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REX CRAFT ASSOCS. v. SBA

June 20, 1989

REX CRAFT ASSOCIATES, INC., Plaintiff
v.
SMALL BUSINESS ADMINISTRATION and JAMES ABDNOR, as Administrator of the SMALL BUSINESS ADMINISTRATION, Defendants



The opinion of the court was delivered by: CONABOY

 RICHARD P. CONABOY, CHIEF UNITED STATES DISTRICT JUDGE

 Presently before the court is a motion for summary judgment filed by the Defendants pursuant to Federal Rule of Civil Procedure 56. A brief in opposition has been submitted to which the Defendants have responded. At the request of counsel for the Plaintiff, oral argument on the pending motion was heard in Chambers on June 6, 1989. This matter is now ripe for our review. For the foregoing reasons, we shall grant the motion and enter judgment in favor of the Defendants and against the Plaintiff.

 PROCEDURAL HISTORY

 This suit was filed by Rex Craft Associates, Inc., (hereinafter Rex Craft) against the Small Business Administration (hereinafter SBA) and James Abdnor as the SBA's administrator on May 17, 1988. In response to the complaint, the SBA filed a Motion to Dismiss under Federal Rule of Civil Procedure 12(b)(6) on July 22, 1988. On August 8, 1988, Rex Craft filed its memorandum in opposition to the Motion to Dismiss and SBA submitted a reply memorandum on August 18, 1988.

 On January 10, 1989, this court entered a Memorandum and Order denying the SBA's Motion to Dismiss and granting the Defendants sixty (60) days in which to file a Motion for Summary Judgment. By Order dated February 27, 1989, this court extended the time for SBA to file a Motion for Summary Judgment until April 3, 1989.

 On March 31, 1989, the SBA filed its motion and supporting brief. Plaintiff filed a brief in opposition on April 17, 1989, to which the Defendants responded on April 26, 1989. After counsel for the Plaintiff requested a hearing on the pending motion, oral argument was held in Chambers on June 7, 1989.

 FACTS

 On April 15, 1986, the Small Business Administration approved a loan to William L. Ditzler and Jean A. Ditzler, his wife, (hereinafter "Ditzlers") in the amount of $ 78,000.00 for renovations to their business in Nanticoke, Pennsylvania. According to Section 3(b) of the Loan Agreement, approximately $ 68,000 of the proceeds were to be used for construction/renovations and $ 10,000 to purchase business equipment and machinery. Repayment of the loan was to be over a ten-year period at a rate of ten percent (10%) per annum. Collateral for the loan, as outlined in Section 3(c) of the agreement, included a second mortgage on the Ditzlers' property as well as a first lien perfected security interest on machinery, equipment, furniture, fixtures, inventory, accounts receivable, and other property items.

 Approximately two months after SBA issued the loan authorization, the Ditzlers entered into a contract with Rex Craft on June 11, 1986, for work to be done on the Ditzlers' business property. At the time, Plaintiff Rex Craft was not mentioned in the Ditzlers' contract with the SBA nor was the SBA a party to the contract between the Ditzlers and Rex Craft.

 In August, two months after the Rex Craft contract was entered into by the Ditzlers, the following modifications were made to the SBA Loan Agreement. First, and of most importance to this case, under the heading "Terms of Loan", item 3(b) of the agreement was amended to read:

 
(b) Use of proceeds of the loan as follows:
 
Approximately $ 32,400.00 for construction/renovations.
 
Approximately $ 45,000.00 for business machinery and equipment/furniture and fixtures.

 Second, item (3)a of the Construction Condition Section was modified to read:

 
Amend Construction Condition (3)a to provide for a firm contract in that

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