Problem.Foreclosure by disposition

A.   Jim harvested grapes in Napa, California and sold the grapes to local wineries.  A while back Jim had a little too much wine and punched another patron, Sonya Mondavi, who had insulted Jim's grapes during a bar room argument.  To settle a claim for damages for assault, Jim agreed to pay Sonya $50,000, in installments over a three year period, secured by a security interest in Jim's grape farming and harvesting equipment (including a truck used for hauling grapes) and by a security interest in a pick-up truck that Jim used largely for personal driving.  

      The following year Jim's grape yield was substantially impaired by weather.  He defaulted on payments under his settlement agreement and lost the collateral through repossession.   Sonya hired an auction company to sell the collateral.  Ten days before the sale, the auction company ran advertisements of the sale in a national farming trade journal and in a local newspaper and personally delivered a copy of the advertisement to Jim. The advertisement described a sale of "repossessed grape harvesting machinery, including vehicles" at a time (10 days later at 10:00 a.m.) and location given in the advertisement, accompanied by the name and telephone number of the auction company and an invitation to call the auction company to arrange for pre-sale inspection.

     Several prospective purchasers attended the sale although none had made arrangements for earlier inspection. At the sale, the grape harvesting machinery, including the truck used for hauling grapes, plus Jim’s 1992 pick-up truck were lined up side by side. The auctioneer announced that the items would be sold together, as a single lot.

     1.  Assume that no party other than Sonya holds a security interest in the collateral.  Was her notice timely?  U.C.C. 9-611(b), U.C.C. 9-612, U.C.C. 9-102(a)(26), Official Comment 7 to U.C.C. 9-102.  Was its content sufficient? U.C.C. 9-613, U.C.C. 9-614, U.C.C. 9-102(a)(23), (24).    

     2.  Has Sonya given notice to all the right people?   U.C.C. 9-611.  What if another party claims a security interest in the collateral?  What if the other secured party has failed to file a financing statement?  What if the party claiming a security interest in the collateral filed a financing statement but the office in which the financing statement was filed failed to identify that party in response to Sonya's search request either because it goofed or because the financing statement was filed after the filing office responded to the search request?  U.C.C. 9-611(c), (e).  Official Comment 4 to 9-611. 

     If Sonya failed to give notice to a subordinate secured party or other lienholder who was entitled to notice, how might the subordinate secured party or other lienholder be affected economically by the disposition?  What will be the legal effect of the disposition?  What will be the remedy of the subordinate secured party or other lienholder for Sonya's failure to give notice?  U.C.C. 9-617(a), Official Comment 2 to U.C.C. 9-617, U.C.C. 9-625(b), Official Comment 3 to U.C.C. 9-625.          

     3.  Was the sale conducted in a commercially reasonable manner?  U.C.C. 9-610(b), (c), U.C.C. 9-627(b).

B.  Under the facts in Aspen Enterprises, Inc. v. Bodge, should a court reach the same conclusion under Revised Article 9 that it reached in Part IV of the Discussion portion of the Aspen opinion?  Official Comment 9 to U.C.C. 9-610.  The same conclusion that it reached in Part V of the Discussion portion of the Aspen opinion?  U.C.C. 9-620(b). 

C  Take a look at ebay, a cyberspace auction.  Can the notification requirements of Article 9 be adapted to the cyberspace auction?  Is it a private or public sale?  If public, is the advertising commercially reasonable?  Is the auction process commercially reasonable?  Is there a reasonable opportunity to inspect?  Are prices received likely to be higher or lower than a live auction?  Are there advantages to a cyberspace auction that should lead a court to find it commercially reasonable despite its dissimilarity to the commercial practices usually associated with live auctions?  What if the secured party anticipates the possibility of a cyberspace auction by an appropriate term in the security agreement?  See U.C.C. 1-102, U.C.C. 9-602(7), U.C.C. 9-624.   See M.Korybut, Online Auctions of Repossessed Collateral Under Article 9, 31 Rutgers L.J. 29 (1999).         

D.  Fertile Fields (FF) is a distributor of fertilizer. In anticipation of resale to a large farming cooperative, FF contracted to acquire a large shipment of fertilizer from Cowspoils, Inc. After receiving the $1,000,000 down payment required by the contract, Cowspoils shipped the fertilizer. The fertilizer was defective but not valueless. If the defect justifies rejection of the fertilizer and cancellation of the contract under Article 2 of the Commercial Code, FF has a security interest in the fertilizer, pursuant to U.C.C. 2-711(3), to secure repayment of the purchase price. May FF sell the fertilizer?  What if the sale nets $1.5 million?   What if FF can demonstrate $.5 million in contract damages by virtue of a covering purchase of fertilizer from an alternative source? Consider U.C.C. 9-110 and U.C.C. 2-706.