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2001

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REVISED UCC ARTICLE 9 CHANGES
COMMERCIAL SALE NOTICE PROCEDURES

By Christopher B. Dorian
LANG, RICHERT & PATCH, P.C.
5200 N. Palm Avenue, Suite 401
Fresno, California 93704
Tel: 559-228-6700
Email: cbd@lrplaw.net
Listing on Experts.com

Newly-enacted California Commercial Code section 9610 (former Section 9504(1), (3)), 9611 (former Section 9504(3)), 9612 (new), and 9613 (new) have replaced the former requirements for noticing a disposition of non-consumer personal property collateral by sale, previously found at Section 9504. The new statute somewhat simplifies the procedure, releasing the party noticing the sale from a number of obligations, but adds a few minor requirements as well. The Section goes so far as to include a rather simple, fill-in-the-blanks "safe-harbor" form of notice, which will be deemed adequate as long as all provisions of the Section are complied with.

The new "safe-harbor" form and the concise, specific requirements of the revised statutes combine to provide a more fool-proof method of noticing a collateral disposition. Under the new procedure, publication of such a sale is not mandated by the statute. Section 9504(3) prescribed that the notice must be mailed and published within 5 days prior to the sale. Under 9611, publication is no longer required by the Section, but, as discussed below, may be a necessity in terms of compliance with the noticing party's duty to conduct the sale in a commercially reasonable manner, as required by section 9610 (see also section 9612). What is "reasonable" in any given situation is a question of fact, and is not specifically defined by the statute, although some suggestions are offered at Section 9627. The aim of this requirement is to provide a more fact-based reasonableness requirement, depending on the property to be sold, the industry in which it is customarily used, and the customary practices therein.

The new notice now requires service 10 at least days prior to the date set for the sale, rather than 5; an increased notice period, however, may be elected to ensure "commercial reasonableness." The practitioner, however, cannot delay until the last minute to prepare this notice, and may unwittingly send out a defective notice should he or she do so. Section 9611 has reduced the number of parties entitled to notice, providing for notification only to (1) the debtor; (2) any secondary obligor; and (3) [commercial sale only] (A) any party from whom the secured party has received an authenticated notification of a claim of an interest in the collateral; or (B) any other secured party or lienholder that, 10 days before the notification date, held a security interest in or other lien on the collateral perfected by a financing statement (section 9611(c)(3)(B), or by compliance with a statute, regulation or treatey described in section 9311(a) (section 9611(c)(3)(C)).

This limited notice list, however, comes in exchange for a new requirement that the foreclosing creditor must perform an official lien search with the appropriate office, at least 20, but not more that 30 days prior to issuance of the sale, to ensure compliance with section 9611(c)(3)(B) or (C). The requirement is simple enough to comply with, but may catch the unwary practitioner off-guard. Non-compliance with this requirement, as with those imposed by the other new provisions) may lead to imposition of certain sanctions listed at section 9625, as to which the courts appear to have been granted significant discretion in creating an appropriate penalty, and section 9626, regarding collection of any deficiency after the sale.

One saving grace provided by the statute, however is the ability to obtain a waiver as to any defect from the debtor or secondary obligor, allowed by section 9624. While some debtors may be reluctant to waive the notice requirements, many are as eager to see the collateral sold and a deficiency established as the foreclosing creditor.

All but two of the fifty states appear to have adopted this Chapter of the Commercial Code. As a practical matter, a bankruptcy practitioner should have a good working knowledge of these requirements, whether representing debtors or creditors. A thorough read of these Sections is a must, and not unduly burdensome.

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