2.4 Sale or Other Disposition

• Library: Enforcement of Liens and Judgments in Virginia (Virginia CLE) (2019 Ed.)

2.4 SALE OR OTHER DISPOSITION

Having obtained possession of the collateral, the secured party is faced with the need to dispose of it as provided in title 8.9A of the Virginia Code.

2.401 In General. The method, manner, time, place, and terms of the secured party's sale, lease, or other disposition of collateral must be commercially reasonable. ⁹⁴

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A. Better Price. "The fact that a greater amount could have been obtained by a collection, enforcement, disposition, or acceptance at a different time or in a different method from that selected by the secured party is not of itself sufficient to preclude the secured party from establishing that the collection, enforcement, disposition, or acceptance was made in a commercially reasonable manner." ⁹⁵ It is, however, evidence that a jury may consider, and in most jurisdictions, a large discrepancy is likely to invite close scrutiny of the sale. ⁹⁶

B. Recognized Market. Selling in a recognized market in the usual manner for such sales, or selling at the price "current" in such a market, is presumptively commercially reasonable. ⁹⁷

1. Notification. If the collateral is of a type customarily sold on a recognized market, notification of the sale need not be given. ⁹⁸

2. Sale to the Secured Party. If there is a recognized market, the secured party may sell to himself or herself at a private sale. ⁹⁹

3. Definition. A recognized market must be one "where sales involve many items so similar that individual differences are nonexistent or immaterial, where haggling and competitive bidding are not primary factors in each sale, and where the prices paid in actual sales of comparable property are currently available by quotation." ¹⁰⁰ Thus, it has been held that there is no recognized market for repossessed automobiles ¹⁰¹ or repossessed furniture. ¹⁰² One court has stated that "recognized markets" include only

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widely recognized and substantially regulated commodity and stock exchanges. ¹⁰³

C. Customary Practice. Customary practice in disposition may also be commercially reasonable as a matter of law. ¹⁰⁴

D. Burden of Proof. In any sale of collateral relating to a non-consumer transaction conducted pursuant to section 8.9A-610 of the Virginia Code, there is a rebuttable presumption of commercial reasonableness, and the secured party bears the burden of establishing that the sale was conducted in a commercially reasonable manner only if the secured party's compliance with the commercially reasonable standard is placed in issue by the debtor or secondary obligor. ¹⁰⁵

2.402 Sale of Collateral. The secured party is entitled to sell, lease, or otherwise dispose of collateral in its condition at default or to undertake commercially reasonable processing and preparation, which is an expense reimbursable from the proceeds of the sale on a priority basis. ¹⁰⁶ Although no preparation is explicitly required by section 8.9A-610(a) of the Virginia Code, failure to clean or otherwise prepare collateral, according to one court, may be a relevant factor in determining commercial reasonableness. ¹⁰⁷

2.403 Conditions of Sale. The sale may be by one or more contracts. The sale may be as a unit or in parcels, at any time and place, and on any terms, but every aspect of the sale or other disposition must be commercially reasonable. For example, sale of fungible goods at public sale unit-by-unit seems almost presumptively unreasonable, yet item-by-item disposition by a series of private sales may be the best means of realizing on the collateral. Similarly, it may be far more rewarding to auction immovable property away from the premises in order to appeal to a metropolitan market, as long as the property may be inspected beforehand.

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2.404 Provisions of U.C.C. Article 2. Any sale of goods is subject to the provisions of Article 2 of the U.C.C., which covers sales generally. ¹⁰⁸

A. Warranty. The seller, especially at a private sale, should pay particular attention to the exclusion of warranty provisions of section 8.2-316 of the Virginia Code. ¹⁰⁹

B. Auction. section 8.2-328 of the Virginia Code governs certain incidents of public sales at auction. section 8.2-328(4), which pertains to bidding by sellers at public auctions, does not apply to forced sales under title 8.9A of the Virginia Code; thus, the secured party may bid at the sale without prior notice of his or her reservation of a right to bid.

C. Warranty of Title. sections 8.2-312(2) and 8.9A-610(e) and (f) of the Virginia Code permit the secured party to limit the warranty of title to that of the debtor and the secured party. section 8.9A-617(a) and (b) provide that a secured party's sale after default transfers all the debtor's rights and discharges the lien of the secured party and all holders of junior liens.

1. Definition of Debtor. The definition of "debtor" has been revised to mean a person having an interest, other than a security interest or other lien, in the collateral, whether or not the person is an obligor; a seller of accounts, chattel paper, payment intangibles, or promissory notes; or a consignee. ¹¹⁰

2. 2. Notice to Purchasers. Notice that a sale is made pursuant to a security agreement should be sufficient notice of limitation of title for purposes of section 8.2-312(2).

2.405 Notice.

A. General Considerations. 111 Anyone skimming the treatises on Article 9 of the U.C.C. must be struck by the number of cases litigated on

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the question of notice. Much of this concentration on the issue of notice no doubt reflects the reluctance of creditors to give the debtor greater opportunity to cause a long delay, for example, by filing a bankruptcy petition or seeking a temporary injunction. Opportunistic creditors may want to buy in cheaply at public sale and pursue as large a deficiency as possible against the borrower and guarantors. But the focus in case law may also reflect a common theme in American law: if the process is fair, the results tend to be reasonable. If a debtor and other interested parties receive notice of sale or intended disposition in ample time to protect their interests, they are rarely heard to complain that the results are not acceptable. Similarly, if a creditor has given to potential buyers of the collateral notice of the sale commensurate with the type and value of the collateral, the creditor can hardly be blamed if the purchasers are not sufficiently interested in the goods to bid up the price. Whatever the reason for notice and advertising finding their way into so many cases, the conclusion to be drawn is clear...