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4.44 Deficiency Civil Model Jury Charge



There are times when a person may borrow money to be able to buy (or lease) something, such as a motor vehicle. In turn, the person borrowing the money may be required to give a security interest in the item purchased, as collateral to guaranty the debt to the lender. If the money owed is not repaid to the lender as agreed, the lender may have the right to take possession of the item and sell it as may be commercially reasonable. If the money obtained from the sale is not enough to pay off the debt, the lender may sue the borrower for the amount still owed.

The plaintiff says that is what happened in this case. The defendant, however, denies that the sale of the (item) was done in a commercially reasonable manner.

When there is a dispute as to whether the sale of the secured collateral, in this case, the (item), took place in a commercially reasonable manner, the plaintiff (2/92)[2] the creditor has the burden of proving by the greater weight of the believable evidence that the method, manner, time, place and terms of the sale were commercially reasonable.[3]

What do I mean when I say that you must measure plaintiffs conduct in selling the (item) against the standard of commercial reasonableness? Commercially reasonable would be a sale in the usual manner in any recognized market,[4] or a sale in conformity with reasonable commercial practices among dealers in the type of property sold.[5] If there is no recognizable public market for the item, but the plaintiff is aware of a particular buyer with a need for the item, a private sale might be commercially reasonable. However, ordinarily, the preferred method is a public sale. That would be a sale by auction[6] where the public, particularly including the knowledgeable trade public, is invited by earlier advertisement to appear and bid for the item to be sold. The item should be available for inspection by bidders before the sale.

The notice of sale (1) . . . must be published sufficiently in advance of the sale to allow [potential] interested bidders an opportunity to participate. (2) it must be aimed at the market reasonably expected to have an interest in purchasing collateral; (3) it must set out the exact time and place of the sale[7]; (4) it must sufficiently describe the collateral to be sold so as to allow potential bidders the opportunity to make an informed decision; and (5) it must be published in such a manner as to assure the best possible price.[8] Reasonable notice must also have been given to the defendant of the time and place of the proposed sale.[9]

Factors to be considered include the probable value of the security as determined by a reputable appraisal or reliable indicia of value consistent with the nature of the collateral; the cost of notice; the specialty or general nature of the market for the kinds of goods constituting the security; and the place of notice/place of sale.[10]

The item must be offered and sold for cash to the highest responsible bidder, and bidders must know of the other bids and be permitted to raise their bids.[11] The place of the sale must be accessible to the general public.

The fact that a better price could have been obtained by a sale at a different time or in a different method than that selected by the plaintiff is not of itself sufficient to establish that the sale was not made in a commercially reasonable manner.[12] However, the plaintiff has the obligation to make a good faith effort to obtain the highest possible price for the item.[13] A substantial difference between the price received and the (items) fair market value is relevant in deciding whether the sale was commercially reasonable.[14] In determining the fair market value, it is the price at which the property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to sell, both parties having reasonable knowledge of the relevant facts.[15]

If the secured party either sells the collateral in the usual manner in any recognized market or if he/she sells at the price current in such market at the time of his/her sale or if he/she has otherwise sold in conformity with reasonable commercial practices among dealers in the type of property sold, he/she has sold in a commercially reasonable manner.[16]

The number of bidders at the sale may also be meaningful.

Judge the conduct in selling the (item) by considering how well plaintiff has succeeded in realizing the maximum resale price without creating a great expense for that sale in keeping with prevailing trade practices among reputable and reasonable businesses engaged in the same or similar enterprises.[17] Decide whether plaintiff has shown by the greater weight of the evidence that it sold the (item) in a commercially reasonable manner. In calculating the amount due the plaintiff, the expenses of reparation and sale could be added to the indebtedness before crediting the fair market value of the security if there had been an appropriate sale.[18] The plaintiff has the burden of showing that a commercially reasonable sale of the collateral would have yielded less than the balance due.[19]

If you find that the sale was not conducted in a commercially reasonable manner, the next issue is whether the plaintiff is entitled to a deficiency.

If plaintiff has not established that the sale was commercially reasonable, there is a presumption that the value of the collateral is equal to the amount of debt. Unless this presumption is rebutted, no debt remains.[20]

To overcome the presumption that the value of the collateral at least equaled the debt it secured, . . . plaintiff may introduce independent proof of the fair and reasonable value of the collateral (plus or minus any payments or charges incurred in disposing of the collateral) and comparing it with the price achieved at the actual sale.[21] The defendant may also present evidence as to the proof of value.[22]

If you find that plaintiff has not rebutted the presumption that the fair and reasonable value of the collateral was equal to the amount of the debt, you must find in favor of the defendant. If, on the other hand, plaintiff has satisfied its burden of showing that the fair and reasonable value of the collateral was less than the amount of the debt, you must find in plaintiffs favor for the deficiency owed by the defendant.

However, defendant may be entitled to damages for the difference between the amount actually recovered and the amount that should have been recovered had there been a commercially reasonable sale.[23] Thus, the deficiency found to be due and owing to plaintiff may be offset by defendants damages.

1This charge does not address the notice requirement under N.J.S.A. 12A:9-504(3).

