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commercial reasonableness, repossession, secured creditor


Under U.C.C. Article 9, a secured party selling repossessed collateral must conduct a commercially reasonable sale. Under the old Article 9, courts and commentators debated the question of whether the foreclosure sale process and its procedural regularity should measure the sale's commercial reasonableness or whether instead the main focus of inquiry should be the reasonableness of the proceeds produced by the sale. This question spawned conflicting and non-uniform judicial approaches, most simply described as the "procedures test" versus "proceeds test."

In 2001 Article 9 was revised. The revisions included changes that addressed, but did not explicitly resolve, the question of whether courts should use a procedures test or a proceeds test to assess a sale's commercial reasonableness. The lack of clarity threatens to extend the old debate of procedures versus proceeds without end. To quash this threat, the Article makes three related arguments. First, it argues that revised Article 9 requires that a sale's commercial reasonableness be measured primarily by the sale's procedures rather than the amount of the proceeds; that a low price alone cannot render a procedurally regular sale unreasonable; and that price not is a "term" of commercial reasonableness that the secured party must prove using secondary source evidence of value and fair price. The Article also argues, however, that under revised Article 9's provisions, price's role in assessing commercial reasonableness is ambiguous. Given this ambiguity, price's role can and should be construed to retain an important but limited function in assessing the sale's commercial reasonableness. Second, the Article argues that with revised Article 9's adoption of the procedures test, the test's historical shortcomings take on a heightened importance. For revised Article 9's commercial reasonableness standard cum procedures test to have normative force, these shortcomings must be analyzed and addressed. Third, the Article makes various recommendations to address these shortcomings.

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