CO Code § 4-9-610 (2021)
2021 Colorado Code|Title 4 - Uniform Commercial Code|Article 9 - Secured Transactions|Part 6 - Default|§ 4-9-610. Disposition of Collateral After Default

  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.    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.    A secured party may purchase collateral:   At a public disposition; or    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.       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.    A secured party may disclaim or modify warranties under subsection (d) of this section:   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    By communicating to the purchaser, prior to completion of the transaction, a record evidencing the contract for disposition and including an express disclaimer or modification of the warranties.       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. Source: L. 2001: Entire article R&RE, p. 1403, § 1, effective July 1.    Editor's note:    This section is similar to former § 4-9-504 as it existed prior to 2001.    Colorado legislative change: Colorado added the phrase “prior to completion of the transaction,” to subsection (e)(2).     OFFICIAL COMMENT   1. Source. Former Section 9-504(1), (3).   2. Commercially Reasonable Dispositions. Subsection (a) follows former Section 9-504 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 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 non-Article 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). 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 , quotingSowell 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)), 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)). It does not retain the distinction under former Section 9-504(4), under which transferees in a noncomplying public disposition could lose protection more easily than transferees in other noncomplying dispositions. Instead, Section 9-617(b) 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. The provisions of these sections can be waived only to the extent provided in Section 9-624(b). See Section 9-602.   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 non-Article 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 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 non-Article 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.   ANNOTATION   Law reviews. For comment, “Remedies for Failure to Notify Debtor of Disposition of Repossessed Collateral Under the U.C.C.”, see 44 U. Colo. L. Rev. 221 (1972). For article, "Buyer-Secured Party Conflicts Under Section 9-307(1) of the Uniform Commercial Code", see 46 U. Colo. L. Rev. 333 (1974-75). For article, “Commercial Law”, see 55 Den. L.J. 425 (1978). For article, “Secured Transactions — Part I: Attachment, Perfection and Priorities”, see 11 Colo. Law. 2939 (1982). For article, “Secured Transactions — Part II: Default, Foreclosure and Bankruptcy”, see 12 Colo. Law. 13 (1983). For article, “A Review of Agricultural Law: Hard Times and Hard Choices”, see 15 Colo. Law. 629 (1986). For article, “The Colorado Farm Homestead Protection Act”, see 15 Colo. Law. 1642 (1986). For article, “Agricultural Lending in a Troubled Economy”, see 16 Colo. Law. 1773 (1987). For article, “The Agricultural Credit Act of 1987”, see 17 Colo. Law. 611 (1988).   Annotator's note. Since § 4-9-610 is similar to § 4-9-504 as it existed prior to the 2001 repeal and reenactment of this article, relevant cases construing that provision have been included in the annotations to this section.   Issuance of title certificate to repossessor involves no deprivation of due process as contemplated by the fourteenth amendment or state constitution. It may be that repossession of automobiles or any other property sold on time payment with an express agreement permitting such repossession without notice may be resulting in great abuses, and controls are needed. If so, the regulation of this abuse is a matter for the general assembly, not the courts. Sifuentes v. Weed, 186 Colo. 109 , 525 P.2d 1157 (1974).   Authorization of self-help repossessions is not enough to sufficiently involve the state in the acts of repossessors for their acts to be action “under color of” state law. Kirksey v. Theilig, 351 F. Supp. 727 (D. Colo. 1972 ).   “Disposition” of collateral connotes receipt of “proceeds”. Where collateral was released to the debtor, and the creditor did not receive “proceeds”, no “disposition” of the collateral took place. Silverberg v. Colantuno, 991 P.2d 280 (Colo. App. 1998).   