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Nationsbank, N.A. v. Pondelick

A-7017-96T5 (N.J. Super. App. Div. 1998) (Unpublished)

UCC; COMMERCIAL REASONABLENESS—So long as the manner by which collateral is sold is commercially reasonable, it doesn’t matter if the sales price falls well below the property’s appraised value.

When a boat owner failed to make loan payments to its lender, the lender commenced an action to foreclose the boat mortgage. It informed the owner that the boat would be sold and that a deficiency judgment would be obtained. The lender then obtained an appraisal that concluded that the boat had a value of $104,000 in its present poor condition and also opined that if the boat was sold “as is” it would be sold for approximately $90,000 for insurance purposes. An appraisal report prepared by the same appraiser five months earlier indicated a value of $184,000.

The lender listed the boat for sale with a yacht broker that specialized in sailing vessels. The owner had previously attempted, unsuccessfully, to sell the boat through the same broker. The broker was a competent broker. The boat was sold for $85,000. When the lender demanded a deficiency payment, the owner refused to pay. Instead, it argued that the mere presence of two greatly disparate appraisals within a relatively short period of time was evidence that the second appraisal did not reflect the actual value of the boat. The Court ruled in favor of the lender, finding that the provisions of Article 9 of the Uniform Commercial Code applied. In the Court’s view, the test was not whether disparate appraisals properly raise a question as to correctness of the final selling price, but rather whether the sale was made in a manner consistent with reasonable commercial practices among dealers in the type of property sold. Citing the Code itself, it said: “The fact that a better price could have been obtained by a sale at a different time or in a different method from that selected by the secured party is not of itself sufficient to establish that the sale was not made in a commercially reasonable manner. If the secured party either sells the collateral in the usual manner in any recognized market therefor or if he sells at the price current in such market at the time of his sale or if he has otherwise sold in conformity with reasonable commercial practices among dealers in the type of property sold he has sold in a commercially reasonable manner.”


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