A secured lender knows (or should know) that when it disposes of collateral following an event of default it must do so in a commercially reasonable manner. But, what does that mean in practice and what is the secured lender’s burden if its disposition is challenged by the defaulting debtor in an action to recover a deficiency? Article 9 of the Uniform Commercial Code (UCC) governs secured transactions, and Part 6 of this article governs the rights and duties of the parties in the event of default. In the event of default by a debtor, a secured party may repossess the collateral and dispose of it through a sale, lease, license, or other form of disposition. See U.C.C. Section 9-610(a) (Am. L. Inst. & Unif. L. Comm’n 2022).

Section 9-610 requires that every aspect of such a disposition be commercially reasonable, “including the method, manner, time, place, and other terms … ” U.C.C. § 9-610(b). Whether the disposition of collateral is commercially reasonable is a question of fact that is determined on a case-by-case basis. See Edgewater Growth Capital Partners v. H.I.G. Capital, 68 A.3d 197, 210 (Del. Ch. 2013). The UCC does not define “commercially reasonable,” and the official comments offer little guidance for meeting this standard. The “safe harbor” provisions of Section 9-627(b) provide the most guidance. See Hicklin v. Onyx Acceptance, 970 A.2d 244, 249-50 (Del. 2009). Under Section 9-6127(b), a disposition is commercially reasonable if it is made “in the usual manner on any recognized market; at the price current in any recognized market at the time of disposition; or otherwise in conformity with reasonable commercial practices among dealers in the type of property that was the subject of the disposition.” See U.C.C. Section 9-627(b).