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Banking Law Alert: Bankers Beware!

November 19, 2013

A recent Connecticut Supreme Court decision (Ulbrich v. Groth) held a Bank liable under the Connecticut Unfair Trade Practices Act (CUTPA) in connection with a secured party sale where the Bank failed to alert potential buyers at the secured party sale that certain of the personal property included in the auction sale was leased by (and not owned by) the debtor and also failed to adequately disclaim warranty of title with respect to those items of leased personal property.

The Court held that the Bank (i) violated CUTPA because the Bank (and the auction company conducting the auction sale on behalf of the Bank) knew that certain of the personal property assets included in the secured party sale were not owned by the debtor (and therefore not subject to the Bank's security interest nor transferable pursuant to the secured party sale) but consciously chose not to disclose such information to potential purchasers in order to maximize the auction sale proceeds, and (ii) breached the implied warranty of title under Article 9 of the UCC because it did not effectively (and specifically) disclaim warranty of title with respect to such leased property in its secured party bill of sale to the winning bidder. The winning bidder successfully sued the Bank, and the Bank was subjected to damages, including punitive damages under CUTPA, well in excess of $1 million (which essentially wiped out any recovery from the secured party sale).

This decision underscores the necessity for a lender, when planning to conduct a secured party sale, to determine definitively the scope and nature of the personal property assets covered by its security interest, to make proper disclosure of the scope of its security interest to potential buyers, and to effectively (and specifically) disclaim warranty of title in connection with a secured party sale.

For more information regarding this case, or to discuss how to avoid potential pitfalls in conducting a secured party sale, please contact a member of our Financing Transactions Group:

Joseph L. Kinsella jkinsella@carmodylaw.com  |  203-575-2645
Thomas R. Candrick, Jr. tcandrick@carmodylaw.com  |  203-784-3103
Ann H. Zucker azucker@carmodylaw.com  |  203-784-3108
Thomas J. Sansone tsansone@carmodylaw.com  |  203-784-3100
Howard K. Levine hlevine@carmodylaw.com  |  203-784-3102