Newspaper Notice ≠ Commercially Reasonable Notice

jonathanfriedmanNewspaper promotion of distressed asset sales was state-of-the-art when Ragged Dick, Tom the Bootblack, and Phil the Fiddler walked the streets of Horatio Alger’s New York City.  Times, however, have changed, as have the habits of potential purchasers and the means by which they look for their next deal.

A secured lender exercising its rights under UCC §9-610 to sell collateral after foreclosure has a duty to market the sale in a commercially reasonable manner.  How does one do that today?

A common knee-jerk is to run a newspaper ad.  This will constitute commercially reasonable notice and is likely to help achieve robust bidding, right?

No, it isn’t and it won’t.  And more and more lenders are getting sued for these misconceptions.

Looking Back

Let’s step back though time.  The total daily circulation of newspapers in the United States was about 54 million in 1950.  By 2000, the total daily circulation in 2000 declined to about 48 million, despite the U.S. population having about doubled since 1950.  And it is reasonable, to say the least, to assume that the number has dropped precipitously since, given that:

  • Wikipeda did not launch until 2001
  • LinkedIn didn’t come online until 2003
  • Facebook didn’t launch until 2004
  • Reddit was a 2005 thing
  • No one was tweeting until 2006

Changes Are Afoot

The law does not always keep pace with changing technologies.  Law makers, however, are taking note.  As early as 2012, for example, the Texas Municipal League wrote this in a legislative update:

Notice to the public is an essential part of open government, but antiquated print ads published in papers with ever-declining subscription don’t appear to be the best way to promote open government. Nevertheless, newspaper organizations are ramping up their opposition to Internet publication of notices. Why? Legal notices provide revenue in an era of declining print subscriptions.

Case Law is Evolving Too

The key standard under the UCC is the commercial reasonableness of the sale.  Courts have long held, and the commercial finance community has long relied, on the notion that the product of a commercially reasonable sale is the fair market value.” The consequences of failing to act in a commercially reasonable manner can be severe.

The UCC does not, however, define what is “commercially reasonable.”  Instead, UCC §9 -627(b)(3) states that a “disposition is made in a commercially reasonable manner if the disposition is made . . . in conformity with reasonable commercial practices among dealers in the type of property that was the subject of the disposition.” This is a standard that all but invites litigation because of its factually intensive nature.  One thing is sure: there is already case law that instructs that newspaper notice alone does not always meet this standard.1

Author:

Jonathan P. Friedland is a partner with the law firm of Sugar Felsenthal Grais & Hammer LLP, with offices in Chicago and New York. He can be contacted at jfriedland@sfgh.com or 312.704.2770.  His full profile can be viewed here.  He does not represent lenders but a significant part of his practice is focused on representing distressed businesses and their buyers.  This article is based on a longer article available here.  He founded DailyDAC, LLC in 2005 to assist lenders in providing actual commercially reasonable notice of asset sales

[1] E.g. DiGiacomo v. Green (In re Inofin Incorporated), 512 B.R. 19, 89 (Bankr. D. Mass. 2014); Ford & Vlahos v. ITT Comm’l Fin. Corp., 8 Cal.4th 1220, 1229 (Cal. 1994); Comm’ Credit Grp, Inc. v. Barber, 682 S.E.2d 760, 767 (N.C. App.  2009).

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