(a) In an action arising from a transaction, other than a consumer transaction, in which the amount of a deficiency or surplus is in issue, the following rules apply:

(1) A secured party need not prove compliance with the provisions of this part relating to collection, enforcement, disposition or acceptance unless the debtor or a secondary obligor places the secured party's compliance in issue.

(2) If the secured party's compliance is placed in issue, the secured party has the burden of establishing that the collection, enforcement, disposition or acceptance was conducted in accordance with Sections 55-9-601 through 55-9-628 NMSA 1978.

(3) Except as otherwise provided in Section 55-9-628 NMSA 1978, if a secured party fails to prove that the collection, enforcement, disposition or acceptance was conducted in accordance with the provisions of Sections 55-9-601 through 55-9-628 NMSA 1978 relating to collection, enforcement, disposition or acceptance, the liability of a debtor or a secondary obligor for a deficiency is limited to an amount by which the sum of the secured obligation, expenses and attorney fees exceeds the greater of:

(A) the proceeds of the collection, enforcement, disposition or acceptance; or

(B) the amount of proceeds that would have been realized had the noncomplying secured party proceeded in accordance with the provisions of this part relating to collection, enforcement, disposition or acceptance.

(4) For purposes of Subparagraph (B) of Paragraph (3) of this subsection, the amount of proceeds that would have been realized is equal to the sum of the secured obligation, expenses and attorney's [attorney] fees unless the secured party proves that the amount is less than that sum.

(5) If a deficiency or surplus is calculated under Subsection (f) of Section 55-9-615 NMSA 1978, the debtor or obligor has the burden of establishing that the amount of proceeds of the disposition is significantly below the range of prices that a complying disposition to a person other than the secured party, a person related to the secured party or a secondary obligor would have brought.

(b) The limitation of the rules in Subsection (a) of this section to transactions other than consumer transactions is intended to leave to the court the determination of the proper rules in consumer transactions. The court may not infer from that limitation the nature of the proper rule in consumer transactions and may continue to apply established approaches.

History: 1978 Comp., § 55-9-626, enacted by Laws 2001, ch. 139, § 123.

OFFICIAL COMMENTS

UCC Official Comments by ALI & the NCCUSL. Reproduced with permission of the PEB for the UCC. All rights reserved.

1. Source. New.

2. Scope. The basic damage remedy under section 9-625(b) is subject to the special rules in this section for transactions other than consumer transactions. This section addresses situations in which the amount of a deficiency or surplus is in issue, i.e., situations in which the secured party has collected, enforced, disposed of, or accepted the collateral. It contains special rules applicable to a determination of the amount of a deficiency or surplus. Because this section affects a person's liability for a deficiency, it is subject to section 9-628, which should be read in conjunction with section 9-605. The rules in this section apply only to noncompliance in connection with the "collection, enforcement, disposition, or acceptance" under part 6. For other types of noncompliance with part 6, the general liability rule of section 9-625(b) - recovery of actual damages - applies. Consider, for example, a repossession that does not comply with section 9-609 for want of a default. The debtor's remedy is under section 9-625(b). In a proper case, the secured party also may be liable for conversion under non-UCC law. If the secured party thereafter disposed of the collateral, however, it would violate section 9-610 at that time, and this section would apply.

3. Rebuttable Presumption Rule. Section 9-626 establishes the rebuttable presumption rule for transactions other than consumer transactions. Under paragraph (1), the secured party need not prove compliance with the relevant provisions of this part as part of its prima facie case. If, however, the debtor or a secondary obligor raises the issue (in accordance with the forum's rules of pleading and practice), then the secured party bears the burden of proving that the collection, enforcement, disposition, or acceptance complied. In the event the secured party is unable to meet this burden, then paragraph (3) explains how to calculate the deficiency. Under this rebuttable presumption rule, the debtor or obligor is to be credited with the greater of the actual proceeds of the disposition or the proceeds that would have been realized had the secured party complied with the relevant provisions. If a deficiency remains, then the secured party is entitled to recover it. The references to "the secured obligation, expenses, and attorney's [attorney] fees" in paragraphs (3) and (4) embrace the application rules in sections 9-608(a) and 9-615(a).

Unless the secured party proves that compliance with the relevant provisions would have yielded a smaller amount, under paragraph (4) the amount that a complying collection, enforcement, or disposition would have yielded is deemed to be equal to the amount of the secured obligation, together with expenses and attorney's [attorney] fees. Thus, the secured party may not recover any deficiency unless it meets this burden.

4. Consumer Transactions. Although section 9-626 adopts a version of the rebuttable presumption rule for transactions other than consumer transactions, with certain exceptions part 6 does not specify the effect of a secured party's noncompliance in consumer transactions. (The exceptions are the provisions for the recovery of damages in section 9-625.) Subsection (b) provides that the limitation of subsection (a) (section 9-626) to transactions other than consumer transactions is intended to leave to the court the determination of the proper rules in consumer transactions. It also instructs the court not to draw any inference from the limitation as to the proper rules for consumer transactions and leaves the court free to continue to apply established approaches to those transactions.

Courts construing former section 9-507 disagreed about the consequences of a secured party's failure to comply with the requirements of former part 5. Three general approaches emerged. Some courts have held that a noncomplying secured party may not recover a deficiency (the "absolute bar" rule). A few courts held that the debtor can offset against a claim to a deficiency all damages recoverable under former section 9-507 resulting from the secured party's noncompliance (the "offset" rule). A plurality of courts considering the issue held that the noncomplying secured party is barred from recovering a deficiency unless it overcomes a rebuttable presumption that compliance with former part 5 would have yielded an amount sufficient to satisfy the secured debt. In addition to the nonuniformity resulting from court decisions, some states enacted special rules governing the availability of deficiencies.

5. Burden of Proof When Section 9-615(f) Applies. In a non-consumer transaction, paragraph (5) imposes upon a debtor or obligor the burden of proving that the proceeds of a disposition are so low that, under section 9-615(f), the actual proceeds should not serve as the basis upon which a deficiency or surplus is calculated. Were the burden placed on the secured party, then debtors might be encouraged to challenge the price received in every disposition to the secured party, a person related to the secured party, or a secondary obligor.

6. Delay in Applying This Section. There is an inevitable delay between the time a secured party engages in a noncomplying collection, enforcement, disposition, or acceptance and the time of a subsequent judicial determination that the secured party did not comply with part 6. During the interim, the secured party, believing that the secured obligation is larger than it ultimately is determined to be, may continue to enforce its security interest in collateral. If some or all of the secured indebtedness ultimately is discharged under this section, a reasonable application of this section would impose liability on the secured party for the amount of any excess, unwarranted recoveries but would not make the enforcement efforts wrongful.

Bracketed material. — The bracketed material in Subsection (a)(4) was inserted by the compiler and is not part of the law.

Effective dates. — Laws 2001, ch. 139, § 155 makes the act effective July 1, 2001.