In February, 1970, SBA guaranteed a loan for defendant to enable him and a Mr. Garnet to open El-Gee Shoes, also a retail shoe establishment, located about one block away from Dondee Shoes. El-Gee Shoes, a corporation in which defendant owns 85% of the stock, has been successful and its loan was paid in full on September 8, 1975. Defendant is presently Manager and Treasurer of El-Gee Shoes.
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
to visit defendant and to provide defendant with managerial assistance.
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.
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,
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 obtain a list of defendant's other creditors and to provide each with notice of the sale.
In considering defendant's objection to the amount of proceeds realized from the sale, the Court looks to the Uniform Commercial Code as adopted by Pennsylvania, 12A P.S. § 9-507(2) which provides:
The fact that a better price could have been obtained by a sale at a different time or in a different method from that selected by the secured party is not of itself sufficient to establish that the sale was not made in a commercially reasonable manner. If the secured party either sells the collateral in the usual manner in any recognized market therefor or if he sells at the price current in such market at the time of his sale or if he has otherwise sold in conformity with reasonable commercial practices among dealers in the type of property sold he has sold in a commercially reasonable manner. The principals stated in the two preceding sentences with respect to sales also apply as may be appropriate to other types of disposition.
The test under the Uniform Commercial Code is that of commercial reasonableness. Disposition of collateral after default is controlled by 12A P.S. § 9-504 which provides in pertinent part:
(1) A secured party after default may sell, lease or otherwise dispose of any or all of the collateral in its then condition or following any commercially reasonable preparation of processing. Any sale of goods is subject to the Article on Sales (Article 2). The proceeds of disposition shall be applied in the order following to