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UNITED STATES v. CRISPEN

October 2, 1985

UNITED STATES OF AMERICA, PLAINTIFF,
v.
RAY CRISPEN, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Rovner, District Judge.

MEMORANDUM OPINION AND ORDER

On April 7, 1980, Crispen, Inc. borrowed the sum of $167,000 from First National Bank and Trust Company of Evanston which subsequently assigned the loan to the Small Business Administration ("SBA"), as part of the Loan Guaranty Program. Ray G. Crispen and Joanne Crispen (the "Crispens") executed an SBA form guaranty and a mortgage on their home. A note evidencing the indebtedness was also signed on behalf of Crispen, Inc. by Ray G. Crispen as its President. The guaranty specifically waived the guarantor's right to notice of the time or place of sale of the collateral in the event default occurred. The guaranty further provided that it should be construed and enforced in accordance with applicable federal law.

Crispen, Inc. subsequently defaulted on the loan. Crispen, Inc. and Ray and Joanne Crispen, as guarantors, were notified of the default and demand for payment by certified mail on October 1, 1980. The corporation's letter was returned as unclaimed. The Crispens assert that they never received the letters.

The SBA sent notice to the Crispens' attorney on November 25, 1981 of a private sale of the assets to be held November 30, 1981. On October 14, 1981 there had been an independent appraisal of the Crispens equipment determining the value of the assets to be $60,000. The November sale raised $94,000, which was applied to reduce the outstanding indebtedness of Crispen, Inc.

After failing in negotiations to settle the matter of the remaining outstanding debt, the government filed this action on December 11, 1984 to foreclose on the note and accompanying instruments. The government seeks the principal sum of $89,141.98 plus interest accruing at the rate of $54.48 per day.

On May 2, 1985, the government filed its motion for summary judgment on the pleadings pursuant to Rule 12(c) of the Federal Rules of Civil Procedure. Because the motion and response refer to matters outside the pleadings, in accordance with Rule 12(c), the motion will be treated as one for summary judgment and disposed of as provided by Fed.R.Civ.P. 56.

In support of its motion, the government submitted the affidavit of Paul Huska, Loan Specialist, Liquidation Division, Small Business Administration. The affidavit attests to the Bank's assignment of note, guaranty, and mortgage to the SBA. It also attests to the default by Crispen, Inc. and the notice and demand made to the Crispens. Certification of Official Documents and Certified Transcripts of Account were also presented.

In their response to the motion for judgment on the pleadings or for summary judgment, the Crispens assert that the SBA failed to comply with Section 9-504 of the Uniform Commercial Code ("U.C.C."), Ill. Rev.Stat. ch. 26, § 9-504, which requires notice of the sale. They also assert that failure to conduct the November, 1981 sale within the bounds of commercial reasonableness as required by Section 9-504 precludes entry of summary judgment against them.*fn1

On June 13, 1985, the Crispens filed a motion for leave to file additional affirmative defenses. The motion was made to conform the answer to their response to the government's motion for judgment on the pleadings or for summary judgment. The affirmative defenses which the Crispens sought to file are: (1) Section 9-504 applies to the November, 1981 sale; (2) the sale was commercially unreasonable due to lack of notice; (3) the SBA is barred by the equitable doctrine of laches from collecting sums due under the note; and (4) the note and guaranty have contradictory terms regarding the applicable interest rate, thereby raising a material issue of fact.

After an examination of all the pleadings and affidavits, this Court concludes that there are no issues of material fact, and thus grants summary judgment under Rule 56 of the Federal Rules of Civil Procedure. The defendants' motion for leave to file additional defenses is also granted. As a matter of law, however, the affirmative defenses the defendants seek leave to file do not affect the Court's disposition of this case in granting summary judgment for the government.

            The Application of Section 9-504 and the
              Commercial Reasonableness of the Sale

The Crispens assert that the government cannot collect from them on the guaranty because the SBA failed to notify them prior to its sale of the business equipment and failed to dispose of the equipment in a commercially responsible manner as is required by Section 9-504(3) of the U.C.C. Section 9-504(3) of the U.C.C. provides:

Ill.Rev.Stat. ch. 26, ยง 9-504(3). The government contends that the guaranty was "unconditioned" and free of the restrictions relating to method, manner, time, and place of disposing of the collateral and that, in any event, the ...


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