2019 New Mexico Statutes
Chapter 55 - Uniform Commercial Code
Article 9 - Secured Transactions
Part 6 - DEFAULT
Subpart 1 - DEFAULT AND ENFORCEMENT OFSECURITY INTEREST
Section 55-9-610 - Disposition of collateral after default.

(a) After default, a secured party may sell, lease, license or otherwise dispose of any or all of the collateral in its present condition or following any commercially reasonable preparation or processing.

(b) Every aspect of a disposition of collateral, including the method, manner, time, place and other terms, must be commercially reasonable. If commercially reasonable, a secured party may dispose of collateral by public or private proceedings, by one or more contracts, as a unit or in parcels, and at any time and place and on any terms.

(c) A secured party may purchase collateral:

(1) at a public disposition; or

(2) at a private disposition only if the collateral is of a kind that is customarily sold on a recognized market or the subject of widely distributed standard price quotations.

(d) A contract for sale, lease, license or other disposition includes the warranties relating to title, possession, quiet enjoyment and the like which by operation of law accompany a voluntary disposition of property of the kind subject to the contract.

(e) A secured party may disclaim or modify warranties under Subsection (d) of this section:

(1) in a manner that would be effective to disclaim or modify the warranties in a voluntary disposition of property of the kind subject to the contract of disposition; or

(2) by communicating to the purchaser a record evidencing the contract for disposition and including an express disclaimer or modification of the warranties.

(f) A record is sufficient to disclaim warranties under Subsection (e) of this section if it indicates "There is no warranty relating to title, possession, quiet enjoyment or the like in this disposition" or uses words of similar import.

History: 1978 Comp., § 55-9-610, enacted by Laws 2001, ch. 139, § 107.

OFFICIAL COMMENTS

UCC Official Comments by ALI & the NCCUSL. Reproduced with permission of the PEB for the UCC. All rights reserved.

1. Source. Former section 9-504(1), (3).

2. Commercially Reasonable Dispositions. Subsection (a) follows former Section 9-504 [55-9-504 NMSA 1978] by permitting a secured party to dispose of collateral in a commercially reasonable manner following a default. Although subsection (b) permits both public and private dispositions, including public and private dispositions conducted over the Internet, "every aspect of a disposition . . . must be commercially reasonable." This section encourages private dispositions on the assumption that they frequently will result in higher realization on collateral for the benefit of all concerned. Subsection (a) does not restrict dispositions to sales; collateral may be sold, leased, licensed, or otherwise disposed. Section 9-627 [55-9-627 NMSA 1978] provides guidance for determining the circumstances under which a disposition is "commercially reasonable."

3. Time of Disposition. This article does not specify a period within which a secured party must dispose of collateral. This is consistent with this article's policy to encourage private dispositions through regular commercial channels. It may, for example, be prudent not to dispose of goods when the market has collapsed. Or, it might be more appropriate to sell a large inventory in parcels over a period of time instead of in bulk. Of course, under subsection (b) every aspect of a disposition of collateral must be commercially reasonable. This requirement explicitly includes the "method, manner, time, place, and other terms." For example, if a secured party does not proceed under section 9-620 and holds collateral for a long period of time without disposing of it, and if there is no good reason for not making a prompt disposition, the secured party may be determined not to have acted in a "commercially reasonable" manner. See also section 1-203 (general obligation of good faith).

4. Pre-Disposition Preparation and Processing. Former section 9-504(1) appeared to give the secured party the choice of disposing of collateral either "in its then condition or following any commercially reasonable preparation or processing." Some courts held that the "commercially reasonable" standard of former section 9-504(3) nevertheless could impose an affirmative duty on the secured party to process or prepare the collateral prior to disposition. Subsection (a) retains the substance of the quoted language. Although courts should not be quick to impose a duty of preparation or processing on the secured party, subsection (a) does not grant the secured party the right to dispose of the collateral "in its then condition" under all circumstances. A secured party may not dispose of collateral "in its then condition" when, taking into account the costs and probable benefits of preparation or processing and the fact that the secured party would be advancing the costs at its risk, it would be commercially unreasonable to dispose of the collateral in that condition.