Presumption that proceeds from sale without notice equal balance owing. Where there is no notice prior to sale of collateral, it is rebuttably presumed that the value of the collateral sold is equal to the balance owing on any notes. To rebut the presumption, the secured party has the burden of proving, by other evidence, that the market value of the collateral and that, after application of that amount, there was a balance still owing on the notes. United Bank v. Reed, 635 P.2d 922 (Colo. App. 1981); Gapter v. Kocjancic, 703 P.2d 660 (Colo. App. 1985); Tajalli v. Gharibi, 758 P.2d 190 (Colo. App. 1988).   The reason for exempting from the notice requirement a transaction where there is a recognized market is that the price on the recognized market represents the fair market value from day to day, so if there is a recognized market, theoretically, the best price at any given time is the current market price. Cmty. Mgt. Ass'n of Colo. Springs, Inc. v. Tousley, 32 Colo. App. 33, 505 P.2d 1314 (1973).   Repossessed automobiles are not collateral of a type sold on a recognized market within the meaning of this section which excuses notification of sale in case of such collateral. Cmty. Mgt. Ass'n of Colo. Springs, Inc. v. Tousley, 32 Colo. App. 33, 505 P.2d 1314 (1973).   Since there is no recognized market for the sale of repossessed automobiles, debtors are entitled to notice of sale of the repossessed automobile. Cmty. Mgt. Ass'n of Colo. Springs, Inc. v. Tousley, 32 Colo. App. 33, 505 P.2d 1314 (1973).   Computer hardware is not collateral of a type sold on a recognized market within the meaning of this section which excuses notification of sale in case of such collateral. 1st Charter Lease Co. v. McAl, Inc., 679 P.2d 114 (Colo. App. 1984).   Immediate action against guarantors. Where by its terms a security document is an absolute guaranty, the obligation of the guarantors may be immediately enforced, without the necessity of an action against the principal obligor or collateral. First Com. Corp. v. Geter, 37 Colo. App. 391, 547 P.2d 1291 (1976).   The right of a secured party to a deficiency judgment is established, so that failure of secured party to give reasonable notice of sale does not result in a forfeiture of the right to recover a deficiency judgment. Cmty. Mgt. Ass'n of Colo. Springs, Inc. v. Tousley, 32 Colo. App. 33, 505 P.2d 1314 (1973).   Failure to give notice of the disposition of the collateral does not preclude the creditor from recovering a deficiency if it can prove the amount thereof. First Nat'l Bank v. Cillessen, 622 P.2d 598 (Colo. App. 1980); Zimmerman v. Cook, 651 P.2d 910 (Colo. App. 1982).   Director of revenue not involved in repossession and transfer of ownership. The activity of the director of revenue in the issuance of a new title to a repossessor of a motor vehicle is strictly limited to the ministerial duty of providing prima facie evidence of what has already occurred by purely private action, namely, the transfer of title from the debtor to the creditor in a manner specifically provided for by their agreement. It does not in any meaningful way involve the director in the repossession and subsequent transfer of ownership to the repossessor. Sifuentes v. Weed, 186 Colo. 109 , 525 P.2d 1157 (1974).   Sufficient evidence that notice sent. The existence of a business custom is sufficient to warrant a presumption that notice was sent. It is then up to the court to decide if that presumption is overcome by other evidence. Greeley Nat. Bank v. Sloan, 677 P.2d 409 (Colo. App. 1983).   Amount received at sale as evidence of market value of collateral. If the sale of the collateral has been conducted in accordance with the requirements of the UCC, the amount received at the sale will be competent evidence of the market value. First Nat'l Bank v. Cillessen, 622 P.2d 598 (Colo. App. 1980).   Amount received at sale is not evidence of market value if sale is not conducted in compliance with law. Where, because of lack of notice, the sale is not conducted in compliance with the law, the amount received is not evidence of the market value, and the secured party has to prove value by other evidence. First Nat'l Bank v. Cillessen, 622 P.2d 598 (Colo. App. 1980).   Debtor entitled to market value offset against balance due. The debtors are entitled to have the market value of the collateral at the time and place of sale offset against any balance due on the indebtedness. First Nat'l Bank v. Cillessen, 622 P.2d 598 (Colo. App. 1980).   Evidence of purchaser's lack of good faith. Knowledge that the holder of a subordinate security interest had not been given the notice required by this section might be evidence of a want of good faith on the part of a purchaser. Young v. Golden State Bank, 39 Colo. App. 45, 560 P.2d 855 (1977).   “Debtor” construed. Accommodation comakers and those others who will be called upon to pay deficiencies are “debtors” within the meaning of § 4-9-105 (1)(d) and subsection (3) of this section, and are entitled to notice of the disposition of the collateral. First Nat'l Bank v. Cillessen, 622 P.2d 598 (Colo. App. 1980).   