2.5 PRIVATE SALES
2.501 Commercial Reasonableness. Article 9 of the U.C.C. encourages the private sale as a device for realizing collateral value, but a private sale must be commercially reasonable. 130
A. Seller's Discretion. Although the U.C.C. is subject to the interpretation that the secured party has unfettered discretion in choosing between a public and a private sale, a leading treatise notes:
The [disposition] may be by public or private proceedings provided the method selected is reasonable in the circumstances. Old section 9-504(3) did not explicitly state that the choice between public and private proceedings was subject to the commercial reasonableness proviso, but a number of decisions so held. The second sentence of Revised section 9-610 (b) makes this point explicit: "If commercially reasonable, a secured party may dispose of collateral by public or private proceedings . . ." Ed Peters Jewelry Co. Inc. v. C. & J. Jewelry Co. Inc. states that a private sale is not subject to closer scrutiny than a public one. However, a finding that the private disposition was reasonable in that case was supported by the creditors' explanation for choosing that method: publicity attending a public sale would have alarmed the debtor's principal clients and thereby depressed the sales price. 131
B. Best Efforts. Courts have stated that the secured party must use "best efforts" or "due diligence" in seeking a buyer. 132
C. Advertising. Advertising efforts should reflect the market demand for the collateral; for example, a private sale of a valuable yacht or airplane should be advertised in appropriate boating or aviation magazines. 133
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D. Waiver. Some case law has developed concerning whether the right to object to the commercial reasonableness of the sale can be waived, as can notice of the sale. The U.C.C. clearly does not allow a debtor to waive this right. 134 A federal district court in Virginia, however, has followed the minority view and upheld a guarantor's pre-default waiver of the right to object to a sale's commercial reasonableness. 135 The reliability of this holding in Virginia should be strongly questioned in light of Woodward v. Resource Bank. 136 Likewise, a substantial number of courts outside of Virginia have held to the contrary. 137
2.502 Notice of Sale to the Debtor. The secured party must send reasonable notification to the debtor, and possibly other parties, of the time after which a private sale will be made. 138 The...
