Also known as: proceeds of dispositions · proceeds from disposition
Written by attorneys · grounded in primary & secondary sources — see below
Cash sums obtained from a secured party's sale or other disposition of collateral under UCC Article 9. The secured party must apply those sums first to reasonable expenses of retaking, holding, preparing for disposition, processing, and disposing of the collateral, including agreed reasonable attorney's fees, and then to the secured obligation.
Precision Tools repossessed scaffolding and heavy equipment from Apex Framing after default. It hired movers and guards and retained counsel to run an onsite auction that generated $150,000 in cash. Precision Tools first paid its repossession, storage, and legal costs from the cash before applying any remainder to Apex's secured debt.
Pelton raised cattle for Anderson under a feeding arrangement and awaited payment after the animals were sold. The trustee later collected three payments totaling over $18,000 from Anderson. Those payments constituted proceeds of disposition that the court allocated according to the parties' expense-sharing formula.
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The secured party first applies cash proceeds to reasonable expenses of retaking, holding, preparing for disposition, processing, and disposing of the collateral, including agreed reasonable attorney's fees. Only after those expenses does the secured party apply remaining proceeds to the secured obligation.
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A secured party need not apply or pay over noncash proceeds unless failure to do so would be commercially unreasonable. When the secured party does apply noncash proceeds, it must do so in a commercially reasonable manner.
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When the standard measure of lessor damages is inadequate, the lessor may recover the present value of the profit it would have made from full performance, with due credit given for any payments or proceeds of disposition.
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