Subsection (3) deals with both the collateral and the obligation and, accordingly, the term “debtor” includes both the owner of the collateral and the obligor when they are not the same person. First Nat'l Bank v. Cillessen, 622 P.2d 598 (Colo. App. 1980).   “Debtor” includes a guarantor and, as a debtor, the guarantor may not waive debtor's right to insist on a commercially reasonable disposition of collateral. May v. Women's Bank, N.A., 807 P.2d 1145 (Colo. 1991).   A guarantor is treated as a debtor for purposes of article 9 of the Colorado Uniform Commercial Code. The protections afforded by subsection (3) that collateral be disposed of in a commercially reasonable manner are also provided to a guarantor. FBS AG Credit, Inc. v. Estate of Walker, 906 F. Supp. 1427 (D. Colo. 1995 ).   In proving “commercial reasonableness”, the burden of proof is on the creditor. In re Wells, 51 B.R. 563 (Bankr. D. Colo. 1985 ).   Creditor's sale of property used as collateral to themselves is not commercially reasonable when there is expert testimony that there was no recognized market for the property and it was not subject to widely distributed standard price quotation. Cooper Investments v. Conger, 775 P.2d 76 (Colo. App. 1989).   The retention of collateral by a creditor for an excessive period of time without disposition may be commercially unreasonable in violation of this section. The question of reasonableness is one of fact for the trial court. Tajalli v. Gharibi, 758 P.2d 190 (Colo. App. 1988).   Presumption of no deficiency following repossession. There is a presumption that the value of the repossessed collateral is equal to the amount of the outstanding debt and that, therefore, there is no deficiency. First Nat'l Bank v. Cillessen, 622 P.2d 598 (Colo. App. 1980).   This section provides that reasonable notification of sale must be made unless the collateral is either perishable, threatens to decline speedily in value, or is of a type customarily sold on a recognized market. Cmty. Mgt. Ass'n of Colo. Springs, Inc. v. Tousley, 32 Colo. App. 33, 505 P.2d 1314 (1973).   Article 9 does not determine location of title after default. People ex rel. VanMeveren v. District Court, 619 P.2d 494 (Colo. 1980).   This section is made inoperative by § 4-9-501 with respect to water stock foreclosed as a part of real estate security. Kinoshita v. N. Denver Bank, 181 Colo. 183 , 508 P.2d 1264 (1973).   The purpose of the notice requirement in subsection (3) is to give all persons having interests in the collateral or facing possible deficiency claims an opportunity to protect their interests and to utilize all practicable means of reducing to eliminating their potential liability. W. Nat'l Bank v. VFW Post 8103, 660 P.2d 919 (Colo. App. 1983).   A post-default waiver by the defendant of the notice requirement of subsection (3) can be made only when the debtor knowingly and specifically agrees to waive right to such notice. Burdick v. Tucker, 780 P.2d 34 (Colo. App. 1989).   If a secured party fails to give proper notice under subsection (3), a presumption arises that the value of the collateral at the time of sale was equal to the amount of the outstanding debt, so that no deficiency results. Colo. Leasing Corp. v. Borquez, 738 P.2d 377 (Colo. 1986).   Notice required under subsection (3) may not be waived. United Bank v. Reed, 635 P.2d 922 (Colo. App. 1981).   Fulfillment of notice requirement for private sale. In the case of a private sale, the statutory notice requirement is fulfilled when the creditor sends reasonable notification stating the date after which the collateral will be sold. W. Nat'l Bank v. VFW Post 8103, 660 P.2d 919 (Colo. App. 1983).   Under plain language of this section, sale of wraparound promissory note transferred all debtor's rights to purchaser at foreclosure sale and discharged creditor's security interest therein; accordingly, purchaser took free of restrictions contained in security agreement. W. Group Nurseries v. Pomeranz, 867 P.2d 12 (Colo. App. 1993).   Failure of creditor to comply with the notice requirements of this section did not prevent new buyer from taking all of the debtor's rights in the repossessed car even though the certificate of title had not been transferred to the buyer prior to the automatic stay provided for by 11 U.S.C. § 362. In re Duffy, 186 B.R. 503 (Bankr. D. Colo. 1995 ).   Section 4-9-105 (1)(d) does not require “debtor” to be owner or have rights in the collateral. First Nat'l Bank v. Cillessen, 622 P.2d 598 (Colo. App. 1980).   Applied in W. Nat'l Bank v. ABC Drilling Co., 42 Colo. App. 407, 599 P.2d 942 (1979); First Nat'l Bank v. District Court, 653 P.2d 1123 (Colo. 1982).