1997 Chapter 409

409.502(2) (2) A secured party who by agreement is entitled to charge back uncollected collateral or otherwise to full or limited recourse against the debtor and who undertakes to collect from the account debtors or obligors must proceed in a commercially reasonable manner and may deduct his or her reasonable expenses of realization from the collections. If the security agreement secures an indebtedness, the secured party must account to the debtor for any surplus, and unless otherwise agreed, the debtor is liable for any deficiency. But, if the underlying transaction was a sale of accounts or chattel paper, the debtor is entitled to any surplus or is liable for any deficiency only if the security agreement so provides.

409.502 History History: 1973 c. 215; 1991 a. 316.

409.503 409.503  Secured party's right to take possession after default. Unless otherwise agreed a secured party has on default the right to take possession of the collateral. In taking possession a secured party may proceed without judicial process if this can be done without breach of the peace or may proceed by action. If the security agreement so provides the secured party may require the debtor to assemble the collateral and make it available to the secured party at a place to be designated by the secured party which is reasonably convenient to both parties. Without removal a secured party may render equipment unusable, and may dispose of collateral on the debtor's premises under s. 409.504.

409.503 Annotation A "breach of the peace" under this section has the same meaning as in s. 425.206. Repossession in disregard of the debtor's oral protest is a breach of the peace. Punitive damages may be appropriate as the result of the breach of the peace. Hollibush v. Ford Motor Company, 179 W (2d) 799, 508 NW (2d) 449 (Ct. App. 1993).

409.503 Annotation A secured creditor who unequivocally takes possession of collateral has a duty to exercise due care in regard to the collateral. Nischke v. Farmers & Merchants Bank, 187 W (2d) 96, 522 NW (2d) 542 (Ct. App. 1994).

409.503 Annotation Under either state or federal law, auctioneer selling livestock covered by security agreement would be liable for full purchase price. United States v. Midwest Livestock Producers Coop. 493 F Supp. 1001 (1980).

409.503 Annotation "Proceed by action" refers to replevin proceeding under ch. 810. Del's Big Saver Foods v. Carpenter Cook, Inc. 603 F Supp. 1071 (1985).

409.503 Annotation The debtor's duty to deliver collateral upon default. Gilmer, 53 MLR 33.

409.503 Annotation The state action conundrum reexamined: a new approach and its application to the constitutionality of creditor self-help remedies. 62 MLR 414 (1979).

409.503 Annotation The impact of denying self-help repossession of automobiles: a case study of the Wisconsin consumer act. Whitford, Laufer, 1975 WLR 607.

409.504 409.504  Secured party's right to dispose of collateral after default; effect of disposition.

409.504(1) (1) A secured party after default may sell, lease or otherwise dispose of any or all of the collateral in its then condition or following any commercially reasonable preparation or processing. Any sale of goods is subject to ch. 402. The proceeds of disposition shall be applied in the order following to:

409.504(1)(a) (a) The reasonable expenses of retaking, holding, preparing for sale or lease, selling, leasing and the like and, to the extent provided for in the agreement and not prohibited by law, the reasonable attorneys' fees and legal expenses incurred by the secured party;

409.504(1)(b) (b) The satisfaction of indebtedness secured by the security interest under which the disposition is made;

409.504(1)(c) (c) The satisfaction of indebtedness secured by any subordinate security interest in the collateral if written notification of demand therefor is received before distribution of the proceeds is completed. If requested by the secured party, the holder of a subordinate security interest must seasonably furnish reasonable proof of the holder's interest, and unless the holder does so, the secured party need not comply with the holder's demand.

409.504(2) (2) If the security interest secures an indebtedness, the secured party must account to the debtor for any surplus, and, unless otherwise agreed, the debtor is liable for any deficiency. But if the underlying transaction was a sale of accounts or chattel paper, the debtor is entitled to any surplus or is liable for any deficiency only if the security agreement so provides.

