Brief Fact Summary. Mr. and Mrs. Chavers, (Plaintiffs) repossessed a jet from the Frazier Group, (Defendant), and sold it. Plaintiffs sought a deficiency judgment in excess of $400,000. Defendants objected on the grounds that the sale was not held in a commercially reasonable manner.
Synopsis of Rule of Law. In order to make a determination as to whether the sale of collateral is held in a commercially reasonable manner, the court must look to the facts and circumstances of the sale.
Commercially reasonable manner in Tennessee means disposition in keeping with prevailing trade practices among reputable and responsible business and commercial enterprises engaged in the same or a similar business.View Full Point of Law
Issue. Whether Plaintiffs’ sale of the Lear jet was held in a commercially reasonable manner.
Held. No. The sale was not commercially reasonable because under the total circumstances, Plaintiffs did not take all steps considered reasonable by prevailing practices to insure that the sale of the jet would bring a fair price.
Discussion. Plaintiffs sold an expensive and sophisticated jet in an unreasonably brief time. Plaintiffs decided to sell the aircraft three weeks prior to the sale and all advertising was done within five days. Expert testimony estimated that six months to one year was needed for the fair and proper sale of an aircraft.
The advertising was wholly inadequate for a commercially reasonable sale. The market for the craft was concentrated in corporations and professional aircraft brokers. The advertisements suggested a distress sale and those who inquired were given information that was indicative of an amateur effort to sell the aircraft.
The use of a public auction in this case was unreasonable. Potential buyers were not identified and could not be reasonably presumed to attend an auction advertised in this manner and within this time frame. This method of sale immediately telegraphed the message that this was a “fire sale.” There was no reason to initially conduct such a distress disposal of the jet.
The failure to reasonably prepare the aircraft for sale constitutes an unreasonable manner of sale. Plaintiffs did not consider whether maintenance should be conducted and what effect it would have on resale value. In light of the condition of the jet a hot section inspection was an important and necessary step to prepare the jet for sale and obtain a fair price.
Lastly, the price was unreasonable. Expert testimony indicated that it was ludicrous that a plane insured for $700,000 could have decreased in value by one-half in the one year since the original purchase.