Okla. Stat. tit. 12A § 1-9-615
Okla. Stat. tit. 12A, § 1-9-615
Oklahoma Code Comment
The provisions of new section 9-615 were taken and expanded from old section 9- 504(1) . Section 9-615(a)(1) is similar to old section 9-504(1)(a) , except new section 9-615(a)(1) provides for reasonable expenses of preparing for disposition, processing and disposing of collateral. Old section 9-504(1)(a) provided for reasonable expenses of preparing for sale or lease, and the like. New section 9-615(a)(1), therefore, is broader in its scope, alone or even more so when read in connection with new section 9-610 which includes the right to provide a license, which was not found in old section 9-504 .
Old section 9-504(1)(b) referred to satisfaction of indebtedness. New section 9-615(a)(2) refers to satisfaction of obligations. There is no definition of the term "obligation" in new Article 9, although "obligor" is defined at section 9-102(a)(59) . Likewise, the term "indebtedness" was not defined under old Article 9. Presumably they mean essentially the same. Under new section 9- 615(a)(3) , proceeds could also be applied to the satisfaction of obligations secured by a subordinate security interest, if the secured party receives an authenticated demand as provided in section 9-615(a)(3) . The section is silent as to who must authenticate the demand. Likewise, under old section 9-504(1)(c) the same would apply, except the notice was not required to be authenticated. Under old section 9-504(1)(c) , a secured party could request the subordinate lien holder to furnish reasonable proof of the subordinate interest, and, unless the subordinate party did so, the senior secured party did not need to comply with the demand. That provision concerning a request for reasonable proof is carried forward in new section 9-615(b) .
The provisions of new section 9-615(a) overrule the holdings in Consolidated Equipment Sales, Inc. v. First State Bank & Trust Company of Guthrie, 627 P.2d 432 (Okla. 1981) and First National Bank and Trust Company of Norman, Oklahoma v. Security National Bank and Trust Company of Norman, 676 P.2d 837 (Okla. 1984). In Consolidated, the court applied a different formula concerning expenses incurred by Consolidated, a junior lien holder, in the disposition of collateral than would be required by new section 9-615 . The court subtracted expenses to repair and prepare the collateral for sale from the value of such collateral in top condition, based on a theory of conversion. New section 9-615 would require subtracting such expenses from the cash proceeds of the sale of the collateral. In First National Bank the court declined to reimburse a junior lien holder for expenses of seizing and storing the collateral prior to sale. New section 9-615 would require such reimbursement.
Section 9-615(c) is new. It does not require a secured party to apply non-cash proceeds to the debt until collected, unless failure to do so would be commercially unreasonable. An illustration appears in Official Comment 4 to new section 9-608 . The example is as follows:
Example: An enforcing secured party receives a promissory note from an account debtor who is unable to pay an account when it is due. The secured party accepts the note in exchange for extending the date on which the account debtor's obligation is due. The secured party may wish to credit its debtor (the assignor) with the principal amount of the note upon receipt of the note, but probably will prefer to credit the debtor only as and when the note is paid.
See also Elk River Fund, Inc., v. Hoecherl, 428 N.W. 2d. 857 (Minn 1988), involving a trade-in received as part of the sales proceeds. The court did not require application of either the trade in or the trade-in proceeds. New section 9-615(c) would require application of the proceeds upon sale of the trade-in. If the secured party does not apply the non-cash proceeds they remain as collateral subject to Article 9. If the secured party does apply or pay over non-cash proceeds, the secured party must do so in a commercially reasonable manner. Under old Article 9 proceeds were defined under former section 9-306 as whatever is received upon the sale or disposition of the collateral. Thus, under old section 9-504 the secured party was required to apply non-cash as well as cash proceeds. New section 9-615(c) is limited to non-cash proceeds.
Under new section 9-615(d) , after payments and applications required under section 9-615(a) the secured party is required to account to and pay the "debtor" any surplus, and the "obligor" is liable for any deficiency. The term "debtor" is defined under new section 9-102 as a person who has a property interest other than a security interest in the collateral. The term "obligor" is defined under new section 9-102 as the person who owes or has provided property other than the collateral to secure or is otherwise accountable for payment or performance of the obligation secured by the security interest in the collateral. Under old section 9-504 a secured party was required to account to the debtor for any surplus, and, unless otherwise agreed the debtor was liable for any deficiency. Under old section 9-112 if the person who owned the collateral was not the debtor, the owner was entitled to receive the surplus but was not liable for any deficiency. The result would, therefore, be the same under old section 9-504 as in new section 9-615 .
Pursuant to the second sentence of old section 9-504(2) , if the underlying transaction was for the sale of accounts or chattel paper the debtor was entitled to any surplus and was only liable for a deficiency if the security agreement so provided. Under new section 9-615(e) , in addition to the sale of accounts or chattel paper, if the underlying transaction is a sale of payment intangibles, defined under new section 9-102(a)(61) as general intangibles under which the account debtor's principal obligation is to pay money, or a sale of promissory notes, the debtor is not entitled to the surplus, and the obligor is not liable for any deficiency.
New section 9-615(g) applies to a disposition where the secured party, a person related to the secured party, or a secondary obligor is the transferee. In such a case, the surplus or deficiency following disposition under new section 9- 614(f) is calculated based on the proceeds that would be received in a disposition to an unrelated third party transferee, if the actual proceeds are significantly below the range of proceeds a disposition to an unrelated third party would have brought. Thus, section 9-615(g) has directly introduced the issue of price into the formula for commercial reasonableness, but only where the transferee is not an independent third party. Under old section 9-504 the issue of price generally was not included in the analysis for commercial reasonableness; only the manner of sale was at issue. See, e.g., Grumman Credit Corporation v. Rivair Flying Service, Inc., 845 P.2d 182 (Okla. 1992); National Bank and Trust Company of Enid v. Holston, 559 P.2d 440 (Okla. 1976.) Revised Article 9 is similar, see revised sections 9-610 and 9-627, subject to the exception at section 9-615(g) .
If a dispute arises over any surplus or deficiency the burden of proof for such action is set forth in new section 9-626(a) .
In new section 9-615(g) , a secured party who receives cash proceeds from a disposition in good faith and without knowledge that the receipt violates rights of a holder of a senior security interest or other lien that is not subordinate to the security interest of the secured party receiving the proceeds, takes the proceeds free of the senior security interest or lien. The secured party receiving the proceeds, in such instance, is not obligated to apply the proceeds to satisfy obligations secured by the other security interest or other lien and is not obligated to account to the holder of the other security interest or other lien for any surplus. No similar section is found under old section 9-504 . The secured party receiving the proceeds nevertheless may be liable to a senior secured party under a theory of conversion, especially if the secured party has a clause in its documents that imposes default in the event of disposition of collateral. See also revised sections 9-331, 9-332 .