Opinion ID: 1418760
Heading Depth: 1
Heading Rank: 5

Heading: The Commercial Reasonableness of the Sale

Text: The plaintiff trustee alleged as a second cause of action that Fall Creek was damaged because Northwest sold the equipment in a commercially unreasonable manner. The jury awarded the trustee $325,000 because of the alleged fraud and/or because it found the equipment was sold in a commercially unreasonable manner. Northwest contends that the trial court erroneously admitted evidence relating to this charge. The uncontradicted evidence was that Northwest offered the equipment for sale in the same condition it was in when it was brought from the woods; that is, uncleaned and unwashed. The trial court admitted evidence that it would make a difference in the appearance of the equipment and the interest in the equipment if it was cleaned and washed. This could create an inference that cleaning and washing could result in the equipment being sold for a higher price. [1] ORS 79.5040(3) provides that the disposition of collateral by the secured party may be by public or private proceedings, in a unit or by parcels, at any time, place or on any terms, but every aspect of the disposition including the method, manner, time, place and terms must be commercially reasonable. Subsection (1) of the same statute, however, states: A secured party after default may sell, lease or otherwise dispose of any or all of the collateral in its then condition or following any commercially reasonable preparation or processing. Northwest contends that because of the provision the property may be sold in its then condition, as a matter of law it could sell the equipment in its unwashed, unclean condition. Evidence that cleaning and washing might increase the amount paid for the equipment was, therefore, irrelevant and prejudicial. Neither the parties nor the court have found any direct or judicial or other interpretation of this statute under circumstances similar to those present here. The purpose of the statute is fairly evident from its language and the commentaries of the drafters. Grant Gilmore, one of the drafters, wrote: [T]he Code secured party, like his pre-Code counterparts, must `use every effort to sell the estate [collateral] under every possible advantage of time, place and publicity.'       The obligation on the secured party is to use his best efforts to see that the highest possible price is received for the collateral. 2 Gilmore, Security Interests in Personal Property, 1233-1234 (1965). Gilmore further wrote: The authorization to prepare or process goods for sale also fits in with the secured party's operation of the business after default and would be subject to the same limitations of reasonableness. From another point of view, this provision reflects the policy of an analogous provision in the Sales Article of the Code (§ 2-704) [ORS 72.7040], which authorizes (but does not require) a seller whose buyer repudiates a contract of sale to complete the manufacture of unfinished goods `in the exercise of reasonable commercial judgment for the purpose of avoiding loss and of effective realization.' The two sections deal with comparable situations and should be construed consistently with each other. Gilmore, supra, at 1238. ORS 72.7040(2), the section of the UCC chapter on Sales referred to by Gilmore, provides: Where the goods are unfinished an aggrieved seller may in the exercise of reasonable commercial judgment for the purposes of avoiding loss and of effective realization either complete the manufacture and wholly identify the goods to the contract or cease manufacture and resell for scrap or salvage value or proceed in any other reasonable manner. From the context of the entire statutory scheme, aided by Gilmore's comments, we interpret the statute to mean that the security holder may sell the collateral in the condition it is in when the security holder gains possession or may have to prepare it for sale, whatever is commercially reasonable. Preparing it for sale might include washing and cleaning the property. The evidence was relevant. The trustee also alleged the sale was conducted in a commercially unreasonable manner because terms were imposed at the beginning of the sale which were more onerous than the terms stated in the advertisement of the sale. Northwest contends the trial court erred in failing to strike this allegation because there was no evidence to support the charge. The advertisements for the sale stated the terms were to be cash. At the beginning of the sale Northwest's representative announced that the terms were to be cash or certified check. There was testimony when sales such as this were advertised with the terms being stated as cash that the practice was that uncertified checks were acceptable. There was testimony that whether they were accepted depended upon the credit of the buyer or if the buyer's credit was uncertain, the equipment could not be moved until the check cleared. The evidence was that the outsider who was the high bidder paid the price of $472,750 by an uncertified check. By stating at the sale the terms were to be cash or certified check, the jury could have found this changed the terms from cash or approved uncertified check. The jury also could have found this change dissuaded prospective purchasers from bidding and was commercially unreasonable.