409.504(3) (3) Disposition of the collateral may be by public or private proceedings and may be made by way of one or more contracts. Sale or other disposition may be as a unit or in parcels and at any time and place and on any terms but every aspect of the disposition including the method, manner, time, place and terms must be commercially reasonable. Unless collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, reasonable notification of the time and place of any public sale or reasonable notification of the time after which any private sale or other intended disposition is to be made shall be sent by the secured party to the debtor, if the debtor has not signed after default a statement renouncing or modifying the debtor's right to notification of sale and except in the case of consumer goods to any other person who has a security interest in the collateral and who has duly filed a financing statement indexed in the name of the debtor in this state. The secured party may buy at any public sale and if the collateral is of a type customarily sold in a recognized market or is of a type which is the subject of widely distributed standard price quotations the secured party may buy at private sale.

409.504(4) (4) When collateral is disposed of by a secured party after default, the disposition transfers to a purchaser for value all of the debtor's rights therein, discharges the security interest under which it is made and any security interest or lien subordinate thereto. The purchaser takes free of all such rights and interests even though the secured party fails to comply with the requirements of ss. 409.501 to 409.507 or of any judicial proceedings:

409.504(4)(a) (a) In the case of a public sale, if the purchaser has no knowledge of any defects in the sale and if the purchaser does not buy in collusion with the secured party, other bidders or the person conducting the sale; or

409.504(4)(b) (b) In any other case, if the purchaser acts in good faith.

409.504(5) (5) A person who is liable to a secured party under a guaranty, indorsement, repurchase agreement or the like and who receives a transfer of collateral from the secured party or is subrogated to the secured party's rights has thereafter the rights and duties of the secured party. Such a transfer of collateral is not a sale or disposition of the collateral under this chapter.

409.504 History History: 1973 c. 215; 1991 a. 316.

409.504 Annotation Legislative Council Note, 1973: The official text amended sub. (3) to require the secured party to notify only persons, other than the debtor, who had notified the secured party in writing of their claim of an interest in the collateral to be sold at public or private sale. Presently, notification must be given to every person who has duly filed a financing statement indexed in the name of the debtor and every person known by the secured party to have an interest in the collateral; this requirement necessitates a complete record search in case of any sale. The official text also expressly provides the debtor with the right to default. The Special Committee rejected the substantial lessening of the notification requirement and decided to retain present language with the exception of the addition of the right to renounce notice and the deletion of the requirement of giving notice to persons "known" by the secured party to have a security interest in the collateral. (Bill 177-S)

409.504 Annotation The burden of proving that a private sale was commercially reasonable is on the seller. Proof that the sale was made at the wholesale price does not establish reasonableness. Vic Hansen & Sons, Inc. v. Crowley, 57 W (2d) 106, 203 NW (2d) 728.

409.504 Annotation Sub. (1) (a) relates to attorney's fees incurred in liquidating collateral, not in suit on promissory note. Kohlenberg v. American Plumbing Supply Co. 82 W (2d) 384, 263 NW (2d) 496.

409.504 Annotation Primary focus of commercial reasonableness under (3) is not proceeds from sale, but procedures employed for sale. Appleton State Bank v. Van Dyke Ford, Inc. 90 W (2d) 200, 279 NW (2d) 443 (1979).

409.504 Annotation Conduct of debtor may be taken into account in determining commercial reasonableness of sale under (3). First National Bank of Kenosha v. Hinrichs, 90 W (2d) 214, 279 NW (2d) 449 (1979).

409.504 Annotation A secured creditor can retain a debtor's collateral while seeking an independent action for a money judgment. Dorman v. Morris, 185 W (2d) 845, 519 NW (2d) 685 (Ct. App. 1994).

409.504 Annotation The secured party made whole-expenses, attorneys' fees and determination of the indebtedness under UCC s. 9-504 (1). 62 MLR 449 (1979).

409.505 409.505  Compulsory disposition of collateral; acceptance of the collateral as discharge of obligation.

