Alert October 02, 2012

Texas State Court Holds That Proof of Sale Was Not Commercially Reasonable

A Texas appellate court reversed a trial court’s judgment in favor of a lender, upon a finding that the lender failed to establish that the disposition of collateral was commercially reasonable. Citing Texas common law, the Court noted that in an action for deficiency judgment, while a lender may establish commercial reasonableness by generally pleading that “all conditions precedent have been performed or have occurred,” where it does and a debtor lodges a specific denial, the burden of establishing reasonableness shifts back to the lender. The Court found that the defendant-appellant failed to present legally sufficient evidence. In reaching its decision, the Court held that the lender’s business records were insufficient because they did not indicate how the vehicle was sold or “‘the method, manner, time, place and other terms’ of the sale.” The Court also noted that the lender did not offer evidence of the reasonableness “safe harbors” contained in Article 9 of the UCC.