Chapter 409

409.602 Annotation The plain language of s. 401.102 (3) states, first, an exception that parties may vary the effect of U.C.C. provisions by agreement and, second, an exception to the 1st exception that chs. 401 to 411 include provisions that certain rights may not be waived by contract. The subsections in this section are an exception to the exception defined in s. 401.102 (3), so the parties must abide by them. Kraenzler v. Brace, 2009 WI App 131, 321 Wis. 2d 265, 773 N.W.2d 481, 08-1709.

409.603 409.603 Agreement on standards concerning rights and duties.

409.603(1) (1) Agreed standards. The parties may determine by agreement the standards measuring the fulfillment of the rights of a debtor or obligor and the duties of a secured party under a rule stated in s. 409.602 if the standards are not manifestly unreasonable.

409.603(2) (2) Agreed standards inapplicable to breach of peace. Subsection (1) does not apply to the duty under s. 409.609 to refrain from breaching the peace.

409.603 History History: 2001 a. 10.

409.604 409.604 Procedure if security agreement covers real property or fixtures.

409.604(1) (1) Enforcement: personal and real property. If a security agreement covers both personal and real property, a secured party may proceed:

409.604(1)(a) (a) Under this subchapter as to the personal property without prejudicing any rights with respect to the real property; or

409.604(1)(b) (b) As to both the personal property and the real property in accordance with the rights with respect to the real property, in which case the other provisions of this subchapter do not apply.

409.604(2) (2) Enforcement: fixtures. Subject to sub. (3), if a security agreement covers goods that are or become fixtures, a secured party may proceed:

409.604(2)(a) (a) Under this subchapter; or

409.604(2)(b) (b) In accordance with the rights with respect to real property, in which case the other provisions of this subchapter do not apply.

409.604(3) (3) Removal of fixtures. Subject to the other provisions of this subchapter, if a secured party holding a security interest in fixtures has priority over all owners and encumbrancers of the real property, the secured party, after default, may remove the collateral from the real property.

409.604(4) (4) Injury caused by removal. A secured party that removes collateral shall promptly reimburse any encumbrancer or owner of the real property, other than the debtor, for the cost of repair of any physical injury caused by the removal. The secured party need not reimburse the encumbrancer or owner for any diminution in value of the real property caused by the absence of the goods removed or by any necessity of replacing them. A person entitled to reimbursement may refuse permission to remove until the secured party gives adequate assurance for the performance of the obligation to reimburse.

409.604 History History: 2001 a. 10.

409.605 409.605 Unknown debtor or secondary obligor. A secured party does not owe a duty based on its status as secured party:

409.605(1) (1) To a person that is a debtor or obligor, unless the secured party knows:

409.605(1)(a) (a) That the person is a debtor or obligor;

409.605(1)(b) (b) The identity of the person; and

409.605(1)(c) (c) How to communicate with the person; or

409.605(2) (2) To a secured party or lienholder that has filed a financing statement against a person, unless the secured party knows:

409.605(2)(a) (a) That the person is a debtor; and

409.605(2)(b) (b) The identity of the person.

409.605 History History: 2001 a. 10.

409.606 409.606 Time of default for agricultural lien. For purposes of this subchapter, a default occurs in connection with an agricultural lien at the time the secured party becomes entitled to enforce the lien in accordance with the statute under which it was created.

409.606 History History: 2001 a. 10.

409.607 409.607 Collection and enforcement by secured party.

409.607(1) (1) Collection and enforcement generally. If so agreed, and in any event after default, a secured party:

409.607(1)(a) (a) May notify an account debtor or other person obligated on collateral to make payment or otherwise render performance to or for the benefit of the secured party;

409.607(1)(b) (b) May take any proceeds to which the secured party is entitled under s. 409.315;

409.607(1)(c) (c) May enforce the obligations of an account debtor or other person obligated on collateral and exercise the rights of the debtor with respect to the obligation of the account debtor or other person obligated on collateral to make payment or otherwise render performance to the debtor, and with respect to any property that secures the obligations of the account debtor or other person obligated on the collateral;

409.607(1)(d) (d) If it holds a security interest in a deposit account perfected by control under s. 409.104 (1) (a), may apply the balance of the deposit account to the obligation secured by the deposit account; and

409.607(1)(e) (e) If it holds a security interest in a deposit account perfected by control under s. 409.104 (1) (b) or (c), may instruct the bank to pay the balance of the deposit account to or for the benefit of the secured party.

