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UNITED STATES EX REL. SBA v. GORE

August 1, 1977

UNITED STATES OF AMERICA on Behalf of its Agency, SMALL BUSINESS ADMINISTRATION
v.
LAURANT D. GORE, Individually and t/a DONDEE SHOES, and GLORIA C. GORE, former wife, a/k/a GLORIA WOOD



The opinion of the court was delivered by: BRODERICK

 BRODERICK, J.

 This action *fn1" for the collection of a loan made by the Government on behalf of its agency, the Small Business Administration, is before the Court pursuant to 28 U.S.C. § 1345. *fn2" Having heard testimony from plaintiff's witness and from the defendant during a trial before the Court without a jury, the Court will enter judgment for the plaintiff ("SBA") and against the defendant, Laurant D. Gore.

 The parties have stipulated to many of the facts involved in this litigation. On July 24, 1968, SBA entered into a contract with defendant and his wife whereby SBA loaned them $25,000 to enable the Gores to start a retail shoe business, Dondee Shoes, in which the defendant was the sole proprietor. The loan was to be repaid in monthly installments of $272.00, with the last installment due on or before July 24, 1978. Also on July 24, 1968, the Government and the defendant entered into a security agreement covering all machinery, equipment, inventory and after acquired items.

 After the opening of El-Gee Shoes in February, 1970, defendant began to experience financial difficulties with Dondee Shoes. Gore requested management assistance from the SBA. In response to this request, SBA arranged for a member of SCORE *fn3" to visit defendant and to provide defendant with managerial assistance. *fn4" In addition, on August 31, 1970, SBA engaged the consulting firm of Dimpex Associates to evaluate the viability of Dondee Shoes and make recommendations to improve the profitability of the business.

 Dimpex prepared a report detailing its recommendations, copies of which were received by SBA and defendant. *fn5" Throughout this period in which the defendant requested managerial assistance, SBA sought financial statements from Dondee Shoes so that it could properly evaluate the condition of the business. Defendant never supplied SBA with these statements, thus impeding the agency's efforts to aid him.

 Defendant made payments on the loan to Dondee Shoes until April, 1971. In July, 1971, defendant requested a moratorium on payments on the loan to Dondee Shoes. Since SBA requires financial statements before it will grant a moratorium, and defendant had not supplied these, his request was denied.

 In February, 1972, SBA placed the loan to Dondee Shoes in liquidation status. Prior to the liquidation sale of April 6, 1972, SBA sent notice to debtors of record that it had the first lien. The sale was advertised in the Philadelphia Inquirer on March 25, April 1, and April 6, 1972. There were also 400 direct mailings to trade persons by way of proofs from the Philadelphia Inquirer.

 On April 6, 1972, pursuant to the terms of the security agreement of 1968, a liquidation sale at public auction was conducted by Samuel Flickstein Auction Company on the Dondee Shoe premises. At the time of the sale, Mr. Flickstein rejected a bulk bid of $1500.00, feeling this bid to be low and sold the items on a lot basis, receiving bids totaling almost $1900.00. After deducting the costs of the sale and commission, the net proceeds totaled $959.44, which was applied to the outstanding balance of defendant's loan. Defendant, having received notice, attended the April 6, 1972 sale.

 Three years later, on August 22, 1975, SBA, by certified letter, notified defendant that due to the default, the entire balance of the loan, plus interest, was due and immediate payment was demanded. Defendant acknowledged receipt of this letter.

 While not disputing that he was in default, *fn6" defendant contends that he was justified in discontinuing repayment of the loan because SBA breached its agreement with him by refusing to provide defendant with managerial assistance.

 Defendant contends that Clause 7 of the Affirmative Covenants of the July 24, 1968 loan agreement, which states that the Gores "Agree to accept management training as required by the SBA" imposed a duty on the SBA to furnish such assistance. On its face, the agreement requires that the defendant accept management training if the SBA determines such training to be necessary. In no way did the SBA covenant to provide management assistance even in the event that the borrower requested such aid. Nonetheless, when defendant requested managerial assistance in 1970, the SBA arranged for a representative of SCORE to render such assistance and later engaged the services of Dimpex Associates to make recommendations. Thus, the Court concludes that although the SBA was not legally obligated to provide defendant with managerial assistance, it nevertheless did so. Defendant, therefore, was not justified in defaulting on the loan.

 Defendant next contends that the SBA's public sale of defendant's inventory violated the law in that, (1) the sale of the inventory did not realize a large enough amount of money, and (2) the liquidation sale was a bulk transfer governed by 12A P.S. §§ 6-101 et seq. and was in violation of 12A P.S. § 6-108 in that the SBA failed to ...


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