Article 9's Incorporation Strategy and Novel, New Markets for Collateral: A Theory of Non-Adoption

Abstract

Online auctions like eBay are heralded widely as efficient, robust markets through which millions of businesses and people have sold billions of dollars of all types of property. Yet U.C.C. Article 9 secured parties apparently are only slowly and anemically adopting eBay or other online auctions to sell repossessed property (collateral) and are sticking instead to conventional, traditional sale methods. The apparent slow and anemic adoption of eBay and other online auctions by Article 9 secured creditors suggests a failure of the commercial reasonableness standard's incorporation strategy of new, efficient markets and its price-maximization goal. The Article proposes a non-adoption theory for novel, new markets to explain the failure. In short, the non-adoption theory holds that for any given new market, a wealth-maximizing secured party will suffer varying degrees of imperfect information due to legal, business, or empirical data uncertainties with respect to identifying, assessing, and using that new market. Such a secured party may fail to adopt a relatively more efficient new market and continue instead to use the conventional, traditional market due to the aggregate amount of this legal, businesses, and empirical data uncertainty. For the "riskiest" of new markets, those with the highest aggregate degree of such uncertainty, theoretically it is possible that no or very few secured parties would ever adopt it. For a less risky market, one with a wider range of perceived riskiness among secured creditors, it is theoretically possible that a larger number of Article 9 secured creditors would adopt it, although others would not.

Keywords: internet, ebay, online, auction, collateral, creditor, commercial reasonableness