§ 41-09-111 — (9-615) Application of proceeds of disposition - Liability for deficiency and right to surplus

right to surplus.
1. A secured party shall apply or pay over for application the cash proceeds of disposition
under section 41-09-107 in the following order to:
a. The reasonable expenses of retaking, holding, preparing for disposition,
processing, and disposing, and, to the extent provided for by agreement and not
prohibited by law, reasonable attorney's fees and legal expenses incurred by the
secured party;
b. The satisfaction of obligations secured by the security interest or agricultural lien
under which the disposition is made;
c. The satisfaction of obligations secured by any subordinate security interest in or
other subordinate lien on the collateral if:
(1) The secured party receives from the holder of the subordinate security
interest or other lien a signed demand for proceeds before distribution of the
proceeds is completed; and
(2) In a case in which a consignor has an interest in the collateral, the
subordinate security interest or other lien is senior to the interest of the
consignor; and
d. A secured party that is a consignor of the collateral if the secured party receives
from the consignor a signed demand for proceeds before distribution of the
proceeds is completed.
2. 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 does so, the secured party need not comply with the holder's demand under
subdivision c of subsection 1.
3. A secured party need not apply or pay over for application noncash proceeds of
disposition under section 41-09-107 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.
4. If the security interest under which a disposition is made secures payment or
performance of an obligation, after making the payments and applications required by
subsection 1 and permitted by subsection 3:
a. Unless subdivision d of subsection 1 requires the secured party to apply or pay
over cash proceeds to a consignor, the secured party shall account to and pay a
debtor for any surplus; and
b. The obligor is liable for any deficiency.
5. If the underlying transaction is a sale of accounts, chattel paper, payment intangibles,
or promissory notes:

a. The debtor is not entitled to any surplus; and
b. The obligor is not liable for any deficiency.
6. The surplus or deficiency following a disposition is calculated based on the amount of
proceeds that would have been realized in a disposition complying with this part to a
transferee other than the secured party, a person related to the secured party, or a
secondary obligor if:
a. The transferee in the disposition is the secured party, a person related to the
secured party, or a secondary obligor; and
b. The amount of proceeds of the disposition is significantly below the range of
proceeds that a complying disposition to a person other than the secured party, a
person related to the secured party, or a secondary obligor would have brought.
7. A secured party that receives cash proceeds of a disposition in good faith and without
knowledge that the receipt violates the rights of the holder of a security interest or
other lien that is not subordinate to the security interest or agricultural lien under which
the disposition is made:
a. Takes the cash proceeds free of the security interest or other lien;
b. Is not obligated to apply the proceeds of the disposition to the satisfaction of
obligations secured by the security interest or other lien; and
c. Is not obligated to account to or pay the holder of the security interest or other
lien for any surplus.