[2]T & W Ice Cream, Inc. v. Carriage Barn, Inc., 107 N.J. Super. 328 (Law Div. 1969); and Franklin St. Bank v. Parker, 136 N.J. Super. 476 (Cty. Dist. Ct. 1975). See also White and Sumers, Uniform Commercial Code (2 ed.), Sec. 26-11.

[3]N.J.S.A. 12A:9-504(3); Block v. Diana, 252 N.J. Super. 650, 657 (App. Div. 1992).

[4]Some cases have held that there is no recognized market for used automobiles. Norton v. Natl. Bank of Commerce, 398 S.W. 2d 538 (Ark. 1966); Commun. Mgmt. Assn. v. Tousely, 505 P.2d 1314 (Co. 1973); Turk v. St. Petersburg Bank and T. Co., 281 So. 2d 534 (Fla. 1973); Nelson v. Monarch Invest. Plan, 452 S.W. 2d 375 (Ky. 1970); Alliance Discount Corp. v. Shaw, 171 A. 2d 548 (Pa. 1961).

[5]N.J.S.A. 12A:9-507(2).

[6]U.C.C. Sec. 9-504, Comment 1 refers to Sec. 2-706 as a guide for determining when a sale is commercially reasonable. Sec. 2-706, Comment 4 notes that a public sale is a sale by auction.

[7]A creditor may not hold collateral for a long time to accumulate storage charges and increase deficiency, where no reason exists not to make prompt sale. U.C.C. Sec. 9-504, Comment 6.

[8]Security Sav. Bank v. Tranchitella, 249 N.J. Super. 234, 241 (App. Div. 1991); Three days notice of private sale of repossessed car deemed not commercially reasonable. Franklin St. Bank v. Parker, 136 N.J. Super. 476 (Dist. Ct. 1975).

[9]Block v. Diana at 9 (citing Security Sav. Bank v. Tranchitella).

[10]Security Sav. Bank v. Tranchitella. 249 N.J. Super. 234, 240 (App. Div. 1991); N.J.S.A. 12A:9-504(3).

[11]A sale on sealed bids has been held not to have been a public sale. Offredi v. Huhla, 60 A. 2d 779 (Conn. 1948).

[12]N.J.S.A. 12A:9-507(2).

[13]Security Sav. Bank v. Tranchitella, 249 N.J. Super. 234, 243 (App. Div. 1991).

[14]Mercantile Finan. Corp. v. Miller, 292 F. Supp. 797 (E.D. Pa. 1968): collateral having fair market value of $750,000 sold for $19,000.

[15]Lavene v. Lavene, 162 N.J. Super. 187, 192 (Ch. Div. 1978).

[16]N.J.S.A. 12A:9-507(2).

[17]Franklin St. Bank v. Parker, 136 N.J. Super. 476 (Co. Dist. Ct. 1975).

[18]Midlantic National Bank v. Coyne, 222 N.J. Super. 649, 655 (Law Div. 1987). While there is no appellate court decision on the issue of whether the nature of the debtors relief is for the court or jury, in the case of Midlantic National Bank v. Coyne, the Honorable Leo Yanoff presented the issue to the jury.

[19]Block v. Diana at 10.

[20]Security Sav. Bank v. Tranchitella, 249 N.J. Super. 234, 244 (App. Div. 1991).

[21]Id. at 245


[23]Midlantic National Bank v. Coyne, 222 N.J. Super. 649, 655 (Law Div. 1987). While there is no appellate court decision on the issue of whether the nature of the debtors relief is for the court or jury, in the case of Midlantic National Bank v. Coyne, the Honorable Leo Yanoff presented the issue to the jury.

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Since 1985, KENNETH VERCAMMEN has worked as a personal injury attorney, working for injury victims and their families. By taking a hard-hitting, aggressive approach toward the insurance companies, KENNETH VERCAMMEN and our co-counsel have consistently obtained outstanding results for many injured clients over the years I am proud to have worked on cases in various capacities, small and large. While obviously prior results cannot guarantee the outcome of future cases, I can guarantee that you case will receive the same degree of dedication and hard work that went into each of these prior cases.

In direct contrast to the hard-hitting approach we take toward the insurance companies is the soft approach we take toward our clients. I am proud of my compassionate staff as I am of the outstanding financial results they have achieved. For many years, I have watched them treat our clients with patience, dignity and respect. I would have it no other way.

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Kenneth A. Vercammen is the Managing Attorney at Kenneth Vercammen & Associates in Edison, NJ. He is a New Jersey trial attorney has devoted a substantial portion of his professional time to the preparation and trial of litigated matters. He has appeared in Courts throughout New Jersey each week on personal injury matters, Criminal /Municipal Court trials, and contested Probate hearings.

Mr. Vercammen has published over 125 legal articles in national and New Jersey publications on criminal, elder law, probate and litigation topics. He is a highly regarded lecturer on litigation issues for the American Bar Association, NJ ICLE, New Jersey State Bar Association and Middlesex County Bar Association. His articles have been published in noted publications included New Jersey Law Journal, ABA Law Practice Management Magazine, and New Jersey Lawyer. He is the Editor in Chief of the American Bar Association Tort and Insurance Committee Newsletter.

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