409.607(2) (2) Nonjudicial enforcement of mortgage. If necessary to enable a secured party to exercise under sub. (1) (c) the right of a debtor to enforce a mortgage nonjudicially, the secured party may record in the office in which a record of the mortgage is recorded:

409.607(2)(a) (a) A copy of the security agreement that creates or provides for a security interest in the obligation secured by the mortgage; and

409.607(2)(b) (b) The secured party’s sworn affidavit in recordable form stating that:

409.607(2)(b)1. 1. A default has occurred with respect to the obligation secured by the mortgage; and

409.607(2)(b)2. 2. The secured party is entitled to enforce the mortgage nonjudicially.

409.607(3) (3) Commercially reasonable collection and enforcement. A secured party shall proceed in a commercially reasonable manner if the secured party:

409.607(3)(a) (a) Undertakes to collect from or enforce an obligation of an account debtor or other person obligated on collateral; and

409.607(3)(b) (b) Is entitled to charge back uncollected collateral or otherwise to full or limited recourse against the debtor or a secondary obligor.

409.607(4) (4) Expenses of collection and enforcement. A secured party may deduct from the collections made pursuant to sub. (3) reasonable expenses of collection and enforcement, including reasonable attorney fees and legal expenses incurred by the secured party.

409.607(5) (5) Duties to secured party not affected. This section does not determine whether an account debtor, bank, or other person obligated on collateral owes a duty to a secured party.

409.607 History History: 2001 a. 10; 2011 a. 206.

409.608 409.608 Application of proceeds of collection or enforcement; liability for deficiency and right to surplus.

409.608(1) (1) Application of proceeds, surplus, and deficiency if obligation secured. If a security interest or agricultural lien secures payment or performance of an obligation, the following rules apply:

409.608(1)(a) (a) A secured party shall apply or pay over for application the cash proceeds of collection or enforcement under s. 409.607 in the following order to:

409.608(1)(a)1. 1. The reasonable expenses of collection and enforcement and, to the extent provided for by agreement and not prohibited by law, reasonable attorney fees and legal expenses incurred by the secured party;

409.608(1)(a)2. 2. The satisfaction of obligations secured by the security interest or agricultural lien under which the collection or enforcement is made; and

409.608(1)(a)3. 3. The satisfaction of obligations secured by any subordinate security interest in or other lien on the collateral subject to the security interest or agricultural lien under which the collection or enforcement is made if the secured party receives an authenticated demand for proceeds before distribution of the proceeds is completed.

409.608(1)(b) (b) If requested by a secured party, a holder of a subordinate security interest or other lien shall furnish reasonable proof of the interest or lien within a reasonable time. Unless the holder complies, the secured party need not comply with the holder’s demand under par. (a) 3.

409.608(1)(c) (c) A secured party need not apply or pay over for application noncash proceeds of collection and enforcement under s. 409.607 unless the failure to do so would be commercially unreasonable. A secured party that applies or pays over for application noncash proceeds shall do so in a commercially reasonable manner.

409.608(1)(d) (d) A secured party shall account to and pay a debtor for any surplus, and the obligor is liable for any deficiency.

409.608(2) (2) No surplus or deficiency in sales of certain rights to payment. If the underlying transaction is a sale of accounts, chattel paper, payment intangibles, or promissory notes, the debtor is not entitled to any surplus, and the obligor is not liable for any deficiency.

409.608 History History: 2001 a. 10.

409.608 Annotation Attorney fees under [former] sub. (1) (a) relates to attorney fees incurred in liquidating collateral, not in a suit on a promissory note. Kohlenberg v. American Plumbing Supply Co. 82 Wis. 2d 384, 263 N.W.2d 496 (1974).

409.608 Note NOTE: The above annotated materials cite to the pre-2001 Wis. Act 10 version of ch. 409.

409.609 409.609 Secured party’s right to take possession after default.

