absolute-bar rule
The absolute-bar rule prevents a creditor from obtaining a deficiency judgment if collateral was disposed of in a commercially unreasonable manner.
For example: Someone takes out a car loan for $30,000. It is mutually agreed upon in the terms of the loan that if they stop making car loan payments, the lender can repossess the car and sell it to cover what the person still owes.
The person stops paying the car loan, but they still owe $15,000. The lender takes back the car, but instead of doing a typical sale, like listing it at a dealership auction or online, they sell it quickly for $5,000 even though it’s worth $15,000.
In this scenario, if the lender attempted to sue for the remaining $10,000, the absolute-bar rule may apply. Because the lender didn’t sell the car in a “commercially reasonable” way, they cannot pursue the rest of that money that was owed.
- Uniform Commercial Code (UCC) § 9-610 requires that disposing of collateral must be “commercially reasonable.”
- California adopted the same requirement through California Commercial Code (COM) § 9-610.
- UCC § 9-611 requires that the debtor must be notified before disposing of collateral.
- California adopted the same requirement through COM § 9-611.
- UCC § 9-627 and COM § 9-627 state that disposition of collateral is commercially reasonable if it is done in the usual manner, in current market price, and in conformity with reasonable commercial practices.
[Last reviewed in June of 2025 by the Wex Definitions Team]
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