CHAPTER 30: SECURED TRANSACTIONS 3
and the trust and also remitted the excess funds collected in the private sales. The dispute
focused on the price of the stock on its sale.
2A. On what ground did the plaintiffs argue that the bank should not have been
granted a summary judgment? The debtors, Bradley Smith and the John J. Smith Revocable
Living Trust, filed a suit in a Michigan state court against the creditor, Firstbank Corporation,
alleging that the lender’s sales of the debtors’ stock in Sparton Corporation were “commercially
unreasonable.” The UCC requires that “every aspect of a disposition of collateral, including the
method, manner, time, place, and other terms, must be commercially reasonable.” Firstbank
filed a motion for a summary disposition. The court issued the judgment. Smith and the trust
appealed.
3A. Why does collateral have to be disposed of in a commercially reasonable manner?
Is price alone enough to prove reasonableness? Why or why not? When a creditor
disposes of property that has served as the collateral for a debt, every aspect of the
disposition’s method, manner, time, and place must be commercially reasonable, according to
[UCC 9–610(b). If a secured party does not dispose of the collateral in a commercially
reasonable manner, it may negatively affect the price paid for the collateral at the sale. If that
occurs, a court can reduce the amount of any deficiency that the debtor owes to the secured
party [UCC 9–626(a)(3)].
The purpose of requiring commercially reasonable conduct is to obtain a satisfactory
price, but price alone is not enough to prove reasonableness. The courts look at many factors to
determine reasonableness. Every aspect of a sale must be conducted in a commercially
reasonable manner. Under UCC 9–627(b)(3), this can happen if a sale conforms with the
reasonable commercial practices among dealers in that type of property.
ANSWERS TO QUESTIONS IN THE REVIEWING FEATURE
AT THE END OF THE CHAPTER
1A. Perfection by filing
Perfecting a security interest in the computers would require him to file a financing statement,
because the computers are classified as equipment (goods bought for use primarily in a
business). With respect to the sound system, the kayak, and the vehicle, when a seller of
consumer goods extends credit for the purchase to a person buying for household purposes, a
purchase-money security interest, or PMSI, is created and attaches automatically, without the
filing of a financing statement. In the case of the 4-Runner, motor vehicles often fall under other
state laws concerning such details as their use as collateral and encumbrances on their titles,
but these laws are not discussed in the chapter.
2A. Debtor’s name