protections provided to such citizen shall terminate on the date of discharge or release from such service.

Repossessions: § 3916. Information for members of the Armed Forces and their dependents on rights and protections of the Servicemembers Civil Relief Act

(a) Outreach to members

The Secretary concerned shall provide to each member of the Armed Forces under the jurisdiction of the Secretary pertinent information on the rights and protections available to members and their dependents under the Servicemembers Civil Relief Act.

(b) Time of provision

The information required to be provided under subsection (a) to a member shall be provided at the following times:

Repossessions: § 3917. Extension of rights and protections to reserves ordered to report for military service and to persons ordered to report for induction

(a) Reserves ordered to report for military service

A member of a reserve component who is ordered to report for military service is entitled to the rights and protections of this subchapter and subchapters II and III [of this chapter] during the period beginning on the date of the member’s receipt of the order and ending on the date on which the member reports for military service (or, if the order is revoked before the member so reports, or the date on which the order is revoked).

Repossessions: § 3919. Exercise of rights under chapter not to affect certain future financial transactions

Application by a servicemember for, or receipt by a servicemember of, a stay, postponement, or suspension pursuant to this chapter in the payment of a tax, fine, penalty, insurance premium, or other civil obligation or liability of that servicemember shall not itself (without regard to other considerations) provide the basis for any of the following:

(1) A determination by a lender or other person that the servicemember is unable to pay the civil obligation or liability in accordance with its terms.

Repossessions: § 3933. Fines and penalties under contracts

(a) Prohibition of penalties

When an action for compliance with the terms of a contract is stayed pursuant to this chapter, a penalty shall not accrue for failure to comply with the terms of the contract during the period of the stay.

(b) Reduction or waiver of fines or penalties

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.

Repossessions: 10.3.1 Duty to Safeguard

A secured party is under a duty to use reasonable care in the custody and preservation of collateral in its possession.63 This duty, which is substantively unchanged from the previous version of Article 9, cannot be waived.64

Repossessions: 10.3.2 Use of Collateral

The duty to use reasonable care in the custody and preservation of the collateral means that the creditor may not drive the debtor’s car for personal reasons or let someone use the debtor’s manufactured home pending sale.72 Moreover, in the case of consumer goods, Article 9 specifically prohibits the security agreement from granting the creditor the right to use the collateral after the creditor gains possession.73 However, the creditor may always use or operate the collateral in order to preserve i

Repossessions: 10.3.3 Duty to Recondition

Section 9-610(a) specifically states that the creditor may sell the collateral “in its present condition.”86 Nonetheless, under the substantively identical language of the former version of Article 9,87 many courts found that sale of the collateral in its condition at the time of repossession was not commercially reasonable under the circumstances of the particular case.88 If the value of the collateral will be significantly enhanced or if the likelihood

Repossessions: 10.4.1 Importance of Notice

Section 9-611(b) requires reasonable notice of the sale or other disposition of repossessed collateral. The notice of sale is of the utmost importance to the consumer. It tells when to expect loss of the property if actions are not taken to redeem it or otherwise to prevent the sale.

Repossessions: 10.4.2 Who Must Send Notice

The “secured party” must notify the debtor of the sale.121 If the security interest is transferred to an assignee, several courts have held that the assignee and not the assignor is the “secured party” who must send the notice.122 That is, the party actually responsible for selling the collateral must send the notice.