Disposition of Collateral

Question: I borrowed $13,150 from a now-former friend using a Rolex watch that I paid $5500 for as collateral. I was making monthly payments towards a $14,000 total payback over 18 months. After I paid $3400 in payments he offered me a settlement of $9000. I called to make the exchange, $9000 for the watch. He told me he sold the watch. Is that legal? No written contract, just two former best friends’ word.


  1. A contract which cannot by its terms be performed within a year is not legally enforceable without a writing. Your question does not indicate the intended length of the loan.
  2. Collateral cannot be disposed of without the consent of the borrower unless the borrower is in default. Even if there is a default, you are entitled to reasonable (at least 10 days) advance notice of any disposition of collateral, unless it is perishable (e.g., fruits and vegetables) or there is an established market price (e.g., stocks and bonds). In a consumer-purpose transaction, there are substantial statutory damages for the wrongful disposition of collateral.
  3. Make sure you document any settlement of the matter.