5. Disposition by Junior Secured Party. Disposition rights under subsection (a) are not limited to first-priority security interests. Rather, any secured party as to whom there has been a default enjoys the right to dispose of collateral under this subsection. The exercise of this right by a secured party whose security interest is subordinate to that of another secured party does not of itself constitute a conversion or otherwise give rise to liability in favor of the holder of the senior security interest. Section 9-615 addresses application of the proceeds of a disposition by a junior secured party. Under section 9-615(a), a junior secured party owes no obligation to apply the proceeds of disposition to the satisfaction of obligations secured by a senior security interest. Section 9-615(g) builds on this general rule by protecting certain juniors from claims of a senior concerning cash proceeds of the disposition. Even if a senior were to have a nonarticle 9 claim to proceeds of a junior's disposition, section 9-615(g) would protect a junior that acts in good faith and without knowledge that its actions violate the rights of a senior party. Because the disposition by a junior would not cut off a senior's security interest or other lien (see section 9-617), in many (probably most) cases the junior's receipt of the cash proceeds would not violate the rights of the senior.

The holder of a senior security interest is entitled, by virtue of its priority, to take possession of collateral from the junior secured party and conduct its own disposition, provided that the senior enjoys the right to take possession of the collateral from the debtor. See section 9-609. The holder of a junior security interest normally must notify the senior secured party of an impending disposition. See section 9-611. Regardless of whether the senior receives a notification from the junior, the junior's disposition does not of itself discharge the senior's security interest. See section 9-617. Unless the senior secured party has authorized the disposition free and clear of its security interest, the senior's security interest ordinarily will survive the disposition by the junior and continue under section 9-315(a)(1). If the senior enjoys the right to repossess the collateral from the debtor, the senior likewise may recover the collateral from the transferee.

When a secured party's collateral is encumbered by another security interest or other lien, one of the claimants may seek to invoke the equitable doctrine of marshaling. As explained by the Supreme Court, that doctrine "rests upon the principle that a creditor having two funds to satisfy his debt, may not by his application of them to his demand, defeat another creditor, who may resort to only one of the funds." Meyer v. United States, 375 U.S. 233, 236 (1963), quoting Sowell v. Federal Reserve Bank, 268 U.S. 449, 456-57 (1925). The purpose of the doctrine is "to prevent the arbitrary action of a senior lienor from destroying the rights of a junior lienor or a creditor having less security." Id. at 237. Because it is an equitable doctrine, marshaling "is applied only when it can be equitably fashioned as to all of the parties" having an interest in the property. Id. This article leaves courts free to determine whether marshaling is appropriate in any given case. See section 1-103.

6. Security Interests of Equal Rank. Sometimes two security interests enjoy the same priority. This situation may arise by contract, e.g., pursuant to "equal and ratable" provisions in indentures, or by operation of law. See section 9-328(6). This article treats a security interest having equal priority like a senior security interest in many respects. Assume, for example, that SP-X and SP-Y enjoy equal priority, SP-W is senior to them, and SP-Z is junior. If SP-X disposes of the collateral under this section, then (i) SP-W's and SP-Y's security interests survive the disposition but SP-Z's does not, see section 9-617, and (ii) neither SP-W nor SP-Y is entitled to receive a distribution of proceeds, but SP-Z is. See section 9-615(a)(3).

When one considers the ability to obtain possession of the collateral, a secured party with equal priority is unlike a senior secured party. As the senior secured party, SP-W should enjoy the right to possession as against SP-X. See section 9-609, comment 5. If SP-W takes possession and disposes of the collateral under this section, it is entitled to apply the proceeds to satisfy its secured claim. SP-Y, however, should not have such a right to take possession from SP-X; otherwise, once SP-Y took possession from SP-X, SP-X would have the right to get possession from SP-Y, which would be obligated to redeliver possession to SP-X, and so on. Resolution of this problem is left to the parties and, if necessary, the courts.

7. Public vs. Private Dispositions. This Part maintains two distinctions between "public" and other dispositions: (i) the secured party may buy at the former, but normally not at the latter (Section 9-610(c) [55-9-610(c) NMSA 1978]), and (ii) the debtor is entitled to notification of "the time and place of a public disposition" and notification of "the time after which" a private disposition or other intended disposition is to be made (Section 9-613(1)(E) [55-9-613(1)(E) NMSA 1978]). It does not retain the distinction under former Section 9-504(4) [55-9-504(4) NMSA 1978], under which transferees in a noncomplying public disposition could lose protection more easily than transferees in other noncomplying dispositions. Instead, Section 9-617(b) [55-9-617(b) NMSA 1978] adopts a unitary standard. Although the term is not defined, as used in this Article, a "public disposition" is one at which the price is determined after the public has had a meaningful opportunity for competitive bidding. "Meaningful opportunity" is meant to imply that some form of advertisement or public notice must precede the sale (or other disposition) and that the public must have access to the sale (disposition).

