filed for bankruptcy. Under these circumstances the secured party would be justified in postponing disposition until such time as accumulated dividends and increased value would more nearly satisfy the debt. Such a delay could be beneficial to the debtor and its guarantor because a greater return on the collateral would result in a smaller deficiency, or even a surplus. In this light defendant's five-year delay was not unreasonable.
Plaintiff received no notice of the stock sales of 1978-79 and in fact was under the impression that defendant was in possession of the collateral at the time suit was filed. 12A Pa.Stat.Ann. § 9-504(3) requires notice of disposition of collateral after default unless it is "of a type customarily sold on a recognized market." Alliance Discount Corp. v. Shaw, 195 Pa.Super. 601, 604, 171 A.2d 548, 550 (1961); Atlas Credit Corp. v. Dolbow, 193 Pa.Super. 649, 654, 165 A.2d 704, 708 (1960). The sale of stock in 1978-79 was made on the New York Stock Exchange, a recognized market for the purposes of this provision. White v. Summers, Uniform Commercial Code, § 26.10, p. 1111 (2nd Ed. 1980).
Although the notice and time requirements have been satisfied, the alleged 1978-79 foreclosure by disposition is invalid. Between May, 1973, and the first sale in July, 1978, the parties exchanged numerous communications, took actions inconsistent with an alleged foreclosure, and reached a new agreement which effectively waived the claimed defaults of Spring 1973.
Foreclosure, although threatened by defendant, was not an attractive option for either party. The creditor held a collateral pledged by a guarantor which failed to fully secure the debt, while the party he had recourse to for any deficiency had filed for bankruptcy. Although he could hold the collateral until it increased in value to a point of full satisfaction, it could just as easily decrease in value. Also, the original agreement had established a $ 1,000/mo. payment schedule to provide seller with a steady income. Defendant had subsequently gone to great lengths to maintain these payments including sale of excess collateral and the establishment of an escrow fund. If forced to hold the collateral in hopes of eventually recovering the full amount of the debt, defendant would find his monthly installments interrupted for an extended period, or he would be forced to sell the stock at an inopportune time. Defendant also would be unable to recover the IRS refund to which he had maintained a long-standing claim against the debtor.
Foreclosure was a disadvantage to the plaintiff because an asset with a good growth potential would be lost. The Leggett & Platt stock had risen from $ 8/share in 1970 to $ 24/share in early 1972. Although it had settled near $ 12 - $ 13/share, repeated growth would recoup plaintiff's losses.
The parties accordingly reached an agreement on December 26, 1973, in which defendant agreed to retain the stock as collateral, allowing it to "reasonably rebound" on the market, as well as forego the 150% requirement. In return, plaintiff agreed to pay the entire principal balance and interest in addition to the IRS refund and attorney's fees. This agreement effectively waived the default which gave rise to the alleged May 23, 1973 foreclosure.
One of the options of a creditor faced with a defaulting debtor is to renegotiate. Defendant could have foreclosed upon the stock collateral in accordance with the provision of 12A Pa.Stat.Ann. § 9-501 et seq., and taken the attendant risks and disadvantages. Instead he chose to negotiate an agreement with plaintiff where he found an opportunity to recover not only the full amount of the debt, but also the disputed IRS check and attorney's fees. Also, defendant allowed plaintiff to continue under the Dec. 26, 1973 agreement for a number of years while receiving the benefits. In the light of the parties' position under the December 26, 1973 agreement, no foreclosure could occur unless a default occurred under the new agreement and none has been alleged. Therefore, the stock sales of 1978-79 did not constitute a valid foreclosure.
The Court concludes that the alleged foreclosure of May 23, 1973 is invalid because of Cobuzzi's failure to comply with the provisions of 12A Pa.Stat.Ann. § 9-501 et seq. We also conclude that the alleged foreclosure of 1978-79 was invalid because the Dec. 26, 1973 agreement effectively waived the prior default, and no subsequent default upon which a foreclosure could be made has been alleged.
The Court concludes that plaintiff is entitled to partial summary judgment on the issue of liability and we therefore find defendant liable to plaintiff for the value of all collateral and any proceeds in excess of the balance due him. We also direct defendant to make an accounting to plaintiff concerning the debt, interest and disposition of the collateral. We expressly reserve judgment on issues of damages and the actual value of the excess owed by defendant.
Furthermore, under the express terms of the December 26, 1973 agreement, plaintiff is obligated to defendant on defendant's counterclaim for the unpaid balance and interest on the IRS refund to Country Villa, Inc. and partial summary judgment of liability will be entered on this counterclaim in favor of defendant, the amount of which will be determined by the accounting between the parties.