Legal Definitions - commercially reasonable

Commercially reasonable describes actions, particularly the sale of property or assets, that are conducted fairly, honestly, and in a manner consistent with standard business practices within a particular industry or market.

It means that the party carrying out the action has made a genuine effort to achieve the best possible outcome under the circumstances, using methods that are generally accepted, understood, and considered appropriate in the commercial world.

Here are some examples to illustrate this concept:

• Example 1: A Bank Selling a Repossessed Vehicle

  Imagine a bank repossesses a car because the owner stopped making loan payments. To recover its losses, the bank must sell the vehicle. For this sale to be commercially reasonable, the bank should advertise the car widely, perhaps through a reputable dealership or a public auction, and aim to sell it for a fair market price. Selling the car privately to an employee's friend for a significantly reduced price without proper advertising would likely not be considered commercially reasonable, as it wouldn't reflect an honest effort to get the best possible value.

  This example illustrates the term because the bank is expected to use commonly accepted commercial practices (like public advertising and established sales channels) and act in good faith to maximize the sale price, thereby minimizing any remaining debt for the original owner.

• Example 2: A Business Liquidating Specialized Equipment

  Consider a manufacturing company that is closing down and needs to sell its highly specialized industrial machinery to pay off its creditors. To act in a commercially reasonable manner, the company shouldn't just list the equipment on a general online marketplace. Instead, they should engage an industrial auctioneer, advertise in trade publications, or contact industry-specific brokers who can reach potential buyers who understand the true value of such niche equipment. Selling it quickly to a single buyer at a steep discount without exploring broader market options would likely not be considered commercially reasonable.

  This demonstrates the term by showing that for specialized assets, "commercially reasonable" requires using appropriate, targeted channels and expertise (industry-specific brokers, trade ads) to ensure the sale process is fair and aims to achieve a proper market valuation.

• Example 3: A Lender Selling Collateralized Intellectual Property

  Suppose a small tech startup defaults on a loan, and the lender has the right to sell the startup's patent (intellectual property) that was used as collateral. For the sale of this patent to be commercially reasonable, the lender should not simply try to sell it themselves without expertise. Instead, they should hire a specialized intellectual property broker or an investment bank with experience in valuing and selling patents. This professional would market the patent to relevant companies in the industry, conduct due diligence, and negotiate a sale that reflects the patent's true market value.

  This example highlights that "commercially reasonable" often means employing the necessary expertise and following established protocols for complex or unique assets to ensure a transparent and fair sale process that aligns with industry best practices.