A secured party's purchase of collateral at its own private disposition is equivalent to a "strict foreclosure" and is governed by Sections 9-620, 9-621, and 9-622 [55-9-620, 55-9-621, and 55-9-622 NMSA 1978]. The provisions of these sections can be waived only to the extent provided in Section 9-624(b) [55-9-624(b) NMSA 1978]. See Section 9-602 [55-9-602 NMSA 1978].

8. Investment Property. Dispositions of investment property may be regulated by the federal securities laws. Although a "public" disposition of securities under this article may implicate the registration requirements of the Securities Act of 1933, it need not do so. A disposition that qualifies for a "private placement" exemption under the Securities Act of 1933 nevertheless may constitute a "public" disposition within the meaning of this section. Moreover, the "commercially reasonable" requirements of subsection (b) need not prevent a secured party from conducting a foreclosure sale without the issuer's compliance with federal registration requirements.

9. "Recognized Market." A "recognized market," as used in subsection (c) and section 9-611(d), is one in which the items sold are fungible and prices are not subject to individual negotiation. For example, the New York Stock Exchange is a recognized market. A market in which prices are individually negotiated or the items are not fungible is not a recognized market, even if the items are the subject of widely disseminated price guides or are disposed of through dealer auctions.

10. Relevance of Price. While not itself sufficient to establish a violation of this part, a low price suggests that a court should scrutinize carefully all aspects of a disposition to ensure that each aspect was commercially reasonable. Note also that even if the disposition is commercially reasonable, section 9-615(f) provides a special method for calculating a deficiency or surplus if (i) the transferee in the disposition is the secured party, a person related to the secured party, or a secondary obligor, and (ii) the amount of proceeds of the disposition is significantly below the range of proceeds that a complying disposition to a person other than the secured party, a person related to the secured party, or a secondary obligor would have brought.

11. Warranties. Subsection (d) affords the transferee in a disposition under this section the benefit of any title, possession, quiet enjoyment, and similar warranties that would have accompanied the disposition by operation of nonarticle 9 law had the disposition been conducted under other circumstances. For example, the article 2 warranty of title would apply to a sale of goods, the analogous warranties of article 2A would apply to a lease of goods, and any common law warranties of title would apply to dispositions of other types of collateral. See, e.g., Restatement (2d), Contracts section 333 (warranties of assignor).

Subsection (e) explicitly provides that these warranties can be disclaimed either under other applicable law or by communicating a record containing an express disclaimer. The record need not be written, but an oral communication would not be sufficient. See section 9-102 (definition of "record"). Subsection (f) provides a sample of wording that will effectively exclude the warranties in a disposition under this section, whether or not the exclusion would be effective under nonarticle 9 law.

The warranties incorporated by subsection (d) are those relating to "title, possession, quiet enjoyment, and the like." Depending on the circumstances, a disposition under this section also may give rise to other statutory or implied warranties, e.g., warranties of quality or fitness for purpose. Law other than this article determines whether such other warranties apply to a disposition under this section. Other law also determines issues relating to disclaimer of such warranties. For example, a foreclosure sale of a car by a car dealer could give rise to an implied warranty of merchantability (section 2-314) unless effectively disclaimed or modified (section 2-316).

This section's approach to these warranties conflicts with the former comment to section 2-312. This article rejects the baseline assumption that commercially reasonable dispositions under this section are out of the ordinary commercial course or peculiar. The comment to section 2-312 has been revised accordingly.

Cross references. — For determination of whether conduct was commercially reasonable, see 55-9-627 NMSA 1978.

Effective dates. — Laws 2001, ch. 139, § 155 makes the act effective July 1, 2001.

Decisions under former Section 55-9-504 NMSA 1978. — In light of the similarity of this section and former Section 55-9-504 NMSA 1978, annotations decided under former Section 55-9-504 NMSA 1978 have been included in the annotations in this section.

I. GENERAL CONSIDERATION.

Agreement of parties. — Under New Mexico law the "defense" of commercial unreasonableness available under the New Mexico UCC can be waived by agreement of the parties. United States v. N.M. Landscaping, Inc., 785 F.2d 843 ( 10th Cir. 1986).

II. LIABILITY FOR SURPLUS OR DEFICIENCY.

When failure to sell collateral does not bar judgment. — The referee in bankruptcy did not err in awarding a judgment in favor of appellee notwithstanding his failure to sell the collateral which secured appellants' debt where the judgment was based on the depletion of the inventory. With v. Amador, 596 F.2d 428 (10th Cir. 1979) (decided under former law).

