Court Opinion

ID: 9633116
Source: CourtListenerOpinion
Date Created: 2023-08-22 11:34:31.385218+00
Date Added: 2024-06-11T13:17:53.002846
License: Public Domain

RABINOWITZ, Chief Justice,
with whom FITZGERALD, Justice, joins (dissenting) .
I am unable to agree with the court’s holding that if the secured party after repossession of a depreciating asset retains possession of the collateral, and uses the collateral as his own for an “unduly long” period of time, the debtor may elect to treat the debt as discharged.
On default the secured party may, unless otherwise agreed, take possession of the collateral, if he does so without breach of the peace. U.C.C. § 9-503, AS 45.05.786; cf., Weaver v. O’Meara Motor Co., 452 P. 2d 87 (Alaska 1969). After repossession, the secured party may exercise those remedies which are established under the default provisions of Article 9 of the Code as enacted in Alaska, AS 45.05.782-45.05.794, and in addition may “reduce his claim to judgment, foreclose, or otherwise enforce the security interest by any available judicial procedure.” U.C.C. § 9-501(1), AS 45.05.782(a). The secured party need not make an election among these remedies, and may pursue them simultaneously.1
Except when the collateral is “consumer goods,” 2 and the debtor has paid 60% of the cash price or 60% of the loan, the Code imposes no time limit .upon the secured party in possession of the collateral to sell the collateral or to give the debtor written notice of his intention to retain the collateral in satisfaction of the debt.3 The Code, however, does require that the “method, manner, time, place, and terms” of any disposition of the collateral by the secured party be commercially reasonable. U.C.C. § 9-504(3), AS 45.05.788(c).
The Code does not require the secured party to sell the collateral after repossession. See, U.C.C. § 9-504(1), AS 405.05.-788(a). However, if the secured party does not elect to retain the collateral in satisfaction, of the obligation,4 the requirement that he sell the collateral within a commercially reasonable time must apply. The commercial reasonableness of the time of the sale must be judged from the date of repossession in order for that requirement to be meaningful. Surely the secured party should not be permitted to claim that the commercial reasonableness of the time of the sale should be judged from the time he decides to dispose-of the collateral rath*822er than to retain it in satisfaction of the debt.5
The debtor’s remedy for the secured party’s failure to comply with the default provisions 'of Article 9 is set out in Section 9-507(1), AS 45.05.794(a). That section provides in part:
If it is established that the secured party is not proceeding in accordance with §§ 782-794 of this chapter [the default provisions of Article 9], disposition may be ordered or restrained on appropriate terms and conditions. (Emphasis added.)
Thus, if the secured party does not elect to retain the collateral in satisfaction of the debt, and does not dispose of the collateral within a commercially reasonable period, the debtor’s remedy is to compel disposition of the collateral.
Additionally, the Code requires that the secured party use reasonable care in the custody and preservation of the collateral after repossession. U.C.C. § 9-501(2), § 9-207(1); AS 45.05.782(b), 45.05.728(a). The Code provides that in the event the secured party fails to exercise reasonable care in the custody and preservation of the collateral, the secured party is liable for any resulting loss. U.C.C. § 9-207(3), AS 45.05.728(c).
By holding that the debtor may treat the debt as discharged when the secured party fails to dispose of the collateral and uses it as his own, the majority ignores the specific remedies which the Code provides. Moran may be liable to Holman for losses caused by his failure to use reasonable care in the custody and preservation of the collateral. Holman might also have sought to compel Moran to dispose of the pickup truck if Moran failed to sell it within a commercially reasonable time. But, I find no authority in the Code for the conclusion that Holman may consider the debt discharged because Moran used the collateral in a manner inconsistent with its preservation, and did not sell the collateral during the four month period before he brought suit.6 Although the secured party may be liable to the debtor for failure to exercise care in the custody and preservation of the collateral, and further may be compelled to dispose of the collateral if the secured party fails to sell within a commercially reasonable period of time, the Code does not permit the debtor to treat the debt as extinguished.7
A creditor may reasonably wish to defer sale of the collateral in order to secure the highest price and limit the amount of the deficiency for which the debtor will be liable. However, now that the creditor may suffer extinction of the debt by waiting for a favorable market, the creditor will likely sell as quickly as possible after repossession in order to preserve his right to proceed against the debtor for a deficiency judgment. I am concerned that by creating an incentive for the quick disposition of collateral, onerous deficiency judgments will be encouraged. As Professor Gilmore has observed:
Sad experience has taught that a power of sale, coupled with a right to a defi*823ciency judgment, can be harder on the debtor than strict foreclosure ever was. The surplus to be returned to the debtor after sale is a glittering mirage; the deficiency judgment is a given reality. Furthermore the person who buys at the sale today, nine times out of ten, is not our hero, the good faith purchaser for value, but the holder of the security interest who pays not in cash but by a credit against the debt.8
Finally, since the record is devoid of any evidence which would support the district court’s finding of an accord and satisfaction, and since I do not think that Moran’s conduct should result in- extinction of the debt, I would reverse and remand for a new trial.

. In re Adrian Research and Chemical Co., 269 F.2d 734, 737 (3d Cir.1959). Accord, Peoples National Bank of Washington v. Peterson, 7 Wash.App. 196, 498 P.2d 884 (1972). See also, Clark, Default, Repossession, Foreclosure and Deficiency: A Journey to the Underworld and a Proposed Salvation, 51 Ore.L.Rev. 302, 317 (1972); Article 9 of the Uniform Commercial Code: Election of Remedies on Defendant, 1959 Duke L.J. 640.

. “Consumer goods” is defined in AS 45.05.-706(1), U.C.C. § 9-109(1), as goods which are “used or bought for use primarily for personal, family, or household purposes . . . .”

. When 60% of the price or the loan has been paid, and the collateral is consumer goods, the secured party must sell the collateral within 90 days after repossesion. U.C.C. § 9-505(1), AS 45.05.790(a). It does not appear, nor do the parties contend, that in this case 60% of the loan or price had been paid. It is also unclear from the record whether the truck was “consumer goods” as defined by the Code.

. Under § 9-505(2), AS 45.05.790(b), the secured party may make a written proposal to the debtor that the secured party retain the collateral in satisfaction of the debt. If the debtor, or any other person entitled to notification, does not object, the secured party may retain the collateral in satisfaction of the debtor’s obligation.

. The draftsmen of the Code noted in Official Comment 6, U.C.C. § 9-504 that
. a secured party who without proceeding under Section 9-505(2) held collateral a long time without disposing of it, thus running up large storage charges against the debtor, where no reason existed for not making a prompt sale, might well be found not to have acted in a “commercially reasonable” manner.

. I simply note that the result reached in Bradford v. Lindsey Chevrolet Co., Inc., 117 Ga.App. 781, 161 S.E.2d 904 (1968), which the majority cites as authority for its holding, appears to have been based upon a theory of accord and satisfaction, rather than upon the remedies established under the Code.

.By this I do not intend to suggest that the debtor is precluded from invoking such non-Code remedies as accord and satisfaction or conversion. U.C.C. § 1-103, AS 45.05.006, provides:
Unless displaced by the particular provisions of this chapter, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, or other validating or invalidating cause, supplement its provisions.

. Gilmore, Security Interests in Personal Property, 1191 (1965). See also, Clark, Default, Repossession, Foreclosure and Deficiency : A Journey to the Underworld and a Proposed Salvation, 51 Ore.D.Rev. 302 (1972).