Properly disposing of non-real estate property held as collateral is a matter of concern for lenders seeking to recoup cash lost in the multitude of commercial and consumer loan defaults sustained in the recent economic recession. In this fifth installment of our series discussing frequently asked UCC Article 9 compliance questions, we will discuss the often misunderstood standard of “commercial reasonableness” and its Article 9 application.
What is “Commercially Reasonable”
Commercially reasonable is the standard by which the every aspect of a disposition of collateral is measured, including the method, manner, time, place, and other terms of the disposition. Whether any disposition is commercially reasonable is fact-specific, so what is commercially reasonable can vary on a case-by-case basis.
A disposition is not necessarily unreasonable simply because it differs from another disposition — the key is whether a disposition is commercially reasonable under the circumstances. The fact that a greater amount could have been recovered by disposing of the property at a different time or in a different method is not of itself proof that a creditor’s actions were not commercially reasonable.
How is Commercial Reasonableness Measured?
A disposition is presumed to be commercially reasonable if made in any of these ways:
(a) The disposition was in the usual manner on any recognized market;
(b) The disposition was made at the prevailing price in any recognized market at the time of the disposition; or
(c) The disposition was otherwise in conformity with reasonable commercial practices among dealers in the type of property disposed of. (See section 9-627(b).)
A disposition is conclusively presumed to be commercially reasonable if made by or pursuant to any of the following:
(a) In a judicial proceeding;
(b) By a bona fide creditors’ committee;
(c) By a representative of creditors; or
(d) By an assignee for the benefit of creditors.
Again, lack of approval by any of these means of itself does not automatically mean that a collection, enforcement, disposition, or acceptance was not commercially reasonable.
In our next installment, we will discuss the penalties a creditor may incur for failing to dispose of collateral in a commercially feasible manner. Check back soon to learn more, or call us and let our experienced attorneys guide you through the process of recovering and disposing of non-real estate collateral.
The attorneys at Glass & Goldberg provide high quality, cost-effective legal services and advice for clients in all aspects of business litigation and transactional law. Call us at (818) 888-2220, email us at email@example.com, or visit us on the web at www.glassgoldberg.com to learn more about the firm and to sign up for future newsletters.
 A conclusive presumption represents a higher legal obstacle for a dissatisfied party to overcome than a basic presumption.