Burden of proof on value of collateral. — In a suit for a deficiency, where the value of the collateral is at issue, there is a presumption that the value of the repossessed collateral at resale is equal to the value of the outstanding debt. When the sale is conducted in accordance with Subsection (3) (now Subsection (b)) the sum received at sale is evidence of the market value; but when the sale is not conducted according to the Code, the amount received is not evidence of the market value of the collateral, and the secured party will have the burden of proving the market value by other evidence. Clark Leasing Corp. v. White Sands Forest Prods., Inc., 1975-NMSC-022, 87 N.M. 451, 535 P.2d 1077 (decided under former law).

III. DISPOSITION OF COLLATERAL.

UCC encourages commercial sales of collateral. — The UCC encourages sales of repossessed collateral through regular commercial channels as opposed to public auction which often times yields only disappointing results. Security Fed. Sav. & Loan v. Prendergast, 1989-NMSC-044, 108 N.M. 572, 775 P.2d 1289 (decided under former law).

Good faith duty of creditor to dispose of collateral reasonably. — The requirements of Subsection (3) (now Subsection (b)) place upon the creditor the good faith duty to the debtor to use reasonable means to see that a reasonable price is received for the collateral. Clark Leasing Corp. v. White Sands Forest Prods., Inc., 1975-NMSC-022, 87 N.M. 451, 535 P.2d 1077 (decided under former law).

Commercially reasonable notice. — Notice of sale should be given to a "public" reasonably expected to have an interest in the collateral and should be published in a manner reasonably calculated to assure such publicity that the collateral will bring the best possible price from competitive bidding of a strived-for lively concourse of bidders. Villella Enters., Inc. v. Young, 1988-NMSC-099, 108 N.M. 33, 766 P.2d 293 (decided under former law).

Creditor electing to sell in regular course of business must comply with section. — Once the creditor elects to retain collateral, and follow the mechanics of Section 55-9-505 NMSA 1978 (now Section 55-9-620 NMSA 1978), he can do as he pleases with the property, but where he intends to sell the property in the regular course of his business, which is in substance selling the property as contemplated by this section, he must account for a surplus in conformity with this section. Reeves v. Foutz & Tanner, Inc., 1980-NMSC-095, 94 N.M. 760, 617 P.2d 149 (decided under former law).

Commercially reasonable sale to bring better price. — The importance of a commercially reasonable sale lies in the fact that the amount of the deficiency judgment will be inversely proportional to the sales price; if the price is high, the amount of the judgment will be low, and vice versa. The "method, manner, time, place and terms" tests are really proxies for "insufficient price," and their importance lies almost exclusively in the extent they protect against an unfairly low price. Clark Leasing Corp. v. White Sands Forest Prods., Inc., 1975-NMSC-022, 87 N.M. 451, 535 P.2d 1077 (decided under former law).

In determining commercial reasonableness, each case will turn on its particular facts but generally, evidence as to every aspect of the sale including the amount of advertising done, normal commercial practices in disposing of particular collateral, the length of time elapsing between repossession and resale, whether deterioration of the collateral has occurred, the number of persons contacted concerning the sale and even the price obtained will be pertinent. Clark Leasing Corp. v. White Sands Forest Prods., Inc., 1975-NMSC-022, 87 N.M. 451, 535 P.2d 1077; Villella Enters., Inc. v. Young, 1988-NMSC-099, 108 N.M. 33, 766 P.2d 293 (decided under former law).

Burden of proof on creditor that sale commercially reasonable. — In light of the specific requirement of Subsection (3) (now Subsection (b)) as to commercial reasonableness, a creditor, when suing for a deficiency, should allege and prove that disposition of the collateral was conducted in compliance with that statute; the creditor must allege and, unless admitted, prove that the sale was commercially reasonable. Clark Leasing Corp. v. White Sands Forest Prods., Inc., 1975-NMSC-022, 87 N.M. 451, 535 P.2d 1077 (decided under former law).

Creditor must show some unreasonableness to avoid directed verdict. — Once a creditor suing for a deficiency has made a prima facie case indicating a commercially reasonable sale, the debtor may be required to elicit some evidence of commercial unreasonableness to avoid a directed verdict on the issue, but when this is done, it becomes a question for the trier of the facts. Clark Leasing Corp. v. White Sands Forest Prods., Inc., 1975-NMSC-022, 87 N.M. 451, 535 P.2d 1077 (decided under former law).

Price as factor in determining commercial reasonableness. — A debtor will not rebut a prima facie presumption of commercial reasonableness merely by contending that the price obtained for the collateral was too low. Nonetheless, the price obtained is a relevant factor. Villella Enters., Inc. v. Young, 1988-NMSC-099, 108 N.M. 33, 766 P.2d 293 (decided under former law).

