Background
NextGear Capital extended a $100,000 floor-plan line of credit to Morgan’s Auto Sales LLC in May 2023. The loan and security agreement allowed NextGear to accelerate the debt and repossess inventory after a default. David Lee Morgan, who operated the dealership, separately guaranteed full and prompt payment of the dealership’s obligations. After the dealership stopped making required payments, NextGear sued the business on the note and sued Morgan on the guaranty.
NextGear sought summary judgment against Morgan. Its credit-and-collections director stated that the company had recovered nineteen vehicles and sold them through Dealers Auto Auction of East Tennessee. A later payment report identified each vehicle, noted the auction sale, and listed the amount credited to the dealership’s account. NextGear calculated the remaining balance at about $49,500. The dealership was already subject to a default judgment, but Morgan opposed judgment against him and argued that NextGear had not shown that its disposition of the collateral complied with Indiana’s version of Article 9 of the Uniform Commercial Code.
The trial court entered summary judgment for NextGear, reasoning that no genuine issue existed on the breach of guaranty and that Morgan had not produced evidence showing NextGear’s debt calculation was wrong. It awarded the claimed balance plus attorney’s fees, expenses, and costs. Morgan appealed without counsel. He did not dispute the dealership’s default or his responsibility as guarantor; the decisive dispute concerned whether NextGear had proved that the collateral sales were commercially reasonable.
The Court’s Holding
The Indiana Court of Appeals reversed. Judge Bailey explained that Indiana Code section 26-1-9.1-610 requires every aspect of a secured party’s disposition of collateral—including its method, manner, time, place, and other terms—to be commercially reasonable. Under section 26-1-9.1-627, a disposition meets that standard if it occurs in the usual manner on a recognized market, at the market’s current price, or in conformity with reasonable commercial practices among dealers in that kind of property.
Once Morgan placed commercial reasonableness in issue, NextGear bore the burden of establishing compliance with Article 9. Its evidence showed only that the nineteen vehicles went through an auction and what credits it later applied. It did not show that the auction was conducted in the usual manner on a recognized market, that the prices reflected current market prices, or that the sales otherwise followed reasonable practices among vehicle dealers. Indiana precedent treats commercial reasonableness as a factual question that ordinarily depends on the circumstances. An auction can often be commercially reasonable, but the auction label by itself does not resolve the inquiry.
The loan documents did not close that evidentiary gap. Although the agreement authorized NextGear to use a regular or online wholesale automobile auction, an obligor cannot prospectively waive Article 9’s commercial-reasonableness requirement. The contractual authorization established a permitted method of sale, not that the particular sales were reasonable in their timing, manner, market, and terms. Because NextGear failed to make the required prima facie showing, the burden never shifted to Morgan to prove the sales unreasonable. The panel remanded for further proceedings.
Key Takeaways
- A secured creditor seeking a deficiency or guaranty judgment must do more than identify an auction and list the proceeds once commercial reasonableness is disputed.
- Useful proof may include the market used, sale procedures, timing, notice, vehicle condition, bids, prevailing values, and evidence of customary dealer practices.
- A contract authorizing a wholesale or online auction does not waive the statutory requirement that the actual disposition be commercially reasonable.
- At summary judgment, the creditor bears the initial evidentiary burden; the debtor or guarantor need not disprove reasonableness before that burden is met.
Why It Matters
Morgan is a practical warning for Indiana lenders, floor-plan financiers, and their counsel. A ledger documenting sale proceeds may prove the arithmetic of a deficiency, but it does not necessarily prove lawful disposition of the collateral. Affidavits supporting summary judgment should connect the specific sale process to one or more statutory measures of commercial reasonableness rather than assume that the word “auction” carries the creditor’s burden.
For guarantors and borrowers, the decision identifies a focused defense even when default and liability under the loan documents are otherwise uncontested. Raising commercial reasonableness can require the secured party to establish the quality of its sale process and may affect the recoverable deficiency. The holding does not declare NextGear’s auctions unreasonable; it holds only that the present record could not establish reasonableness as a matter of law.