Absolute-bar Rule

The absolute bar rule prohibits a creditor who disposes of collateral in a commercially unreasonable manner from obtaining a deficiency judgment.

For example:

• § 9-610 of the Uniform Commercial Code (UCC) codifies the commercially reasonable requirement for disposing of collateral after a debtor defaults
  • California has adopted the language of UCC § 9-610 and codified the same commercially reasonable requirement for disposing of collateral in § 9-610 of the California Commercial Code (COM).
• UCC § 9-611 requires that the debtor be notified before disposition of collateral.
  • California has adopted and codified the same notification requirement in COM § 9-611.
• In Beardmore v. Am. Summit Fin. Holdings, L.L.C., the court applied the absolute bar rule even though the Texas legislature had abandoned it because the disposition of collateral had “occurred before the abrogating act became effective.”

See also:

• UCC § 9-627 and COM § 9-627 set guidelines for determining whether conduct was commercially reasonable.