Failure to achieve commercial reasonableness not forfeiture of deficiency. — A secured party's failure to comply with Subsection (3) (now Subsection (b)) does not result in a forfeiture of the right to a deficiency; the secured party has the right to recover the claimed deficiency less any loss occasioned by its failure to sell in a commercially reasonable manner. Clark Leasing Corp. v. White Sands Forest Prods., Inc., 1975-NMSC-022, 87 N.M. 451, 535 P.2d 1077 (decided under former law).

Deficiency judgment. — A secured party's failure to comply with Subsection (3) (now Subsection (b)) does not constitute an absolute bar to a deficiency judgment; instead, the secured party has the burden of showing what amount a sale would have brought if done in compliance with the UCC, and, the difference between what the sale brought when performed improperly and what it should have brought, if done correctly, will be the damages allowed to the debtors. If such amount does not equal the total deficiency, the secured party may recover the amount remaining unpaid. First Nat'l Bank v. Jiron, 1987-NMSC-085, 106 N.M. 261, 741 P.2d 1382 (decided under former law).

Noncompliance with notice requirements. — When a secured party has not complied with the notice provisions of Subsection (3) of former Section 55-9-54 NMSA 1978 (now Section 55-9-611 NMSA 1978), it still may obtain a deficiency judgment if it proves the market value of the collateral. Such proof must be by evidence other than the sum received at sale. First Nat'l Bank v. Ruttle, 1989-NMSC-054, 108 N.M. 687, 778 P.2d 434 (decided under former law).

Burden of proving value. — When the collateral has been sold in a manner that does not comply with the provisions of the UCC, there is a rebuttable presumption that the collateral was worth an amount at least equal to the outstanding balance. To overcome the presumption, the secured party has the burden of proving the value of the collateral by evidence other than the sum received at the sale. First Nat'l Bank v. Jiron, 1987-NMSC-085, 106 N.M. 261, 741 P.2d 1382 (decided under former law).

"Commercially reasonable" requirement may be waived. — Guarantors of promissory note waived contract defense that sale of collateral securing promissory note was not conducted in commercially reasonable manner. United States v. Lattauzio, 748 F.2d 559 (10th Cir. 1984) (decided under former law).

Cash only auction sales. — "Cash only" terms of auction sale of farm equipment pledged as security for a note did not render the sale commercially unreasonable, where there was no evidence to suggest that this was not the normal practice of the auction company. First Nat'l Bank v. Ruttle, 1989-NMSC-054, 108 N.M. 687, 778 P.2d 434 (decided under former law).

Loan of collateral does not constitute "disposition" under Subsection (1) (now Subsection (a)). Cordova v. Lee Galles Oldsmobile, Inc., 1983-NMCA-088, 100 N.M. 204, 668 P.2d 320 (decided under former law).

Sale of unadvertised mobile home by automobile dealer. — Sale of mobile home was commercially reasonable, even though the vehicle was never advertised for sale, where the vehicle was placed on the premises of a dealer in used autos, and where customers could view repossessed vehicles and make written offers to purchase them. Security Fed. Sav. & Loan v. Prendergast, 1989-NMSC-044, 108 N.M. 572, 775 P.2d 1289 (decided under former law).

Bank's auction of farm equipment. — Bank's decision to auction farm equipment pledged as security for a note was reasonable, where the bank's loan officer testified he contacted several dealers in farm equipment in the area, and none were interested in purchasing the equipment auctioned. First Nat'l Bank v. Ruttle, 1989-NMSC-054, 108 N.M. 687, 778 P.2d 434 (decided under former law).

Notice of private collateral sale need not mention possible rebates. — Notice of a private sale of collateral which states a redemption amount accurate at the time but which fails to mention possible rebates is not unreasonable as a matter of law. Richardson Ford Sales, Inc. v. Johnson, 1984-NMCA-007, 100 N.M. 779, 676 P.2d 1344 (decided under former law).

Am. Jur. 2d, A.L.R. and C.J.S. references. — 68A Am. Jur. 2d Secured Transactions § 624 et seq.

Purchase by pledgee of subject of pledge, 76 A.L.R. 705, 37 A.L.R.2d 1381.

Rights and remedies as between parties after repossession of property by seller, 99 A.L.R. 1288.

What is "commercially reasonable" disposition of collateral required by UCC § 9-504(3), 7 A.L.R.4th 308.

Failure of secured party to make "commercially reasonable" disposition of collateral under UCC § 9-504(3) as bar to deficiency judgment, 10 A.L.R.4th 413.

Secured transactions: what is "public" or "private" sale under UCC § 9-504(3), 60 A.L.R.4th 1012.

79 C.J.S. Secured Transactions § 161 et seq.