409.609(1) (1) Possession; rendering equipment unusable; disposition on debtor’s premises. After default, a secured party:

409.609(1)(a) (a) May take possession of the collateral; and

409.609(1)(b) (b) Without removal, may render equipment unusable and dispose of collateral on a debtor’s premises under s. 409.610.

409.609(2) (2) Judicial and nonjudicial process. A secured party may proceed under sub. (1):

409.609(2)(a) (a) Pursuant to judicial process; or

409.609(2)(b) (b) Without judicial process, if it proceeds without breach of the peace.

409.609(3) (3) Assembly of collateral. If so agreed, and in any event after default, a secured party may require the debtor to assemble the collateral and make it available to the secured party at a place to be designated by the secured party which is reasonably convenient to both parties.

409.609 History History: 2001 a. 10.

409.610 409.610 Disposition of collateral after default.

409.610(1) (1) Disposition after default. After default, a secured party may sell, lease, license, or otherwise dispose of any or all of the collateral in its present condition or following any commercially reasonable preparation or processing.

409.610(2) (2) Commercially reasonable disposition. Every aspect of a disposition of collateral, including the method, manner, time, place, and other terms, must be commercially reasonable. If commercially reasonable, a secured party may dispose of collateral by public or private proceedings, by one or more contracts, as a unit or in parcels, and at any time and place and on any terms.

409.610(3) (3) Purchase by secured party. A secured party may purchase collateral:

409.610(3)(a) (a) At a public disposition; or

409.610(3)(b) (b) At a private disposition only if the collateral is of a kind that is customarily sold on a recognized market or the subject of widely distributed standard price quotations.

409.610(4) (4) Warranties on disposition. A contract for sale, lease, license, or other disposition includes the warranties relating to title, possession, quiet enjoyment, and the like which by operation of law accompany a voluntary disposition of property of the kind subject to the contract.

409.610(5) (5) Disclaimer of warranties. A secured party may disclaim or modify warranties under sub. (4):

409.610(5)(a) (a) In a manner that would be effective to disclaim or modify the warranties in a voluntary disposition of property of the kind subject to the contract of disposition; or

409.610(5)(b) (b) By communicating to the purchaser a record evidencing the contract for disposition and including an express disclaimer or modification of the warranties.

409.610(6) (6) Record sufficient to disclaim warranties. A record is sufficient to disclaim warranties under sub. (5) if it indicates “There is no warranty relating to title, possession, quiet enjoyment, or the like in this disposition” or uses words of similar import.

409.610 History History: 2001 a. 10.

409.610 Annotation The burden of proving that a private sale was commercially reasonable is on the seller. Proof that the sale was made at the wholesale price does not establish reasonableness. Vic Hansen & Sons, Inc. v. Crowley, 57 Wis. 2d 106, 203 N.W.2d 728 (1973).

409.610 Annotation The primary focus of commercial reasonableness is not the proceeds from a sale, but procedures employed for the sale. Appleton State Bank v. Van Dyke Ford, Inc. 90 Wis. 2d 200, 279 N.W.2d 443 (1979).

409.610 Annotation The conduct of a debtor may be taken into account in determining the commercial reasonableness of a sale. First National Bank of Kenosha v. Hinrichs, 90 Wis. 2d 214, 279 N.W.2d 449 (1979).

409.610 Annotation A secured creditor can retain a debtor’s collateral while seeking an independent action for a money judgment. Dorman v. Morris, 185 Wis. 2d 845, 519 N.W.2d 685 (Ct. App. 1994).

409.610 Note NOTE: The above annotated materials cite to the pre-2001 Wis. Act 10 version of ch. 409.

409.611 409.611 Notification before disposition of collateral.

409.611(1) (1) Notification date. In this section, “notification date” means the earlier of the date on which:

409.611(1)(a) (a) A secured party sends to the debtor and any secondary obligor an authenticated notification of disposition; or

409.611(1)(b) (b) The debtor and any secondary obligor waive the right to notification.

409.611(2) (2) Notification of disposition required. Except as otherwise provided in sub. (4), a secured party that disposes of collateral under s. 409.610 shall send to the persons specified in sub. (3) a reasonable, authenticated notification of disposition.

409.611(3) (3) Persons to be notified. To comply with sub. (2), the secured party shall send an authenticated notification of disposition to: