In The Provident Bank v. Charles Bonnici, No. A-1586-11T1 (N.J. Super. Ct. App. Div. 2012), the Appellate Division of the Superior Court of New Jersey considered the issue of what is a reasonable manner to sell collateral to satisfy a debt.

In that case, the debtor had purchased a boat and taken out a loan to fund the purchase price. He defaulted on the loan, and the creditor decided to sell the boat to offset what was owed. The issue was whether the creditor had done so in a commercially reasonable way.

The Court started its analysis “with the premise that, upon default, a secured party may sell collateral pursuant to the terms and conditions of N.J.S.A. 12A:9-610(b). The disposition may be public or private. N.J.S.A. 12A:9-610(b). ‘Every aspect of a disposition of collateral, including the method, manner, time, place, and other terms, must be commercially reasonable.” Id .  at 4.

Commercial reasonableness is determined if the sale is made:

(1)   in the usual manner on any recognized market;

(2)   at the price current in any recognized market at the time of the disposition; or

(3)   otherwise in conformity with reasonable commercial practices among dealers in the type of property that was the subject of the disposition.

N.J.S.A. 12A:9-627(b).

In the Bonnici case, the Court determined that the sale had been conducted reasonably. The plaintiff used a “business dedicated to that service” to sell it; valued the boat by using the NADA authoritative guide; and took into account the condition of the boat.


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