409.505(1) (1) If the debtor has paid 60 per cent of the cash price in the case of a purchase money security interest in consumer goods or 60 per cent of the loan in the case of another security interest in consumer goods, and has not signed after default a statement renouncing or modifying the debtor's rights under ss. 409.501 to 409.507 a secured party who has taken possession of collateral must dispose of it under s. 409.504 and if the secured party fails to do so within 90 days after the secured party takes possession the debtor at the debtor's option may recover in conversion or under s. 409.507 (1) on secured party's liability. In this subsection "cash price" means the seller's price in dollars for the sale of the goods and the transfer of unqualified title thereto upon the concurrent payment of such price in cash or the equivalent thereof; "loan" refers to the principal and does not include interest or service charges.

409.505(2) (2) In any other case involving consumer goods or any other collateral a secured party in possession may, after default, propose to retain the collateral in satisfaction of the obligation. Written notice of such proposal shall be sent to the debtor if the debtor has not signed after default a statement renouncing or modifying the debtor's rights under this subsection and except in the case of consumer goods to any other secured party who has a security interest in the collateral and who has duly filed a financing statement indexed in the name of the debtor in this state. If the debtor or other person entitled to receive notification objects in writing within 21 days from the receipt of the notification or if any other secured party objects in writing within 21 days after the secured party obtains possession the secured party must dispose of the collateral under s. 409.504. In the absence of such written objection the secured party may retain the collateral in satisfaction of the debtor's obligation.

409.505 History History: 1973 c. 215; 1991 a. 316.

409.505 Annotation Legislative Council Note, 1973: The official text proposed to change the notice requirement in the same manner as in s. 409.504. The Special Committee rejected this change and decided to retain most of the present notice requirements except the time within which a person entitled to receive notification may object to the retention of the collateral by the secured party is reduced to 21 days, the right to renounce notice is added and the requirement of giving notice to persons "known" by the secured party is deleted. See note to s. 409.504. (Bill 177-S)

409.506 409.506  Debtor's right to redeem collateral. At any time before the secured party has disposed of collateral or entered into a contract for its disposition under s. 409.504 or before the obligation has been discharged under s. 409.505 (2) the debtor or any other secured party may unless otherwise agreed in writing after default redeem the collateral by tendering fulfillment of all obligations secured by the collateral as well as the expenses reasonably incurred by the secured party in retaking, holding and preparing the collateral for disposition, in arranging for the sale, and to the extent provided in the agreement and not prohibited by law, the secured party's reasonable attorneys' fees and legal expenses.

409.506 History History: 1991 a. 316.

409.507 409.507  Secured party's liability for failure to comply with default provisions.

409.507(1) (1) If it is established that the secured party is not proceeding in accordance with ss. 409.501 to 409.507 disposition may be ordered or restrained on appropriate terms and conditions. If the disposition has occurred the debtor or any person entitled to notification or whose security interest has been made known to the secured party prior to the disposition has a right to recover from the secured party any loss caused by a failure to comply with ss. 409.501 to 409.507. If the collateral is consumer goods, the debtor has a right to recover in any event an amount not less than the credit service charge plus 10 per cent of the principal amount of the debt or the time price differential plus 10 per cent of the cash price.

409.507(2) (2) 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 at the price current in such market at the time of the sale or if the secured party has otherwise sold in conformity with reasonable commercial practices among dealers in the type of property sold, the secured party has sold in a commercially reasonable manner. The principles stated in the 2 preceding sentences with respect to sales also apply as may be appropriate to other types of disposition. A disposition which has been approved in any judicial proceeding or by any bona fide creditors' committee or representative of creditors shall conclusively be deemed to be commercially reasonable, but this sentence does not indicate that any such approval must be obtained in any case nor does it indicate that any disposition not so approved is not commercially reasonable.

409.507 History History: 1991 a. 316.

409.507 Annotation Under (1) "any loss" provision relates to loss of surplus proceeds because of improper disposition of secured property; "surplus proceeds" refers to difference between fair market value of property and amount necessary to satisfy senior interest. River Valley State Bank v. Peterson, 154 W (2d) 442, 453 NW (2d) 193 (Ct. App. 1990).